Winter 2004

Table of Contents

Cal-Tax Home

Email Editor

Guest Commentary

Tony Quinn, former commerce official in the Pete Wilson administration, is widely published commentator on state politics and the economy. This article is reprinted with permission of the author and Comstock’s Business Magazine, in which it appeared in January 2004.

Can he deliver? Is the former action hero Californians overwhelmingly elected governor in the state's first-ever recall election the man to make it happen? Is Arnold Schwarzenegger the great Austrian hope for California's economic recovery?

A lot of Californians hope so. But the answer is much more difficult. California's economic recovery will take all the heavy lifting skills of this one-time world-class body builder. But even that may not be enough. When all is said and done, a governor has little direct impact on an economy as huge as California's. International trade, venture capital, productivity rates and other macro-economic drivers create and sustain wealth, not government.

But a governor's indirect impact on the economic structure can be vital to its success. It's all a matter of setting the tone. "Arnold Schwarzenegger can use his celebrity status to put a different face on the state's business climate," says Larry McCarthy, president of the California Taxpayers' Association.

"It's like what Pete Wilson did in the early 1990s, when he formed the Ueberroth Commission. He focused attention on solving structural economic problems and that paid off in helping California project a more positive economic image."

This is subtle but important. A governor projects the image of a state. Business leaders know he can't change the cost of doing business with a stroke of his pen, but they look at the direction in which he wants to take the state, and on that, they base their confidence in state government.

The failure of former Governor Gray Davis is exactly this point. When he took office in 1999, he had very successful national models to follow in moderate Republican big-state governors, such as Tom Ridge in Pennsylvania and George Pataki in New York. They were pro-business without being anti-labor.

Davis used that model at first. He understood the solution to the low benefits in workers' compensation was not just raising costs to business and vetoed several bills that didn't incorporate structural reforms. But as he got into political trouble following the state's energy crisis, he abandoned that pragmatic approach for an ideological one that forced his administration farther and farther to the left. Eventually it cost him his job.

"California can no longer afford an annual helter-skelter barrage of taxes, fees and regulations," says Jack Stewart, president of the California Manufacturing and Technology Association. "We need workers' compensation reform that returns a higher benefit to injured workers and lower premiums to employers; efficiencies in government that don't leave us with bankrupt funds like the State Unemployment Insurance System; regulatory reforms that are sensitive to the issues affecting an employer's ability to do business; and an overall plan to pay back the unprecedented state budget deficit without heaping more cost burdens on the companies that provide the jobs we so desperately need."

A New Image

That's a mouthful, but, in fact, half of life is just showing up. Governor Schwarzenegger is himself committed to these same goals, and that projects a new image for California. As Cal Tax's McCarthy puts it, it sends a signal of stability and pragmatism in his approach to governing. Business leaders will find that refreshing.

Business leaders wouldn't want a governor who picked unnecessary fights with labor, nor, as they had with Davis, one who would sell them down the river for short-term political gain. At least so far, Schwarzenegger seems committed to stability and pragmatism, while, of course, he's learning that the state's economic woes – the drivers of our fiscal woes – can't be quickly or easily remedied.

Business made a pact with Schwarzenegger in the recall in large part because it felt it had been betrayed by Davis' lurch to the left. The first state-wide business association to endorse Schwarzenegger was the California Chamber of Commerce. It was a gutsy move, and not one without political peril. Never had the chamber endorsed a partisan candidate, and the support came in early September when Schwarzenegger was behind in several polls.

The reasons for the chamber's action can be found as far back as May 2003, when the statewide business advocate, along with the California Business Roundtable that also endorsed Schwarzenegger, released a 10-point economic stimulus plan. The 10th point may have been the most important of all: the governor and Legislature should do nothing more to make California's business climate any worse.

Spotlight and Highlight

In August, Chamber President Allan Zaremberg amplified just what this meant. "The national spotlight currently on California is highlighting the problems with our economy and the policies that are discouraging business investment in our state. The Legislature must stop driving much needed jobs and businesses to other states by hampering their ability to simply keep their doors open because of overreaching regulations and costly mandates."

Neither Davis nor the Legislature seemed the least bit interested in helping businesses keep their doors open. The little shop of horrors for California business that the Legislature has become continued on its merry way throughout 2003. One of its last acts was to pass a multibillion dollar employer healthcare mandate that shifts the costs of the out-of-control healthcare system onto the backs of business.

That's now over. The recall shut down the shop of horrors and Governor Schwarzenegger will veto future anti-business legislation; in fact, Democrats will now need Republican votes to keep their pet bills from a Schwarzenegger zap. That alone is an important signal to send to business leaders across the state and the nation.

So, can Schwarzenegger deliver? The answer has to be yes, but with some caveats. There's less the new governor can do about existing anti-business practices, although he can take broad action to undo unnecessary job-killing rules and regulations.

Suspending Pending Regulations

Schwarzenegger took one important step upon assuming office by suspending pending regulations until they can undergo analysis for their impact on the state's economy. Nothing he has done since becoming governor is more important for the state's business climate.

It’s really a matter of showing up and putting in the time and emphasis. To a very large degree, it's about the use of celebrity that Cal-Tax’s McCarthy talks about. When the trade minister of Japan or the European Union comes to America, just what state governor do you suppose he or she would like to meet? When a major investor is looking for a state to site a new plant, wouldn't it be nice for Arnold to throw a big arm around him, stick a cigar in his mouth and ask, "Have you looked at California?"

So if you want to know if Schwarzenegger is really delivering for California, watch for the subtle things. Let's see how tough he'll be with the veto pen and blue pencil, look at how many state rules and regulations are rewritten, see how committed he is to pushing through real workers' compensation reforms and watch how many international investors march into the governor's office.

And keep your nose in the air for the cigar smoke.