Thursday, June 09, 2011

California Competitive

Great article in the Wall Street Journal’s book review about the methods to increase competitiveness—and the economy—in California and America.

An excerpt.

“The prophets of American decline are on the march in numbers not seen since the days of Jimmy Carter and stagflation. Who knows, maybe this time they'll be right—a sclerotic political system, enterprise-stifling regulations, a foolish tax structure and shortsighted public policy may finally send the U.S. economy into the permanent tailspin long predicted by experts with a grim turn of mind.

“Henry Nothhaft is not one of these professional declinists. His first-hand experience with the way America does business nowadays has prompted him to raise an alarm with "Great Again"—and to propose several ways to restore American dynamism and creative vigor.

“Mr. Nothhart, a veteran Silicon Valley entrepreneur who is the CEO of the technology-miniaturization company Tessera, chronicles how difficult it has become, particularly in California, to start capital-intensive enterprises. Excessive regulation and Washington policies, he argues, undermine initial public offerings and discourage the launch of businesses that provide jobs and drive productivity.

“Another disincentive to start a business in the United States: corporate taxes. As Mr. Nothhaft notes: "America now has the highest corporate tax rate in the world," with the exception of Japan—and if state taxes are figured in, we beat the Japanese too. The federal 39.2% corporate rate is higher by half than the 25.2% average among the nations, most of them European, in the Organization for Economic Cooperation and Development.

“Mr. Nothhaft profiles Conrad Burke, a 44-year-old, Irish-born physicist and technology entrepreneur who heads Innovalight, a Silicon Valley company that has succeeded in producing liquid silicon semiconductor material, which may prove vital to the solar-power industry. "It's probably harder for a start-up to raise money than it's ever been." Mr. Burke says. "Especially for any sort of manufacturing. Yes, Silicon Valley is still innovating. But it's mostly the Twitters and Diggs and other software start-ups that don't need much capital."
“Money for companies that require capital to produce tangible products is much harder to come by. Why? Mr. Burke recites the environmental, safety and other bureaucratic regulations that raise costs and slow creative ferment. He also highlights the tax burden beyond the corporate rates. When his company paid $10 million for German manufacturing equipment, California levied a "use" tax—Innovalight was using equipment purchased outside the state—of nearly a million dollars. "That's not a tax on our income," Mr. Burke says, "it's a tax on growing our business."

“It might be tempting to dismiss these gripes as the usual complaints of the business class, but consider the consequences of such a tax and regulatory environment. Venture capitalist David Ladd's bluntness is startling: "We would not fund a company that was building hardware or semiconductors, nor any of the tough physical sciences," he tells Mr. Nothhaft. "We'll invest in China instead and let them do it."