September 21, 2021

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Businesses exiting California surges in 2021, dealing ‘death knell’ to state’s economy

The number of businesses fleeing California is on the rise.

Since the beginning of 2018, California has seen 265 companies relocate their headquarters outside of the state – 74 of which left in the first six months of 2021, according to a new analysis published by the Hoover Institution, a right-leaning think tank at Stanford University. By comparison, 62 businesses moved outside of the state in 2020, while 78 relocated in 2019. In 2018, 58 companies exited the state. 

The migration is taking place across a broad range of industries, such as manufacturing, aerospace, financial services, real estate, chemicals, health care and technology. The headquarter exits include Big Tech legacy firms like Hewlett-Packard Enterprises and Oracle, but also smaller, rapidly growing firms like Darvis, which helps digitize hospital logistics, hygiene and documentation.

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“Losing small but rapidly growing businesses is a death knell to an economy, because long-run economic growth requires new, transformative ideas that ultimately displace old ideas,” the analysis said. “And the transformative ideas almost invariably are born in young companies.” 

The biggest reason that companies are relocating outside of the state is finances: California is “too expensive, too regulated and too heavily taxed, both for companies and for the workers they hire.” 

That’s evidenced in part by the new destinations for the departing companies: States with lower costs, fewer regulations, lower taxes and a higher quality of life for workers are the leading choices for the businesses. Since the beginning of 2018, Texas has seen 114 companies formerly based in California relocate to the state. 

Following Texas are other low-regulation states – Tennessee and Arizona. 

California has also seen a drove of residents leave for other states in recent years, with many citing high taxes and low quality of life as the top reasons for their departure. In 2020, the state’s population declined by 182,083 people – the first time the annual statistic has been a minus since 1900, when the Department of Finance first began collecting those records.

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In fact, the U.S. Census Bureau – in its decade-long population count – revealed that while California grew between 2010 and 2020, it did so at a rate substantially slower than the rest of the country. California, in another historical first, will lose a congressional seat as a result of the stagnant growth. 

Still, the state blames the lackluster population growth on other factors, including COVID-19. In 2020, California saw 51,000 citizens die from the virus. 

“Going forward, we anticipate that those two factors that tipped us temporarily into negative territory are going to change over the next few months,” Department of Finance spokesperson H.D. Palmer said recently.

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