California-and the L.A. area especially-keeps losing corporate headquarters--WHY?

[sopas ej]

Headquarters of companies may be leaving California, but that doesn't necessarily mean that there's a mass exodus of business from California like conservatives like to make out. California is still the state with the largest economy in all of the US.

Toyota, for example, though its headquarters left SoCal some years ago, still has a huge presence here, like a design center, race car division, parts and port facilities. And many people here buy and drive Toyotas, so what better place for a design center than SoCal, right?

[dennis1]

Originally Posted by sopas ej

Headquarters of companies may be leaving California, but that doesn't necessarily mean that there's a mass exodus of business from California like conservatives like to make out. California is still the state with the largest economy in all of the US.

Toyota, for example, though its headquarters left SoCal some years ago, still has a huge presence here, like a design center, race car division, parts and port facilities. And many people here buy and drive Toyotas, so what better place for a design center than SoCal, right?

I don't think LA should engage in a race to the bottom (as sports fan puts it.) Low tax havens are fine until the city services start to get neglected.

[The North One]

Originally Posted by sopas ej

California is still the state with the largest economy in all of the US.

How much of this is due to the fact that the California is ridiculously oversized? If the Northeast corridor were just one giant state I would imagine their economy would be significantly larger.

[Don't Be That Guy]

Originally Posted by sopas ej

Headquarters of companies may be leaving California, but that doesn't necessarily mean that there's a mass exodus of business from California like conservatives like to make out. California is still the state with the largest economy in all of the US.

Toyota, for example, though its headquarters left SoCal some years ago, still has a huge presence here, like a design center, race car division, parts and port facilities. And many people here buy and drive Toyotas, so what better place for a design center than SoCal, right?

It's not the taxes by themselves, it's the taxes plus the cost of living for employees. And California still has a geographic advantage when it comes to companies that do a lot of business in Asia, but beyond that and the weather, there's no natural advantage over many other locations within the US. Of course, tech is a bit of an exception, but even large tech firms are moving a lot of non-management and R&D jobs to lower cost tech hubs like Boston, Austin and Pittsburgh. International firms like Nestle and Toyota have no reason to have corporate HQ's in SoCal beyond executives liking the lifestyle, especially when lower cost locations with deep talent pools are willing to throw money at them to move.

California is great, but it has really got to get a handle on housing and the overall high cost of living. The rent is too damn high!

[Crawford]

While obviously I would rather keep corporate HQ than lose corporate HQ, it's largely inconsequential. Corporate HQ are just the official main offices. What really matters is where the workers and economic activity are located. Often this is somewhere besides the HQ.

Just to illustrate from my work history, I worked many years for Credit Suisse, which is based in Zurich. But their largest and most important office, by far, is in NYC (largely because Credit Suisse acquired DLJ and First Boston, two large investment banks). Their second largest/most important office is London. The Zurich HQ doesn't even have most senior leadership. CEO is based in NYC. Biggest business is investment banking, basically none of which occurs in Zurich.

California has a very strong economy, and is, in many ways the economic leader of the country (world?) so no big deal. They don't need the bragging rights from some symbolic office. Cities that need "bragging rights"; the Indianapolis-type cities, can use the positive press but LA hardly needs some head office designation.

[Crawford]

Originally Posted by Don't Be That Guy

In this case it is. Nestle will move 750 of it employees into a vacant building in Arlington and the state and local governments are ponying up $16 million in tax incentives and grants to land them. That comes to about $21,000 per job, which isn't too bad in the economic development world. And even though the average sale price of a home in Arlington is high by national standards ($550,000), it is still $200,000 less than the average price of a house in Glendale, CA. Add in much lower taxes and being three hours closer to Zurich, and it's a win for Nestle and it's employees.

The DC area isn't much cheaper than the LA area. I would say real estate costs are pretty comparable. Property taxes and utility bills are much higher in the DC area. Overall taxes are quite high.

And very few employees will live in Glendale or Arlington. Obviously you compare metropolitan markets, not the city where the HQ happens to be located. In both metros, you're spending at least 500k or so to get something decent.

This is almost certainly a move to be close to Washington decisionmakers.

[Crawford]

Originally Posted by pacarlson

I knew quite a few people who turned down big promotions that included transfers to the corporate HQs of Unocal and Chevron primarily because of the costs of housing. I also knew engineers and scientists that transferred from California to Lafayette, Louisiana and went from a 1,900 SF house to a 4,000 SF house and bought all new furniture with the extra cash they had leftover.

This is true; many Americans just want a big house for cheap, and don't care if they're in LA or South Dakota.

But I don't think this plays a role in this specific move. The DC area has most of the problems of the LA area (high prices, high taxes, housing shortage, horrible congestion, etc.). They would move to Kansas City or Columbus if they just wanted a cheap metro area.

[barney82]

It's interesting the shift that has occurred in California. I remember reading some futurist book as a kid, around 1990, predicting LA's continued march to becoming the Pacific Rim's co-capital, (along with Tokyo), while SF would continue to be a cute, charming, but increasingly unimportant city. Boston and NY, West Coast version.

But then right after, you had the gutting of LA's aerospace industry and the outside acquisition of almost all of its Fortune 500 companies in the 1990s. And starting in the mid-90s, The Bay Area went through one of the biggest economic booms in American history. To the point where the Bay Area now punches way way above its weight, is one of the world's most important centers, and LA has become something of a declining afterthought. Not quite but almost NYC and upstate NY. Just like upstate is saddled with regulations that might be ok for NYC but not for upstate, I get the sense that the Bay Area can shoulder the burden of California's regulations and NIMBYism, while LA cannot.

[Crawford]

Originally Posted by barney82

To the point where the Bay Area now punches way way above its weight, is one of the world's most important centers, and LA has become something of a declining afterthought.

LA has one of the fastest growth rates in the U.S., in terms of population, economy and jobs. It has never been stronger than right now. I think LA has the 3rd or 4th largest metropolitan economy on earth. Only NYC and Tokyo have larger economies. It's anything but an "declining afterthought".

The only not-particularly-impressive things about LA's economy are that median incomes are mediocre for U.S. standards (probably because of tons of third world immigrants and lots of blue collar jobs) and few corporate HQ. But otherwise it's a colossus.

The Bay Area is obviously very important, but LA is just much bigger and much more important (obviously excepting tech).

[Just-In-Cali]

This is kind of a baited topic. So Nestle, whom was headquartered in Palmdale, 30 miles north of LA, left because 85 percent of their product is bought east of the MS River.
And LA has so many Start Ups, and Tech moving into the city proper that this notion of an exodus is tired propaganda. Tech is growing exponentially in Cali, and the Film industry production is at its highest level in years...
http://deadline.com/2017/01/los-ange...es-1201888202/
...and its increasing. Conventions are at their highest levels in decades.
Yes...cost of living is high...as well as taxes...but we also get guaranteed sick days, better health insurance options, and more safety nets than all these "business friendly" states...and despite the cost...Cali is still growing...by population and economy.
http://www.latimes.com/business/la-f...nap-story.html

So yeah...I guess were just failing because a few corporate offices are moving to the hinterlands to save a dime. Don't worry...we've got plenty to replace them with.

[barney82]

Originally Posted by Crawford

LA has one of the fastest growth rates in the U.S., in terms of population, economy and jobs. It has never been stronger than right now. I think LA has the 3rd or 4th largest metropolitan economy on earth. Only NYC and Tokyo have larger economies. It's anything but an "declining afterthought".

The only not-particularly-impressive things about LA's economy are that median incomes are mediocre for U.S. standards (probably because of tons of third world immigrants and lots of blue collar jobs) and few corporate HQ. But otherwise it's a colossus.

The Bay Area is obviously very important, but LA is just much bigger and much more important (obviously excepting tech).

Metro LA is interesting because yes it does have one of the largest metropolitan economies on earth. But it has shockingly fewer professional service jobs, maybe "command-and-control" jobs, than you would expect for a developed world metro of 20 million people. Its economic size is a consequence of it being in a developed country, and having a huge population.

[Crawford]

Originally Posted by barney82

Metro LA is interesting because yes it does have one of the largest metropolitan economies on earth. But it has shockingly fewer professional service jobs, maybe "command-and-control" jobs, than you would expect for a developed world metro of 20 million people. Its economic size is a consequence of it being in a developed country, and having a huge population.

True, but a lot of high-paying LA jobs are in nontraditional fields. LA obviously has an enormous entertainment industry, and, by far the biggest industrial/port/logistics economy in the U.S., while there are relatively few traditional corporate jobs. I think that's OK, as long as the overall economy is fairly healthy.

It's anecdotal, but one thing that has surprised me about LA is that traditional corporate or professional jobs seem to pay less than in other metro areas. My wife is a huge warm-weather fan and we have family in Orange County, so I've applied to a few jobs over the years, just for the heck of it. Apples-to-apples salaries in OC are significantly lower than in NYC, yet home prices are very high.

I get a sense that the LA area has a LOT of people living paycheck to paycheck, just barely making ends meet. It seems that everyone needs a luxury car and nice home, and image is just more important. In the NYC area it's totally normal to be rich and driving an old subaru or something (or in the city itself, just take the bus or train); that obviously doesn't fly in coastal OC.

[sopas ej]

Originally Posted by The North One

How much of this is due to the fact that the California is ridiculously oversized? If the Northeast corridor were just one giant state I would imagine their economy would be significantly larger.

Japan is the 10th largest country in the world in terms of population, but for decades was the 2nd largest economy in the world; now it's the third largest economy... So population and GDP don't necessarily go hand-in-hand.

[JManc]

Originally Posted by sopas ej

Japan is the 10th largest country in the world in terms of population, but for decades was the 2nd largest economy in the world; now it's the third largest economy... So population and GDP don't necessarily go hand-in-hand.

Exactly. Canada has a slightly smaller economy than Brazil despite only having about 1/6th the population.

[homebucket]

Originally Posted by The North One

How much of this is due to the fact that the California is ridiculously oversized? If the Northeast corridor were just one giant state I would imagine their economy would be significantly larger.

Absolutely none.

Compare states that are larger or around the same size as California.
Alaska: 4x larger but 2.2% of California's economy
Texas: 1.6x larger but has 67% of California's economy
Montana: 0.9x the size of California but has 1.9% of California's economy

[barney82]

Originally Posted by Crawford

True, but a lot of high-paying LA jobs are in nontraditional fields. LA obviously has an enormous entertainment industry, and, by far the biggest industrial/port/logistics economy in the U.S., while there are relatively few traditional corporate jobs. I think that's OK, as long as the overall economy is fairly healthy.

It's anecdotal, but one thing that has surprised me about LA is that traditional corporate or professional jobs seem to pay less than in other metro areas. My wife is a huge warm-weather fan and we have family in Orange County, so I've applied to a few jobs over the years, just for the heck of it. Apples-to-apples salaries in OC are significantly lower than in NYC, yet home prices are very high.

I get a sense that the LA area has a LOT of people living paycheck to paycheck, just barely making ends meet. It seems that everyone needs a luxury car and nice home, and image is just more important.

Yeah the entertainment industry is still there, and is still very high profile nationally and internationally. And for sure there are a significant number of good jobs and high incomes associated with "Hollywood". But entertainment is also not as big of an industry as a lot of people assume. Tech in the Bay Area and Finance in NYC for example dwarf Hollywood.

There's a lot of visible wealth in LA and Orange County, and there seem to be a lot of people doing this or that hussle to make money. I could never figure it out.

[sopas ej]

Here's an article from the Pasadena Star News regarding Nestle leaving Glendale:
Why Nestlé USA is moving 1,200 jobs, and its HQ, out of Glendale

If I worked for Nestle, I personally wouldn't want to leave Glendale. I actually like Glendale... and Pasadena.

Now Burbank, I don't like. No offense to people who are from there or live there.

[barney82]

Originally Posted by sopas ej

Japan is the 10th largest country in the world in terms of population, but for decades was the 2nd largest economy in the world; now it's the third largest economy... So population and GDP don't necessarily go hand-in-hand.

Within the developed world, population tracks GDP pretty well. If you amalgamated the states in the Acela Corridor, they would have a GDP bigger than California. Heck, if you amalgamated enough states in the Midwest to equal California's population, you'd have an economy about the same size.

[Crawford]

Originally Posted by barney82

There's a lot of visible wealth in LA and Orange County, and there seem to be a lot of people doing this or that hussle to make money. I could never figure it out.

Yeah, this is what I've noticed. My aunt lives in a coastal neighborhood of $2 million+ (often ++) homes (Corona del Mar). I have no idea what people do. Everyone seems to be "small business owners", "early retirement", "personal investing" or something. There are few corporate offices. The commute is too far for Hollywood jobs. Lots of 50 year old guys walking their dogs in the middle of the day.

In the NYC area a neighborhood of $2 million+ homes will have Wall Street money, corporate jobs, successful doctors, corporate lawyers, etc. You pretty much only see nannies and stay-at-home moms on weekdays.

[The North One]

Originally Posted by homebucket

Absolutely none.

Compare states that are larger or around the same size as California.
Alaska: 4x larger but 2.2% of California's economy
Texas: 1.6x larger but has 67% of California's economy
Montana: 0.9x the size of California but has 1.9% of California's economy

Alaska? I don't see how this comparison is relevant. California certainly has the advantage of a massive coastal land area to build cities with easy global access, not frozen Alaskan tundra, and Texas seems to be catching up real fast.

I don't think state lines really mean much, which is why I made the Northeast corridor comparison. It's the cities and their regions that drive the economy.

How large would the economy of the two be if Northern and Southern California were two different states? Or if it was split up like the East Coast?