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Sow the Seeds So All Can Flourish : Strategy: Cut the costs of doing business, push innovation and lifelong learning to help the productive compete.

RECOVERY AND BEYOND: REINVENTING CALIFORNIA'S ECONOMY * Last of three parts.

August 12, 1993|RICHARD SYBERT and PHILIP ROMERO | Richard Sybert is state director of planning and research. Philip Romero is chief economist in the governor's office.

As we near the third millennium, we need a strategic program to keep California competitive in the global economy and a place where our families will want to live. Key in our goals must be encouraging investment and innovation, and improving the skills and productivity of our work force. There are specific steps we can take to achieve these goals.

* Reduce the cost of capital to California companies. Lower capital costs, long a fixture in Japan, will enhance the competitiveness of California companies and encourage more investments. This can be done through various means, including favorable tax treatment for long-term equity investments, use of tax-exempt state industrial development bonds for productivity investments and reinvestment of state pension funds.

* Encourage innovation . Routinely, innovations developed in California are commercialized elsewhere. The state must encourage business to invest more in research and development, especially process innovation such as manufacturing, and facilitate the (mostly university-based) infrastructure that moves inventions from the lab to the factory. For example, significant tax credits could be made available for sustained research and development.

* Be a demanding customer. The state, as a consumer of billions of dollars in goods and services a year, can be an enormous force in the marketplace. It should demand continual innovation and improvements in productivity. State procurement should be based on overall life cycle costs, not merely the immediate lowest bid, and should favor the technologically advanced.

* R educe unnecessary costs and barriers to job creation and doing business . California has many legal and regulatory systems in place that exact high costs with dubious benefits: a civil-justice system that is slow and expensive; a land-use permit system that has grown horribly complex and adds materially to the cost of housing and the uncertainty of development; an environmental regulatory system that is often duplicative and almost entirely devoid of any notion of cost-effectiveness, and until recently, a workers' compensation system that had higher premiums and lower benefits than almost any other in the nation. RAND Corp. has estimated, for example, that our legal system alone has cost California at least 400,000 jobs because of employer reluctance to hire full-time workers. The governor has initiated significant reforms in all these areas; the Legislature should follow his lead.

* Extend "preventive government" to the transition period between school and work. Educators and companies should coordinate efforts to motivate teen-agers to stay in school and learn basic employment skills relevant to the workplace. Emphasis should be on early intervention, significant business involvement by market leaders, motivation through paid employment and occupations with long-run income growth potential. Apprenticeship programs, for example, should include technical white-collar occupations, expanding pilot programs already under way.

* Encourage lifelong learning. To succeed in a competitive global economy, workers will need to continuously modernize their knowledge and gain new skills. Preparation for the workplace needs to be viewed as a lifelong process, and not a one-time task completed in youth. As one step, tax deductions for education expenses should be liberalized to cover all adult education, whether related to present employment or not.

California will have many needs in the 21st Century. We need a robust economy, especially at a time when we have to manage unprecedented population growth. We need resources to invest in cleaning up our environment and in protecting California's natural heritage, and in building needed transportation systems for the future. The private sector needs resources to invest in new generations of products and businesses that can keep California competitive in the global marketplace. Finally, as a society, we need to create the quality jobs that can give all Californians a future in which everyone can prosper and grow.

We also have to deal with the millions of new people who will join us by the year 2000, courtesy of federal immigration policies. It is not true that if we stifle economic growth, population growth will slow or stop. Or it is true only if we make life so miserable in California that nobody wants to live here, a public policy goal to which no responsible government can subscribe. Unfortunately, almost all of the expected growth in California's population in the 1990s will come whether or not the economy grows. Half of it will be natural increase--that is, babies born to people already here--and most of the rest is direct foreign immigration, an area reserved to the federal government.

To grow our economy and meet these needs, we have to make California a place where everyone can flourish. Productive individuals and businesses pay for everything we do: through taxes, through creating jobs that generate income taxes, and through direct contributions to our schools, our cultural life and our needy citizens. If our economy doesn't grow, the quality of our lives will, bit by bit, ebb away. It doesn't have to be that way. We can choose.

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