Staying competitive
Leaders offer ideas for keeping a global edge
The topic was “States and competitiveness in a global economy,” but first off, the panel’s moderator wanted Gov. Jerry Brown to give us a “sneak peek” at his 2012-13 budget revision, scheduled for next month.
Brown demurred, but said, “It will be very interesting.” In fact, “You’ll hear howls of execration over the next 30 days,” he told a gathering of Silicon Valley CEOS on Tuesday. That is, when he lays out additional cuts — watch out health and social services — beyond the $4 billion he’s already asked for.
Basically, some cuts that Brown wanted have been delayed by the Legislature and court action, which Brown referred to last week when he suggested that the state’s $9.2 billion deficit may have increased by $1 billion or more.
Another reason, which he hasn’t talked about: The revenue projections on which he based his initial budget are not looking good. In March, there was a shortfall of $233.5 million in revenue, 8.2 percent below projections, according to the state controller.
Most of the shortfall was because the state received less in corporate taxes than anticipated. Previous months weren’t much better, and tax revenues for April, the cutoff point, aren’t likely to make much difference.
“It’s a tale of two cities,” Brown said. “There’s fabulous wealth, and a lot of problems.”
The state’s unexpected rise in unemployment, back to 11 percent, is one of those problems.
“The California economy is getting better, but we’re still challenged by the effects of the mortgage meltdown,” Brown said after his appearance at the conference, put on by the Silicon Valley Leadership Group at IBM’S research facility in San Jose.
“It’s going to take us several years to work our way out of it. It will take time.” Laughing matters: Back to the topic at hand, and how innovation, a talent Silicon Valley has in bountiful supply, could be encouraged further by government actions. Here, the governor was in a more jovial mood.
“Innovation is not popular in government,” he told the audience. “I wasn’t called Gov. Moonbeam for being conventional,” he added, referring to the moniker put on him during his previous tour of duty in Sacramento in the 1970s. One of the arts of politics, he continued, to laughter from the audience, “is taking the banal and conventional and making it sound fresh.
“Pushing innovation in government is exhausting,” he said, “but I’m ready for several more years of innovation.” More laughter. Our own backyard: Colorado Gov. John Hickenlooper, a former geologist, restaurateur and brew pub founder, who was sitting next to Brown, offered an unconventional observation. Look not so much to China and Asia in terms of competing in the global economy, he said, but to a country much closer to home: Mexico.
“We’re missing a tremendous opportunity there,” said Hickenlooper, who led a 40-member state delegation to Mexico last month. He’s the only governor to visit Mexico on a trade mission in the past four years, Hickenlooper noted. (Idaho Gov. Butch Otter visited in 2008.)
He has a point. Though rarely talked about here, Mexico is California’s top export market, with the state selling $26 billion worth of goods and services there in 2011. The figure is probably higher, says Jock O’connell, international trade adviser at Beacon Economics, because many of California’s goods shipped to Mexico are routed through Texas, which is often mistakenly identified on trade documents as the place of origin.
More familiar for its drug wars and, lately, a bribery scandal involving Walmart, Mexico “is now the most open of the world’s leading economies … with a solid macroeconomic framework and “modest debt,” according to a Financial Times report this month.
“Some experts predict that the once-yawning gap between Chinese and Mexican labor costs will close, and even turn in Mexico’s favor within five years.”
The Times notes that Fiat 500s, manufactured by Chrysler in Mexico, are being marketed in
China (sfg.ly/jyjegp). On track and off: John Bryson, Stanford ’65, former head of the California Public Utilities Commission and State Water Resources Control Board, made his Silicon Valley debut as U.S. secretary of commerce at the gathering.
Addressing the subject of “America’s global competitiveness,” Bryson said 4 million U.S. jobs have been created in the past 25 months, the Obama administration’s target to double U.S. exports by 2014 is “on track” and his department’s Selectusa initiative is gearing up to get more foreign investment flowing in.
And, yes, he conceded, America’s tax code is “broken,” and comprehensive tax reform, including President Obama’s proposed corporate tax rate reductions, is sorely needed.
Mike Klayko, CEO of networking company Brocade, suggested that tax reform be broken up into “bite-size pieces” that could be passed separately. Particularly the piece that would repatriate U.S. multinationals’ overseas earnings at a much lower tax rate, he said, a goal pursued with vigor by Silicon Valley companies.
Ah, but there are “different views” about the different pieces, Bryson responded. Much better to “bring it all together,” like the package of reforms passed in 1986. Sounds like the Obama administration is still not on the same page as Silicon Valley on this one.
OK, what about a regional patent office in a locale that generates the most patents in the United States, like the one in Detroit, which doesn’t generate all that many? There are 600 applications for regional patent offices sitting on the Commerce Department’s desk, said Bryson.
“We’d like to have a decision made reasonably soon,” he said.