CALIFORNIA AND RHODE ISLAND:
NOT AS DIFFERENT AS THEY SEEM

BankRI, Lardaro on the Economy Series
November 2003

California’s recent recall election sent a clear message that economic issues matter a great deal. Its economy, the fifth largest in the world, has faltered compared to the “glory days” of the 1990s. A major concern among Californians, if not “the” major concern, is the loss of jobs that has occurred over the past few years.

Rhode Island is accustomed to fairly slow job growth. Unlike California, Rhode Island has historically been a lagging state in terms of employment growth. Differences with California illustrate this. In the 1980s recovery, median job growth was 2.6 percent for Rhode Island versus 3.6 percent for California (see payroll employment table). While neither state matched its 1980s growth in the 1990s recovery, median growth for California was more than twice that for Rhode Island (2.9% vs. 1.4%). Looking only at 1996 -2000, California put together a string of job growth values that Rhode Island can only fantasize about.

What I find fascinating about California’s current situation is that the same criticism typically raised about Rhode Island’s economy, that its economic climate is “hostile” to business, has moved to the forefront in discussions about California’s economy. Neither state has a tax and cost structure that is as competitive as it could or should be. For California, though, “high tech” success during the 1990s allowed many of these concerns to be overlooked. Not so for Rhode Island. Rhode Island failed to attain much of a critical mass in “high tech,” so not only did it “miss the boat” in terms of job momentum during the 1990s, problems with its tax and cost structure could not be ignored.

What are the policies that each state will implement? Governor-elect Schwarzenegger has not disclosed the policies that he believes will be necessary to restore California’s previous economic status. For Rhode Island, tax structure problems remain and, no comprehensive overhaul of our tax system is being contemplated. The Economic Development Corporation has been charged with determining how to attain specified economic goals (economic policy) and implementing these measures (economic development). At present, Rhode Island finds itself long on goals and short on specific details. Much of Rhode Island’s economic future rests with the details that ultimately emerge. For unlike California, Rhode Island is still in search of its post-manufacturing era niche.

by Leonard Lardaro