Is Crony Capitalism Alive and Well in California? there’s one thing that unites Californians, it’s a disdain for crony capitalism.

What is crony capitalism, you ask? We see it all the time. Think local elected officials throwing everything but the kitchen sink at Amazon to try and lure their second global headquarters to their city. PRI’s senior fellow in business and economics Wayne Winegarden has written about lawmakers offering generous electric car subsidies that would only really benefit Tesla.

Hard-working people are annoyed when government picks winners and losers in the economy through tax giveaways, set-asides, contracting preferences, or other favored treatment.

Did you know that it also costs California taxpayers significant sums, as well?

Matthew Mitchell and Tammy Winter at the Mercatus Center at George Mason University have just released an interesting new study called, “The Opportunity Cost of Corporate Welfare.”

They argue that neither evidence nor economy theory suggests that these incentives work. In fact, taxpayers in California are footing the bill for these giveaways to favored companies and industries.

Mitchell and Winter calculated what it would mean if California eliminated all the corporate subsidies in the state tax code.

They found that with the savings, California could:

  • Reduce the corporate income tax by 36 percent,
  • Reduce the state personal income tax by 6.2 percent,
  • Reduce the state sales tax by 5.8 percent, and
  • Reduce the state’s overall tax burden by 1.4 percent.

This echoes what Wayne Winegarden has written in the “Beyond the New Normal” series. There is an opportunity cost to government spending decisions. With the right economic policies in place, we can see sustained economic growth across all sectors of the economy.

Like Winegarden, Mitchell and Winter argue that state policymakers should focus on policies that enhance the economic freedom of all citizens.

With California currently ranking 49th in economic freedom on the Cato Institute’s annual rankings, sadly it’s highly unlikely that a pro-economic freedom agenda will be embraced by the majority party in Sacramento any time soon.

Tim Anaya is communications director for Pacific Research Institute, where this article was originally published. 

San Francisco Voters Fend Off Attack on Airbnb

n 1979, the Pacific Research Institute opened its doors in San Francisco. Jimmy Carter was President; Diane Feinstein was mayor; and Brian Chesky, the founder of home-sharing platform Airbnb, was still two years away from being born.

San Francisco voters this month gave Chesky and Airbnb a win, defeating Proposition F by a vote of 45 percent to 55 percent.

Airbnb didn’t put Proposition F on the ballot; the idea was the brainchild of a group called Share Better SF and was largely funded by hotel and service industry unions.

San Francisco Supervisors had already worked out a compromise plan with Airbnb and similar home-sharing services. That compromise limited the number of days units could be rented, and allowed the city to collect taxes owed. But Prop. F went further. The Los Angeles Times’ editorial on the measure stated Prop. F “would have required hosts to divulge sensitive information, exposed them to a minefield of bureaucratic requirements and allowed neighbors to sue hosts whom the city had found to be in compliance.”

Forbes magazine noted “Airbnb clearly understands Prop. F [was] a threat to their business, possibly even to their business model.” No wonder the company spent more than $8 million to explain the initiative’s serious flaws.

The centerpiece of the Prop. F campaign was the assertion that home-sharing by Airbnb and other similar companies had wreaked $1 billion in economic harm upon the people of San Francisco.

Their math is as follows: According to City’s Office of Economic Analysis, removing a 2 bedroom unit from the local housing stock imposes costs between $250,000 and $300,000 per year on the city economy.

Proponents simply multiplied this number by the roughly 4,500 Airbnb listings in the city – and voila.

Except the number is absolute nonsense.

First, it assumes every Airbnb listing would otherwise be a long-term rental unit and has been permanently removed from the renal market. That assumption is without any factual basis. In fact, Airbnb has stated that only 10 percent of hosts rent out a space where they do not live.

And second, it ignores the impacts other policies have had on the supply of rental housing in San Francisco.

Last year, KALW public radio reported on the high number of apartments taken off the housing market completely – up to 10,000 – because of rent control and other policies that pose significant financial risks to small time property owners.

Senator Diane Feinstein supported Prop. F, saying Airbnb encourages “property owners and renters to vacate their units and rent them out to hotel users, further increasing the cost of living.” But the former mayor has it wrong.

San Francisco struggled with housing prices long before Airbnb launched in 2008. During the 1990s, the city’s population grew by over 50,000 people while only 16,000 new housing units were added to the housing stock.

Dale Carlson leader of the Share Better SF campaign, pledged to launch more expensive campaigns across the nation, saying “Airbnb isn’t going to be looking at spending $10 million if it has to fend off these ballot measures in eight, nine, 10 cities at a time.”

Rather than export bad ideas to other municipalities, perhaps these activists could reevaluate housing policies that restrict the supply of new housing to keep up with rising demand.

Sally Pipes is the President and CEO of the Pacific Research Institute.

Why California is Losing the Competitiveness Race in Education

California’s education establishment dislikes competition but the most recent research shows that, in the education marketplace, competition works.  A March 2011 study by the Foundation for Educational Choice (FEC) analyzed the results of all empirical studies that used the best scientific methods to measure how school-choice vouchers affect the academic outcomes of participating students.  The results should serve as a beacon as California policymakers debate ways to improve the state’s poorly performing government-run school system.

Under voucher programs, a state attaches funding to a student, which he or she can take to the public or private school of his or her choice. The study concluded, “Contrary to the widespread claim that vouchers do not benefit participants and hurt public schools, the empirical evidence consistently shows that vouchers improve outcomes for both participants and public schools.”

According to the FEC study, nine out of the 10 studies found that vouchers improved student outcome measurements such as test scores in the core subjects and graduation rates.  In addition, by increasing competition between public and private schools, voucher programs forced public school systems to improve.

Eighteen of the 19 empirical studies that looked at how vouchers affect public schools found that public schools improved their performance in the face of the increased competition fostered by vouchers.  In fact, every empirical study conducted in states with voucher programs, such as Wisconsin, Ohio and Florida, has found that “voucher programs in those places improved public schools.”  The FEC study said that while there are a variety of reasons why vouchers might improve public school performance, “The most important is that competition from vouchers introduces healthy incentives for public schools to improve.”  Yet, California has erected barriers to widespread competition in education.

Over the last few years, voucher and other pro-school-choice legislation have died in the state Legislature.  Now, with Democrats controlling the Assembly, Senate and the governor’s office, liberal legislators have unleashed a flood of anti-choice bills.  For example, AB 401 by Assemblyman Tom Ammiano (D-San Francisco) caps the number of charter schools, deregulated public schools started by parents, teachers and community organizations.  Ammiano’s bill targets charters despite the reality that they are four times more likely than regular public schools to be among the top 5 percent of schools statewide in student achievement.  Current California regulations also block students from choosing online and virtual education alternatives.

[Read more…]