The Culture War Between the States – City Journal
For decades, states have competed with one another for businesses by touting local economic advantages in areas like taxation, development incentives, workforce quality, and regulatory policy. Occasionally, states would also pitch themselves to firms on more general principles like quality of life and public investment in schools and infrastructure. Now the battle for jobs and for wealthier residents has taken a new turn, reflecting the increasingly intense cultural wars playing out in America. Facing a steadily more difficult economic battlefield, governors of Democratic-led states are pitching businesses based on social issues: access to abortion, transgender rights, and voting laws. Blue-state officials are hoping to lure firms that object to red-state legislation restricting abortion, revising voting practices, or banning biological males from competing in female athletics. The stakes are high because business and residential migratory patterns, and the economic gains that go with them, have shifted massively toward Republican-led states in post-pandemic America.
California governor Gavin Newsom, who has said in the past that his state is forging a new model for “what America is going to look like,” has summed up the new Democratic approach. In a provocative and controversial video ad that ran on social media and on TV stations over the Fourth of July weekend, Newsom attacked Florida’s policies on everything from abortion laws to school-curriculum legislation that limits what young students can be taught on gender. “Freedom is under attack by Republican leaders in states like Florida. Banning books. Restricting speech. Making it harder to vote. Criminalizing women and doctors,” the ad said. “I urge all of you to join us in California, where we still believe in freedom. Freedom of speech. Freedom to choose.” The ad amplified a message that Newsom sent to businesses that have left California in recent years, heading to Republican states. “Some businesses may have left, come on back. It’s a point of pride that we welcome you back, we want to celebrate that we have you back,” Newsom said.
The Supreme Court’s Dobbs decision overturning Roe v. Wade seems to have been a catalyzing force among Democratic governors. New Jersey governor Phil Murphy, who recently signed legislation extending legal protections to women who come to his state for abortions, has reached out to dozens of companies in states with abortion restrictions, inviting them to relocate to Jersey. In a letter to firms, Murphy declared that the Dobbs decision would have a “chilling effect . . . on your ability to attract and retain top female talent by being located in a state which has refused to recognize women’s reproductive freedom.” Later, the governor’s office said of the letter, “Governor Murphy encourages businesses looking to stand with their employees to look to New Jersey, a state where they can be confident that the rights of women, the LGBTQIA+ community, and voters will always be protected.”
Connecticut governor Ned Lamont issued a similar letter over the July 4 holiday weekend. “There are far-reaching implications for businesses and workers located in states likely to severely limit access to reproductive rights in the coming weeks,” Lamont, a former business executive, wrote. “Customers and employees alike will be attracted to states that protect reproductive rights for all.” In the letter, Lamont listed other reasons to relocate to Connecticut, including paid family medical leave, which business groups in the state actually opposed when it was enacted in 2019.
Republicans have punched back at this outreach. A DeSantis spokesperson called Newsom’s ad a “pathetic smear” and, pointing to migration numbers from California, said people are fleeing “the hellhole [Newsome] created in his state to come to Florida.” The Republican National Committee, meanwhile, issued a statement saying that the Newsom ads “remind Floridians just how much they don’t want to move to California.” Meanwhile, a spokesperson for Georgia governor Brian Kemp said of the Murphy letter: “A sitting governor wouldn’t be spending his time making this type of desperate outreach if business was also booming in his state. He’d be celebrating the announcement of multibillion dollar projects and thousands of new jobs with quality companies — like Gov. Kemp has had the privilege of doing several times already this year.”
Whether this new twist on business outreach bears fruit remains to be seen, but blue states need to do something to staunch their losses. IRS data show that in 2020, as the pandemic raged and states enacted restrictions on activity, residents, businesses, and wealth overwhelmingly left Democratic-governed states. New York and California alone collectively lost nearly $40 billion in net wealth that headed out of state, while Texas and Florida captured some $30 billion net from residents moving in. The pattern is likely to show even greater gains for 2021. Economic performance, meantime, has shifted heavily toward Republican-led states. Moody’s compared states on 13 recent economic parameters and found the best-performing places dominated by Republican-led states, while eight of the ten worst economies were in blue states. Republican-led places have recovered all the jobs they lost during the pandemic and added 341,000 more; blue states are still short some 1.3 million positions.
Relocation news hasn’t been good for Democratic states, either. Giant hedge fund Citadel recently announced that it was moving from Chicago to Miami, while Caterpillar is shifting its headquarters to Texas from Illinois. Hewlett–Packard, a company synonymous with Silicon Valley, is relocating from San Jose to Houston, while hedge funds like Elliot Management and Point72 are shifting their headquarters from Manhattan and Connecticut, respectively, to Florida. As these moves suggest, the advantage post-pandemic that red states have on traditional economic and business issues seems to have widened. All ten of the states rated by business executives this year as top places to locate their firms were Republican-leaning, led by Texas and Florida, while all ten of executives’ least favored states trend solidly Democratic.
The reaction in some blue states to the Dobbs decision has heightened a growing cultural war among states. Until now, that battle has been fought on limited economic terms—by states, for instance, banning travel by their employees to places with laws to which local politicians objected. Recently, for example, California announced that it will no longer pay for travel by its state employees to four states—Arizona, Indiana, Louisiana, and Utah—because they have passed laws banning biological males who have transitioned to female from competing in girls’ school sports. California has now enacted travel bans on 22 states that Sacramento officials say have laws discriminating against gay, lesbian, bisexual, and transgender individuals, though Newsom has sparked controversy by vacationing in one of those states, Montana. A handful of other Democratic states—Washington, Minnesota, New York, Vermont, and Connecticut—have similar multistate employee travel bans in place.
Democratic governors have been encouraged, it seems, to take the next step. They are trying to recruit businesses based on cultural issues, in part because of the spread of “woke” attitudes in corporate America. Last year, Coca-Cola publicly criticized Georgia’s new voting law, sparking a confrontation with state Republicans, while Disney objected to Florida’s Parental Rights in Education bill, which limits discussions of gender in early grade school.
Even so, one of the ironclad rules of economic development in the United States, articulated by the late Citicorp chairman Walter Wriston, has been that “capital goes where it’s welcome, and stays where it’s well treated.” There’s little indication to suggest that in a highly competitive global economy, businesses have suddenly decided to revoke that rule.
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