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Mixed messages: is California driving away businesses or setting an example for other states?
OVER THE PAST TWO years, some California businesses have risen in revolt. Complaining that state regulations and high utility prices make doing business so expensive that it's nearly impossible to make a profit, business organizations petitioned the state legislature for relief, blasted the op-ed pages of California newspapers, and, ultimately, helped throw Gov. Gray Davis out of power.

Aki Korhonen, president of PC-Doctor Inc., a software producer previously in the San Francisco Bay area, says, "All the things that go into the business environment are more expensive [in California]. A combination of factors makes business hard." So hard, in fact, that Korhonen, 34, moved his business to Reno, Nevada, in October 2003.

Korhonen has a point. Because of its laws, California has some of the highest costs of doing business in the nation--costs that fall hardest on the 1 million-plus small companies in the state. California employers pay roughly twice the national average in workers' comp rates, and this fall, California's legislature passed the Family Medical Leave Law, mandating most employers to provide health insurance to employees. Meanwhile, the California Chamber of Commerce estimates California employers pay the highest unemployment taxes in the nation.

Yet, experts say, it's unclear whether the ways in which California forces businesses to change pushes many companies out of the state or limits growth. Though other Western states have launched campaigns to lure California companies--Colorado's governor even takes personal trips to Silicon Valley to woo firms--no studies have shown that there's an entrepreneurial exodus from the Golden State. "Los Angeles and San Diego counties show more businesses are being created than shutting down," says Joel Kotkin, an expert on the California economy at Pepperdine University's Davenport Institute for Public Policy in Malibu, California.

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