California: The American Greece

What do Europe's most bankrupt nation-state and America's most bankrupt united state have in common, aside from being bankrupt?

In what is undoubtedly a coincidence noticed only by free-market fundamentalists, it turns out that Greece, that sun-drenched paradise on the Aegean, and California, that sun-warmed El Dorado on the Pacific, are the worst places to do business in their respective economic zones.

Greece manages to drive out business activity with a vengeance rarely seen in Europe. In the World Bank's Doing Business 2010 [pdf] survey, Greece came in 109th place worldwide, sandwiched between countries on the go Lebanon and Guatemala. That lands the cradle of democracy dead last in the European Union for business friendliness. Only Kosovo and Bosnia-Herzegovina rank lower on the European continent. Says the Wall Street Journal:

In terms of overall ease of doing business, Greece comes in 109 out of 183 countries around the world. It is dead last among the 27 members of the European Union as well as the advanced economies in the OECD. You have to go up 30 slots to find the next worst EU performer, Italy. The U.S. ranks fourth and Singapore is first.

At 109, Greece ranks below such models of transparency and free enterprise as Egypt (106), Zambia (90), Rwanda (67) and Kazakhstan (63). A country has to work hard to do this poorly.

If so, that's the only hard work being done in Greece. In Doing Business' country profile, Greece is actually much lower—at 147—in the "Employing Workers" category, which is also the area where the country has deteriorated most seriously from 2009 to 2010 (having dropped 12 places over the year).

Lest anti-Greek bias rear its ugly head, note that you can get a subpar workforce right here in these United States. In Chief Executive magazine's annual survey of "Best and Worst States for Business," California workers scored a gentleman's B-, helping the Golden State come in 51st place out of the 50 states. (District of Columbia is included in the rankings.)

Chief Executive's survey of business owners tabulates the tax and regulatory environment, the quality of the workforce and the state's living environment. There are actually quite a few states with less appealing workers than California's, but the state's high taxes and heavy regulation give it the only F on the list. The Orange County Register explains:

It doesn't take a national survey to reveal California's failing business climate. Seven California metro areas were among the 15 national leaders in commercial bankruptcy filings in 2009, according to Equifax Inc. Not coincidentally, California had twice as many personal bankruptcies as any other state in 2009 when it ranked 11th in bankruptcies per capita.

It also doesn't take a CEO to notice the differences between California and top-rated Texas. Texas, with nearly as many residents and the world's 12th largest economy, "is where 70 percent of all new U.S. jobs have been created since 2008," the magazine reported. Also unsurprisingly, Texas gained more than 848,000 net residents based on migration in and out of the state in the past decade, while California lost 1.5 million, according to the Census.

California's longterm population-loss trend has reportedly turned around slightly in the last few months, and Greece will no doubt bring in a new haul of tourists this summer, proving the claim that self-satisfied Californians love to make whenever their state is compared unfavorably with Texas: The weather is really nice. And people still haven't managed to screw up the weather.

But every suntan eventually turns into parched, leathery skin. The insidious thing about an unfriendly business climate is that it takes a long time for the effects to show up in the government's inability to pay its bills. So long, in fact, that when the sovereign bankruptcy comes, it's easy to draw the conclusion that tax rates are too low. Both California and Greece are going through a variety of this type of denial right now. But with the governor of California and the prime minister of Greece both promising to turn over a new leaf, this is a good time to remember that you can't take people's money if you prevent them from making money in the first place.