Problems Faced by California & Is British Columbia a Better Option? CA/Los Angeles vs. BC/Vancouver

Is Vancouver the new LA & British Columbia the new California? ©Risk Concern. All Rights Reserved.

Hollywood, the stars, the glitz and the glamour, the lifestyle and that California-feeling . . . arguably, aren't what or how they used to be . . . Are the aforementioned features inherent to California or an emergence of the culture? If they aren't/weren't inherent—as some might argue that CA is just a place & it's the people that make the place—then, of course, an argument can be made that CA can and does have competitors for its position. Does CA still hold its crown, and if not, where has it moved, or where should it move, ideally?

This work explores the challenges faced by LA/CA and provides a comparison with Vancouver/BC, expounding what this means for investors and businesses. Investors in real estate & businesses planning to start new projects, etc., may want to understand the future prospects of the two subjects of this work to determine the more suitable/better location for investment/new project/business stability.

This work also explores whether Vancouver (VBC) & BC, overall, are better options compared to LA & CA, and whether this condition is likely to persist.

Strategists commonly analyze security, economic prosperity, stability & future prospects for such determinations, and the same are studied in this work.

Safety & Security

Safety & security are fundamental requirements that all functions of society depend on. Trends in crime rate, etc., can provide insights regarding the improvement or deterioration of a city/state/province.

In this section, the crime index time series from 2014-2021 (midyear) has been analyzed to examine the trends in crime rates in the subjects.

Data:

The average annual change in VBC's crime rate stands at 0.11%, the same for LA stands at 0.57%; from 2014 to 2021 (midyear), crime in VBC, as per the index analyzed, dropped -0.3%; crime in LA over the same period grew by 0.8%.

Overall, the crime index value for LA is 21.4% higher than that of VBC, and this can be interpreted as the latter being safer than the former. Over the period analyzed, the crime rate index confirms that the crime rate in VBC has a slightly declining trend, while the trend is still positive for LA.

Another critical factor is the standard deviation (volatility) of the crime rate change rate from the previous year. This volatility rate stands at 10.30% for LA & 5.88% for VBC; this fact can be interpreted as the possibility of rapid re-emergence/spike in crime rate in LA being higher compared to VBC.

Nonetheless, it should be noted that statistical testing reveals that the two have statistically similar crime rate fluctuations (hypothesis testing results available at the end of the report).

The crime rate in CA, overall, has had a declining trend in 2018 & 2019, property & violent crimes increased by 3% in Cali from 2015-2019; on the other hand, the crime rate index of BC spiked in 2019, and thus the overall crime rate from 2015 to 2019 increased by 12%. Data: United States » Pacific » California - State Total - Crime in the United States by Volume and Rate per 100,000 Inhabitants » Violent crime - Rate per 100,000 Inhabitants

Data: Canada » British Columbia - Crime severity index

Anecdotal evidence: it should be noted that people that regularly visit both cities/regions claim that the BC/VBC feels safer than CA/LA; also, factors that make people feel uncomfortable in an area, such as high homelessness, organized crime/gang-related activities, are observably lower in the Canadian subject. Perception, at times, can influence people more than actual data, and analysts/investors should be mindful of the fact that anecdotally 'the rainy city,' in terms of factors analyzed in this section, has a better—& improving—reputation compared to the city of angels. However, British Columbia's position for this factor deteriorated due to the 2019 spike in crime rates, while crime rates in the golden state declined during this period.

Therefore, the city crowned as the winner of this section appears to be VBC, while the state/province winner is CA.

Economic prosperity

Economic prosperity is, of course, a crucial factor that, as a fundamental variable, impacts almost all other variables that may be of analytical interest, such as individual happiness, human development, education, and even divorce rates. The most critical variable here is the productivity of a region, which can be measured through the GDP figure (Miles et al., 2012).

Regions with healthy improvements in productivity do better than regions with stagnating or decreasing productivity; hence, the growth rate of real (inflation-adjusted) GDP is the fundamental factor evaluated for assessing a region's economic performance and prospects. If we want to assess whether the prospects of a region are looking bright or gloomy, we can look at this factor and gain insights into a lot of related factors.

An assessment of the real GDP of BC (adjusted in USD) is compared against the same for CA. Analysis of GDP of California vs. British Columbia:

Data:

What does this mean, simplistically?

BC has a higher annual real GDP growth rate (3.79%) compared to CA (2.31%). However, this growth rate is much more volatile for BC compared to CA when examined in USD; this can also be interpreted as the economy of BC being riskier with higher fluctuations, and thus, in an adverse economic period, BC's economy may experience a tougher time compared to CA's economy.

Presently, some of the largest, most powerful corporations in the world, such as Apple, Alphabet (Google), Facebook, etc., are headquartered in 'Cali,' and this provides the economic stability that we see in the data; however, how long these tech behemoths will stay there is a different question, & one that has gained importance in recent periods.

If even one of the aforementioned tech giants with their hundreds of billions in revenues moves to, say, a southern state, arguably, considerable economic turbulence should be expected on the U.S. West Coast. Thus, while CA is likely to maintain its economic stability, this cannot be stated with surety, as we have witnessed many large players move out of CA, and if the trend continues in coming years, we should expect increased economic volatility in the region. On the other hand, in BC, real estate, construction, and manufacturing (in that order) have been the most significant contributors to GDP in recent periods. The IT sector isn't even in the top 5. The Ontario region, due to its talent availability and presence/growth in its IT space, can be classified as the Canadian 'tech hub,' however, the same cannot be said about the western provinces presently.

Here it should also be noted that while the economic growth rates of the two regions are different, the difference isn't statistically significant; in other words, statistically, the real GDP growth rates of the two regions are similar (data available at the end). This result is somewhat surprising, as the biggest/main sectors of the two regions are very different in nature, and a somewhat different economic performance may logically be expected. For example, if someone observed the performance of the shares of the top Cali based firms on, say, the Nasdaq composite index, they may assume that the GDP of the area these firms are headquartered in must be impressive; nonetheless, as the analysis reveals, it is lower than BC's figure, yet the difference isn't big enough to be statistically significant.

The inherent risks of the two economies are different, as BC's GDP growth rate when assessed in USD is statistically more volatile than that of CA; however, when assessed in Canadian dollars (CAD), this volatility is considerably reduced. On the other hand, as discussed earlier, this condition may not persist as volatility in CA's economy may rise in the future due to recent observed trends.

Anecdotal discussion: business managers from California often express their dissatisfaction, complaining that doing business has gotten more complicated/difficult in recent years; an array of discouraging factors are discussed, such as higher taxes, difficult to deal with bureaucracy, confining regulations, etc. On the other hand, the environment in BC is often discussed as broadly being more business-friendly & does not seem as though it may be moving towards an overall anti-business setting, or a condition that may be perceived as anti-business, as is, arguably, the case with CA. With dozens of important companies moving out of the U.S. West Coast region, a negative contagion has also been building that may further influence other important names to move out.

All in all, there isn't/hasn't been an exodus from BC of important businesses, as witnessed in CA, and managers/investors in the former don't seem as discontent with the region as some in the latter are.

Overall, the economies of the two regions have statistically similar growth rates; however, practically, it should be noted that BC's 3.79% average is 64% higher; BC's economy is also more volatile when assessed in USD, but when assessed in CAD this factor is considerably reduced.

California's economy may suffer higher volatility if the trend to move out of the state persists; nonetheless, no definitive comments can be made about this issue. In conclusion, this factor (economy) seems like a tie for now; still, the long-term odds seem more in favor of British Columbia.

Stability & prospects

In recent periods, dozens of important companies and people have moved out of CA—as discussed above—mainly to Florida, Texas, and Arizona. Influential names such as Tesla, Oracle, Nestle, Toyota, HP, Charles Schwab, to name a few, have moved out. There are rumors that other businesses are also planning to move away.

The main reasons these firms provide for their move are issues that everyone is aware of; high taxes, regulatory & government policies that are restrictive, bureaucratic rigidity, high cost of living, declining quality of life, etc.

No region can sustain its economic performance if major players/economic engines move away; a significant dent in the productivity of such a region, of course, is inevitable. Furthermore, the issues that have been, and are, pushing businesses away have not yet been remedied practically.

The priorities of past administrations, and the current one, arguably, lie elsewhere, and harboring and nurturing a business-friendly environment does not seem as their apex priority, despite of the promises made to improve the situation. If this condition persists, then, of course, the economic prospects for California, and Californians, would be gloomy; one doesn't need Newtonian intellect to deduce that one.

An administration's actions, or lack of, tell a lot about what their core objectives are; the action/inaction from Sacramento delineates a lot about their core objectives.

Nurturing/harboring a business-friendly environment to improve the region's productivity, so all other dependent factors, such as security, education, well-being, happiness, human development, etc., are improved, do not appear to be on the top of their list.

On the other hand, while not the best Canadian regional administration, BC's government, comparatively, seems much more flexible and business-friendly. There are numerous government initiatives to assist/attract international entrepreneurs/start-ups/businesses to the region, and, overall, the region has much lower factors that would push businesses away.

While some of the issues that its southern neighbors face are also faced by the region, for example, higher levels of homelessness, we must accept that the condition isn't at the same level as the U.S. West Coast. See also: Is land a good investment in British Columbia, Ontario, and Alberta | Should you buy land in Canada

Which Canadian Provinces have the cheapest land | Which Provinces have the riskiest land prices How much can house prices rise or fall in different Canadian Provinces

The Hollywood factor

One of the fundamental factors contributing to California's dominance in influencing the North American &, perhaps, global culture is the presence of Hollywood. If you ask anyone, "where do people go to become movie stars," they would undoubtedly say Los Angeles. If Hollywood & its tentacles are concentrated in and around the Los Angeles area, then CA would always have a unique place/standing as the mecca of North American/international culture. However, if this 'superpower' fades away, then some may argue that the sun may set on the prominence of California, perhaps for good.

Analysis of annual video shoot days from all categories reveals that this figure declined at an average yearly rate of 14% from 2016 to 2020; the total period decline stood at more than 50%. While this figure rebounded somewhat in 2021, it is still not close to what it was; other jurisdictions/competitors, meanwhile, have seen an increase in this figure. Data:

When we look at how VBC has performed in attracting cultural dollars (Audio-visual and interactive media » Film and video), we find a positive trend. The GDP of the culture industry (Audio-visual and interactive media » Film and video) increased at an average annual rate of 11% (2010-2019), with a total increase of 127% from 2010 to 2019. This is, of course, a significantly better performance compared to the golden state; nonetheless, the growth in the VBC area in this industry somewhat stagnated from 2017 onwards. There are more and more attractive options vying for movie/tv dollars, and this shows in the data.

Data:

However, we must accept that VBC/BC has had a comparatively better performance than the golden state in recent periods when it comes to film/TV/interactive media productions, and Cali is likely to lose this crown if recent trends persist.

"If now, they aren't even good at what they used to be best at, there must be a problem."

Lastly, it is essential to understand that the factors discussed here aren't just theoretical and have real-world consequences. The golden state's performance hasn't been impressive, or even satisfactory, in the fundamental areas analyzed in this work, and this is also reflected in the population growth rate.

CA's population hasn't increased more than 1% since 2004, with a 0% increase in 2019, experiencing a net decline in 2020. The condition of the LA county area is more concerning compared to the overall state figures; net population in the LA county has been declining since 2016, reflecting the declining condition of the area, with the 2020 population figure being lower than that of 2013 with a continuous downward momentum. These are very concerning figures/trends.

The trend suggests that more net population outflows may occur in the coming years if the current conditions persist. These figures should also impact property values and the future investment prospects of projects/expansion in the area in the long run. Labor & capital are the two fundamental factors that economic productivity depends on; if the population of an area continues to decline, the number of workers—labor—also declines; the result of such decline has to be a reduction in the overall productivity of the subject region. If this condition persists, many other 'can of worms' can also open up; for example, with a lower number of people entering the workforce, sustaining pensions, benefits, etc., would become more difficult over time. Tax revenues collected in the region would also decline, and the economic condition would worsen with a snowball effect, the only short-term option available to the administration being an unsustainable reliance on ever-increasing debt, which without a sound repayment strategy, would further exacerbate the condition.

The only way (theoretical) a region with a declining population can maintain or expand its productivity is a generational upgrade in the efficiency of capital or the technology used; while this is possible, we cannot count/rely on such a theoretical possibility.

Population in BC/VBC, on the other hand, hasn't seen the same level of net outflow/decline. The population in British Columbia has seen a >1% increase since 2012.

See also:

Declining world population & what it means for property prices long-term | Are new real estate developments still a good investment? How much do U.S. house prices fall/crash in a recession Indicators of business staying power | How can future business success of failure be forecasted?

Conclusion

The fundamental factors assessed to examine an area's economic health do not look good for the golden state/Los Angeles, for now. Analysis of the same factors for British Columbia/Vancouver depicts a better condition. Nonetheless, over the years, CA has been a resilient state known for its innovation and creativity; hence, it cannot be considered a player that is entirely 'KO'ed'; still, there is a need for urgent remedial actions in areas discussed in this work.

For now, the condition & prospects of BC/Vancouver appear better, but not by a very large margin; the region has issues of its own which demand action; nonetheless, it appears to be in a better condition than the U.S. West Coast.

Results of statistical tests (technical data)

Crime rate test

Two sample t-test (pooled variance), using T distribution (DF=12.0000) (two-tailed) (validation)

1. H0 hypothesis

Since p-value > α, H0 is accepted.

The average of CA-crime-rate-growth rate is considered to be equal to the average of the BC-crime-rate-growth rate.

In other words, the difference between the average of the two is not big enough to be statistically significant.

2. P-value

p-value equals 0.919963, ( p(x≤T) = 0.540019 ). This means that if we would reject H0, the chance of type I error (rejecting a correct H0) would be too high: 0.9200 (92.00%).

The larger the p-value the more it supports H0.

3. The statistics

The test statistic T equals 0.102616, is in the 95% critical value accepted range: [-2.1788 : 2.1788].

x1-x2=0.0046, is in the 95% accepted range: [-0.09800 : 0.09823].

The statistic S' equals 0.0448

4. Effect size

The observed standardized effect size is small (0.055). That indicates that the magnitude of the difference between the average and average is small

Economy Test for economic growth rates

Two sample t-test (pooled variance), using T distribution (DF=38.0000) (two-tailed) (validation)

1. H0 hypothesis

Since p-value > α, H0 is accepted.

The average of CA-GDP's growth rate is considered to be equal to the average of the BC-GDP's growth rate.

In other words, the difference between the two is not big enough to be statistically significant.

2. P-value

p-value equals 0.693333, ( p(x≤T) = 0.346666 ). This means that if we would reject H0, the chance of type I error (rejecting a correct H0) would be too high: 0.6933 (69.33%).

The larger the p-value the more it supports H0.

3. The statistics

The test statistic T equals -0.397350, is in the 95% critical value accepted range: [-2.0244 : 2.0244].

x1-x2=-0.015, is in the 95% accepted range: [-0.07500 : 0.02696].

The statistic S' equals 0.0372

4. Effect size

The observed standardized effect size is small (0.13). That indicates that the magnitude of the difference between the average and average is small.

Bibliography

FBI (2021). Property and Violent Crime Statistics of U.S. FilmLA (2021). Research (annual shoot days). Assessable at: https://www.filmla.com/our-services/research/ Government of BC (2021). Population Estimates. Assessable at: https://www2.gov.bc.ca/gov/content/data/statistics/people-population-community/population/population-estimates Miles, A. Scott and F. Breedon (2012). Macroeconomics: understanding the global economy

(Wiley). Numbero (2021). Crime Index by City 2021 Mid-Year. Accessed at: https://www.numbeo.com/crime/rankings.jsp Statistics Canada (2021). Police personnel and selected crime statistics, Canada, provinces and territories.

Statistics Canada (2021). GDP British Columbia (chained to $ 2012).

U.S. Bureau of Economic Analysis, Real Gross Domestic Product: All Industry Total in California [CARGSP], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CARGSP, October 17, 2021.

U.S. Census Bureau, Resident Population in California [CAPOP], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CAPOP, October 20, 2021.