Monday, May 14, 2012

Facebook May Keep California Dreamin'

Might Facebook help save California?

The Los Angeles Times reports that Governor Jerry Brown's revised budget, grasping at straws to help cover the state's pending $16 billion budget gap, anticipates that Facebook's initial public offering (IPO) later this week will pump $1.5 billion in assorted tax revenues back into the state's coffers.

For this budget cycle, anyway.

Perhaps it's not surprising that a state so desperate for revenue turns over every economic stone looking to piecemeal together enough money to stay afloat.  And maybe there are other big companies still headquartered in the Golden State upon which Governor Brown still relies for significant chunks of liquidity.  Certainly California's signature industries - entertainment and technology - are what's keeping the state from shriveling up and withering away from its years of bad fiscal management.  And its fortunate that both industries feature wealthy power brokers who favor liberal high-tax policies over conservative low-tax ones.

But what makes this state budget particularly noteworthy is that a company like Facebook is even mentioned at all.  A company that didn't exist a decade ago, or start in California.  Its wunderkind founder began designing it while still at Harvard University in Massachusetts.  And although Mark Zuckerberg didn't invent the social network industry, Facebook has pretty much come to define it.  With almost one billion users worldwide, it's the newest king of the Internet, and is helping reshape everything from advertising to photography to private mail.

In a way, its IPO's $1.5 billion impact on the state's budget may be under-estimated.  Especially since one of Facebook's founders, Eduardo Saverin, shrewdly yet immorally renounced his United States citizenship in an effort to avoid income taxes.  Saverin obviously believes citizenship in our country has to be worth a fantastically pretty penny.  And that his upcoming windfall can buy him whatever benefits a citizenship, for which other people have died trying to acquire, cannot.

We'll have a better idea of what he thinks our citizenship is worth if Brown's budget crunchers have to re-calculate their figures downward, now that Saverin is betraying his ingratitude.  For those who used to think Zuckerberg was technology's prototypically creepy narcissist, they now have a new villain in Saverin.

After all, you have to credit Zuckerberg - who turns all of 28 today - with a business savvy that prioritized talent over taxes.  He could have located Facebook anywhere, and he needed a good reason to choose pricey Silicon Valley.  Might that reason have been the uniquely potent talent pool he knew existed there, despite the state's already-crushing personal income tax rate? 

Not that average Californians aren't stung deeper by the state's high cost of living.  Part of the reason California is in this fiduciary funk comes from the income taxes they're losing as their modest wage earners have been fleeing the state in droves.  Since 2005, more Californians have left the state than have moved there from other states.  It hasn't been a magnet for conventional corporate expansion and job growth in at least a decade, as confirmed by its consistently dead-last finish in Chief Executive magazine's poll of ideal states in which to do business.  Indeed, today's California finds itself an unprecedented predicament:  it has identified the cost limit people are willing to pay for its ideal climate.  Only it found that limit too late.

Facebook's one-time shot in the financial arm may help pacify the state's cheerleaders who can't imagine living life in the sunset of California's glory years.  But even in our grand age of technology, Facebook may have begun to show its own age.  Within the past year, it has been losing users in the United States and Canada, as its growth comes from poorer countries with less attractive - and riskier - advertising opportunities.  It has stumbled over the personal privacy and interface functionality fronts more than once, with more and more users expressing wariness about the security of its increasingly exotic features.

Still, California has been a live-in-the-moment place for so long, Facebook's success likely will be charted in eons, at least as far as the state's dysfunctionally short attention span is concerned.  The longer Zuckerberg and his team can keep users hooked on their website's communication conveniences, the greater the chances Facebook can become engrained into our habits, and therefore, more a part of how we interact with others.

Unfortunately, back in reality, California doesn't have time on its side.  And for all we know, Facebook may not, either.  But like the seedy Saverin, who already lives in the tax haven of Singapore, Facebook can move.  Both technologically, and geographically.

The trick for Brown is to keep the creative types happy enough in the Golden State long enough for it to pay its bills.  At least his reliance upon one company to pay 1/16th of the state's budget gap proves that California dreamin' is alive and well.

It's also a testament to the ingenuity of entrepreneurs like Zuckerberg and Saverin that a company like Facebook could explode onto the international technology scene and be such a force in California policy in less than ten years.

Even if what makes Facebook so valuable is as intangible as those California dreams.
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