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Sundown for California

From the Magazine: Wednesday, November 12, 2008

Millions once moved to California for its boundless promise, but time has not been kind to the Golden State.

Twenty-five years ago, along with another young journalist, I coauthored a book called California, Inc. about our adopted home state. The book described “California’s rise to economic, political, and cultural ascendancy.”

As relative newcomers at the time, we saw California as a place of limitless possibility. And over most of the next two decades, my coauthor, Paul Grabowicz, and I could feel comfortable that we were indeed predicting the future.

But much has changed in recent years. And today our Golden State appears headed, if not for imminent disaster, then toward an unanticipated, maddening, and largely unnecessary mediocrity.

Since 2000, California’s job growth rate— which in the late 1970s surged at many times the national average—has lagged behind the national average by almost 20 percent. Rapid population growth, once synonymous with the state, has slowed dramatically. Most troubling of all, domestic out-migration, about even in 2001, swelled to over 260,000 in 2007 and now surpasses international immigration. Texas has replaced California as the leading growth center for Hispanics.

In California, domestic outmigration, which was about even in 2001, swelled to over 260,000 in 2007.

Out-migration is a key factor, along with a weak economy, for the collapse of the housing market. Simply put, the population growth expected for many areas has not materialized, nor the new jobs that might attract newcomers. In the past year, four of the top six housing markets in terms of price decline have been in California, including Sacramento, San Diego, Riverside, and Los Angeles. The Central Valley towns of Stockton, Merced, and Modesto have all been awarded the dubious honors of the highest foreclosure rates in the nation during the past year.

Even with prices down, many of the most desirable places in California are also among the most unaffordable in the nation. Less than 15 percent of households earning the local median income can afford a home in L.A. or San Francisco. In Santa Barbara, San Diego, Oxnard, Santa Cruz, or San Jose, it’s less than a third. That’s about half the number who can buy in the big Texas or North Carolina markets. Moreover, state officials warned in October that they might have to seek as much as $7 billion in loans from the U.S. Treasury. This is a disappointing turn for a state that once saw itself as the harbinger of the future.

Not surprisingly, few Californians see a turnaround soon. In the most recent Field Poll in July, a record high 63 percent of Californians said they are financially worse off than they were a year ago, while a record low 14 percent described themselves as better off. Poll director Mark DiCamillo called it “the broadest sentiment of pessimism we’ve ever seen.”

Of course, California can still attract many newcomers, particularly young and ambitious people who dream of a career in Hollywood or Silicon Valley. The problem is that when you grow up and have failed to secure your own dotcom or television series, life in Texas, Arizona, North Carolina, or even Kansas starts looking better. According to real estate analysts, the only thing preventing the current outflow from being worse is that homeowners cannot sell their residences in order to move.

All of this suggests a historic slide of California’s role as a bastion of upward mobility. In 1946, Californians enjoyed the nation’s highest living standards and the third highest per-capita income, noted journalist John Gunther. As recently as the 1980s, Californians generally got richer faster than other Americans did. Now, median household income growth trails the national average while the already large divide between the social classes—often bemoaned by the state’s political left—grows faster than in the rest of the country.

Today, notes a recent Public Policy Institute of California study, California has the 15th highest poverty rate in the nation. Only New York and the District of Columbia fare worse if the cost of living is factored in. Indeed, after accounting for cost of living, L.A., Monterey, and San Francisco counties—all places known for concentrations of wealth—have poverty populations of 20 percent. “San Francisco,” says historian Kevin Starr, a native of the city, “is a cross between Carmel and Calcutta.”

The Political Roots of the California Ascendancy

You can blame many factors for California’s fall from grace: too much immigration from poor countries, the impact of global competition on technology and aerospace industries, the end of the Cold War, failing schools, and the 12 years of political control by the Texas-centric Bushes. Yet other states have weathered similar storms and still gained ground on the Golden State.

The real problem lies in the decline of the state’s political culture. “Our society may be evolving spectacularly but our politics are devolving,” suggests Starr, the state’s most eminent historian. “California is in no way a role model for anyone from outside the state.”

For much of the 20th century, California—already blessed by climate, topography, and fertility—was also relatively well governed. California’s schools, universities, and infrastructure were considered among the finest anywhere. From the 1920s on, its prevailing ideology was a kind of business-like progressivism. Californians in both parties embraced the idea that government could be a positive force in the economic and social life of California. However, they also embraced the latest notions of scientific management. One report from the administration of California’s Republican Governor Hiram Johnson, produced in the early part of the 20th century, stated that the goal was “to systematize the business of the State of California.”

California has the 15th highest poverty rate in the nation. Only New York and the District of Columbia fare worse if the cost of living is factored in.

California’s state government laid the foundation for its remarkable ascendancy. Progressivism’s pragmatic orientation, the melding of science and technology into government, the large-scale investment in infrastructure, and a strong nonpartisan tradition produced spectacular results. In his famous book Inside USA in 1946, Gunther gushingly described California as “the most spectacular and most diversified American state … so ripe, golden.”

Another Republican California governor, Earl Warren, who served between 1943 and 1953, epitomized progressive virtues—pragmatic in policy, nonpartisan in approach, and activist in his manner. Later on, as the GOP became more conservative, the progressive mantle shifted to the Democrats. Under Governor Edmund G. “Pat” Brown, elected in 1958, the state continued with an aggressive program of public works, a rapid expansion of higher education, and the massive California Water Project.

Like his Republican progressive predecessors, Brown advocated civil rights for minorities but also promoted business interests, notably in real estate development, Hollywood, aerospace, and agribusiness. Equally important, the Democrat embraced the traditional good government principles of the progressives. Shortly after taking office, Brown initiated a thorough reorganization of state government, attempting to make it more businesslike. California, Brown himself noted, needed “to apply the latest concepts of management, organization, and cost control just as modern corporations have done.”

The End of the Progressive Era

By the mid-1960s, Brown’s traditional progressivism was being undermined by rising interest-group liberalism. State employees, left-liberal lobby groups, and minorities were demanding more and more from the governor. Fed up with ever-growing taxes and social spending, business interests became increasingly alienated. Once seen as a boon to the private sector, state government was becoming perceived by corporate interests as overly meddlesome and hostile.

Perhaps even more damaging was the cultural rift that developed. Many white middle- and working-class voters felt threatened by the rise of new militant minority and student groups. Riots at Berkeley and Watts deepened resentments against the university and African Americans, two linchpins of Brown’s support.

In the 1966 gubernatorial election, Ronald Reagan smashed Brown and the remnants of the old progressive coalition. The former actor captured both business support and grassroots votes in previously Democratic-leaning areas in suburban L.A. and the Central Valley. Numerous interviews conducted with his closest confidants at the time make clear that they did not intend to impose a conservative social agenda, but hoped to slow the regulatory regime and restore order on the state’s campuses and ghetto streets.

One scholar has claimed that Reagan “destroyed” progressivism, but some of the blame should also be laid at the feet of the Democrats. To be sure, Reagan slowed the growth of government, but infrastructure building continued and the state university grew, as did many social problems. Much the same could be said of later Republican governors George Deukmejian and Pete Wilson, whose policies were only moderately conservative.

Enter Governor Moonbeam

The real problems for the progressive model, ironically, began to surface with the rise of Pat Brown’s son, Governor Edmund G. “Jerry” Brown Jr. He veered away from the traditional focus on nonpartisan governance and infrastructure spending—what long-time advisor Tom Quinn called “this build, build, build thing”—and instead focused on an environmentally friendly, “small is beautiful” approach.

Less than 15 percent of households earning the local median income can afford a home in either L.A. or San Francisco.

However, the real problems did not ultimately reside with the brash, creative, and sometimes unpredictable young governor himself. Entrenched Democratic interest groups, particularly public employees, resisted property tax relief for California’s middle-class homeowners. Ultimately, this failure brought about the passage of Proposition 13, a strict limit on property taxes that would sharply curtail infrastructure spending and reduce the ability of local governments to address serious problems.

During Brown’s watch, and even despite his occasional opposition, the Democratic Party came increasingly under the sway of public employees, trial lawyers, and narrow interest activist groups. Their ability to raise money and impose their political will often outweighed that of even the most powerful business interests.

The full bill for this transformation would eventually be paid not by Brown, but by his former chief of staff, Gray Davis. Becoming governor in 1998, Davis became the prisoner of the special interest groups with whom his predecessors, Deukmejian and Wilson, had struggled.

By then, California’s shift to the Democrats had become inexorable and, with the fading of a GOP counterweight, influence within the party flowed to its more radical factions further to the political left. As a result, the state moved decisively away from the economic growth focus of Pat Brown. It seemed determined to wage war against its own economy. As pet social programs, entitlements, and state employee pensions soared, infrastructure spending—the hallmark of the Pat Brown regime and once 20 percent of the state budget—shrank to less than 3 percent.

The educational system, closely aligned with the Democrats in the legislature, accelerated its secular decline. Once full of highly skilled workers, California has become increasingly less so. For example, California ranks second in the percentage of its 65-year-olds holding an associate degree or higher and fifth in those with a bachelor’s degree. But when you look at the 25-to-34 age group, those rankings fade to 30th and 24th.

Instead of reversing these trends, the state legislature decided to spend its money on public employees and impose ever more regulatory burdens on business. Davis, a clever and experienced public servant, understood this but could not fight the zealots in his own party. When the state’s revenues shrank after the high-tech bust in 2000, he appeared to be their complete captive. Perhaps the most telling example of the misplaced priorities of the state’s majority party took place amid the state budget crisis when legislators, facing an imminent fiscal disaster, took time to debate legislation about providing more protections for transgender Californians.

Enter the Girlie Man

Davis’s apparent inability to gain control of the looming budget crisis opened the door to his 2003 recall and the election of a Republican, Arnold Schwarzenegger. The former bodybuilder and action hero promised to clean up “the mess” in California. He took aim at what he derided as the “girlie men” in the legislature, promising to get the state’s affairs in order. It was not to be. After a bruising defeat by liberal interest groups over a series of propositions, the onetime tough guy embraced what he called “bipartisanship.” The media, particularly on the national level, cooed, but in reality the governor simply ceded initiative to the very “girlie men”—the left-leaning state legislators—that he formerly promised to rein in.

Under Schwarzenegger, notes former GOP Assemblyman Keith Richman, the state budget actually grew even faster—10 percent annually as opposed to 7 percent—than under his spendthrift Democratic predecessor, Gray Davis.

Dan Walters, the dean of California political reporters, argues that Schwarzenegger never bothered to learn the basics of state governance. As a result, state spending, particularly on state employees and their pensions, continued with no notion that another budget crisis was looming.

The Economic Crash

The Terminator and his advisors also never understood the economic rot undermining the state. The governor assumed little could be done to preserve manufacturing, warehousing, and other high-paying blue-collar jobs in California. Instead, he bought the idea that “creative” professionals in technology, finance, and entertainment could keep the state economically vibrant.

As pet social programs, entitlements, and state employee pensions soared, infrastructure spending shrank drastically.

To be sure, the big players in technology and entertainment still often keep their main offices, and sometimes their research facilities, in California. However, they also tend to locate their middle management and production jobs to more affordable, enterprise-friendly states and countries. This is one reason, notes the Milken Institute’s Ross DeVol, that tech growth has been relatively weak even during the much-ballyhooed Internet 2.0 boom.

Worst of all, the governor’s economic team did not see the danger of the state’s growing reliance on the real estate bubble. According to my colleagues at the Praxis Strategy Group and others, as much as 50 percent of the state’s job growth in the 2000s relied on an inflated property market. It worked for a time, keeping many people—investors, homeowners, construction workers, financial types—gainfully employed and the state, for a while, solvent. A better-informed governor might have known it would all unravel. Indeed, in early 2007, even as it was clear that the bubble was deflating, Schwarzenegger continued to play vaingloriously to the klieg lights, promoting California as “the harmonious state, the prosperous state, the cutting-edge state … a model not just for 21st-century American society, but the world.”

Instead of addressing the fundamental fiscal and economic problems, the governor preened for the local and national media by making California the focal point for addressing global climate change. He also proposed a gigantic $14 billion healthcare program largely funded by a state that has beleaguered smaller businesses.

Fiscal reality scuttled the healthcare plan, but business is still trying to figure out how to cope with a carbon regime faced by few of their competitors. Meanwhile, California’s unemployment is now over 7.3 percent, fourth worst in the nation, behind only Michigan, Mississippi, and Rhode Island.

In wide regions of the state—from San Diego up through the Central Valley—the only boom is in the foreclosure business. Nor are the inner-city revivals doing much better. Shining condominium towers in Oakland, L.A., and San Diego have either cut their prices or, in many cases, gone rental, a fitting tribute to an age of diminished expectations.

…and Now the Return of Governor Moonbeam?

The state’s Republicans might be expected to exploit such a record of Democratic failure but seem incapable of doing so. Since the mid-1990s and Pete Wilson’s embrace of Proposition 187, the ballot measure designed to restrict social services provided to illegal immigrants, many grassroots elements of the party have tended to demonize the immigrants who make up almost 40 percent of the workforce.

As much as 50 percent of the state’s job growth in the 2000s relied on an inflated property market.

The state is already close to a minority majority; Latinos alone make up half of the current kindergarten class. Republicans could blame the Democrats for the state’s persistent fiscal crisis. They could score points against the elitist aspects of ultra-green policies, the gluttony of public employees, the prospect of higher taxes, and the more radical parts of the left’s social agenda. However, that argument must be addressed toward, not against, the state’s increasingly minority middle class.

Instead, the most probable political scenario is more of the same, or worse. The two leading candidates for governor, San Francisco Mayor Gavin Newsom and 70-year-old Attorney General Jerry Brown, are considerably to the left of and even greener than Schwarzenegger.

Brown is clearly the stronger candidate, with a demonstrated appeal to minority voters that Newsom lacks. And Brown enjoys greater name recognition and better access to the big urban land interests, Hollywood, and Silicon Valley, the main money sources of the party other than the unions. In addition, Newsom is particularly ill suited to make even Jerry Brown seem out of touch. In a campaign, Newsom will have to justify his city’s policy of shielding illegal alien felons. He has spoken publicly about fining residents up to $1,000 for failing to sort their garbage correctly, something sure to repel most Californians.

Yet a second Brown administration poses enormous risks. Although somewhat pragmatic as mayor of Oakland, Brown has become an increasingly strident apostle of Al Gore’s global warming ideology. Brown calls global warming “the most important environmental issue facing the state and the world.” He has made it clear that he hopes to use legislative and executive power to curb suburban growth and induce people to cram themselves into California’s already congested, often crime-ridden cities.

Brown also seems determined to declare a holy war against the state’s already weakened agricultural and industrial base. As attorney general, he has pledged to block a proposed northern California plant that violates green values by using plastic bottles, a policy which, if he carries it out to its logical end, will decimate almost every blue-collar and industrial industry in the state.

So is there hope for the Golden State? Perhaps, although California likely will never regain the preeminence of a quarter century ago. Brown is many things, but he is also smart and flexible, as he showed by embracing Proposition 13 after its passage in 1978. He could still find a way to push the legitimate part of the green agenda, such as expansion of renewable fuels, without forcing every carbon- consuming business or single-family homebuilder out of the state.

Finally, there is this: no place in North America enjoys California’s combination of fertility, natural beauty, and diversity. Many Californians accept high housing prices, silly regulations, and noxious lawyers as part of the price of paradise. In a country of 50 states and more than 300 million people, there should still be a niche for an exceptional place, even if it no longer can pretend to lead the nation.

Joel Kotkin is a presidential fellow at Chapman University and executive director of www.newgeography.com. He is finishing a book on the American future. 

Image by Skip O'Donnell and Douglas Kim/iStockPhoto.

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