Opinion: How California Dreamin' Became a Nightmare

(Aug. 10) -- For most of its history, California served as a beacon for millions of Americans looking for a better place to live. The state enacted sensible policies that created one of the wealthiest and most innovative economies in human history. California fostered a huge middle class that, for the most part, owned their homes, sent their kids to public schools and found meaningful work connected to the state's amazingly diverse, innovative economy.

Recently, though, the dream has been evaporating.

• California's unemployment rate -- 12.3 percent -- ranks third highest in the nation, behind only Michigan and Nevada.
• Since 1990, the state's share of overall U.S. employment has dropped a remarkable 10 percent, according to an analysis by California Lutheran University.
• The overall tax burden as a percentage of state income, once middling among the states, has risen to the sixth-highest in the nation, says the Tax Foundation.
• Between 2003 and 2007, California state and local government spending grew 31 percent, even as the state's population grew just 5 percent.
• California now ranks second to New York -- and just ahead of New Jersey -- in the number of moving vans leaving the state.

What went so wrong?

The answer lies in a change in the nature of progressive politics in California. During the second half of the 20th century, the state shifted from an older progressivism, which emphasized infrastructure investment and business growth, to a newer version, which views the private sector much the way the Huns viewed a city: as something to be sacked and plundered.

Indifferent or even hostile to the private sector, the new progressives embraced two peculiar notions about what could sustain California's economy.

The first is California's inherent creativity -- a delusion held not only by liberal Democrats. David Crane, Gov. Arnold Schwarzenegger's top economic adviser, once told me that California could easily afford to give up blue-collar jobs in warehousing, manufacturing or even business services because the state's vaunted "creative economy" would find ways to replace the lost employment and income. California would always come out ahead, he said, because it represented "ground zero for creative destruction."

The second is the so-called green economy. One recent study hailing the new industry found that California was creating about 10,000 green jobs annually before the recession. But the state has lost 700,000 jobs since then, and green promoters underestimate the impact of California's draconian environmental rules on the economy as a whole.

The economy created by the new progressives can pay off only for those at the peak of the employment pyramid -- top researchers, CEOs, entertainment honchos, highly skilled engineers and programmers. For these lucky earners, a low-growth or negative-growth economy works just fine, so long as stock prices rise. For their public-employee allies, the same is true, so long as pensions remain inviolate. Under the new progressives, it's always hoi polloi who need to lower their expectations.

The changes needed to restore the California dream are clear. Among them:

Infrastructure focus. California must shift its public priorities away from lavish pensions for bureaucrats and toward the infrastructure critical to reinvigorating the private sector. The state's once-vaunted power system routinely experiences summer brownouts; water supplies remain uncertain, thanks to environmental legislation and a reluctance to make new investments; the ports are highly congested and under constant threat of increased competition.

Fixing these problems would benefit the state's middle and working classes. Lower electrical costs would help preserve industrial facilities -- from semiconductor and aerospace plants to textile mills. Reinvestment in trade infrastructure, such as ports, bridges and freeways, would be a huge boon to working-class aspirations, since ports in Southern California account for as much as 20 percent of the area's total employment, much of it in highly paid, blue-collar sectors.

Oil production. California also has enormous oil reserves, not just along its coast but also in its interior. The Democrats in the legislature, which seems determined to block expanded production, recently announced plans to increase taxes on oil producers. A better solution would be a reasonable program of more drilling, particularly inland, which would create jobs and also bring a consistent, long-term stream of tax revenue.

These shifts would likely appeal to voters in areas -- such as the Central Valley and the "Inland Empire" around Riverside -- hurt most by the recession and the depredations of the hyper-regulatory state.

Indeed, the disquiet in the state's interior could make the coming gubernatorial election the most competitive in a decade. Jerry Brown, the Democratic candidate, certainly appears vulnerable: His campaign is largely financed by public-sector unions, and as state attorney general, he was the fiercest enforcer of the Global Warming Solutions Act, which opens him to charges that he opposes economic growth.

Still, it isn't certain that California's inept Republicans will mount a strong challenge. For them to do so, business leaders need to get back in the game and remind voters and politicians alike of the truth that they have forgotten: Only sustained, broadly based economic growth can restore the state's promise.

Joel Kotkin is a fellow at Chapman University in Orange, Calif., and author of "The Next Hundred Million: America in 2050." This article is adapted from a longer piece in the summer issue of City Journal.


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