Prescription for an Ailing California

Joel Kotkin
Editor of NewGeography.com and Presidential fellow in urban futures at Chapman University

Only a fool, or perhaps a politician or media pundit, would say California is not in trouble, despite some modest recent improvements in employment and a decline in migration out of the state. Yet the patient, if still very sick, is curable, if the right medicine is taken, followed by the proper change in lifestyle regimen.

The first thing necessary: Identify the root cause of California’s maladies. The biggest challenge facing our state is not climate change, or immigration, corporate greed, globalization or even corruption. It’s the demise of upward mobility for the vast majority of Californians, and the rise of an increasingly class-ridden, bifurcated society.

California’s class problem spills into virtually every aspect of our malaise. It is reflected in both the nation’s highest poverty rate, above 23 percent, and a leviathan welfare state; California, with roughly 12 percent of the population, now accounts for roughly one-third of the nation’s welfare recipients. This burgeoning underclass exacerbates the demand for public services, deprives the state of potential taxpayers and puts enormous pressure on the private sector middle-class to come up with revenue.

The growing class chasm also distorts state priorities, creating an inordinate demand for public sector employment – and related jobs in health and education – while inculcating deep-seated resentment among private-sector entrepreneurs and professionals toward a state that asks much of them, but gives increasingly little.

Conservatives generally have recoiled from a class-based analysis, hoping to play on ethnic or cultural fears to advance their agenda of lower taxes and less regulation. Their incoherence and inability to adjust to changing demographics have left them increasingly irrelevant.

On the other hand, progressives feel comfortable with class as an issue, but see more regulation and ever higher taxes on the private sector as the solution. Yet the experience of the past decade has shown their folly, as California’s middle class has continued to shrink, and poverty has worsened, particularly in the state’s interior. The dangers of a large permanent underclass of unemployed and underemployed should be clear even to the most dreamy progressive.

Essentially, there is only one practical solution to this dilemma: a program that promotes economic growth. This strategy would transcend the recent reliance on asset-based bubbles that have boosted property markets and technology stocks. Another bubble, whether an investor-driven spike in property values in Newport Beach or a stock mania in Silicon Valley, may provide a temporary boost in revenue but will do very little to improve employment for the vast majority or to stabilize long-term finances.

The recent surge in tech employment in places like Silicon Valley is neither likely to persist or improve conditions for many Californians. The days of huge employment gains in Silicon Valley – where jobs more than tripled from 1970-2000 – are over. Even in the current boom, the Valley’s employment remains down from a decade ago, and the rest of the state is doing decidedly worse. Social media simply will never be a major job producer or productivity enhancer; Facebook has 4,300 American employees, while old-line firms, like Intel, which have been shifting employment out of the state, have 10 times as many.

Other proposed bromides, like Gov. Jerry Brown’s promised 500,000 “green jobs,” need to be dismissed for what they are – stories we tell our children so they will fall asleep. High-speed rail, another modern-day Moonbeam program, is seen, even by many progressives, such as Mother Jones’ Kevin Drum, as an “ever more ridiculous” boondoggle based on “jaw-droppingly shameless” assumptions.

Instead of delusion, California needs policies that can boost economic growth in precisely those areas – construction, agriculture, manufacturing and energy – with the best prospects for creating good, high-paying jobs for both blue- and white-collar Californians. Yet, right now the Legislature and, even more so, the empowered state apparat, seem determined to do everything they can to strangle an incipient recovery in these industries.

Sadly, much of this is done in the name of the environment, but often based on dubious assumptions. Laws that seek to reduce water allocations to the Central Valley are justified as protecting a bait fish, but create windswept new deserts, along with shocking poverty, in the state hinterland. It is no longer enough to protect the still-wild environment; mankind itself must be pushed away from areas that, in some cases, for generations, has provided food for the world, income for families and revenue to the state.

Concerns over climate change have justified much of the state’s regulatory tsunami. Yet it is absurd to assert that California by itself can change global climate conditions in any meaningful way, given that the big increases of carbon emissions are all coming from the developing world; overall, America’s emissions already are dropping far more quickly than in other high-income parts of the world, largely due to the natural gas boom.

Yet such mundanities matter little when our greatest policy goal seems to be to make the regulatory apparat, Hollywood and Silicon Valley moguls and their favored nonprofits feel better about themselves; if it provides job opportunity for zealots or the rent-seeking kind for favored venture capitalists and companies like Google, all the better.

Worse, the consequences of these policies, such as soaring energy prices, likely will not be felt in Portola Valley, Corona del Mar or Pacific Palisades, but, rather, in Santa Ana, Modesto and Oakland. Our regulatory regime already has cost California the opportunity to cash in on two significant booms – in manufacturing and in fossil fuel energy – that are creating middle-income job opportunities and upward mobility in other parts of the country.

On the environmental side, these policies could have an overall negative effect by driving both people and industries to areas that, because of climate and regulatory environment in their new homes, likely will expand their carbon footprint. Arguably the best thing California can do to reduce global carbon emissions would be to boost its industrial profile. The state also should be leading the shift to natural gas, which California, a potentially big player, so far largely has refused to join.

Another great opportunity lies in housing, a key source of both white- and blue-collar jobs. Population growth may have slowed, but the pent-up demand, largely from immigrants and millennials, for single-family homes, remains potentially strong. If the supply was increased, and prices moderated, homebuying would become more attractive for families with children. Emissions could be cut in more family-friendly ways, by encouraging more fuel-efficient cars, the dispersion of industry and, most particularly, telecommuting.

Sparking the revival of these basic industries and higher-wage employment would enhance California’s budget situation over time far more than increasing taxes on the remaining residue of entrepreneurs and professionals. Energy work, in particular, pays high wages, often more than for many tech jobs, and both manufacturing and construction generally provide higher incomes than the low-wage service work that has become the only option for millions of Californians.

Getting kids from the Central Valley or East Los Angeles working on housing sites, factories and energy facilities is both the most humane, and practical, way to right our fiscal ship. Growth in these industries would also spur the knowledge sector of the economy; many of the strongest gains in STEM (science, technology, engineering and mathematics) jobs in recent years have occurred in manufacturing regions, such as Detroit, or in the energy belt, notably Houston. California’s technical know-how should not be expended simply on developing computer games and social networks; resuscitating the tangible economy would also diversify employment opportunities for the highly skilled.

Government can play a critical, even determinative, role here. But it needs to shift priorities from redistribution and wealth suppression to providing the basic infrastructure essential for a growth economy. It means transforming our education system from a jobs and pension program for public sector workers and corporate rent-seekers to a focus on providing our economy with the skills – including those used in basic industries – needed for a revived California. It means spending money on the kind of infrastructure, such as gas pipelines, roads, urban bus lines, water and energy systems, that can spur growth instead of misallocations such as high-speed rail and subsidized green energy boondoggles.

This back-to-basics approach could restore California’s aspirational promise, and not only for a favored few in a handful of favored places, but for the majority of our people, from the mountains to the sea.

Crossposted on New Geography 

This piece originally appeared in the Orange County Register.

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