Can the State of California Survive “Inclusive Capitalism”?

David Kersten
David Kersten is president of the Kersten Institute for Governance and Public Policy (www.kersteninstitute.org). Kersten is also an adjunct professor of public finance and economics at the University of San Francisco.

The art of politics is often about successfully hiding the truth to promote a particular cause, ideology, or political agenda.

Mark Twain famously said if we had truth, we would not need politics.

That is why the Newsom Administration’s new talk of “inclusive capitalism” caught my attention because of what its true pursuit would actually mean for the future of California.

Of course, as Joel Fox and others have pointed out, this is likely more of a policy slogan akin to George W. Bush’s “compassionate conservatism,” than a harbinger of substantive policy change.

Yet the phrase is important because it provides a signal of where the Administration might be going with regard to its branding, or rebranding, of its economic policies.

And for the sake of argument, and public welfare, it is also interesting to think about what could be done to actually make California’s economy more “inclusive.”

The unfortunate truth is that the Newsom Administration is by and large boxed in from pursuing many changes in economic policy due to promises, either spoken or unspoken, that have been made to the Governor’s key political backers, including the powerful teacher and public employee unions, labor groups, trade unions and the environmental lobby, among others.

To be perfectly candid, the California Democrat Party and its leader Gavin Newsom have created a powerful political coalition in California that provides great benefits to those included in the coalition, and imposes high financial costs, as well as political, on those who are excluded from this coalition.

For starters, it is not even politically correct to question the underlying motivations, policies, and policy results of this ruling coalition.

For example, Republican Assemblymember Kevin Kiley was recently punished by Assembly Speaker Anthony Rendon (R) for suggesting that Democrats do not have the best interests of California school students in mind for proposing to ban a successful teacher program that has run afoul of the state’s teacher unions.  The Assembly Speaker has relocated Assemblyman Kiley and his capitol office staff to the smallest office space in the State Capitol building, which is dubbed the “dog house,” because it is commonly reserved for members who cross the legislative leadership in some fashion.

There is also the example of the charter school coalition who bet big on Gavin Newsom’s gubernatorial opponent Antonio Villaraigosa in the 2018 primary, and now faces an onslaught of negative legislation and new war on charter schools now being waged by the Newsom Administration and labor unions who are critical of their better education results and increasing enrollment to the detriment of the state’s union-run public schools.

So the first argument for improved “inclusivity” would be to sanction a truly free and open public discussion and Legislative debate on a number of key policy issues including education, taxes, energy, and the California economy, among other issues.

In the words of one popular national outlet, “democracy dies in darkness,” on the other hand, sunshine and a healthy political debate also serves to kill socialism, crony capitalism, and failed economic policies.  

Fortunately, there is one national political leader, who cannot be openly discussed in California politics without great political cost, who has both the guts, and the bully pulpit, to say what is not politically correct, challenge the rise of socialism, and push back on the failure and broken promises of “liberal” economic policies.     

As for creating a truly more “inclusive economy” in California, no real departure can be made from the status quo without crossing the aforementioned powerful Democrat ruling coalition in Sacramento.    

Such “inclusive” economic policies would start with living up to the Democrat’s rhetoric on education of creating an education system that ensures the true “equality of opportunity” for the state’s six million school age children.

With the exception of the charter schools side of the system, the current system is failing to measure up and Democrats cannot take any real action to fix the problem without crossing the teacher unions and education establishment who prefer the “business as usual” approach of never ending requests for more money, less oversight of union-run public schools, and the poor results that ultimately ensue.

The best way to fix this system would be to expand the state’s charter school system, move toward a school choice voucher system, and decentralize control of the state’s education system by increasing local control and accountability.  

Another key threat to the “inclusivity” of the California economy is the state’s skyrocketing “cost of government,” high tax burden, and impending public debt crisis.

All of these issues are linked to poor financial management, out of control government costs (i.e. public employee pensions and benefits), and the lack of political will in Sacramento or anywhere else to stand up to the state’s public employee unions who directly benefit from the escalating cost of government.

At some point, absent corrective action, the system will collapse under its own weight, but until that happens California taxpayers and businesses will continue to pay higher and higher taxes and fees to fund a government that provides less and less services at reduced qualities.

One third barrier to an “inclusive economy” in California is the state’s “affordability crisis,” which is linked to the high tax burden and escalating cost of government.  This crisis is primarily driven by the liberal Democrat economic policies that serve to artificially increase the prices of essential goods and services that millions of Californians pay in the State of California.

This is perhaps the least well understood impact of “liberal” economic policies, yet the most disastrous, as has been discussed in this column previously.

The best example is the state’s housing crisis, which has essentially been manufactured by government policies that severely restrict the ability of the private market to develop housing at a reasonable cost.  

According to the California Policy Center, less than 5% of the state’s land is either developed or zoned for development, and the vacant land that is zoned cannot be developed without going through a 4-6 year development process fraught with high taxes and fees, crippling regulations and the appeasement of many hostile local and state political actors.

Other examples of the state’s manufactured “affordability crisis” is the state’s heavily regulated energy sector and the state’s minimum wage and labor laws which dramatically increase the costs of the service and manufacturing sectors, agricultural and food production, and now transportation through the impending regulation of the “gig economy.”

In a nutshell, the road to a truly “inclusive economy” for California Democrats should start with a look in the mirror at the economic barriers and roadblocks they have put in the way of Californians looking to improve their economic wellbeing in this state.

But that would require making an objective inventory and assessment of the many failed liberal economic policies that are driving the need for an “inclusive economy” in the first place.

After all, this is the real beauty of “liberalism” as a political ideology–its policies initially sound great to many voters but ultimately create a series of negative economic consequences that create the perceived “need” for more liberal economic policies, which undoubtedly continue to make the existing problems worse.       

And so the cycle continues, until the phrase “inclusive economy” has completely lost all meaning and utility to all except for the ruling class.

Everything appears to work perfectly until either the system collapses, or the governed begin to make a clear connection between the promises that were made to them and the results that were actually achieved.

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