Prescription for an Ailing California


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.

Joel Kotkin is executive editor of and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared in the Orange County Register.

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You've crossed the line!

Congratulations Joel,

With this article, I am calling it. You are now a conservative. I know, you don't think so ("conservatives are incoherent and irrelevant"). 90% of what you just advocated is conservative policy. Welcome home!

"The biggest challenge

"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."

As if immigration didn't have a lot to do with that. In actual fact we are headed for a racially-stratified, class-ridden, tri-furcated society -- or a quin-furcated one if you want to count Ashkenazi- and Asian-Americans as separate from European-Americans of Protestant and Catholic descent, which of course they are in some fundamental ways (genotypically, culturally, residentially, historically, sociologically). In the absence of greater economic equality and a better chance for those lower on the totem pole to lead a good life, I fear this is a formula for unending social conflict.

That aside, trade, immigration, and automation all promote economic growth.* The catch is that they also skew the distribution of income between labor and capital (or from poor to rich if you prefer).

So the problem isn't really one of economic growth as you state.* Rather it is one of economic redistribution, something we don't know how to do because it can't be done effectively at the state (or even federal) level in the new global economy.

Tax reform, in particular, is now an international problem on account of the off-shoring of income, tax shelters, secret bank accounts, shell corporations, etc. We have to work with our major allies and trading partners, especially in Europe and East Asia, to get a handle on this. Did you know Britain is a major enabler of off-shore tax-shelters for instance? It's not just places like Switzerland and Luxembourg.

*I'd be surprised if California's GDP, even GDP per capita, hasn't risen dramatically over the past several decades.

California needs to look at the UK as an object lesson

The main reason for the demise of upward mobility in California is the same as the reason in the UK.

In US cities with a house price median multiple of 3, I would wager that something like 90% of the population gets to enjoy the "attributes of housing" that only the top 5% get in a high density, growth constrained, planned city in the UK, which is the most extreme example of the opposite kind of city.

I mean, the size of home, the size of lot, the age and condition of home, and the access to desirable amenities. Congestion is such a powerful negater of alleged "compact city" advantages that it takes the English on average far longer to get to work, to get to shops, and to get their kids to school, than it does for the residents of a typical affordable, low density US city. AND for many households, they are "priced out" of efficient locations anyway, and suffer LONG travel distances in dire congestion....!

Their houses are far smaller on average and far older on average. The lot size is exponentially smaller.

Because all the attributes of housing are rationed by price, the end result in the UK is that only the top 5% of the population actually get to enjoy the sort of conditions that as much as 90% of people in an affordable US city takes for granted. Only among the top 5%, is there a genuine choice between a nice "walkable", transit friendly urban area close to the CBD; or a decent suburban family home with views of the Green Belt. Everyone else gets the worst of all worlds: less space, lower quality housing, greater distance from jobs, greater distance from green space and public amenities.

And typical "liberal" policies do not just promote severe inequality in the attributes of housing - it "excludes" rather than "includes" the least skilled and least productive, from the functioning modern society. The rate of home ownership by minorities is far higher in the South than in the West and Northeast, for example.

Lower paid jobs in the "Superstar" cities and "global" cities that are so celebrated by liberal utopians, are disproportionally taken by recent immigrants from the third world who are prepared to live in appalling overcrowded conditions as a consequence of relentless housing unaffordability.

There is a crisis in the UK with unemployed people all over the nation who stay unemployed in regional cities rather than move to London and take jobs that Poles and Pakistanis are taking. And why would an unemployed English person bother to move to London and get a job, when they exist in comparatively greater comfort in "social" housing in the regional city? The effective marginal "tax" of moving to London, getting a JOB, and paying one's own way for housing, is well over one hundred percent. Way to go, liberal utopians.

There is at least an option for the same kind of people in the USA, to considerably BETTER their life progress by moving to Houston. The UK, and its most disadvantaged people, would be far better off if they had anything like the Houston option.

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