By Joel Kotkin - Forbes
In the future historians may likely mark the 2010 midterm elections as the end of the California era and the beginning of the Texas one. In one stunning stroke amid a national conservative tide California voters essentially ratified a political and regulatory regime that has left much of the state unemployed and many others looking for the exits.
California has drifted far away from the place that John Gunther described in 1946 as the most spectacular and most diversified American state … so ripe golden."
Instead of a role model California has become a cautionary tale of mismanagement of what by all rights should be the countrys most prosperous big state.
Its poverty rate is at least two points above the national average; its unemployment rate nearly three points above the national average. On Friday Gov. Arnold Schwarzenegger was forced yet again to call an emergency session in order to deal with the states enormous budget problems.
This state of crisis is likely to become the norm for the Golden State.
In contrast to other hard-hit states like Pennsylvania Ohio and Nevada which all opted for pro-business fiscally responsible candidates California voters decisively handed virtually total power to a motley coalition of Democratic-machine politicians public employee unions green activists and rent-seeking special interests.
In the new year the once and again Gov. Jerry Brown who has some conservative fiscal instincts will be hard-pressed to convince Democratic legislators who get much of their funding from public-sector unions to trim spending. Perhaps more troubling Browns own extremism on climate change policybacked by rent-seeking Silicon Valley investors with big bets on renewable fuelsvirtually assures a further tightening of a regulatory regime that will slow an economic recovery in every industry from manufacturing and agriculture to home-building.
Texas trajectory however looks quite the opposite.
- California was recently ranked by Chief Executive magazine as having the worst business climate in the nation while Texas was considered the best.
- Both Democrats & Republicans in the Lone State State generally embrace the gospel of economic growth and limited public sector expenditure.
- The defeated Democratic candidate for governor the brainy former Houston Mayor Bill White enjoyed robust business support.
To be sure Texas has its problems:
- A growing budget deficit
- the need to expand infrastructure to service its rapid population growth and
- the presence of a large contingent of undereducated & uninsured poor people.
But even conceding these problems the growing chasm between the two megastates is evident in the economic and demographic numbers. Over the past decade nearly 1.5 million more people left California than stayed; only New York State lost more.
In contrast Texas gained over 800000 new migrants. In California foreign immigrationthe one bright spot in its demographyhas slowed while that to Texas has increased markedly over the decade.
A vast difference in economic performance is driving the demographic shifts. Since 1998 Californias economy has not produced a single new net job notes economist John Husing. Public employment has swelled but private jobs have declined.
Critically as Texas grew its middle-income jobs by 16 one of the highest rates in the nation California at 2.1 growth ranked near the bottom. In the year ending September Texas accounted for roughly half of all the new jobs created in the country.
Even more revealing is Californias diminishing preeminence in high-tech and science-based (or STEMScience Technology Engineering and Mathematics) jobs. Over the past decade Californias supposed bulwark grew a mere 2less than half the national rate. In contrast Texas tech-related employment surged 14. Since 2002 the Lone Star state added 80000 STEM jobs; California a mere 17000.
Of course California still possesses the nations largest concentrations of tech (Silicon Valley) entertainment (Hollywood) and trade (Port of Los Angeles-Long Beach). But these are all now declining.
Silicon Valleys Google era has produced lots of opportunities for investors and software mavens concentrated in affluent areas around Palo Alto but virtually no new net jobs overall. Many of the Valleys tech companies are expanding outside the state largely to more business-friendly and affordable places like Salt Lake City the Research Triangle region of North Carolina and Austin.
Tough environmental regulations and the anticipated widening in 2014 of the Panama Canal are emboldening competitors particularly across the entire southern tier of the country most notably in Houston. Mobile Ala. Charleston S.C. and Savannah Ga. also have big plans to lure high-paid blue collar jobs away from Californias ports.
Most worrisome of all these telltale signs palpable economic decline seem to escape most of the states top leaders. The newly minted Lieutenant Governor San Francisco Mayor Gavin Newsom insists theres nothing wrong with California" and claims other states would love to have the problems of California."
But its not only the flaky Newsom who is out of sync with reality. Jerry Brown a far savvier politician maintains green jobs" up to 500000 of them will turn the state around. Theoretically these jobs might make up for losses created by ever stronger controls on traditional productive businesses like agriculture warehousing and manufacturing. But its highly unlikely.
Construction will be particularly hard hit since Brown also aims to force Californians four-fifths of whom prefer single-family houses into dense urban apartment districts. Over time this approach will send home prices soaring and drive even more middle-class Californians to the exits.
Ultimately the green jobs" strategy effective as a campaign plank represents a cruel delusion. Given the likely direction of the new GOP-dominated House of Representatives in Washington massive federal subsidies for the solar and wind industries as well as such boondoggles as high-speed rail are likely to be scaled back significantly. Without subsidies federal loans or draconian national regulations many green-related ventures will cut as oppose to add jobs as is already beginning to occur.
The survivors increasingly forced to compete on a market basis will likely move to China Arizona or even Texas already the nations leader in wind energy production.
Tom Hayden a 60s radical turned environmental zealot admits that given the current national climate the only way California can maintain Browns green vision" will be to impose some combination of rate heights and tax revenues."
Californias decline is particularly tragic as it is unnecessary and largely unforced. The state still possesses the basic assetsenergy fertile land remarkable entrepreneurial talentto restore its luster.
But given its current political trajectory you can count on Texans and others to keep picking up both the states jobs and skilled workers.
If California wishes to commit economic suicide Texas and other competitors will gladly lend them a knife.
