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Grading California
Prospects for a Schwarzeneggerian Golden State.


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Those looking for an assessment of how California is faring under the current leadership, and its prospects for the future, should examine a thorough survey of the state in the May 1-7 Economist, whose cover asks, “Is California Back?”

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The highly regarded British publication ventures that, yes, something remarkable might be happening in the Golden State. The governor has some good ideas, the survey says, but problems remain–such as waste, energy, and the business climate, including for the tech sector.

On the waste issue, even if the entire deficit were to be closed out by spending cuts, that would still leave per-capita spending higher than it was in the late 1990s when, says The Economist, California spent “like a drunken sailor.” The state, the publication discovered, even spent $722,000 to monitor and house one released child molester.

California has been destroying its competitive advantage by snarling up business in red tape, a state of affairs The Economist blames on “too many left-of-center politicians.” As a case study, the magazine cites Rodeo Carpet Mills, a business in the City of Commerce owned by Carmen Saenz-Murray, an immigrant’s daughter who rose from receptionist to owner.

This firm, which employs 30, must devote one in five administrative jobs just to dealing with government. Workers’-compensation costs rose from $1,200 to $4,900 a month in three years. Saenz-Murray told the magazine that, if things have not changed when her lease comes up in 2007, her company will move out of the state.

The Economist observes that Santa Clara county, the heart of Silicon Valley, has lost nearly a fifth of its jobs in three years. With outsourcing, the survey wonders if the valley will “gradually be hollowed out.” Although the story of the valley “has been one of relentless creative destruction,” it is “still at the front of its industry, colonizing new fields such as nanotechnology.” That bodes well, even though “other clusters are getting a little closer,” warns the survey.

On the energy front, which affects all industry, the main cause of the electricity crisis was California’s “adamant refusal to let anybody build power plants,” and a “deregulation” scheme that held retail prices stable but let wholesale prices fluctuate. Nothing much has been done, The Economist warns, to prevent the crisis from happening again. But energy reform is back on the table.

In late April, Governor Schwarzenegger noted that high energy prices are one of the biggest obstacles to business. “By fostering competitive wholesale and retail electricity markets that are properly monitored by regulators,” he wrote, “California can begin to lower electricity bills and once again become the job-creation machine it once was.”

The governor advocates a system that would allow big business to bypass traditional utilities and shop around for competitive rates. That is a sensible approach, but it drew fire from Assembly Speaker Fabian Núñez.

In a statement, the speaker accused the governor of relying too much on “the so-called ‘invisible hand’ of the marketplace.” Note the double pejorative: dismissive quotes coupled with “so-called.” Mr. Núñez has an energy plan of his own, one that evidently relies on the visible hand of regulators and politicians, but his scowling is instructive in other ways.

Hostility to the marketplace is the hallmark of those The Economist calls “left-of-center politicians.” Those unfamiliar with arguments for regulation instead of the market should consider the tech sector. No government agency determines what kind of personal computers should be developed, where they will be sold, or what they will cost. Tech-savvy entrepreneurs know that, if they did, the Commodore 64 might still be an item. Consider also an area more vital than energy: food.

No visible hand of regulation determines the food supply in California. No politician or bureaucrat mandates how many acres should be planted in corn, how many potatoes should be sent to Fresno, or how much milk and bread shipped to San Francisco. Individuals acting in the marketplace determine all that. Food is plentiful and cheap. Where the state commands the food supply, on the other hand, rationing, scarcity, and even starvation are the rule.

The Economist believes California should be governed like a full-fledged nation rather than a 19th-century colony. The survey recommends the elimination of all unnecessary duplicate state offices, including the superintendent of public instruction, the treasurer, and the insurance commissioner. The publication would also like to see proper redistricting, a reallocation of local and state tax revenues, and an increase in the number of signatures necessary to launch a ballot initiative.

“The country that has pioneered so much private-sector experimentation needs to translate some of that boldness to the public sector,” The Economist concludes. “Otherwise, one of the world’s most interesting, entertaining, beautiful, and dynamic places will throw away the future its inhabitants deserve.”

K. Lloyd Billingsley is editorial director of the California-based Pacific Research Institute.



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