Politics & Policy

Gray Davis Is Governor…

...of North Dakota, c. 1921.

Is California Governor Gray Davis destined to become the next Lynn Frazier, the only governor to be recalled from office? Frazier’s story is remarkably similar to Davis’s, and it provides a lesson that Davis would have been wise to learn as a history major at Stanford University.

Frazier was the first Nonpartisan League governor of North Dakota, a party founded by former Socialists. He was elected to three terms: 1916 (with 79 percent of the vote), 1918, and 1920. Frazier was governor during turbulent times in North Dakota. The state’s major industry, agriculture, collapsed, the economy entered a depression, and voters were bitterly divided.

In 1919, residents were divided between the Nonpartisan League (NPL), which was Frazier’s party and supported state-owned industries, and the Independent Voters’ Association (IVA), which opposed state ownership of industries. Against this backdrop of ideological division, Frazier embarked on a radical and costly experiment in socialism, which ultimately led to his downfall.

In 1919, Frazier and the NPL-controlled legislature established state-owned industries: the Bank of North Dakota, and the State Mill and Elevator. They believed that a state-owned bank and state-run mill would protect farmers from private companies that they claimed paid bottom dollar for grain and then overcharged customers for flour. An Industrial Commission, consisting of the governor, attorney general, and agriculture commissioner, was created to govern the state enterprises.

In 1920, the year Frazier was narrowly reelected to a third term, farm prices tumbled, bad weather cut crop yields, and exports fell. The state entered an economic depression, exposing huge weaknesses in North Dakota’s budget, which went into deficit. More North Dakota banks closed in 1921 than in any other year. The resulting contraction of credit caused many farm foreclosures.

As is unavoidable with state-run enterprises, cronyism quickly developed in Frazier’s bank and mill. An audit of the Bank of North Dakota unearthed shoddy management. Also, its top executive lived in a plush hotel at state expense and drew a salary of $10,000, a princely sum at the time. When the state mill lost money, Frazier’s office tried to hide the losses in the state budget. To top it off, Frazier imposed the state’s first graduated income tax and inheritance tax, making the economy worse. His socialist leanings and fiscal missteps, shrouded by political bookkeeping, were his undoing. He lost the trust and support of the people, with whom he had no political capital to spare.

Ironically, one constitutional amendment that passed during his governorship was a procedure for the recall of public officials. Although he had just been reelected to office in 1920, this procedure was put to use in 1921 to force a recall election of Governor Frazier and the entire Industrial Commission. The 1921 recall campaign, which drew nationwide attention, was as nasty as one might expect a California campaign to get.

Frazier’s opponents charged that the NPL wanted to abolish marriage and promote free love. Frazier’s supporters said IVA candidate Ragnvold Nestos was a puppet of Wall Street and big-grain companies. Ultimately, Nestos, a Republican businessman born in Norway, narrowly defeated Frazier with 51 percent of the vote. The other two members of the Industrial Commission were also recalled. The similarities between the Frazier and Davis sagas are remarkable.

Davis is also a once-popular governor (he received nearly 60 percent of the vote in 1998) who is facing rivers of red ink due to the collapse of key industries (electricity, technology, manufacturing) and a historic expansion of state government (36 percent increase in state spending during his first term). Like Frazier, Davis wrongly opted for tax increases and attempted to hide the scope of fiscal problems using accounting tricks. Davis went beyond anything Frazier did, however, by misrepresenting the size of the deficit days before the 2002 election. But what really riles people is that Davis increased the deficit by pandering to political cronies (trial lawyers, prison guards, labor unions, and environmentalists) while the economy collapsed.

Having lost the trust and approval of the people (his approval rating is 26 percent), the public demanded a recall election less than a year after he was narrowly reelected, and a leading opponent is a European immigrant turned Republican businessman. Now a divided electorate (when Californians are asked if they favor higher taxes and more services or lower taxes and fewer services, they are evenly split) must decide the governor’s fate five years after he was first elected.

Recalls are rare birds because they result from the confluence of several factors: substantial economic crisis, personal distrust of a once-trusted governor–there are no worst enemies than former friends–and pursuit of radical tax-spending-regulation schemes without a mandate from the people because they are too divided to issue one. Governors Frazier and Davis both overplayed their hands and, in the process, they lost the people’s trust as leaders.

Lawrence J. McQuillan is director of business and economic studies at the California-based Pacific Research Institute.

Lawrence J. McQuillan Mr. McQuillan is a senior fellow at the Independent Institute, the director of its Center on Entrepreneurial Innovation, and the author of California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis.


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