Letter from Los Angeles: The Death of Small Business is a Tragedy for Jewish Community and Democracy

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“Small-scale commercial production is, every moment of every day, giving birth spontaneously to capitalism and the bourgeoisie…wherever there is small business and freedom of trade, capitalism appears.”— V.I. Lenin

A great connoisseur as well as sworn enemy of the free market, Vladimir Lenin might smile a bit if he witnessed what is now happening to small businesses in the current Covid-19 pandemic. Even before, America was experiencing falling rates of business formation as well as declining homeownership, particularly among the young. The share of GDP represented by small firms had dropped from 50 to 45% since the 1990s.

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Triumph of the Woke Oligarchs

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Like the rest of the country, although far less than New York, California is suffering through the Covid-19 crisis. But in California, the pandemic seems likely to give the state’s political and corporate elites a new license to increase their dominion while continuing to keep the middle and working classes down.

Perhaps nothing spells the triumph of California’s progressive oligarchy more than Governor Gavin Newsom’s decision to off-load the state’s recovery strategy to a task force co-chaired by hedge-fund billionaire Tom Steyer. A recently failed presidential candidate, Steyer stands as a progressive funder. He is as zealous as he is rich. Steyer sometimes even found the policies adopted by climate-obsessed former governor Jerry Brown not extreme enough for his tastes.

Some conservatives wistfully hope that the pandemic will push the climate crusaders to the side. In California, at least, the corporate aristocrats, the governmental apparat, and the progressive nonprofits have  the momentum to impose their ultra-green vision on the state’s residents. Steyer may have made much of his fortune on fossil fuels, including coal, but now, approvingly described as “a reverent Christian,” the Bay Area mogul seems to be eager to repent, both through his political largesse and as operator of a fulsomely organic ranch down the coast from his San Francisco manse.

What Kind of Recovery Will the Oligarchy Allow?

Steyer’s failed, self-funded presidential run was full of extreme notions, such as imposing a “state of emergency” to address climate issues, essentially shutting down fossil fuels; and, as a kind of bonus for those who still can find work, promoting a $22 an hour minimum wage while offering alms for the soon-to-be-eliminated legions of miners and energy workers.

If this is what he wants for the recovery, Steyer will simply accelerate the state’s already poor performance in creating higher-wage middle- and working-class jobs outside those created or subsidized by government. Over the past decade, according to Chapman University’s Marshall Toplansky, the vast majority of jobs being produced in California pay under the median wage, and 40% pay under $40,000 a year. Since 2008, the state has created five times as many low-wage jobs as high-wage jobs.

California’s climate regulatory regime, notes relocation expert Joe Vranich, has been particularly hard on manufacturing. Over the past decade, according to BLS data, California has fallen into the bottom half of states in manufacturing-sector employment growth, ranking 44th last year; its industrial new job creation has been negative, compared with gains from competitors such as Nevada, Kentucky, Michigan, and Florida. Even without adjusting for costs, no California metro ranks in the US top ten in terms of well-paying blue-collar jobs; but four metro areas—Ventura, Los Angeles, San Jose, and San Diego—sit among the bottom ten.

Perhaps nowhere will the pain be worse than in Bakersfield, capital of California’s once-vibrant oil industry. That industry is now slated for extinction by policymakers, even as the state has emerged as the largest US importer of energy and oil, much of it from Saudi Arabia. This ultimate effort at “virtue signaling” will cost California as many as 300,000 generally high-paying jobs, roughly half held by minorities, and will particularly devastate the San Joaquin Valley, where 40,000 jobs depend on the industry. “Imagine that the state dictated that the entertainment industry be eliminated from Los Angeles, or the tech industry be eliminated from Silicon Valley. That is what removing the oil and agriculture industries from Bakersfield is like. “It is an existential threat to the entire area,” says Rob Ball of the Kern County Council of Governments.

Read the rest of this piece at RealClearEnergy.org.

Joel Kotkin is the Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute — formerly the Center for Opportunity Urbanism. His last book was The Human City: Urbanism for the Rest of Us (Agate, 2017). His next book, The Coming of Neo-Feudalism: A Warning to the Global Middle Class, is now available to preorder. You can follow him on Twitter @joelkotkin

Photo credit: Gage Skidmore via Flickr under CC 2.0 License.

Angelenos Love Suburban Sprawl: Coronavirus Proves Then Right

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For nearly a century, Los Angeles’ urban form has infuriated urbanists who prefer a more concentrated model built around a single central core.

Yet, in the COVID-19 pandemic, our much-maligned dispersed urban pattern has proven a major asset. Los Angeles and its surrounding suburbs have had a considerable number of cases, but overall this highly diverse, globally engaged region has managed to keep rates of infection well below that of dense, transit-dependent New York City.

As of April 24, Los Angeles County, with nearly 2 million more residents than the five boroughs, had 850 coronavirus-related deaths compared with 16,646 in New York City.

After this crisis, deeper research will explain why some regions of the country were able to fend off infection more effectively than others. But clearly, differences in employment and housing patterns and transit modes appear to be very significant, if not decisive, factors.

L.A.’s sprawling, multi-polar urban form, by its nature, results in far less “exposure density” to the contagion than more densely packed urban areas, particularly those where large, crowded workplaces are common and workers are mass-transit-dependent.

Los Angeles’ urban form emerged early in the last century as civic leaders such as Dana Bartlett, a Protestant minister, envisioned Los Angeles as “a better city,” an alternative to the congestion and squalor so common in the big cities of the time. Developers and the public embraced this vision of single-family homes, as Los Angeles became among the fastest-growing big cities in the country.

In recent decades, this dispersed model has been increasingly disparaged by politicians, the media and people in academia who tend to favor the New York model of density and mass transit. Yet even before COVID-19 most Angelenos rejected their advice, preferring to live and work in dispersed patterns and traveling by car. This bit of passive civic resistance may have saved lives in this pandemic.

“Life in California is much more spread out,” as Eleazar Eskin, chair of the department of computational medicine at UCLA, recently told the New York Times. “Single-family homes compared with apartment buildings, workspaces that are less packed and even seating in restaurants that is more spacious.”

The experience of the current pandemic is not likely to prove a great advertisement for living cheek by jowl, riding on a crowded subway or getting to work on a busy commuter train. They are the very factors that some researchers, including urbanists like Richard Florida, link to New York’s extraordinary exposure to the virus.

The shift to working from home during this crisis will make densification less appealing. Web use is up 20% to 40%, with much of the surge taking place during the daytime. Even before this period, telecommuting had grown 140% since 2005 and will probably expand wellinto the future. Over time, as more employers adopt this policy, it could reshape cities along the L.A. model, reducing the need for transit systems to serve employment centers.

Many companies will want to return to “normal” after the pandemic dies down. But a recent focus group of top business executives in Orange County found that many have adjusted to remote work and were surprised that it has not damaged productivity. Many talked of reducing their office footprint in the future.

Of course, not every job can be done remotely. But this move seems quite feasible in business services and tech companies. Apple, Amazon, Facebook, Microsoft and Google have shifted to remote work so efficiently that consumers hardly feel the transition.

Read the rest of this piece at Los Angeles Times.

Joel Kotkin is the Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute — formerly the Center for Opportunity Urbanism. His last book was The Human City: Urbanism for the Rest of Us (Agate, 2017). His next book, The Coming of Neo-Feudalism: A Warning to the Global Middle Class, is now available to preorder. You can follow him on Twitter @joelkotkin

California’s Post-Corona Challenges

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California has, at least to date, escaped the worst effects of Covid-19. Despite predictions by Governor Gavin Newsom that upward of 25 million Californians would become infected, after six weeks of lockdown the state, despite having twice as many residents as New York, has suffered only one-eighth the number of cases and considerably less than one-tenth the fatalities. The numbers could worsen, but if the rate of growth of infection slows, as is now occurring even in New York, the Golden State may well avoid the worst-case scenario. Read more

Coronavirus and the Future of Living and Working in America

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By late spring, the most severe impacts from the coronavirus may be fading, but its impact on how we live and work will not go away. Indeed, many of the most relevant trends — including the rise of dispersed work and living arrangements — were already emerging even before the pandemic emerged.

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California Democrats Exit Planet Earth

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This past week, in most states, America’s liberal party voted for a doddering, but non-threatening old man, rejecting a strident socialist from Vermont. But second thoughts about socialism appear not to be on the agenda for California’s Democrats, who almost single-handedly kept Bernie Sanders’ anti-capitalist crusade from an untimely implosion.

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Democrats Risk Blowback with Leftward Turn

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With progressive Democrats in almost total control of California, and easily winning the money race, there’s no compelling reason to expect that they will face much opposition soon. Yet at a hearing I attended last month, I may have gotten a glimpse of potential blowback against the party’s ever accelerating leftward lurch.

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Why Can’t California Create Viable National Leaders Anymore?

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Once upon a time, Hollywood and California seemed to be leading the country, for better or worse, with outsized public figures and sometimes compelling, or at least entertaining, ideas.

California politicians like Richard Nixon and Ronald Reagan achieved national power, establishing the primary strands of conservative thought.

California’s liberals were less successful, but at least they were influential. Jerry Brown never made it to the White House — he would have been our first Zen president — but he laid out many of the tracks, notably on the environment and fiscal restraint, that helped update progressivism over the past half century.

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Big Tech’s Hypocritical Wokeness May Soon Backfire

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Not long ago, in our very same galaxy, the high-tech elite seemed somewhat like the Jedis of the modern era. Sure, they were making gobs of money, but they were also “changing the world” for the better.

Even demonstrators against capitalism revered them; when Steve Jobs died in 2011, the protesters at Occupied Wall Street mourned his passing.

Increasingly, Americans no longer regard our tech oligarchs as modern folk heroes; today companies including Google, Apple and Facebook are suffering huge drops in their reputations among the public.

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California’s Low-wage Jobs Crisis

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Media, the political class and policy wonks have identified the “housing crisis” as California’s existential challenge.

Yet, in reality, more critical may be a “jobs crisis” that is condemning ever more Californians to permanent low-wage purgatory.

Viewed in aggregate, California employment growth in the past decade has outperformed the rest of the country, although the state lags its prime competitors Utah, Florida, Texas, Colorado, Nevada. In more recent years the state has remained ahead of the national average, although clearly losing momentum.

This is what many boosters see as proof of the “vibrant” economy. But look closer at the quality of jobs being created. Despite the surge of high-wage employment in the Bay Area, the state has created five times the number of low wage jobs as opposed to high wage jobs.

Rather than a beacon for high wage employment, California has created fewer high-paying positions than the national average, and far fewer than prime competitors like Salt Lake City, Seattle or Austin. The convergence of low wages and ever higher housing prices constitute the real “crisis” facing the state.

Since 2000 home prices across Southern California, including the Inland Empire, have grown at roughly twice the rate of income. The new California dream may be working three jobs and never being able to afford a home of your own.

California’s not so good new economy

The changing nature of the state’s economy does much to explain this disappointing pattern. From the end of the Second World War to the 1990s, California developed a very diverse economy, spanning from entertainment and aerospace to all kinds of manufacturing, agriculture and energy. Except for agriculture, all created many middle-wage jobs.

But with the end of the Cold War, the introduction of ever-stricter environment regulations and among the nation’s highest taxes, many middle-class jobs have disappeared. Such above-average paying jobs have dropped 51 percent in the past decade, among the highest rates in the country.

Many firms that traditionally employed mid-skilled blue- and white-collar workers — Parsons, Bechtel, Occidental Petroleum, Toyota, Mitsubishi, Nissan, Schwab and McKesson, Lockheed Northrup — have either left the state or dramatically lowered their headcounts.

Instead, the state economy has become increasingly dominated by the tech sector, which now accounts for more than half its largest firms. These firms may enjoy enormous profits, but employ relatively few workers, particularly outside the Bay Area. Southern California, with a few exceptions, has not been invited to the party. Although the Los Angeles MSA boasts the second largest number of new engineering graduates, for its size, there should be more STEM jobs here. The L.A. area ranks only 116th on a percentage of tech jobs relative to all jobs in the area. By contrast, Silicon Valley ranks No. 1 and San Francisco No. 3 in the nation on percentage of employment in STEM occupations.

Particularly hard-hit has been the industrial sector, which, notes business relocation expert Joe Vranich, is particularly vulnerable to high energy prices: since 2011 electricity prices have increased five times as fast as the national average. No surprise that the country’s post-recession industrial renaissance has barely touched California. Over the decade California has fallen to the bottom half of states; last year it ranked 44th, with a rate of growth one-third to one quarter that of prime competitors such as Texas, Virginia, Arizona, Nevada and Florida.

Growing regional disparities

The current regulatory regime particularly hits both the poorer parts of urban California and the interior, areas traditionally reliant on basic industries such as agriculture, logistics, and manufacturing. Even as these areas are growing their populations — including millennials — far faster than the unaffordable coast, they must commute elsewhere for middle-class jobs.

Take the Inland Empire. The region created as many jobs per capita as Silicon Valley but mostly in low-wage fields like hospitality, health care and logistics. The result: the Inland Empire suffers the lowest average pay of any of the nation’s 50 largest regions.

The picture may be even worse in the Central Valley, where new groundwater regulations as well as high energy prices threaten its largest industry, agriculture. The Farm Bureau suggests as much as one in three acres could be lost. Particularly in the crosshairs is Kern County, which has one of the nation’s strongest ag industries, and is also as the capital of California’s oil industry, now slated by the governor for extinction. This will cost the area 14,000 generally high-paid jobs even as the state continues to import much of its oil from the Middle East.

Will tech leave too?

As its basic industries struggle, California is becoming an economic colony of the tech oligarchs. Their enormous wealth has served to mask the state’s economic challenges and provided the wherewithal for an ever-increasing welfare and subsidy regime.

Can the party continue? Those parts of the state where the tech headquarters are located — the Bay Area and San Diego — have done well, but Los Angeles, notes a recent Brookings study, has actually lost tech jobs over the decade. Generally, any part of the state that lacks large high-tech headquarters is likely to be ignored. Whether this pattern will persist is uncertain particularly if valuations, as for many recent IPOs and the mega-unicorns continue to drop.

Clearly some new state rules, particularly from Assembly Bill 5, concerning contract labor are a direct threat to tech firms, not only Uber and Lyft but to companies that subcontract services from smaller companies and individuals. Higher-income and other taxes now being proposed will certainly hit the tech workforce. Some firms have already started shifting employment to other states, notably Texas, Tennessee, Nevada, Colorado and Arizona.

In fact, according to estimates by EMSI, several states — Idaho, Tennessee, Washington and Utah — are now growing their tech employment faster than California. The state is also losing its mojo on professional and technical services, the largest high-wage sector, and now stands roughly in the middle of pack, well behind its major competitors like Nevada, Utah, Colorado, Texas, Tennessee and Florida.

If these job opportunities continue to ebb, California will lose its appeal to a new generation of wealth creators. The proverbial land of the future could morph into an island of inertia. California leads the nation in long-term owners who often owe little on their houses, so they may hang around. It’s the next generation that’s most at risk, and if their incomes continue to lag, there is no way they can hope to secure affordable housing.

Needed: a new strategy

California’s economy has always been driven by newcomers. But increasingly people and companies outside the charmed circle of venture capital-funded firms are leaving. Between 2014 and 2018, notes demographer Wendell Cox, net domestic out-migration has grown from 46,000 to 156,000, with an increasing share of younger people, particularly those in family-formation years.

Yet what has been created by misguided policy can be reversed with intelligent alternatives. If we wish to restore middle-class white collar and high-paying blue-collar jobs, we need to consider economic impact as well as the effectiveness of environmental regulations.

The threat from climate change is undeniably here, but essentially returning California to pre-industrial society, dependent on the largesse of a handful of tech companies, seems self-defeating and profoundly feudal. The state needs to apply our legendary innovative skills to address greenhouse gas emissions in ways that don’t also eviscerate middle- and working-class incomes.

There are a host of options including taking another look at nuclear power, renewable/recaptured natural gas, expanding hydro-electric capacity, dispersing work closer to where people can afford to live, encouraging work at home and changing regulations to exempt outlying areas from the most draconian regulations.

If we don’t change course, many California will have to say goodbye to future good jobs and social mobility for our children, unless, of course, they choose to live elsewhere.

Joel Kotkin is the Presidential Fellow in Urban Futures at Chapman University and Executive Director for the Center for Opportunity Urbanism. His last book was The Human City: Urbanism for the Rest of Us (Agate, 2017). His next book, The Coming of Neo-Feudalism: A Warning to the Global Middle Class, is now available to preorder. You can follow him on Twitter @joelkotkin. Marshall Toplansky is clinical assistant professor of Management Science, research fellow, C. Larry Hoag Center for Real Estate, Argyros School of Business and Economics, Chapman University.

This piece first appeared on The Orange County Register.

Photo credit: USACE via Flickr under CC 2.0 License.