Virtual Town Hall: California Feudalism – Addressing California’s Inequality Crisis

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Join us for a presentation on Kotkin and Toplanksky’s research brief titled, California Fuedalism: A Strategy to Restore California’s Middle Class discussing inequality in California and how a change in state policy could restore our state’s dream. Kotkin and Toplansky will be joined by distinguished panelists for commentary and Q & A.  The event will be moderated by Lisa Sparks Dean of the School of Communication at Chapman University. Read more

Neo-Feudalism in California

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From the beginning, California promised much. While yet barely a name on the map, it entered American awareness as a symbol of renewal. It was a final frontier: of geography and of expectation.
 —Kevin Starr, Americans and the California Dream: 1850–1915

In the eyes of both those who live here and those who come to observe, California has long stood out as the beacon for a better future. Progressive writers Peter Leyden and Ruy Teixeira suggested last year that our state is in the vanguard of every positive trend, from racial diversity and environmentalism to policing gender roles. “Cali­fornia,” they said in a post on Medium, “is the future of American politics.”

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From tragedy to opportunity: We could live better when today’s mayhem ends

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For most people in this locked-down, riot-scarred world, the future beckons unpleasantly. There is a growing sense that, economically, the 2020s may look more like the 1930s than some halcyon post-industrial future. “Dark days ahead,” suggests The Week. “This is what the end of the end of history looks like.”

Yet, beyond the depressing statistics, the deserted malls, the looted or abandoned Main Streets, lies the potential to use the pandemic to create the impetus for better, more sustainable and family-centric communities. This is not just some return — imagined from the security of the high punditry — to a “plainer,” more noble past but actual, meaningful improvements in our daily lives, made largely possible by technology.

Pestilence has long reshaped economies and communities. The plague took as many as one in three Europeans but also generated higher wages for the remaining workforce and provided new opportunities for enterprising peasants, who soon would morph into a nascent middle class. “In an age where social conditions were considered fixed,” suggested historian Barbara Tuchman, the new adjustments seemed “revolutionary.” Similarly, the disease-ridden depredations of the industrial city eventually led to new sanitation systems, the growth of public health systems, as well as a century-long exodus to less crowded, more family-friendly suburban communities.

Changing how we work and live — for the better

The growth of telecommuting and its surprising productivity gains have been turning corporate heads during the pandemic. Many companies, including banks and leading tech firms such as Facebook, Salesforce and Twitter, now expect a large proportion of their workforce to work remotely, permanently. A University of Chicago study suggests this could grow to as much as one-third of the workforce. In Silicon Valley, it notes, the number reaches near 50 percent.

The shift to dispersed work — likely to be further accelerated by the ongoing riots and protests — opens up unique opportunities for parts of the country that have not enjoyed the benefits of tech growth. With two out of three tech workers now willing to leave San Francisco, Big Tech can get bigger while spreading talent and wealth more widely. Rather than steering high-wage employment places where earnings tend to disappear through inflated living costs and taxes, much of the workforce now will be able to live closer to where they can afford to live comfortably, raise a family and lift up local economies.

Some urban planners, notably in California, will try to stifle these developments, seeking to push large apartments and transit over suburban growth. But no degree of urban boosterism will erase the searing memories of the pandemic and the riots which have devastated the hearts of our largest cities, and which will impact location decisions for a generation.

Read the rest of this piece at The Hill

Joel Kotkin is the author of the just-released book The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute — formerly the Center for Opportunity Urbanism. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin

Coronavirus: Why California’s Small Businesses May Not Survive

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Whatever the medical benefits achieved from the prolonged coronavirus lockdown, California’s small business community will be suffering severe symptoms, likely for decades to come. The state’s small entrepreneurs, particularly in poorer areas, face major readjustments and perhaps obliteration, a situation further complicated for some by damage stemming from the protests over the killing of George Floyd.

These small firms were already in parlous shape before COVID-19. Despite the immense wealth generated in Silicon Valley and among real estate speculators and the entertainment elite, most of the state’s growth in recent years was in low-end service businesses. As a result, 80% of all jobs created in the state over the past decade paid less than the state median income and half of those well under $40,000, according to Marshall Toplansky, a researcher at Chapman University.

California COVID-19 death rates are far lower than states in the Northeast, but our bifurcated economy is deeply vulnerable to declines in service businesses, and particularly in hospitality, retail and restaurant sectors. Roughly 90% of businesses surveyed this month by BizFed, a Los Angeles County organization of business groups, have been severely affected and nearly half have seen their revenue drop over 50%.

Before the pandemic, California’s boosters and leaders could convince themselves that the state had developed a new progressive and sustainable economic model. COVID-19 and the economic downturn have stripped away the glitzy facade, as our unemployment rates now surpass the national average, worse even than New York, the epicenter of the U.S. coronavirus outbreak. It’s particularly bad in Los Angeles, where less than half of residents now hold jobs. L.A. County has lost over 1 million jobs to the pandemic and suffers an unemployment rate higher than any of the major California urban counties.

Southern California’s greater economic vulnerability reflects, in part, its unusual exposure to some of the hardest-hit industries, notably tourism and hospitality as well as international trade. But the economic damage caused by more than two months of lockdown is spreading to industries that depend on selling goods outside the region — such as apparel and medical equipment — and the entertainment industry, which according to recent estimates may have already lost over 100,000 jobs.

If consumers are slow to resume their pre-coronavirus activities, many small firms already struggling with the state’s business regulations and high taxes may be tempted to head elsewhere. Joseph Vranich, a relocation expert who recently moved his own business from Irvine to Pittsburgh, has identified 2,183 publicly reported California disinvestment events between 2008 and 2016. However, experts in site selection generally agree that at least five relocations take place without public knowledge for every one that does.

The places with the biggest gains from California are in Texas, Nevada and Arizona. Between 2000 and 2013, California was the source of about one-fifth of all jobs that moved to Texas — 51,000 jobs.

Perhaps most immediately threatened, however, will be small businesses that focused largely on serving local residents. Take restaurants. The vast majority of the state’s more than 90,000 restaurants are owned and operated by independent proprietors, employing 1.4 million food service workers, according to the California Restaurant Assn. It generates more sales tax ($7 billion annually) than any other industry and some 60% are owned by people of color. Unless the state finds ways to help, 20% to 30% of these restaurants will never open again, the association has predicted.

Like small businesses across the country, many of these firms have not been able to access federal funds to withstand the downturn. Washington’s bailout program, even some Republican economists admit, has been tilted in favor of Wall Street and larger firms. Particularly excluded, note local advocates, have been smaller, often immigrant-run businesses which lack strong bank relations. They also often lack savings and much of their business is cash-based. Still others are owned and operated by noncitizens, some of them undocumented people.

In many neighborhoods, there is widespread concern that local owners of small shops, apartment buildings and commercial properties won’t be able to hang on and will be taken over by outside investors with no tie to the area. The need for social distancing protocols has worked against small stores that rely heavily on personal contact with customers and can’t make up all of their revenues through online sales. Some already see this trend as accelerating gentrification that was happening before the coronavirus.

“The business owners are scared,” suggests Mirabel Garcia, who works on micro-loans for the East L.A.-based Inclusive Action for the City. “They are worried they will not be able to hold on against Wall Street and the big investors.”

California will emerge from this crisis, but what kind of state will it be? The power of the tech oligarchy — the biggest winners during the coronavirus crisis — will likely further their hegemony. But the reality for most in the business sector will be far less grand: empty stores, broken dreams, defaulted mortgages and less opportunity for the kinds of entrepreneurs who created California’s century of economic dynamism.

In this economic crisis, state government needs to look out for the interests of grassroots entrepreneurs. This includes helping smaller firms adjust to new social distancing requirements and providing technical assistance so they can better compete with megastores or Amazon. It also means protecting small business owners against nuisance lawsuits related to coronavirus claims. Measures like California’s Assembly Bill 5, which seeks to greatly limit contract work, should at least be suspended at a time of record unemployment.

Given California’s deepening budget problems, rooted in huge state costs and pensions, the state cannot afford to prop up deserted business and millions of unemployed workers. There’s only so much that can be done to curb the inevitable “creative destruction” caused by the pandemic.

But entrepreneurs are, if nothing else, resilient. If they are given enough help to survive, they will eventually adjust to the new realities, and find new ways to thrive to the benefit of all Californians.

“It breaks my heart to see all the empty stores,” said Vivian Bowers, who runs her family’s dry-cleaning business, which has been in South Los Angeles for 63 years. “But entrepreneurs are tough. At this business we have survived numerous recessions and two riots. Give people a chance and they can come back.”

This piece first appeared at Los Angeles Times.

Joel Kotkin is the author of the just-released book The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute — formerly the Center for Opportunity Urbanism. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin

Photo credit: Nick Papakyriazis via Flickr under CC 2.0 License.

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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