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.
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.
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.
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.
The Golden State is on a path to high-tech feudalism, but there’s still time to change course.
“We are the modern equivalent of the ancient city-states of Athens and Sparta. California has the ideas of Athens and the power of Sparta,” declared then-governor Arnold Schwarzenegger in 2007. “Not only can we lead California into the future . . . we can show the nation and the world how to get there.”
When a movie star who once played Hercules says so who’s to disagree? The idea of California as a model, of course, precedes the former governor’s tenure. Now the state’s anti-Trump resistance—in its zeal on matters concerning climate, technology, gender, or race—believes that it knows how to create a just, affluent, and enlightened society. “The future depends on us,” Governor Gavin Newsom said at his inauguration. “And we will seize this moment.”
In truth, the Golden State is becoming a semi-feudal kingdom, with the nation’s widest gap between middle and upper incomes—72 percent, compared with the U.S. average of 57 percent—and its highest poverty rate. Read more
The recent rash of fires, like the drought that preceded it, has sparked a new wave of pessimism about the state’s future. But the natural disasters have also obscured the fact the greatest challenge facing the state comes not from burning forests or lack of precipitation but from an increasingly dysfunctional society divided between a small but influential wealthy class and an ever-expanding poverty population.
We are not addressing either the human or natural challenge. Once the ultimate “can do” state, California is morphing into one that is profoundly “can’t do.” Neither right nor left seems to have any program to confront the state’s worsening malaise on issues ranging from housing, education and the economy to the care of the environment.
To be sure, the right is correct to lay some of the blame for fires on green policies that have restricted brush clearance, and have prevented the thinning of the state’s forests, a finding shared by the state’s Little Hoover Commission. But it’s been years since Republicans have been able to present a coherent program — not surprising since vanishingly few in the state listen to, much less follow, the conservative agenda.
For its part, the progressive left controls the debate, the academy, most of the media, but has few answers to the problems plaguing our state. For many, scare-mongering about climate change defines and justifies even the most economically ruinous actions; activists even blame the recent power outages on climate, though the primary cause was lack of investment and maintenance by the state-regulated electrical utility.
Blaming PG&E, President Trump, oil companies, housing developers, car commuters or manufacturers for our problems is no doubt emotionally satisfying to the zealots in Sacramento and their media allies. But despite all this sturm und drang, California’s emissions over the past decade have fallen less than 39 other states and are essentially irrelevant on a global level. Even if the United States adopted the Green New Deal, the impact on climate, notes some recent studies, would be almost infinitesimal. The big emissions increases are almost entirely coming from China and other the less developed countries.
California needs to rediscover its magic
The natural challenges we face are, in fact, not so dissimilar than those in the past. From its inception, California has always been an “unnatural” place for intense urban development. Its lack of water, particularly in the populated parts of the state, long has been an endemic problem; drought and fire a constant theme dating back generations.
The great achievement of the state was to employ innovative engineering solutions that brought massive water supplies from the Sierra range to the water-deficient Bay Area, Southern California and the Central Valley. Elaborate schemes brought electricity and power to the state, sometimes from as far as Utah. Where there was no natural port, one was carved out at San Pedro and Long Beach, now easily the largest entry port in North America.
It’s hard to believe any of this could be done today. Under progressive governors as well as conservative ones, we have done very little to improve our water systems, much less make it more resilient in the face of much feared climate shifts. We talk boldly about going “all electric” but close down emissions-free nuclear plants, shutter efficient gas facilities while refusing to expand hydro-electric systems. No state imports so much of its energy, notably from the enlightened nation of Saudi Arabia, just to keep the lights on — at great cost to both consumers as well as soon to be unemployed California energy workers.
Who loses in the new California?
The future, if Sacramento gets its way, likely will resemble Jerry Brown’s old “era of limits” on steroids. It will become more expensive to get around, even in electric cars that rely on what are already among the country’s highest rates, almost twice as high as competitors like Texas, Arizona, Washington and Oregon, electricity that is rightfully seen as often unreliable as well. Our ability to buy housing, particularly the family-friendly variety, will also be restricted by a planning regime that seeks to cram most into small apartments.
This future appeals to some predictable voices, like The New York Times and The Atlantic, which see the fires on the urban edge as a reason to pack more people into our already congested, unaffordable cities. But these observations fail to distinguish between the heavily wooded areas on the hilly fringes of the metropolis — which are indeed fire-prone — and largely flat expanses of rangeland adjacent to both the Bay Area and the Los Angeles basin. If we don’t find safe places to build the kind of housing most people, notably families, need, our diminished housing choices will accelerate the rising tide of people and companies leaving the state.
These ruinous policies are not necessary. They are based largely on intense “virtue-signaling,” which might also provide the basis for Gavin Newsom’s eventual run for the White House. But he may consider what the rest of the country might think about the kind of bifurcated, dystopic society California now presents; it certainly did not help the failed presidential candidacy of Kamala Harris and was bad enough to keep the disaster that is L.A. Mayor Eric Garcetti out of the presidential sweepstakes.
To be sure, not everyone is suffering from the state’s mismanagement. The oligarchal firms of Silicon Valley, their venture funders and some of their unicorn offspring continue to rack up billions. They plan to house their young employees in glorified dormitories until they decide to leave.
But the path for the rest of Californians is not so clear. Over the past decade, most California metros, notes Chapman University’s Marshall Toplansky, are creating, on a per capita basis, far fewer mid- and high-paid jobs than the rest of the country, particularly places like Dallas, Charlotte, Austin and Salt Lake City. Higher-paid industrial jobs, critical to the working class’s progress, have grown well below the national average over the past decade; last year it was fifth from the bottom among the states.
What lies ahead
This economic disparity in the state, not climate change, as Newsom and his allies insist, remains the biggest challenge facing California. As much or as quickly as it manifests itself, climate will impact every part of the country and the world. The compelling issue should be not how California can heroically address climate issues, but how to do so without engendering a truly unsustainable social transformation.
In terms of fire and drought, there are practical steps to be taken, including allowing more extensive elimination of dead trees and brush as well as building extensive fire breaks, particularly near transmission towers. Potential water shortages can be best addressed with more storage and water-catchment systems as well as conservation and desalinization.
California could choose to reduce emissions in ways that, as longtime environmentalist and author Ted Nordhaus says, eschew “utopian fantasies” and “make its peace with modernity and technology.” There are proven, less economically intrusive ways to reduce emissions without skewering the middle class and turning them into permanent renters, like expanding hydro-electric, nuclear and, most importantly, increasingly abundant natural gas in favor of ruinously expensive renewables.
But efficiency and saving the middle class are not priorities for Sacramento’s empowered bureaucracy. Every time regulators impose more restrictions on home construction and force electricity and water rates up, impacting factories, farms and households, they contribute to the outrage that this richest of states also suffers the country’s highest poverty rate, and hosts many of the country’s poorest metros. A huge percentage of the population — over one third of the population, according to the United Way — are barely making ends meet. California is also home to roughly half of the country’s homeless.
The consequences of staying on this course are far scarier, at least in the short term, than anything that can be ascribed reasonably to climate. Despite the good intentions of some, misplaced environmental policies are building a society — already evident — that will restrict the trajectory, in particular, of the young and minorities, who are faced a declining number of well-paying jobs and ultra-inflated rents and housing prices.
We need is policies whose prime goal is not making the already fabulously rich, like Tom Steyer, or ambitious politicians like Newsom, feel better about themselves. We require an approach that offers hope to middle- and working-class Californians by improving housing choices, expanding industry and jobs, particularly in the poorer areas. New sustainable, and cost-effective, water, power and transport infrastructure constitute a critical part of this solution, as is an education system that teaches skills and practical training for students rather than fashionable “woke” ideology.
If we don’t reverse course, this bifurcated social structure, exacerbated by state policies, threatens something far more unsettling than any natural disaster. A society torn by seemingly unbreachable divisions represents the greatest, and most pressing, sustainability challenge before us.
This piece first appeared on The Orange County Register.
Joel Kotkin is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. He authored The Human City: Urbanism for the rest of us, published in 2016 by Agate. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He is executive director of NewGeography.com and lives in Orange County, CA. His next book, “The Coming Of Neo-Feudalism,” will be out this spring.
Gov. Gavin Newsom has committed himself to look for ways of “unlocking the enormous potential” of the Central Valley, but in reality he seems more interested in slamming the door to its prosperity behind him.
In two critical moves the former San Francisco mayor has shown his incomprehension of how to address the needs of the vast California interior, particularly the over 6.5 million people in the 17 counties of the Central Valley.
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California may have gotten its global allure from the Gold Rush and the movies, but it’s planes, missiles and now drones and spaceships that have underpinned the state’s industrial emergence.
Today, after decades of rapid decline, California’s aerospace employment is growing again, albeit slowly, providing a new chance for the state’s productive economy.
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