The Fall of the Golden State

In the last decades of the 20th century, California reinvented a brash new capitalism that created new, more innovative archetypes. Today, some of those companies – Apple, Google and Facebook – are among the largest in the world, with assets greater than those of all but a few countries.

The power of these firms, no longer feisty startups, remains formidable on paper, but they are no longer an economic engine for broad-based prosperity. Once seen as evidence of capitalism’s remarkable ability to create mass wealth, the California economy is now characterised by stark inequality and a lack of opportunity, providing grist for those who wish to undermine the market system and tax away the wealth accumulated by its most successful citizens.

To be sure, if you judge an economy by financial assets, California is a super-performer. The huge run-up in tech-company valuations was enough to prompt Bloomberg to suggest that Governor Gavin Newsom should be credited as the ‘maestro’ of the world’s greatest economy.

Such praise could be handy as Newsom tries to propel himself into the White House. Seeking more kudos, the Brylcreem politician has also tapped nearly $20million in state funds to rehabilitate California’s business image – a move that Dan Walters, the dean of California political reporters, rightly described as a ‘contribution from California taxpayers to Newsom’s forthcoming campaign for the presidency’.

But the real issue here is not Newsom – it is how the case of California raises the question of what an economy is for. Measured by stock and housing prices, California is, as Newsom crows, ‘an economic powerhouse’. But it is also a stark failure, with the country’s highest cost-of-living-adjusted poverty rate, one of the highest levels of functional illiteracy, and the worst housing affordability in the continental US. Overall, according to one recent study, the average Californian, despite higher wages, actually has 35 per cent less disposable income on average than residents in the rest of the US due largely to higher costs and taxes.

Much of this can be traced to the behaviour of tech giants. AI startups may concentrate in the Bay Area, but big players like Salesforce, Meta and Google have aggressively cut their payrolls. Overall, the state’s tech and high-end business services workforce, under pressure everywhere, is shrinking faster than anywhere else in the country, notes economist Gad Levanon. Since 2020, the state’s share of the nation’s high-tech jobs has dropped from 19 per cent to 16 per cent.

Simply put, AI creates opportunities largely for a small subset of established and highly educated workers, but far fewer for recent graduates, and even fewer for those without elite training. Many of the once-celebrated benefits of being a tech hub have diminished, as seen in the large office vacancies in Oakland, San Francisco and even San Jose, the self-proclaimed ‘capital of Silicon Valley’. The much-anticipated Google Downtown campus will not be built anytime soon.

The value of being close to the world’s wealthiest companies appears less compelling than in the past. These firms were once part of a system that created good jobs and opportunities. Today, California increasingly resembles a neo-feudal state, where a handful of large companies drive the economy while the vast majority of workers endure high energy and housing costs, high taxes and diminishing opportunity. How this occurred is a cautionary tale for anyone interested in preventing the market system from undermining itself.

Read the rest of this piece at Spiked.

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Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and and directs the Center for Demographics and Policy there. He is Senior Research Fellow at the Civitas Institute at the University of Texas in Austin. Learn more at joelkotkin.com, follow him on Substack and Twitter @joelkotkin.

Photo credit: Latha B, via Flickr under CC-By-ND 2.0 license.