The negative groupthink that dominates any discussion of California these days brings to mind what Carly Fiorina, the state's Republican Senate candidate in last month's midterm elections, had to say about her rival's hair style: “So yesterday.”
If you're looking for the future, it's in California – again.
Silicon Valley is experiencing a fervour not seen since the dot-com boom. Los Angeles has overtaken New York as the continental hub of contemporary art. California is embracing diversity while the rest of the nation remains conflicted by it. The state is building a post-carbon economy while others whistle past the climate-change graveyard.
It's funny how a bunch of Wall Street types, steeped in their own Schadenfreude, can ruin a fine state's reputation. Talk of a Greece-like debt crisis, and a federal bailout of the state, makes for drama. But it's overwrought. Yes, California is in the throes of (another) budget crisis. The state government, headed for the past seven years by Arnold Schwarzenegger, is technically broke, hopelessly gridlocked and too cowardly to raise taxes.
The dysfunction makes great headlines, especially as entire countries become wards of Germany. But California is no Greece or Ireland – it's not even Ontario.
Making us look bad
California and Ontario have roughly equivalent budget deficits of about $20-billion. But California's economy is about 3.5 times larger than Ontario's – bigger than all of Canada's, in fact. Its debt is less than 10 per cent of its gross domestic product, while Ontario's stands at 34 per cent and will hit 42 per cent in 2014.
California's budget mess is a sexy news story partly because it pits big personalities against one another. This week, Gov. Schwarzenegger summoned legislators to an emergency session, vowing to solve the crisis before he leaves office in three weeks. Successor Jerry Brown did not appreciate being upstaged and held his own “budget summit.” Neither did more than make headlines.
Fortunately, except for education, a state's government plays a much smaller role in citizens' lives than does a province's. State spending accounts for about 6 per cent of GDP in California, compared with more than 21 per cent in Ontario. The average Californian is relatively well-insulated from the budget crunch.
Besides, California's budget woes could be solved in a snap simply by rejigging the tax base, which relies disproportionately on highly volatile capital gains taxes. After all, California is a big, rich place, but real reform requires political will, and there appears to be precious little.
Luckily, Silicon Valley will likely come to the rescue, as it has before. Taxes generated by the wheeling and dealing of California's entrepreneurs are poised to rebound as the technology sector rekindles.
California captured fully half of the $22-billion that U.S. venture-capital firms pumped into technology companies this year, up to Sept. 30. The state remains the global hub of clean-tech innovation, while its Internet start-ups are still more likely to become the next Facebook.
“We have this whole ecosystem of innovation that isn't present anywhere else in the world,” notes Ross DeVol, executive director of economic research at the Milken Institute, a think tank based in Santa Monica. “California is still well-positioned to produce the next Google.”
Cities in the state grabbed five of the top 10 spots in the Milken Institute's most recent ranking of North America's high-tech hotbeds, with San Jose leading the list. Only four Canadian cities made the top 50.
As much as other countries try to replicate the conditions that led to California's tech prowess, they simply can't. California's critical mass of universities, entrepreneurs and venture capitalists is six decades or more in the making. More important, California remains the planet's one irresistible magnet for those hard-wired for innovation.
Entrepreneurs flock here to be close to the action. They vie for office space near Twitter's headquarters in San Francisco's SoMa district or the Googleplex in Mountain View. The ice-breaker at cocktail parties is: “What new ideas are you working on?”
In Los Angeles, the cocktail conversation these days is likely to revolve around the city's artistic ferment – and no, we don't mean the Kardashians. L.A. is in the midst of a contemporary art boom that has made its museum and gallery scenes the continent's hottest. Artists from afar are flocking to join the party, and billionaire Eli Broad, lionized for nurturing this renaissance, is building a grand museum to house his own collection.
Nothing spawns creativity like diversity. Almost 27 per cent of the more than 37 million Californians are foreign born, a slightly smaller proportion than in Ontario. Asians account for 13 per cent of the population, versus less than 5 per cent nationwide, while Hispanics now make up fully 37 per cent, compared with 16 per cent nationally.
Diversity is both a blessing and a burden. The demands it places on California's public schools – where Hispanic students are now the majority – have outstripped the state's ability to keep up. If there is one good reason for California to clean up its budget act, this is it. Public education is to California what health care is to a Canadian province – a budget black hole. The jobless rate of more than 12 per cent is twice as high among Hispanics as non-Hispanic whites. Without major education reform, and more funding, California risks creating a permanent underclass and even more income inequality – a recipe for social breakdown.
Still, California is farther along than most states in preventing this. “We had our immigration fight a decade and a half ago,” explains Leif Haase, a California-based senior fellow at the New America Foundation. “Social relations here are probably better than in any other state.”
Migrant muscle at the polls
Indeed, California has largely exorcised its anti-immigration demons while its neighbouring states remain in their clutch. Meg Whitman paid a high price to learn this lesson. The former eBay chief executive spent $142-million U.S. of her own money to run for governor last month. But she fatefully aligned herself with former Republican governor Pete Wilson, godfather of Proposition 187, the state's 1994 ballot initiative aimed at denying publicly funded services – including education – to illegal immigrants.
Ms. Whitman lost because 80 per cent of Hispanics voted for the Democrat, Mr. Brown. Her cold-blooded handling of revelations that her Latina maid was in the country illegally, firing her on the spot, may have sealed the deal for Mr. Brown. (Her hair notwithstanding, Carly Fiorina's rival received similar Hispanic support to stage a rout.) The election confirmed that, in California, there is no political mileage to be had from anti-immigration rhetoric. This puts the state light years ahead of the rest of the country.
So does the defeat of Proposition 23, this year's ballot initiative designed to suspend California's ambitious climate change legislation. More than 60 per cent of voters chose to keep the law in place, leaving California as one of few jurisdictions with legally binding targets to reduce greenhouse-gas emissions. The climate-change debate in California is over, while its return awaits politicians elsewhere in North America. No wonder California is the epicentre of clean technology development.
Believe it or not, progress also is being made toward ending the government's debilitating grid- lock. Voters approved several ballot initiatives last month that move Sacramento in the right direction. For example, electoral districts will now be determined by an independent commission, ending the chronic gerrymandering that entrenched party standings. Future budgets will need the support of a simple majority of legislators, instead of two-thirds. And a primary system that encouraged ideological extremism has been replaced by one that forces politicians toward the centre. Henceforth, the top two primary vote-getters, regardless of party, will square off – forcing candidates to appeal to a broad cross-section of electors.
Make no mistake: California still has big problems. The budget impasse forced it to issue IOUs last year and to make employees take unpaid furloughs. And it could happen again. Prisons are so overpopulated that courts have ordered the state to build more or free 40,000 inmates.
But the Cassandras are silly. California is as close to Greece as Athens is to the moon. And Californians are still creating the future before the rest of the world has caught up to the present.
Konrad Yakabuski is The Globe and Mail's chief U.S. political writer based in Washington.
