By Joel Kotkin.
California’s dream is shrinking inexorably, and only radical steps can prevent the condition from becoming permanent. Compared with previous economic expansions, fewer state residents and communities are benefiting from this recovery, which has largely been restricted to the small coastal zone surrounding the Bay Area, as well as certain parts of western Los Angeles, Orange and San Diego counties.
As the economy has strengthened, what is called a “boom” in the mainstream media is really a story of one region. Some 300,000 jobs have been created as the recovery has strengthened over the past 15 months,but three-quarters of them have been concentrated along the coast, mostly in the San Francisco-San Jose corridor.
In contrast, much of the interior of the state, from the Inland Empire, where the poverty rate has doubled since 1990, to the Central Valley, is doing far less well. Unemployment has dropped to near 5 percent in the Bay Area, but remains above 8 percent in the Inland Empire, and above 10 percent in many interior communities, from Fresno and Modesto to Bakersfield. Viewed in the national media as some sort of permanent basket case, the inland region, booming a decade ago, was recently compared by a UCLA economist to Appalachia.
Get in the ‘zone
California’s interior clearly needs a form of new deal that will allow it to participate in the state’s recovery. This plan starts with declaring the entire area an “enterprise zone” that allows communities to opt out from some of the harshest, coastally driven regulations.
Enterprise zones typically refer to economically ailing portions of cities where policies to encourage economic growth and development are implemented for businesses in the designated area. Such policies, on a regional scale, are needed in inland California.
Extraordinary controls on development, expensive “green energy” policies and high taxes on small enterprises may seem reasonable, or at least bearable, in a coastal economy fueled by soaring capital gains, with the prospect that the gentry rich can supply trickle-down service jobs to the hoi polloi.
But such policies are often disastrous for the state’s interior, which lacks the resources or appeal of the coastal havens. Take the issue of electricity prices, which have soared, in large part, because of the green-energy policies favored by influential residents along the coast. Energy costs for many California businesses are roughly twice those for consumers in the Pacific Northwest, Salt Lake City or Denver. Yet here’s the rub: The climate along the coastal strip requires less air conditioning or heating, unlike that of the interior regions, where temperatures rise and fall more severely.
Many wealthier coastal residents can afford housing close to major job centers and, for that matter, more expensive gasoline. But the same pump prices are a dagger aimed at the finances of many middle- and working-class people who live in the interior and have to commute to employment. The gentry retort – that such people should move to the city – ignores the fact that most middle- and working-class people can’t afford to live decently in places like Los Angeles, much less San Francisco, given current prices.
People in recent decades have moved to the interior largely to improve conditions for their families, not to lower their quality of life. Rising gas prices won’t lead them “back to the city” but, more likely, will force many to cut back further, or consider moving elsewhere. There’s no discernible movement of people to the coastal counties from the interior; if anything, the pattern, although less marked than a decade ago, remains quite the opposite.
Despite a growing population, the long-term sustainability of the interior’s economy now is questionable. High energy costs, onerous regulatory burdens and land-use constraints imposed by Sacramento are systematically undermining industries that have traditionally driven growth in the state’s interior. These include construction, manufacturing, ranching and farming, along with logistics and business services, all of them employers of middle- and working-class Californians.
Creating an expansive enterprise zone would allow these businesses to compete more successfully with other states. It might encourage, for example, manufacturers leaving or expanding away from the coast to head to inland California instead of to another state, or propel builders to construct affordable housing, including single-family homes, in places like the Inland Empire, as opposed to in Texas or Arizona.
Why should the Bay Area oligarchy agree to such a step? One reason may be to avoid the soaring cost of supporting so many poor and needy people in the interior. When the tech bubble bursts, the state will face another cash crunch. Having a vast impoverished population then will mean even higher taxes and worse services, something that will affect all but the most high-end businesses.
Dreams, green or otherwise, take money, but our bifurcated economy relies increasingly on the fortunes of the few. California’s top 1 percent of earners paid 50 percent of state income taxes in 2012, up from 40 percent the year earlier. This is not surprising since so much of the state is either impoverished or stagnating. Once aspirational regions, proud contributors to the Golden State’s economic diversity, increasingly resemble dependent countries in the Third World.
Modern-day progressives respond to these realities by pushing for such things as raising the minimum wage, or imposing even more Draconian labor regulations. This may help some low-income workers, but it’s hard to see how it would boost the interior’s competitiveness. In contrast, the creation of an enterprise zone would give these areas at least a fighting chance.
Ultimately, what kind of California do we want for our children? Right now, the state is evolving into something of a neofeudalist society, consisting of an affluent few, concentrated in the coastal belt, a large and expanding poverty class and a struggling, shrinking middle class. There’s the California of the oligarchs with 111 billionaires, by far the most of any state, with personally held assets worth $485 billion. Together, they own more than the GDP of all but 24 countries in the world. At the other end of the scale is a state with the nation’s highest poverty rate (adjusted for housing costs) – above 23 percent – and roughly one-third of the nation’s welfare recipients.
This condition has been aptly labeled by one Central Valley writer as “liberal apartheid.”The well-heeled, largely white and Asian coastal denizens live in an economically inaccessible bubble – due to extremely high housing prices – while the largely poor, working class, heavily Latino communities eke out a meager existence in the state’s eastern interior.
To be sure, many forces beyond Sacramento’s control – globalization, immigration, the asset-oriented nature of the recovery – have contributed to this growing wealth gap. But gentry-led pubic policies have exacerbated the refeudalization. Young Californians, notes one study, already are now less likely to graduate from college than were their parents.
A Shrinking middle
Meanwhile, the middle class, the social and economic linchpin of the state, continues to decline, with a far more dramatic drop in state households earning $35,000 to $75,000, according to research from the California Lutheran University forecast project, than the national average. As late as the 1980s, the Golden State was about as egalitarian as the rest of the country, and roughly 60 percent of its population was middle class. But now, for the first time in decades, the middle class is a minority in California.
In fact, many Californians face a future as modern-day land serfs, renting and paying someone else’s mortgage. If they choose to start a family, they increasingly look to settle elsewhere, ironically, some to locations like Oklahoma and Texas, places that historically sent eager migrants to the Golden State, whose appeal combined economic opportunity, its milder climate and spectacular scenery.
The prospect facing California is not unlike that seen in other Democratic-dominated regions, such as New York, where a well-organized and savvy, affluent, urban minority can impose ever-greater restrictions on the relatively unorganized, inarticulate exurban populations. Like New York’s Appalachia-like upstate regions, interior California faces a dismal future that, over time, will lead to increasing demands on the middle and upper classes. Only by allowing the interior a decent chance can California truthfully claim that its economy has, indeed, turned around.
This article first appeared in the Orange County Register and cross-posted at New Geography.