California's major rivals come from four sources: overseas; the low-cost states of the South and intermountain West; the increasingly reassertive Northeastern establishment; and Texas.
* Foreign competition. The same Asian financial crisis that has cut into the state's international trade volume has also diminished the value of many of Asia's currencies, as well as some in Latin America. The devaluations intensify competitive pressures on a host of California industries. Meanwhile, some trading partners, notably Canada and Europe, continue to subsidize California's competitors in entertainment and aerospace to boost their own domestic producers.
* The hinterland states. The low-balling states of the intermountain West and the South feasted on California businesses throughout much of the 1990s. California high-tech expanded its 1990 job base by only 1% in the period up to 1996; meantime, Nevada, Georgia, Oregon, Washington, Colorado and Utah enjoyed double-digit growth. These states are increasingly competitive in terms of higher education, transportation and technical infrastructure. The intermountain West's urban center, Denver, boasts the highest percentage of educated people among all major cities. Having slowed down in the late 1990s as California resurged, such regions would be the first beneficiaries if the new regime in Sacramento imposes onerous new costs on California firms.
* The Northeast corridor. Few places exulted in California's prospective demise more than the long-declining Northeast. Even though states like New York grew slower economically and lost a greater percentage of high-tech jobs and domestic migrants per capita throughout the decade than California, the Northeast, particularly New York City, gained in the battle of perceived "hipness." Using its powerful and often pliant media, New York has spun relatively small phenomena, like the Silicon Alley multimedia district and an uptick in film production, into showbiz razzle-dazzle portraying itself as a full-fledged rival to far larger Silicon Valley and Hollywood, the linchpins of California's role as national technical and cultural trendsetter.
* Texas. The Lone Star State is the most formidable threat to California's lock on the American dream. Only Texas has the population, land, money and entrepreneurial energy to emerge as the 21st century's new California. Unlike New York, Texas has enjoyed robust economic growth through the 1990s while weaning its economy from dependency on oil, gas and agriculture. It led the nation in the total numbers of new technology jobs between 1990 and 1996, easily surpassing former big players like New York and Massachusetts.
Yet, notes economist Levy, the battle for the future is still California's to lose. Other states can imitate, subsidize, low-ball and outpromote California in this or that industry niche, but none of them has achieved the Golden State's critical mass. "If the state becomes unlivable, if education is allowed to fail," he says, "we open the door for others."
This competitive challenge will be the defining issue for Davis and California in the next millennium. A new paradigm of the California dream, based on opportunity, knowledge industries, creativity and design, is within the state's reach. If the new governor and the state's citizens can rise to the demands of this venture, California can continue to frustrate the naysayers and secure its place as the homeland of the future.