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The Bashers Are Back

The electricity crisis has given critics of California a new opening to predict catastrophe.

July 15, 2001|JOEL KOTKIN

California-bashing, that great staple of the early 1990s, has returned. Emboldened by the state's embarrassing energy woes and the thundering crash of its dot-com economy, California's traditional detractors--Texas energy barons, Western economic-development officials and Eastern media moguls--are again predicting the state's imminent demise.

Business Week, for example, recently devoted its cover to California's ills. "The Golden State's prospects," it intoned, "seem to be getting dimmer and dimmer." Stories now abound of job recruiters from the South and West landing in San Jose handing out flashlights to supposedly itchy-to-leave Silicon Valley executives. The old, familiar themes of overcrowding, ethnic tensions, Hollywood discontent and environmental degradation have been pressed into service to sustain the dreary predictions.

To be sure, there is much to be concerned about. Sacramento's management of the energy crisis has been uneven, California's public education system is slow to improve and the state's housing shortage is deepening. Furthermore, the Anderson Business Forecast at UCLA recently predicted a contraction in the state economy because of the electricity crisis.

Yet, California is not about to fall into a long-term decline. Now the world's fifth-largest economy, recently surpassing that of France, the Golden State has emerged as the dominant force in both the "hard" and "soft" ends of the digital revolution. For this reason, if for no other, the state seems virtually assured of maintaining a global leadership position that no one--certainly not Texas or New York, much less geriatric Europe or Japan--is likely to overcome in the foreseeable future.

David Shulman, an economist with Lehman Bros. and one of the most knowledgeable Wall Street experts on California, says the resurgence of California-bashing is not justified by the facts. Unlike the early 1990s, when the cratering defense economy fueled some extreme pessimism, today's California economy is remarkably diversified.

"With the end of the Cold War, I saw the justification for some California-bashing," recalls Shulman, who back then was with Salomon Bros. "But the California improvement in the 1990s was pretty evident. The economy has changed. This is clearly where people go to create wealth."

The most troubling problem spots in the U.S. economy lie elsewhere, notes Milken Institute regional economist Ross C. DeVol. Especially hurt is the industrial Midwest, which has been hammered by the precipitous decline in "big ticket" purchases such as cars and refrigerators. The Great Plains, facing a falling population and largely uncoupled from the digital economy, suffers from weak commodity prices. Even in the high-technology sector, most of the severe losses are being felt at the manufacturing level (chips, computers), which is increasingly concentrated in lower-cost regions like the deep South and Western locales like Phoenix.

Shulman thus traces much of the current bashing to wishful thinking in places like New York City, where hopes are again being raised that the painfully prolonged California era is at an end. "At this stage, it's illogical, more psychological than real," Shulman suggests. "It makes people back here feel better."

The best way to gain perspective on the revival of California-bashing is to revisit the early 1990s. Then, the end of the "California dream" was so widely predicted and accepted, even in the state itself, that it took fortitude, or blind faith, to think otherwise.

Remember the headlines? "California: End of the Dream." "California Dream Turns Into a Nightmare." "State of Collapse." The doomsayers were not just trend-jumping journalists but also Wall Street analysts such as Prudential Bache's George Salem, who wrote in 1992 that California "appears in the early stages of a long-term economic slide." It would take at least a decade to recover, he proclaimed, if ever.

It wasn't just the economy that was wrong. Salem and others saw the state, particularly riot-scared Los Angeles, as a racially divided dystopia. Two leading scholars associated with USC's Southern California study center described the City of Angels as "a superficial gloss of striking beauty, glowing light and pastel hues, which together conspire to conceal a hideous culture of malice, mistrust and mutiny." Furthermore, as late as the mid-1990s, UCLA forecastors, who were intially slow to predict the downturn, saw little evidence of an eventual recovery.

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