Capitol Deserts Private Sector

For the second time in a decade, California's economy seems headed for calamity. The state's budget shortfall is approaching $40 billion, companies are shedding jobs, government employees face imminent layoffs and the costs of doing business continue to rise. In some business circles, California is rapidly reclaiming its early-'90s reputation as one of the worst places in the country to invest in and grow a business.

There is also bad news for the state's dominant liberal leaders. By refusing to slow government spending and relentlessly pushing an onerous regulatory agenda, they have managed to bankrupt the very public sector that is their pride and joy. To an extent conservatives could once only dream about, continued expansion of state government seems all but impossible because there is simply no new pot of Sacramento-mined gold to spend. City managers and councils may have to look to the private sector to rekindle economic growth, local job creation and tax revenue.

Until recently, California's current crop of political, media and business leaders unabashedly indulged in the fantasy that basic economics didn't apply to their decisions and actions. It's a mind-set that starkly distinguishes them from the leaders who guided California through the recession in the early 1990s.

Overcoming often deep-seated differences, politicians like former Assembly Speaker Willie Brown and Gov. Pete Wilson pushed reforms that reduced skyrocketing business costs and countered damaging publicity about California's business climate. Workers' compensation laws were reformed to save businesses billions of dollars. "Red teams" of local business and state economic development officials were formed to help companies untangle state regulations. Tax incentives for businesses were passed. By the middle of the decade, virtually every economic sector in the state -- aided by a general upturn in the national economy -- was turning around. Unemployment, near double-digit rates at the start of the decade, dropped dramatically.

By contrast, today's crowd of largely inexperienced, ideologically motivated legislators seems oblivious to the public-private relationship. Their cluelessness became even more ingrained during the bubble economy of the late 1990s, when billions of windfall tax dollars flowed into state coffers and Democrats and Republicans spent them as if there were no fiscal consequences. As state Sen. John Vasconcellos (D-Santa Clara), one of the few remaining legislators who directly participated in solving the state's last budget crisis recalls, "There was a euphoria that California would grow on forever."