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Trouble in Paradise: The Crumbling California Model

STATE OF THE STATE - Yet California is not doomed, at least in the near term, nor is it anything like a model of social democracy.

As long as its tech oligarchs produce enormous profits and generate wealth, California remains fiscally flush for the near term, and the evolving economy, long on digitization and constant entertainment, works to the state’s historic strengths. Key industries such as space and biomedical research also offer promise.

The big problem with the California model is that it does not work for most Californians, who sufferfrom the highest poverty rate (cost of living adjusted) in the country. Despite being home to three of the nation’s four most expensive housing markets, California has among the lowest cost-adjusted median income of any state, as demographer Wendell Cox notes. Although not particularly hard hit by pandemic fatalities, California continues to recover more slowly than the rest of the states and now suffers the highest unemployment rate in the country — including nine of the 16 metros with the greatest joblessness. Even as the tech oligarchy has reaped record profits and expanded its wealth to unprecedented levels, California ranks as the second-worst place to find a job of all the states. Thank God for Hawaii!

A New Economic Model?

Flush from his recall triumph, Governor Gavin Newsom, along with the legislature, seems determined to double down on his attempt to shape California as the model for the progressive future. He claims that our state is “the envy of the world” and the model of social justice. “Unlike the Washington plutocracy,” he boasts, “California isn’t satisfied serving a powerful few on one side of the velvet rope.”

We can see, in aggregate numbers, some justification for crowing. A writer at Bloomberg claims that the state has “the best economy” in the world, pointing to the bloated stock prices of the major tech firms, soaring home values, and the enormous wealth creation accruing to a relative handful. Other writers insist that California will continue to dominate most of its key industries, owing to its innovation and capital resources.

Yet it’s time now to see what California’s “success” is all about. It reflects a new kind of economy — dominated by a few large companies, with an elite workforce, a large service class, and a population increasingly dependent on wealth redistribution. This emerging oligarchic regime, however progressive it likes to label itself, is more feudal than egalitarian, more hierarchical than competitive, financed largely by the same tech giants who help fund Newsom’s successful defeat of the recall.

For most, the reality on the ground is increasingly challenging. The state is now the second-most unaffordable state for home-buyers, a particular challenge for Millennials, and it suffers the highest rate of “doubling up” — only our friend Hawaii does worse. California has the largest gap between middle and upper wage quartiles in the nation, and it has a level of inequality greater than that of Mexico and closer to that of Central American countries such as Guatemala and Honduras than to such “progressive” developed counties as Canada and Norway. According to the state Legislative Analyst’s Office, 20 percent of state wealth is held within 30 zip codes that account for just 2 percent of the population. Less than 33 percent of state wealth is held within 1,350 zip codes that house 75 percent of Californians.

A Changed Economy

California’s inegalitarian reality reflects the decline of what was once a remarkably diverse, job-rich economy. Key sectors included aerospace, oil, trade, manufacturing, business services, agriculture, as well as software and media. But according to new research from Chapman University’s Marshall Toplansky and Ken Murphy of UC-Irvine, California ‘s rate of job creation over the past three decades has been far below that of key competitors such as Texas, Arizona, Florida, Washington, Nevada, and Colorado.

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(JOEL KOTKIN is the presidential fellow in Urban Futures at Chapman University in Orange, Calif., Washington Fellow at the Claremont Institute’s Center for the American Way of Life, and the executive director of the Urban Reform Institute. His new book is The Coming of Neo-Feudalism. @joelkotkin)