California is collapsing Once seen as a progressive's paradise, the state is drifting towards a new kind of feudalism

California now suffers the highest cost-adjusted poverty rate in the country, and the widest gap between middle and upper-middle income earners. It also has one of the nation’s highest Gini ratios, which measures the inequality of wealth distribution from the richest to poorest residents — and the disparity is growing. Incredibly, California’s level of inequality is greater than that of neighbouring Mexico, and closer to Central American countries like Guatemala and Honduras than developed nations like Canada and Norway.

It is true that California’s GDP per capita is far higher than these Central American countries, but the state has slowly morphed into a low wage economy. Over the past decade, 80% of the state’s jobs have paid under the median wage — half of which are paid less than $40,000 — and most are in poorly paid personal services or hospitality jobs. Even at some of the state’s most prestigious companies like Google, many lower (and even mid-level) workers live in mobile home parks. Others sleep in their cars.   

The state’s dependence on low-wage service workers has been critical in the pandemic, but it now suffers among the highest unemployment rates in the nation, outdone only by tourism-dominated states like Hawaii, Nevada and New Jersey. Los Angeles, the home of Hollywood, now has the highest unemployment rate of the nation’s top ten metropolitan areas, higher even than New York.

But that hasn’t stopped California from portraying itself as a progressive’s paradise, publicly advocating racial and social justice. The state just passed a Racial Justice Act to monitor law enforcement, endorsing reparations (although California was never a slave state) and is working to address “systemic” racism in its classrooms. This “woke” agenda was taken to a new extreme this week when the San Francisco School Board decided to rename 44 schools because they were named after people connected to racism or slavery. The district’s Arts Department, originally known as “VAPA”, also decided to re-brand because “acronyms are a symptom of white supremacy culture”.

Unsurprisingly, changing school names has little effect on the daily lives of minorities. In fact, minorities do better today outside of California, enjoying far higher adjusted incomes and rates of homeownership in places like Atlanta and Dallas than in San Francisco and Los Angeles. Almost one-third of Hispanics, the state’s largest ethnic group, subsist below the poverty line, compared with 21% outside the state. Meanwhile, one fifth of African Americans and over two-thirds of noncitizen Latinos, including the undocumented, are the edge of poverty.

The reality today is certainly a stark change from the 1980s, when the technology industry created lots of middle class jobs. Hewlett Packard was an exemplar of enlightened management and employee benefits; it was long noted for its informal way of running its business and worked particularly hard to involve its line workers in helping define and reach the company’s goals. Yet in recent years, Valley companies have become ever more abstract and digital, with fewer jobs requiring working and even middle-class employees.

By 2015, nearly 30% of Silicon Valley’s residents relied on public or private financial assistance. Once a beacon of middle-class aspiration, it has become “fragmented and divided,” note two Leftist researchers, Chris Benner and Manuel Pastor, “with the high-tech community largely isolated from the broader region and particularly those parts of the region that are less fortunate”. Rather than “a capitalism we can believe in”, the Bay Area has become “a region of segregated innovation,” where the upper class waxes, the middle class wanes, and the poor live in poverty that is becoming impossible to break out of. Silicon Valley, as we know it today, has essentially collapsed into “feudalism with better marketing”.

Yet for most of its 170-year history as a state, California was a magnet both for ambitious Americans and foreigners. The newcomers helped create the farms, drill oil wells, engendered Hollywood, the aerospace, and technology industries. The California dream was, in a sense, America on steroids. Even when high costs and the rise of other areas — Texas, North Carolina, Arizona, Washington State — slowed and eventually reversed domestic migration, people from abroad continued to pour in to pick up the slack.

This is increasingly no longer the case. California’s population is — for the first time in its modern history — falling. Millennials, particularly when they start having families, are heading to other states, a process that has been accelerated by the pandemic. Once the ultimate land of youth, the Golden State is now ageing 50% faster than the rest of the country. In time, the wheelchair could replace the surfboard as the symbol of the state. And as millennials flee the state and other expensive coastal regions, immigrants are no longer coming in large numbers. Instead, as demographer Wendell Cox explains, they are increasingly moving inland to cities like Houston, Nashville, and Orlando.

Californian officials try to cover up these shortcomings by pointing to the huge capital gains tax receipts they receive from large tech companies, and those derived from IPOs. Together these have created an enormous tax windfall estimated at $26 billion that allows the state to enjoy an annual surplus even in hard times. That’s partly why, when Governor Newsom recently defended his economic track record, he predictably pointed to the new round of IPOs to assure us that the state’s growing billionaire class is “doing pretty damn well”.

Yet Newsom currently faces a determined recall campaign, which could trigger an election if it attracts enough signatures. For in spite of his optimism, opportunities and avenues for growth, the Governor’s preening and inconsistent lockdown activities — such as closing outdoor dining despite no evidence of its dangers, and being caught eating un-socially distanced at the hyper-expensive French Laundry restaurant — have angered large swathes of the state’s population. Not only have these incidents exposed his cluelessness, but also the political class’ imperviousness to the needs of non-elite business and ordinary citizens of the state.

And this is all at a time when we are starting to see the unravelling of the precise policies on social justice, climate and taxes that are widely viewed among progressives as role models for the future. These policies have not brought about greater racial harmony, enhanced upward mobility and widely based economic growth. They are not even exemplars in reducing climate change, but, at best, shift the burden of saving Gaia onto the working class while their jobs and resources generate wealth elsewhere.

Clearly California is not the avatar of brighter future, particularly in an age of heightened competition from hungrier, more motivated and less carbon-obsessed places like India and China; indeed, California increasingly cannot compete, even for most high-end jobs, with American upstarts like Texas or Arizona. So before the state — and the President — entertains any notion of sensibly “exporting” its model, California’s leaders need to embrace the biblical notion of “physician cure thyself” and demonstrate that our state is the harbinger of a better future, rather than a feudalistic past.

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Joel Kotkin is a Presidential Fellow in Urban Futures at Chapman University and a Senior Research Fellow at the Civitas Institute, the University of Texas at Austin.

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