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Will California leaders nurture or strangle the state’s economic golden goose?

This story appeared on Calmatters

A pedestrian carries an umbrella while walking past a Silicon Valley Bank Private branch in San Francisco on March 14, 2023. Photo by Jeff Chiu, AP Photo

In summary

California’s economic personality has undergone several dramatic changes over its 174-year history. How will state leaders address the economy’s underlying problems and prepare for its uncertain future?

During California’s 174 years of statehood, it has undergone periodic and often dramatic changes of economic personality.

Its admission to the union in 1850 was largely driven by the gold rush, which temporarily supplanted the agriculture and cattle ranching that had been economic mainstays.

When the gold rush cooled in the late 19th century, farming and ranching resumed their central roles. It’s hard to believe now, but Los Angeles County was the nation’s most agriculturally productive county in the first decades of the 20th century.

The state’s northern reaches developed a major timber industry, and oddly oil was first discovered in 1865 amid Humboldt County’s dense forests, a historic fact perpetuated in the name of a tiny hamlet, Petrolia.

However, Southern California saw a much larger oil boom in the final years of the century, and California quickly became the nation’s biggest petroleum producer. Simultaneously, the movie industry blossomed in Southern California, thanks to its scenic settings and sunny weather and the desires of early movie moguls to escape from the East Coast’s intolerant attitudes and legal disputes.

California’s economy, still largely rooted in extracting resources from the earth, underwent a major change when the nation became embroiled in World War II. It became a staging point for the Pacific war, the site of numerous military training bases and an industrial powerhouse producing airplanes and other tools of war, such as ships.

California’s central role in producing weaponry and training military personnel continued after the war because the United States soon found itself in a cold war with the Soviet Union, one aspect of which was a hot war in Korea and later another conflict in Southeast Asia.

California also saw postwar expansions in civilian industries with steel mills, petrochemical plants, auto assembly lines and multiple other factories. However, by the 1970s, California’s heavy industry was shrinking as one-by-one the plants that had employed hundreds of thousands of workers shut down, with the last remaining major manufacturing industry, aerospace, drying up as the Cold War ended in the 1990s and Pentagon contracts disappeared.

Fortunately, military research contracts and Stanford University had spawned a new industry – digital technology – centered in the Santa Clara Valley south of San Francisco. For many decades, it was an agricultural center. Renamed Silicon Valley, it has anchored California’s economy ever since, generating immense wealth that percolated through other economic sectors.

California’s economy may be undergoing another evolution. Silicon Valley’s high-flying past is giving way to a more uncertain future as companies shed thousands of workers and other states see tech industry growth.

California’s past, present and uncertain future deserve intense political, media and academic attention because how its economy evolves will determine how well the state as a whole manages during the 21st century.

That’s why a recent announcement that the Public Policy Institute of California is creating an economic research arm is important. Hopefully, the Economic Policy Center’s research will persuade political and civic leaders to stop taking the state’s economy for granted and reconsider policies that are strangling the golden goose.

However, the center’s first paper – aimed at framing the existing economic picture – is not reassuring. It all but ignores the structural factors that threaten the economy, dwells on superficial effects, and shows a fondness for political mitigation of those effects rather than fixing the fundamentals.

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