Can California Make A Comeback?

These are times that thrill some easterners' souls. However bad things might be on Wall Street or Beacon Hill, there's nothing more pleasing to Atlantic America than the whiff of devastation on the other coast.

And to be sure, you can make a strong case that the California dream is all but dead. The state is effectively bankrupt, its political leadership discredited and the economy, with some exceptions, doing considerably worse than most anyplace outside Michigan. By next year, suggests forecaster Bill Watkins, unemployment could nudge up towards an almost Depression-like 15%.

Despite all this, I am not ready to write off the Golden State. For one thing, I've seen this movie before. The first time was in the mid 1970s. The end of the Vietnam War devastated the state's then powerful defense industry, leaving large swaths of unemployment and generating the first talk about the state's long-term decline.

An even scarier remake came out in the 1990s. Everything was going wrong, from the collapse of the Soviet Union and the unexpected deflating of Japan to a nearly Pharaonic set of plagues, ranging from earthquakes and fires to the awful Los Angeles riots of 1992.

Yet each time California came roaring back, having reformed itself and discovered new ways to create wealth. In the wake of the early '70s decline came the first full flowering of Silicon Valley as well as other tech regions, from the west San Fernando Valley to Orange and San Diego counties. Much of the spark for this explosion of growth came from those formerly employed in the defense and space sectors.

The '90s recovery was even more remarkable. Amazingly, the politicians actually were part of the solution. Aware the state's economy was crashing, the state's top pols--Assembly Speaker Willie Brown, Sen. John Vasconcellos, Gov. Pete Wilson--made a concerted effort to reform the state's regulatory regime and otherwise welcomed businesses.

The private sector responded. High-tech, Hollywood, international trade, fashion, agriculture and a growing immigrant entrepreneurial culture all generated jobs and restored the state's faded luster.

These sectors still exist and still excel even under difficult conditions. The problem this time is that the political class seems clueless how to meet the challenge.

Politics have not always been a curse to California. In the 1950s and 1960s, the Golden State's growth stemmed in large part from what historian Kevin Starr describes as "a sense of mission" on the part of leaders in both parties. Starr chronicles this period in his forthcoming book, Golden Dreams: California in an Age of Abundance, 1950-1963.

Under figures like Earl Warren, Goodwin Knight and Pat Brown, Starr notes, California "assembled the infrastructure for a great commonwealth." Their legacy--the great University system, the California Water Project, the freeways and state park system--still undergirds what's left of the state economy.

Perhaps the best thing about these investments was that they helped the middle class. Sure, nasty growers, missile makers and rapacious developers all made out like bandits--which is why many of them also backed Pat Brown. But the '50s and '60s also ushered in a remarkable period of widespread prosperity.

Millions of working- and middle-class people gained good-paying jobs, and could send their children to what was widely seen as the world's best public university system. People who grew up in New York tenements or dusty Midwest farm towns now could enjoy a suburban lifestyle complete with single-family homes, cars, swimming pools and drive-through hamburger stands.

"This was an epic success story for the middle class," historian Starr notes. It's one reason why, when people ask me about my politics, I proudly identify myself as a Pat Brown Democrat.

That's why California's current decline is so bothersome. A state that once was home to a huge aspirational middle class has become increasingly bifurcated between a sizable overclass, clustered largely near the coast, and a growing poverty population.

Over the past 40 years California's official poverty rate grew from 9% to nearly 13% in 2007, before the recession. Three of its counties--Monterey, San Francisco and Los Angeles--boast large populations of the über rich but, adjusted for cost of living, also suffer some of the highest percentages of impoverished households in the nation.

Most worrisome has been the decline of the middle--the increasingly diverse ranks of homeowners, small business people and professionals. The middle has been heading out of state for much of the past decade. Politically, they have proven no match for the power of the wealthy trustfunders of the left, the powerful public employee union as well as a small, but determined right wing.

The good news is that the middle class shows signs of stirring. The nearly two-to-one rejection of the governor's budget compromise reflected a groundswell of anger toward both the Terminator and his allies in the legislature.

Simply put, California voters sense we need something more than an artful quick fix built to please the various Sacramento interest groups. Required now is a more sweeping revolutionary change that takes power away from the state's most powerful lobby, the public employees, whose one desired reform would be ending the two-thirds rule for approval of new taxes and budgets.

Middle-class Californians are asking, with justification, why we should be increasing taxes--we're ranked sixth-highest in the nation--to pay for gold-plated state employee pensions as well as an ever-expanding social welfare program. Although state spending has grown at an adjusted 26% per capita over the past 10 years, it is hard to discern any improvement in roads, schools or much of anything else.

As an opening gambit, the right's solution--strict limits on state spending--makes perfect sense. However, long-lasting reform needs to be about more than preserving property and low taxes. To appeal to the state's increasingly minority population, as well as the younger generation, a reform movement also has to be about economic growth and jobs.

Not surprisingly, local leaders of the "tea party" movement gained some profile from last week's vote. Yet the right, which has exhibited strong nativist tendencies, is not likely to win over an increasingly diverse state.

In my mind, California's revival depends on three key things. First, the lobbyist-dominated Sacramento cabal needs to be shattered, perhaps turning the legislature into a part-time body, as proposed by one group. Perhaps the cleverest plan has come from Robert Hertzberg, a former Speaker of the Assembly who heads up the reformist California Forward group.

Hertzberg proposes a radical decentralization of power to the state's various regions, as well as cities and even boroughs in urban areas like Los Angeles. This would break the power of the Sacramento system by devolving tax and spending authority to local governments.

Secondly, California needs to develop a long-term economic growth strategy. Over the past decade, California's growth has become ever more bubblicious, dependent first on the dot-com bubble and then one in housing. The basic economy--manufacturing, business services, agriculture, energy--has been either ignored or overly regulated. Not surprisingly, we could see 20% unemployment, or worse, in places like Salinas and Fresno by next year.

Third, both political reform and an economic strategy aimed at restoring upward mobility depends on a revival of middle-class politics in this state. It would include building an alliance between the more reasoned tea partiers and saner elements of the progressive community.

The new alliance would not be red or blue, liberal or conservative, but would represent what historian Starr calls "the party of California." At last there could be a political home for Californians who are angry as hell but still not yet ready to give up on the most intriguing, attractive and potentially productive of all the states.

This article originally appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.