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Memo 12.21.2020 15 minutes

Peak Progressive?

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A sliver of hope for California.

In the minds of most progressives, as well as some horrified conservatives, California is the harbinger of America’s future. Governor Gavin Newsom sees his state as a model, claiming California is “the envy of the world” and the great bastion of social justice. “Unlike the Washington plutocracy,” he boasts, “California isn’t satisfied serving a powerful few on one side of the velvet rope.”

Yet it is ever more clear to ever more Californians that our state is becoming exactly the vast gated community Newsom warns about. As Ali Modarres showed in “The Demographic Transformation of California” (2003), the “shared prosperity” of the Pat Brown years were based on a broad-based economy spanning the gamut from agriculture and oil to aerospace and finance, software, and basic manufacturing. In contrast, the Newsom progressive model is built largely around one industry—high tech—which provides increasingly little opportunity for most Californians, and now shows disturbing signs of moving elsewhere.

Current progressive policies are chasing key companies out of the state—including, just within the last week, tech giants Tesla, Hewlett Packard Enterprises, and Oracle, all of which are heading to Texas. But the real problem lies in the state’s fading appeal to outsiders. It is losing domestic migrants and, increasingly, losing appeal to immigrants as well. California retains many of its great assets—a huge concentration of technical talent, a robust grassroots economy, unmatched physical beauty, and a remarkably pleasant climate—but these are being increasingly squandered. The question now is whether Californians will challenge the status quo.

California Values

The progressivism that has emerged in California, unlike previous forms, is not a movement against entrenched power. It is an odd admixture of high-tech libertarianism with a quest for a more spiritual and, most critically, environmentally sustainable future. This amalgam of “cybernetics, free-market economics, and counter-culture libertarianism“ constitutes what British academics Richard Barbrook and Andy Cameron described as “the California ideology.” 

In the early days of the tech revolution, some imagined an almost utopian, communitarian society on the horizon—one that contrasted with the hierarchical structure found in Boston and eastern tech areas (see Annalee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128 (1994)). The Californian author Stewart Brand, writing in Rolling Stone in 1972, predicted that when computers became widely available, everyone would become “computer bums, all more empowered as individuals and as co-operators.” It would be a new era of enhanced “spontaneous creation and of human interaction.” As Jaron Lanier pointed out in in Who Owns the Future? (2013), the “early digital idealists” envisioned a “sharing” web that functioned “free from the constraints of the commercial order.”

This utopian vision got a critical boost from the military and space programs (see Dirk Hanson, The New Alchemists (1982)), but even absent that help it held some relationship to reality. The tech economy in the suburbs south of San Francisco, as in aerospace-driven Southern California, allowed much of the workforce to buy homes, raise families, and enjoy a broad-base prosperity. The area, note two left-wing scholars, Manuel Pastor and Chris Brenner in Equity, Growth, and Community (2010), was also among the most egalitarian in the nation. It was a great place of opportunity for many—including immigrants, particularly from east Asia, who both set up P.C. board operations and increasingly launched larger firms on their own.

The Road to Oligarchy

The mythos of bohemian, enlightened capitalism helps explain why at the Occupy Wall Street protests in 2011, anti-capitalist demonstrators held moments of silence and prayer for the memory of Steve Jobs, a particularly ruthless capitalist. Some even see the tech oligarchs, as the progressive writer David Callahan suggests in Fortunes of Change (2010), as a kind of “benign plutocracy” in contrast to those who built their fortunes on resource extraction, manufacturing, and gross material consumption.

In reality there is plenty of plutocracy, but little that is benign. California, according to liberal economist James Galbraith, has become more unequal over the past decade. It exhibits the largest gap between mid-level and upper-level wages in the nation. California’s level of inequality is greater than that of Mexico, and closer to that of Central American countries like Guatemala and Honduras than to what is common in “progressive” developed countries like Canada and Norway.

Progressive policies, as applied here in California, have driven this widening gap. The coalition that rules the state—tech oligarchs, public employees, and green non-profits—have backed a draconian tax and regulatory environment that has reduced construction jobs and allowed manufacturing to stagnate, while policymakers have targeted the heavily unionized oil industry for extinction. Even without adjusting for costs, notes the New York Times, no California metro ranks in the U.S. top ten in terms of well-paying blue-collar jobs. But four—Ventura, Los Angeles, San Jose, and San Diego—place among the bottom ten. 

Rather than creating a more egalitarian and opportunity-rich environment, the new progressive reality promotes a society of feudal hierarchies with little opportunity for most. Since 2010, 80% of all jobs created in the state, calculates Chapman University’s Marshall Toplansky, have paid under the median income. Half of those fell under $40,000, a poverty wage in a high-cost state. This proportion of lower-wage jobs is higher than that of most of the state’s competitors. California also accounts for all three of the worst metros for first-time homebuyers and six of the top ten, according to a recent AEI survey.

This shift can be seen in Silicon Valley. The Bay Area has become more dominated by both software startups and a highly incestuous group of venture capitalists. Digital advertising has grown ten times in revenue in a decade, now constituting close to a majority of all ads. 

Huge fortunes have been made at a handful of firms. Today tech accounts for eight of the 20 richest people on the planet and nine of the 13 richest people under age 40. Yet at the same time, note Pastor and Brenner, Silicon Valley has become “fragmented and divided,” “with the high-tech community largely isolated from the broader regions that are less fortunate,” including those who clean their buildings and provide them food service.

The Progressive War on Their Own Constituents

With adjustment for cost of living, California now has the highest overall poverty rate in the United States according to the Census Bureau. Los Angeles, by far the state’s largest metropolitan area, has among the highest poverty rates for the largest U.S. metros. In parts of Los Angeles, the growing homeless encampments have spawned medieval diseases such as typhus. There are even indications of a comeback for bubonic plague, the signature scourge of the Middle Ages.

Hispanics and African Americans, who constitute 45% of the state’s population, do far worse here than elsewhere. Based on cost-of-living estimation tools from the Census Bureau, 28% of African Americans in the state live in poverty, compared with 22% nationally. Fully one third of Hispanics, the state’s largest ethnic group, are below the poverty line, compared with 21% outside the state. Over two thirds of noncitizen Latinos, including the undocumented, live at or below the poverty line.

The pandemic has widened this divide. The state’s unemployment rates now surpass the national average, making them worse even than in New York, the epicenter of the coronavirus outbreak. L.A. County has lost over 1 million jobs to the pandemic and suffers an unemployment rate higher than any of the major California urban counties. Today in Los Angeles, violent crime is spiking, and less than half of residents now hold jobs. Since the pandemic, the state’s largest metro, Los Angeles–Orange County, has suffered the second most job losses in the U.S. Two others, the Bay Area and the Inland Empire, rank in the top ten.

Now the state seems poised to lose much of its tech economy, which has been the one force keeping it afloat.

The loss of headquarters is certainly a blow, but perhaps more critical has been the shift to online work. Some 40% of Bay Area tech workers say that they would like to move to a less expensive region, which suggests locations outside of California. In a recent survey, three quarters of high-tech venture funders and founders predicted the same for their workforces. California’s innovation industries, which include science and engineering services, are now trailing those of several other states, notably Florida, Utah, Arizona and Washington. 

Can the Progressives be Challenged?

For the immediate future, the state can balance its short-term books thanks to the massive increase in tech valuations and a group of new IPOs, creating an enormous tax windfall (estimated at $26 billion this year alone). This will provide a temporary sugar high for Newsom and his apologists, but it will not reduce rising discontent at the grassroots level. More than 50% of residents think Californians 18–30 years old will do worse than previous generations.

Latinos, as former Democratic California state Senator Gloria Romero argues, have been hardest hit by more extreme and seemingly arbitrary lockdowns, including the sudden bizarre ban on outdoor dining. Romero adds that people losing their jobs at restaurants may not be amused that their putative advocates, like Gavin Newsom or Nancy Pelosi, flaunt their privilege in luxury and even violate their own rules as “ordinary people have literally been arrested and even thrown in jail for opening their businesses to just survive and feed their families.” 

The state’s pandemic policies also disturb key employers. Disney Executive Chairman Robert Iger has fought with the state’s progressives over policies that keep Disneyland closed, resulting in 28,000 layoffs, even as the company’s parks in Florida and abroad are operating. The state’s inflexibility led Iger to resign from Governor Newsom’s coronavirus recovery taskforce. Elon Musk’s battles with Alameda County officials about the opening of his plant also likely contributed to his decision to move to Texas. 

There is also growing dissent over green policies among minorities and advocates for the poor. A lawsuit by 200 prominent civil rights leaders claims that California climate policy has disproportionately hurt poor and minority populations by boosting housing and energy prices and undermining blue-collar employment. Attempts to ban natural gas, for example, also have elicited opposition from the three most prominent ethnic groups—African Americans, Latinos, and Pacific Asians— all of whom fear the impact of unreliable and expensive energy.

The Surprising 2020 election 

California voters resoundingly defeated Trump, but also rejected the progressive agenda on a host of issues. Particularly revealing was the vote on Proposition 15, a measure financed by Zuckerberg and the teachers unions, which would have raised property taxes in the midst of a devastating recession. In a letter to Zuckerberg, the biggest backer for the measure raising property taxes, the state’s ethnic chambers of commerce noted: “Unlike Facebook, restaurants, dry cleaners, nail salons and other small businesses can’t operate right now and many may never open again. The last thing they need is a billionaire pushing higher taxes on them under the false flag of social justice.”

The state’s voters also strongly rejected a measure to bring back racial quotas for schools and employment, a measure heartily backed by the public sector and their oligarchic allies who characterized the effort at racial neutrality as akin to the KKK. Heavily Asian Orange County voted for Biden by a decisive margin (53 to 44), but the affirmative action measure lost two to one. The measure was crushed as well in heavily Latino interior counties. Several minority GOP candidates—in Orange County, North LA County, and the Central Valley—took seats that in 2018 went to Democrats.

Rather than become politically monotone, California is developing a new political geography conducive to more diverse, even potentially two-party politics. Even as the progressive program passed easily in LA and San Francisco, it failed miserably elsewhere. Outside of core urban areas, Californians seem surprisingly centrist, with a deepening pool of resentment against the current progressive project. A potential recall of Newsom will probably be dismissed as a right-wing fantasy, but the very idea suggests growing dissatisfaction with our preening governor.

Has Progressivism Peaked?

Underpinning these trends is a growing dissatisfaction with the state’s high rate of taxation and its regulation-hobbled economy. A recent IGS/Berkeley poll found a majority of registered voters (53%) said they would vote for Prop 13 if it were up for another vote, while just 18% of voters said they would oppose it. In the same poll, an all-time record 81% of respondents said state and local taxes are too high, and most of those (48%) said taxes are “much too high.” Voters resoundingly agreed (78%) that onerous taxes are driving people and businesses out of the state.

Another problem lies in what a Marxist might describe as “heightening contradictions” within the blue alliance. Consider the battle over Proposition 22, funded by Uber and Lyft, to overturn the state’s onerous AB5 law, a union-backed effort to treat contract drivers as full-time employees. This mandate, as the tech firms understood, would destroy their business model and their fortunes. As they worked tirelessly to defeat Donald Trump, these oligarchs also spent an estimated $200 million to push the measure against labor opposition, and they seem to have won the day.

This internal conflict could get nastier. With 15 defeated, public employees are now casting their gaze at their allies among the oligarchs, which may be an easier sell than wiping out small businesses. California already has the nation’s highest income tax—top marginal tax rate is 13.3%—and capital gains are taxed at that rate. A new proposal circulating in the legislature would add three new surcharges on seven-figure earners. This means a marginal tax rate of 54% for high earners. By contrast, Texas, Tennessee, Florida, and a number of other states attracting the tech industry have zero state income taxes.

Even worse, some prominent Democrats in the California State Legislature have introduced AB 2088, designed to assess a 0.4% “wealth tax” on people with a net worth of more than $30 million. Tech companies may be adept at avoiding taxes, but the top managers and investors may find themselves unable to escape such a tax, which would be assessed on people who exit the state for 10 years after their exit. “You get a wealth tax and people will leave in droves ” predicts Daniel Young, former President of the Irvine Company, and a long-time developer of multi-family housing in Silicon Valley.

Then there are efforts to create a universal basic income for the unemployed and the underemployed. Although these measures have been supported by some oligarchs, the taxes to pay for them can only come in two forms: the confiscation of the riches of the super-affluent, or a massive and politically difficult spate of new charges to the state’s already beleaguered middle class.

As the progressives up their pressure, and the alliance with the oligarchs strains, an emerging centrist majority could arise to challenge the progressive state. There will not likely be a return to Reaganite conservatism—that ship has long ago sailed—but there is now reason to hope that California’s people may find a way to bring down the progressives from their peak.

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