By: Ross DeVol
While it’s a relief that lawmakers and the governor have finally settled enough of their differences to enact a budget for the 2009-2010 fiscal year that is close to balanced, it does not solve the greater challenges we face.
I’m not talking about the broken legislative budget process or how to fix it. (Get rid of term limits? Reduce the budget requirement from two-thirds to majority? Repeal ballot-box budgeting?) These things are important, but not nearly as important as dealing with the underlying challenges to California’s overall economy.
Our future does not depend on better budgeting in Sacramento, although it could certainly help. It depends on our ability to create and sustain quality companies and quality jobs filled by a quality work force.
For too long, state lawmakers have either not paid enough attention to these critical areas or they have not paid attention to them at all. They seem to think that, given our many great assets — from world-renowned research universities to a vibrant entrepreneurial environment — California will go on churning out Googles and Intels forever. It won’t — at least, not if we don’t start focusing on how to retain and sustain them.
There are two significant barriers to economic expansion.
• Education: The main threat to California’s future is its growing undereducated work force. It simply isn’t producing enough college-ready high school graduates. For the first time in history, the state’s incoming workers will be less educated than those now starting to retire.
Given that California’s future work force will be increasingly Latino, the fact that our public schools are failing many Latino and African-American children is ominous. For the state’s population age 25 and older, 38 percent of non-Hispanic whites hold at least a bachelor’s degree, compared to only 21 percent of African-Americans and 10 percent of Hispanics. Much of this gap is attributable to recent immigrants with low educational attainment, but even second- and third-generation Latinos lag behind their peers.
In higher education, one of our greatest assets, there are additional warning signs. We’ve seen a precipitous decline in the enrollment of foreign graduate students working on master’s and doctorate degrees. At the University of California, international graduate student enrollment declined between 2001 and 2005 in such key areas as the life sciences (18.8 percent drop), physical sciences (39.9 percent) and engineering and computer sciences (29.5 percent). Immigrants have been a vital lifeline to our knowledge-based industries, which have depended on these educated workers to fill many high-skilled jobs.
• Job creation: Many lawmakers are tone-deaf to job creators. We’re still very good at creating new companies; we’re just not very good at keeping them and helping them grow bigger. Look no further than Intel, headquartered in Silicon Valley, which now employs more people in Oregon than California.
But the problem is far deeper than these high-tech giants. We also need to help small and medium-sized businesses create mid-level jobs that are essential to our economy.
Manufacturing is a good example. From 2000 to 2007, California lost 21 percent of its manufacturing jobs. In high-tech manufacturing, where for every job created as many as 15 others are created elsewhere in the economy, the loss was even greater — down 23 percent. It’s as if we’ve given up on manufacturing as a vital source of job creation.
Why is this happening? There are several key reasons: the state’s burdensome regulatory climate, along with its inconsistent enforcement, and its heavy tax burden.
All this makes it hard to attract new companies and allow the ones we have to expand. Those are jobs — and state revenues — lost.
Lawmakers who are serious about turning California around and maintaining its global leadership position must focus hard on education, job creation and business retention if we’re going to get the state back on its feet. They must reduce the high costs to business, stop over-regulation and other job killers and improve our schools. Not surprisingly, California is one of the few states in the country that does not have an agency or a nonprofit, private economic development organization focused on helping the private sector succeed. There is no strategic vision for the evolving economy, no agency in charge of focusing on the vital link between jobs and public policy. We’re not even putting up a fight. But we must. And if we do, I believe we can restore the pathway back to the California Dream.
DeVol is director of regional economics at the Santa Monica-based Milken Institute.