How to Revive California

Bank of America economist calls for a better business environment

ONE in six of the nation's jobless now live in California.

In the last 30 months almost 900,000 jobs have been lost, pushing the state's unemployment rate to 9.5 percent. California "is now in the midst of its deepest downturn since the Great Depression," said Democratic state Assembly Speaker Willie Brown, chief organizer of a California Economic Summit this week in Los Angeles. Hardest hit are the defense, banking, and commercial real estate sectors.

One of the conference participants, John Wilson, chief economist of the Bank of America, the nation's second-largest bank, spoke with the Monitor last week in his office here about the state's problems and prospects. Excerpts follow:

Is Clinton's economic stimulus package going to provide enough of a push to get California's economy moving?

To think that a United States recovery is going to spill over into California and bail us out of our problems doesn't recognize their complexity. California is suffering from the national recession, major structural change in our basic industries, and a whole series of what you might call "management of resources" problems. These range from government regulations to workmen's compensation problems.

How did California come to be perceived as having a hostile or arrogant attitude toward business?

We've done a bad job managing our political resources: We don't need any more voucher fiascos. [State employees got IOUs when lawmakers failed to agree on a budget.] We don't need a state that can't get a budget out.... We were able to ride through the '80s and not really deal with our fundamental problems. Certainly that view is gone.

About one-third of America's immigrants are arriving in California. What kind of strains does that cause?

Rising immigration has put pressure on education, the welfare system, and the transportation system. In the 1960s, California created one job for each two [arriving immigrants]. In the 1970s, we were adding a job for every 1.3 people. From 1980 to 1988, we were back to a job created for every two added people. But from 1988 to 1992 we have been overwhelmed. We've added 2.5 million people and a total of only 44,000 jobs.

How far has the restructuring of the economy come?

We are about halfway through that process. We've lost about 370,000 jobs in downsizing. We have about 400,000 to go.

How could the federal government help?

We need to see the investment tax credit [which President Clinton has proposed]. California has a dynamic economy with a lot of cutting-edge industries that require investment incentives. We also need targeted policies to deal with our immigration problem. California doesn't have its own immigration policies; they're national policies.

What are the state's chief infrastructure needs?

Though there are real transportation logjams in the population centers, we have an awful lot of vacant land elsewhere. Land-use planning problems include the allocation of water rights. A 10 percent reduction in water use in agriculture would solve all of our urban water problems for the foreseeable future.

How do Japan's economic troubles affect California?

Japan's problems do have an impact on the state's economy, but we also have a deep connection with the Chinese-speaking world. One-third of the students I teach at [the University of California at] Berkeley are Chinese speakers. They stay and form their own companies or take over the trading arm of the family-owned company back in Hong Kong, Singapore, or mainland China.

Why are business failures here running at about three times the national average?

Any time you have exploding new industries, you'll have a lot of start-ups and a lot of failures. But out of some of those start-ups you are going to create the next Hewlett Packard, the next Apple Computer, the next Intel.

What should California policymakers focus on?

The most important thing for California to focus on is how to create an environment that is conducive to employment growth, job stability, and innovative technological development. We are learning how to assimilate a multicultural society and manage a multicultural labor force.