The late, great urban theorist, Jane Jacobs, wrote in her seminal The Death and Life of Great American Cities that, “there is no leeway for such chancy trial, error, and experimentation in the high-overhead economy of new construction. Old ideas can sometimes use new buildings. New ideas must use old buildings.”
She was explaining that people with innovative business ideas need an inexpensive place to get started. After all, the founders of Apple, Google, and Disney birthed their enterprises in garages. In California, these days, the cost of real estate—and everything else, for that matter—is so high, that few people can afford the cost of entry. That’s why so many innovators are high-tailing it to Texas and elsewhere.
Jacobs sprang to mind as the latest news reports that Silicon Valley stalwarts, Hewlett Packard and Oracle, are moving their headquarters from the San Francisco Bay Area to Texas. More than 200,000 Californians left the state between 2018 and 2019, some of whom might be among the next generation of tech moguls looking for cheap warehouse space to foster their groundbreaking concepts.
The once Golden State keeps growing—albeit at the lowest rate since 1900—thanks to the birth rate. The key reason for the continuing exodus is real estate is so unaffordable here that only established firms and families can afford the tab. This is the direct result of progressive public policies, which focus on divvying up existing wealth rather than letting people create more of it.
California officials love to boast that the state is the world’s fifth-largest economy—and point to Silicon Valley as evidence that we’re still on the cutting edge of entrepreneurial activity. But California is driving on fumes—living off the residual investments and innovations of past generations. These lawmakers take credit for something they seem intent on destroying.
Who in their right mind would start a business here? As Rep. Tom McClintock (R–Calif.) likes to say, California remains a great place to build a small business—provided you start with a large one. The only surefire ideas that work here now are living on a trust fund or getting a cushy job in California’s remaining high-pay growth industry, the government.
California isn’t only losing people, but is losing its future. “The state’s long-held self-image—a blend of Tomorrowland and Fountain of Youth—is colliding with the inescapable fact that the Golden State is getting old,” as a 2018 Los Angeles Times article noted. No wonder. Older folks who own their homes aren’t going to leave the lovely climate or Pacific views, but energetic young people are building their lives elsewhere.
The state’s big cities are becoming virtually childless. “San Francisco has the lowest percentage of children under 18 of any major city in the U.S., and Los Angeles County has seen a 17 percent decline in the number of kids in the past 10 years,” notes Derek Thompson in the Atlantic. Big surprise. It’s tough to raise a family in an 800-square-foot, $1 million condo.
How can we reverse these trends? It starts with a new mentality—one that’s committed to recreating a state of opportunity. California has the nation’s highest poverty rate, according to the Census Bureau statistics that consider cost-of-living data. We have the most generous welfare benefits in the nation, but few people want a subsidized apartment and a monthly stipend. It’s better to give them a shot at upward mobility.
Unfortunately, the Democratic leadership is hostile to private industry. It pretends that wealth is something that fell miraculously out of the sky, and that their job on Earth is to redistribute it. They bemoan income inequality, but fail to see that their slow-growth, regulatory policies have made new and old buildings unaffordable for virtually everyone—or that their labor rules crush new enterprises before they get off the ground.
State officials can start by reforming their housing policies. Housing is no different than any other industry. It’s about supply and demand. Local and state land-use rules add as much as 40 percent to the price of new construction. Most people buy older homes, but if governments restrict new construction, they inflate the cost of existing properties.
For all their bragging about Silicon Valley, California’s leaders spend a lot of time punishing those companies for imagined crimes. Currently, the state is joining a lawsuit against Google for offering free search-engine downloads on cellphones. Don’t forget the state’s relentless efforts to ban companies from using contractors, which demolishes the foundation of the gig economy and robs moderate-income Californians of their livelihoods.
Is it any wonder so many Californians are heading to Texas or Arizona? We can look at specific policies that California officials can (but won’t) take to make this state the magnet that it once was, but it starts with a change of perspective. Perhaps good ideas require new politicians.
This column was first published in The Orange County Register.
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