California's Economy

Economic development is really political economy and none of us should ever forget it. I spent last week in San Diego and had a first hand chance to find out how California economic developers feel about their current and future economic prospects. Most I talked with remained moderately hopeful the state's economy would turn around, but not without a substantially stronger state and local economic development effort to help businesses and communities to get back on their feet.

What are some of the economic watchers in California saying at this point?

"California has obvious problems," said James Diffley, an economist at Global Insight, a consulting firm that follows regional trends, "but the economic performance has been surprisingly good."

But the health of the economy here, at least relative to other places, also means that a bounce strong enough to eliminate the deficit on its own is unlikely. Many consumers have already bought cars and houses in recent years, leaving less pent-up demand than at the end of most slumps. And neither technology, a pillar of California's economy, nor finance, another important sector, seem to be on the verge of a hiring surge. That could leave Arnold Schwarzenegger with some of the budget problems Gray Davis had, forecasters say. "It's going to be very very hard," said Jack Kyser, chief economist at the Los Angeles County Economic Development Corporation.

Concern about the economy, is considered one of the major reasons voters recalled Davis and replaced him with Schwarzenegger last week, though dissatisfaction with Davis's performance was also a big factor. Polls of voters showed that 83 percent said the state's economy was in bad shape. Nationally, 56 percent of people rated the economy negatively in a recent New York Times/CBS poll.

One reason that people here might view similar economic conditions more negatively than people elsewhere is because the boom here in the late 1990's was so great. Also, until the 1990's, Californians were used to their state routinely outstripping the nation economically.

"Things aren't horrible here, but it's not as good a situation as we used to have," said Michael Bazdarich, forecasting center director at the University of California at Riverside

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