Ueberroth’s Breath of Fresh Economic Air : California: By abandoning the customary negativism, his commission’s report could put the state back on track. If only the politicians were as bold.

If it does nothing else, Peter V. Ueberroth’s report on California competitiveness could end what has been one of the longest, silliest and most self-destructive periods in the state’s recent history. Ueberroth’s commission has largely abandoned the tone of pessimism and hopelessness that marks most projections of California’s economic future.

The report of the Council on California Competitiveness, issued Thursday, does greatly underestimate the roles of the national recession and defense cutbacks on job losses in the state. But though deeply concerned about California’s economy, it does not repeat the Republican corporate mantra that “business flight” to other states--in reality, accounting for less than 5% of all job losses--is the cause of the state’s economic woes.

This seemingly subtle distinction is a critical one. Much of the state’s business Establishment has used the business-flight issue to bash California (read: Southern California) and press its own self-interests. So damaging has this strategy been that there are now reports that potential buyers of Los Angeles County bonds aren’t biting largely because of the county’s own dour projections of its long-term prospects. Even Gov. Pete Wilson has joined the negativism crowd, epitomized by his remark about not being able to promote California because it’s “a bad product.” And this week, state Director of Commerce Carl Covitz was praising California-bashing as a “good thing” at a conference here.

Rather than echo these nattering negativists, Ueberroth’s commission calls on Californians, as its report puts it, to “unite in promoting a positive image of our state and its great strengths.” Equally important, Ueberroth transcends the habitual partisan finger pointing and sharply criticizes the ineffectiveness of the state executive branch, Republican for a decade, as one of the leading causes of the worsening economic climate. In urging California’s government to be more aggressively pro-growth, the report calls for creation of a more powerful economic-development agency, a state strategic plan and industrial-resource centers.

In seeking to rise about the partisan fight, Ueberroth sought to reduce the chances of being co-opted by the man who appointed him and the GOP Establishment, thereby encouraging the unity essential to accomplishing the goals spelled out in his report.

The report’s other major contribution is its embrace of the idea that mid-sized and smaller companies are “the real creators of jobs” in California. Perhaps, this simple, though important, recognition will help shift the focus of the business-policy debate, now largely dominated by big-business leaders and their well-paid lobbyists, toward a series of more entrepreneurial groups that have sprung up the past year. Although most of these small- and growth-company executives are nominally Republicans, they generally are outside the Sacramento old-boy’s network that largely shapes Wilson’s economic perspective.

Policies that would propel such businesses, particularly in manufacturing, while constraining activities that impede their expansion or chase them to other states, were at the center of the commission’s recommendations. Not surprisingly, these include an assault on skyrocketing workers’ compensation costs, bewildering regulatory rules, legal fees and a declining education system.

The commission also sought steps beyond simple deregulation and lower taxes, the business Establishment’s favorite elixir. Instead, it endorsed targeted changes in tax policies directed at the entrepreneurial and industrial sectors, such as reducing state capital-gains taxes, adding exemptions on new-plant-and-equipment taxes and enacting a state investment tax credit.

In laying out what must be done to revive the California economy, the Ueberroth commission takes few prisoners among the forces that have traditionally dominated the policy debate. Indeed, the report shares a widespread feeling in the state’s entrepreneurial community that the partisan tug of war in Sacramento has resulted in a largely dysfunctional legislative climate for business. In this sense, it is anti-politics at its best. Few political sacred cows are spared.

The report rightfully assails the litigiousness that has become a hallmark of government regulation. California’s tort-minded lawyers, the front line of regulatory interference, are among the key constituencies of the Democratic Party. Not surprisingly, they and their legislative servants were among the first, and loudest, groups to denounce the report.

Though largely ignored in most media accounts, Ueberroth’s commission was no less critical of some of the special interests that finance Republicans. The report’s recommendations on curbing workers’ compensation costs directly took on the insurance industry, long coddled by Wilson and the Republicans. They urged that the current “minimum rate/guaranteed cost” system, which insures industry profits, be scrapped.

The report, if embraced by key Democrats, could blunt Republican efforts to turn the state’s recession into a partisan issue in their fall campaign. For months, Republican leaders, from Wilson on-down, have blamed Democratic legislators, notably Assembly Speaker Willie Brown, as the villains in California’s economic decline. As such, business would be “crazy” to support any Democrats, so goes the argument.

But, in fact, many of the Ueberroth commission’s recommendations--including its proposals for longer school terms, the creation of a single cabinet-level economic development agency and a shift toward a more strategic state policy--echo recent Democratic proposals while eschewing the more strictly anti-regulatory agenda pushed by the Republicans.

The report’s findings also seem to indicate that at least some Democrats--state Treasurer Kathleen Brown, Insurance Commissioner John Garamendi and Assembly Ways and Means Chairman John Vasconcellos--may have moved more quickly up the business learning curve than their Republican rivals. “This is closer to our legislative agenda than our wildest dreams,” exulted Jim Hunter, lead consultant for the Democrat’s Adept committee, which has become the party’s leading voice on economic growth matters.

That the commission did not deal with how to pay for its proposals in light of the state’s short-run fiscal dilemma is its most notable shortfall and potential weakness. But more powerful institutions than the Ueberroth commission have retreated in the fact of the anti-tax fervor of the California electorate, and it seems unlikely that Democrats, many of whom see tax unfairness as their political meal ticket, will support pro-business reforms without exacting something from the affluent.

Still, the Ueberroth commission report is a useful, if not invaluable, guide to legislators and the governor who are bold enough to pursue the long-term best interests of our deeply troubled and exceptionally gifted state.