NEWS ANALYSIS : California Finds It’s Lonely at the Bottom : Economy: While the nation begins to enjoy an upturn, the state is stranded on the sidelines, experiencing the flip side of its self-containment.
Californians used to point with pride to their state’s self-sufficient economy, a vast web of factories and services that hummed along even when other parts of the country stumbled.
But now the Golden State is experiencing the other side of independence: While the nation as a whole begins to enjoy an economic upturn, California is stranded on the sidelines, watching with envy.
“There’s a benefit and a curse to being self-contained,” said Donald Ratajczak, an economic forecaster at Georgia State University. “Now you’re getting the curse, that we can ignore you.”
Just how much California can be ignored is suddenly a topic of much debate. Advocates for the state warn that California’s lingering recession could torpedo the national recovery. The California question hovers over important plans by the Clinton Administration, affecting decisions on military base closures, defense conversion programs, training policies and public works investment.
Yet California--for all its importance--will not derail the national recovery that has been perking along since last year, according to several economists interviewed. The U.S. upturn is expected to endure at a moderate 3% pace, even if California continues to wallow along in a slump.
Hard as it may be for die-hard California boosters to hear, the state’s effect on the rest of the country appears decidedly limited. Most of the fallout remains inside California, concentrating on the Los Angeles area.
“We’d have to have a real collapse in California” to badly damage the U.S. recovery, said David Hensley, director of the UCLA Business Forecasting project. “And I don’t see that happening.”
To be sure, the state’s problems spill over its borders in a variety of ways, affecting far-off factories and retailers who long have courted California’s enormous consumer markets.
California is so huge a chunk of the U.S. economy--close to 13%--that its own internal woes are substantial enough to weigh down the national data on jobs and economic growth. Virtually everyone agrees that California, home to nearly 12% of the U.S. population, is too big to ignore. “If California were contributing to the recovery in the way it normally does, we’d have seen twice as much job growth by now,” said Mark Zandi, an economist at Regional Financial Associates in West Chester, Pa.
Still, it’s almost as if a fire wall stands between California and the rest of the nation, keeping most of the distress within the state and blocking better times from slipping back inside.
The state’s jobless rate now stands at 9.8%--worst among major states--with figures even higher in Southern California. Nationally, the unemployment rate dipped to a 15-month low of 7% in February. A future round of military base closures threatens tens of thousands of further job losses.
The troubles were highlighted earlier this month, when the 12 Federal Reserve bank presidents cautioned Congress that California continues to be hobbled by stubborn problems, even as much of the country is reviving.
There is irony, perhaps, in today’s schism between California and the rest of the country.
California boosters have long described their sprawling state as a country unto itself, bragging that its economy was eighth largest in all the world.
Even before Clinton was inaugurated, state Treasurer Kathleen Brown called on his financial support for the state, describing California as an “800-pound gorilla” in the way of a robust U.S. recovery.
Some analysts agree that California’s somewhat self-contained economy puts it apart from other states. Throughout the crowded, interlinked Northeast, for example, a lively trade of goods and services continues day and night.
Commuters from Connecticut depend on jobs in Manhattan for their livelihood. Chemical factories in Pennsylvania count on customers in Maryland. Resorts on New Jersey’s shoreline rely on visitors from nearby states to crowd their beaches in the summer.
California, by contrast, is a giant region all by itself, much more dependent on its own vast markets and producers than on its neighbors.
Indeed, as California continues to struggle, such Western states as Utah, Nevada and Idaho are among the fastest-growing in the country--fueled in part by new arrivals from the Golden State.
“There’s no way you could shut down New York without bottling up New Jersey and significantly impacting New England and the Middle Atlantic states,” Ratajczak maintained. “But you could shut down California and not get the same results.”
Still, California’s troubles are hard to ignore for business executives and policy-makers.
Last year, for example, sales of washing machines and clothes dryers barely crept forward in California at all. Nationally, however, they rose a buoyant 8%, according to the Maytag Corp. in Newton, Iowa.
The state’s political leaders desperately lobbied the White House in a bid to protect military bases targeted for closure, and managed to spare the Long Beach Naval Shipyard, McClellan Air Force Base in Sacramento and the Army’s Monterey Presidio.
Yet it remains unclear how much the White House will do to protect California any further. In assessing the U.S. economy’s prospects, most analysts cite the effect of expected tax increases and other Administration policies as key factors that will affect the pace of growth.
Some cite economic weakness overseas or potential trade tiffs as prominent risks for the U.S. economy in the coming years.
Few mention the problems of California. “There’s no question that California is an issue,” Ratajczak said, “but is it an overriding issue? Will Clinton fail without California? I think the answer is no.”
Lagging Behind: Since the onset of the recession, the unemployment rate in California has been far higher than the national rate, while the state’s contribution to the national economy in goods and services has fallen.
