On Nov. 17, Arnold Schwarzenegger assumed the governorship of
the most troubled of the 50 states.
The new governor has already pledged to save California’s
economy by granting individuals and businesses more control over
their money and property. But without developing and implementing a
clear long-term strategy, the prosperity that has been promised to
Californians will be short-lived.
Schwarzenegger and California’s legislature must work in
tandem to replace the current mixed economy with the only existing
moral and economically viable order ““ that is, laissez-faire
capitalism.
Capitalism’s opposite, socialism, is what lured California
into a financial crisis in the first place. During his five-year
reign, Gray Davis advocated some of the strongest regulations,
highest taxes and biggest anti-business measures in our
country’s history. Of course, they weren’t presented as
such. You might have heard of them as “workers’
compensation,” “lower electricity costs” and
“safe roads for all.”
In some cases, workers’ compensation taxes doubled, then
tripled, and businesses were forced to provide more insurance
coverage for their employees. Some viewed this as a boost to the
common man at the mercy of oppressive corporations. But the real
upshot was quite different. Investor’s Business Daily
illustrates: “Take the case of Mitchell Greif, who owns a
Southern California factory that employs 150 workers and makes
plastic bags. … (Greif’s) required premiums for
workers’ compensation insurance have soared from $255,000 in
2001 to $570,000 this year. If he stays put, they’ll hit
$700,000. But he’s not staying put. He’s pulling up
stakes and moving his whole operation to Las Vegas. Two-thirds of
his workers have agreed to go with him, and a few are already
there.”
This trend seems irreversible. The Wall Street Journal claims,
“Between 1995 and 2000, more than 600,000 of
(California’s) residents moved out of what was once
America’s promised land.”
Efforts to lower electricity costs by regulating the industry
have backfired as well. Contrary to popular belief, California was
not a deregulated state. The government, in fact, forced electric
companies to become electricity distributors by compelling them to
sell their plants. Furthermore, the government forced the new
owners to sell their electricity to a narrow market, oversaw the
daily activities of the companies, and placed price caps on
electricity prices ““ hardly a laissez-faire policy.
This is not to say that regulation was the main cause of the
electricity crisis. Cold weather, Middle East politics and a sudden
rise in natural gas prices were the main culprits. But the billions
that were said to have been spent on curbing costs did not help. By
limiting provider competition and consumer choice,
California’s government effectively added to the problem it
was supposed to solve.
And shortly before leaving office, Davis tripled the car tax
““ placing a significant financial burden on taxpayers. This
increase didn’t much effect the rich and wealthy, but rather
members of the lower-income bracket who were barely making ends
meet.
In short, California’s liaison with socialism has hurt the
common man the most. He has lost his money through increased taxes
and has lost his job through regulation.
The success of the recall and the election of Schwarzenegger
demonstrate that Californians are ready to adopt a new lifestyle
““ one that is centered not on addictive government spending
habits but on the individual pursuit of happiness.
The governor is on the right track. But to make this transition
effective and durable, several steps need to be taken.
First, the governor has proposed a cap on government spending.
The Legislature must pass this amendment. According to Michael New
of the Cato Institute, “If spending had increased by the
inflation rate plus population growth, since Gray Davis’
inauguration, the budget would have been $14 billion lower in
fiscal 2003. Furthermore, the accumulated surpluses would have
totaled $40 billion. This could pay down the state’s debt and
leave a tidy sum for tax relief.” But without a legal
mandate, don’t count on the government of California to limit
itself. Special interests, personal favors and pork-barreling have
an iron grip on Sacramento ““ a connection only law might
break.
Second, California should put into operation a result-based
budgeting process. That is, those programs and projects that have
yielded good results will receive funding in the next budget. Those
that have failed will be cut. All too often the allocation of funds
is based on the sincerity of intentions, not on the reality of the
results.
Finally, California’s commercial projects should be
undertaken by private means. Companies should participate in a
highly competitive bidding process to obtain the contract. Whether
it is the renovation of government buildings or fleet maintenance,
a more competitive process will lead to higher quality at lower
costs.
A long time ago, people moved to California to exercise their
liberties in the pursuit of fortune and happiness. Gov.
Schwarzenegger is taking positive steps toward rebuilding this
American dream. He has shown leadership and an understanding of
economics. Now he must bring them together in the vital struggle
for liberty.
Hovannisian is a first-year history student. E-mail him at
ghovannisian@media.ucla.edu. Send general comments to
viewpoint@media.ucla.edu.