California, Leading the World to a Post-Industrial Economy

By Sheryl Hamlin

The Museum of Ventura County’s eight-part lecture series ended on March 25 with the telling of an economic drama into California’s future that is unfolding rapidly.

Bill Watkins, Ph.D. who heads California Lutheran University Center for Economic Research and Forecasting or CERF, physician described a bifurcated society in California comprised of the über-rich and a potentially well-heeled service class.

He uses the term “post-industrial society” in the title of the talk, a term that means a society wherein services generate more income than industrial concerns. He is a product of this evolution, starting in life as a jet mechanic in the Air Force moving on to study economics at UCSB, where he received his Ph.D.

California’s “Amazing Recovery” was a surprise to many in the economic forecasting business including himself. California is one of the nation’s top job creators and its unemployment rate, although higher than the national average, is tracking toward parity.

California’s non-farm jobs peaked in 1989 with the fall of the Berlin Wall and the end of the Cold War. California lost military manufacturing and is paying the “peace dividend”. However, there is an anomaly: job creation is increasing but reverse migration from the state is also increasing. Since 1991 California has been experiencing a net reverse migration as the chart below shows.

Why the reverse migration … because California is undergoing a profound structural change right under our feet. While construction jobs are down by 162,000 and manufacturing down by 182,300, health jobs are up 500,000, professional and business services are up by 250,000 and leisure/hospitality up by 250,000.

Where California once led the world in manufacturing, it now leads in services, technology and luxury. Baby Boomers, the largest and wealthiest generation, love California. They are retiring with a small nest egg and buying something for cash in which to enjoy their “Golden Years”. California attracts over 50% of the world’s venture capital. The rich love California and have been investing in real estate causing prices in some areas to escalate beyond any previous peak. All love California because of its perpetual “Club Med” atmosphere, until the cost of starting a family and buying a house makes one reconsider. However, most people, according to Dr. Watkins, willingly pay a premium to live in the “Golden State”.

The influx of the monied class has created business opportunities for new services. Dr. Watkins pointed out that one clue to California’s unlimited future:  service the wealthy. Fulfill a need and create a business!

We can laugh at the idea of professional dog walking, doggie day care, grandma walkers or gourmet meals on demand, but what about Uber, the personalized, point-to-point ride service now valued at several billion dollars or Task Rabbit, the personal valet service?

By moving from a production society to a consumption society, the shackles of brick and mortar manufacturing facilities have been thrown off letting imagination take over.

Is there a “Dark Side” of the new California? What are the issues?

When the rural areas depopulate, there is the problem of the “last man left”, where cities and towns deteriorate. California could be the first place in the world without a middle class. As the population experiences net reverse migration, how will the government provide services for those not in the über wealthy or the flourishing service classes?

Although not singled out in the lecture, could the growing class of government workers in California with its high salaries and pensions be the basis for the California middle class?

Does a bifurcated society provide upward mobility? It has always been each generation’s dream to improve on the success of the previous generation. Will that dream be possible in the New California? Housing, both rental and ownership, is the most valued and unaffordable by income. Is it possible for incomes to increase at the rate housing has escalated?  In California, the rate of home ownership is 55%. Nationally it is 65%. He noted that above 65% historically “problems” in the housing market have occurred.

The last point, Short Investment Horizon, is actually a very complex topic. The theory of investment horizons says that a younger person can afford to invest in something that will take longer to achieve a yield, while an older person does not look for long term appreciation, but instead looks for near-term yield. With this new mix of California’s aging, wealthy population and a growing service industry which requires small capital expenditures, are we moving to a permanent short investment horizon?  Unfortunately, time did not allow Dr. Watkins to explain this last, provocative point. I am sure it is material for an entire course.

He closed the lecture with a reference to Schumpeter’s Theory of Creative Destruction, again a subject for an entire lecture. In this theory, the old is destroyed, while the new society or industrial state emerges hopefully improved. The cycle is constant.

In the Q&A session, several questions about agriculture were asked. Dr. Watkins said that water is the biggest issue now causing farmers to grow expensive, high-yielding  crops, rather than use precious water on things like Lima beans. This situation was also described in detail at the House Farm Workers Summit previously reported in Citizens Journal. Dr. Watkins suggested that the state will take over water distribution soon. The shadow density in agriculture housing is unreported where multiple families live in one house pushing zoning ordinances. He felt that water shortages could be resolved with proper pricing and a water market. Not mentioned in the lecture, here is one idea for such a market.

Asked about the next bubble, he responded by saying economists are bad forecasters; however, he did not believe housing was in a bubble, but he did see concerns in the stock market. Interestingly enough in 2005 he felt there was “probably” not a housing bubble as he states in this newsletter and he admitted to have missed California’s fast recovery in jobs at the start of the talk.

The Ventura Museum will hold this popular eight-part series again in 2016.

Sheryl Hamlin: With an MS in Industrial Engineering, Sheryl Hamlin spent years in technology with stints at Motorola, Tandem Computers and various startups. She has been on the boards of neighborhood organizations both in San Francisco and Palm Springs where planning issues were her specialty. She now resides in Santa Paula and loves the historic fabric of the city.  Ms. Hamlin’s blog Stealth Fashion  and  technology product ‘ Plug and Play Webmaster’.

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