Hoover Daily Report

The Race to Save California

via Wall Street Journal
Saturday, October 23, 2010

Palo Alto, Calif.

To inspect one possible future of the Golden State, head to the intersection of Fifth Avenue and Middlefield Road in Redwood City, a suburb on the peninsula some 25 miles south of San Francisco. Making your way along Middlefield, you'll see shop signs in Spanish—several reading "aquí puede enviar dinero a Mexico" (send money to Mexico here)—young women in impossibly high heels, and children sipping a horchata, the sweet rice milk drink. No one will speak English.

Next walk down Fifth Avenue, past the Chavez Supermarket, until Fifth dead ends into El Camino Real. Across El Camino, the border between Redwood City and Atherton, you'll see high fences and closely planted trees, all arranged to obscure the view from the street of fabulously lavish houses. A five-bedroom place will set you back at least $5.5 million.

Working-class Latinos and the very, very rich. Already present in high concentrations, these two groups could dominate California within a generation or two. Why? Because so many others could have upped and left.

During the last two decades, according to the U.S. Census several million more Californians left for other states than entered from them. California has an unemployment rate of 12.4%, an estimated $500 billion in unfunded pension liabilities for government workers, and a tax and regulatory regime so hostile to private enterprise that last year CNBC ranked California 49th out of 50 for "business friendliness." Unless somebody fixes what is wrong here, millions more Californians will find the taxes, job prospects and schools in states such as Colorado and Texas irresistible.

Enter the candidates for governor, Democrat Jerry Brown and Republican Meg Whitman, both promising change you can believe in.

"I don't have to learn on the job," Mr. Brown declared on Oct. 12 during the final gubernatorial debate. "I've done this before." Has he ever.

Mr. Brown, now 72, has spent almost his entire adult life in politics. He's served four years as the secretary of state, eight years as governor, eight years as mayor of Oakland, and almost four years in his current position as state attorney general. He knows every union leader, television reporter, Democratic fund-raiser, judge, police chief, bishop, environmentalist, rabbi and movie producer in the state.

Mr. Brown's policies? "We have to live within our means," he said during the third and final debate. "Everyone has to sacrifice." On his website, however, he suggests what California needs is more spending, not less, including "investment in education, infrastructure, our environment and our kids."

Yet Mr. Brown's appeal arises less from positions than from his very person. He will be able to cut spending, the argument goes, because he knows all the Democrats who will dominate both houses of the state legislature. He will reform public pensions because if he tells the unions they have no choice, they really won't. "Jerry," his spokesman Sterling Clifford told me, "is perfectly capable of walking into a negotiation and saying, 'Here's the reality of our state's fiscal situation.'"

Nixon to China, Brown to the unions. "Could he pull it off? Yes, he could," a former Republican state officeholder told me. "But that's not the question. The question is whether he would try."

"Absolutely not," Meg Whitman replied when I asked whether her opponent would find himself in a strong position to negotiate with the unions. "Jerry Brown's campaign is bought and paid for by the public-employees unions. If he wins, every union chief is going to attend a big meeting in the governor's office . . . to collect their IOUs."

Ms. Whitman, 54, once dedicated herself as relentlessly to commerce as Mr. Brown has to politics. She studied economics at Princeton, attended Harvard Business School, and then began a career that took her to companies such as Procter & Gamble and Walt Disney. In 1998 she joined a modest enterprise called eBay. By the time she stepped down as CEO a decade later, eBay had grown to 15,000 employees from 30—and made her a billionaire.

If Mr. Brown intends to reform the system from within, Ms. Whitman intends to upend it. She plans to cut spending and ensure that spending growth never again exceeds economic growth. She proposes regulatory and tax relief (increasing the R&D tax credit while eliminating the state capital gains tax), restoring local control over education by giving block grants to school districts, and providing most new state workers with 401(k) retirement plans in place of the current, untenable pension plans.

Could she get anything accomplished with that agenda and attitude? "Sure she could," says Pete Wilson, the former Republican governor who is Ms. Whitman's campaign manager. "The Democrats will control both houses [of the legislature], but they won't have enough votes to override her veto. It's really just as simple as that."

The race remains fluid. A new poll of likely voters by the Public Policy Institute of California shows that Mr. Brown is ahead by eight points but is supported only by 44%; 16% remain undecided. Ms. Whitman has spent more than $140 million of her fortune in the campaign and retains the resources to dominate the airwaves. "She's not just advertising in English and Spanish," says Bill Whalen, a veteran political observer. "She has ads up in Vietnamese, Korean, Mandarin, and Cantonese. She even has field offices in Oakland and East L.A., places where Republicans don't usually play."

Who will determine the outcome? "Undecided Hispanics," a source on the Whitman campaign told me. "They're the jump ball." If Ms. Whitman can capture a third of the Hispanic vote, her campaign calculates, she'll win.

Only weeks ago she enjoyed Hispanic support as high as 40%. Then, on Sept. 29, celebrity lawyer Gloria Allred trotted out Nicky Diaz, an undocumented alien who had worked as a housekeeper for the Whitman family. Though Ms. Diaz had worked in the household for nine years and received good wages, she claimed she'd been treated as "less than human." Last year, as Ms. Whitman prepared to run for governor, Ms. Diaz had told her she was in the country illegally. Ultimately she was fired.

Though Ms. Whitman had done nothing wrong, her support among Hispanics dropped to 30% A Whitman campaign source assured me that Hispanics who have withdrawn their support "haven't gone to Jerry. They've gone to 'undecided.'" Her task is to win back at least half of them.

As she drove to San Rafael for the final debate, I asked Ms. Whitman what she offers Hispanic voters that her opponent doesn't. "A proven record as a job creator," she replied without hesitation. "Without jobs, there is no future in California for Latinos or anybody else. And I will fix our K-12 education system. Latinos often find their kids going to the worst school districts, and it's getting increasingly hard for the California Teachers Association [the teachers' union] to hide the results." She promises Latinos what she promises everyone else: jobs and education reform.

Which brings us back to the intersection of Fifth Avenue and Middlefield Road. The rich? They'll be all right; they always are. But will Latino children graduate from high school, attend college, get jobs, and enter the middle class? Or will they become the first generation to witness assimilation in reverse, as more and more of the ailing state becomes absorbed, in effect, into Mexico?

Ms. Whitman remains optimistic that the Hispanic voters who will decide this race want what all Californians want—and what she is determined to place back within their grasp: the American dream.

Mr. Robinson, a former speechwriter for President Ronald Reagan, is a fellow at Stanford University's Hoover Institution and the editor of Ricochet.com.