An Economic and Political Colossus

California’s problems, as highlighted in the 2010 election, are real; just as real, however, is the fact that the Golden State remains America’s economic and political colossus. California is America’s wealthiest state in terms of its “gross product”, that is, the sum value of all the goods and services the state produces. In 2009 the U. S. Department of Commerce ranked California’s nation-sized $1.8 trillion economy as the eighth largest in the world, just behind Italy and ahead of Brazil and Spain. Agriculture, entertainment/media, high technology, cargo shipping by sea and air, and sports-fitness and beachwear enterprises attest to the state’s economic predominance regionally, nationally, and in some instances globally. Politically, no state comes close to matching the 55 electoral votes California wields in presidential elections. Moreover, in the early 2000s a number of the state’s leaders have held or hold key positions in Washington, DC.

Few, if any, other states exercise so much reach beyond their borders. An article in the venerable journal Foreign Affairs (Spring 1993) referred to California variously as a virtual “nation,” in need of its own foreign policy, and minimally as “a distinct region within the United States.” The construct of “Greater California” clearly conforms to this expansive view of the Golden State’s distant and immediate past.

In 2010 California continued leading the nation in agriculture, as it had for more than half a century, both in terms of receipts, which totaled a record $37.5 billion, and in the abundance of its more than 400 commodities. The state’s fruits, nuts, and wines, especially, are world-renowned. As the nation’s largest producer of fruits and nuts, California’s earnings from these crops grew to $13.3 billion in 2010. According to the Wine Institute, a San

Figure 14.4 The world's top 10 economies. The next-largest state economy - Texas - is about 60 percent the size of California's. Source: Cal Facts (Sacramento, CA: Legislative Analyst's Office, 2011). The figures are in trillions of dollars.

Francisco trade group, during the first 10 months of 2011 California was on course to set a record in wine exports, which at that time totaled $1.14 billion. That represented a 23 percent increase over that same period in 2010. Most exported California wines still go to European countries, but the Chinese market is rapidly expanding due to that nation’s astounding economic growth and demand for consumer goods. In the first 10 months of 2011 the state’s wine sales to China increased 35 percent over such sales during that same period in 2010. In the latter year Hong Kong, California’s third-largest wine export market, spent $116 million on the beverage.

The Golden State, particularly the Los Angeles region, remains the world capital of the entertainment/media industry, which includes movies, television, video games, the making of training videos for the Department of Defense, theme parks, and more. Digital and related technologies are transforming the industry. This is evident in filmmaking and is likely to become increasingly the case in the distribution of content over the Internet. Meanwhile, 3D movie formats are being combined with IMAX projection on to towering 80-foot screens, thrilling audiences worldwide while turning big profits. For example, the June 2011 release of Transformers 3: Dark of the Moon, a science fiction action blockbuster, had grossed $348,540,006 by late August. Two-thirds of Hollywood’s movie revenues come from sales overseas, particularly along the Pacific Rim. Studio officials are especially interested in expanding sales to Latin America and Asia. The Global Entertainment and Media Outlook 2010-14 report by PricewaterhouseCoopers, one of the world’s largest professional services and accountancy firms, anticipates a 12 percent annual increase in movie sales to China, the fastest-growing market in Asia.

Hollywood’s Pacific Basin influence and connections go far beyond film sales to include production partnerships, on-site shooting, and foreign actors who have either moved to the Los Angeles area or have a highly visible presence there. The Chinese martial arts thriller Crouching Tiger, Hidden Dragon (2000) was a co-production of Hollywood’s Columbia Pictures, and other companies in China, Taiwan, and Hong Kong. It won four Academy Awards. Regarding on-site shooting, Avatar (2009), the highest-grossing movie in Hollywood history ($2.8 billion) and winner of three Academy Awards, was filmed in Los Angeles and New Zealand, and distributed worldwide by Twentieth Century Fox, a Los Angeles-based production company owned by Australian media mogul Rupert Murdoch. Canadian-born director James Cameron, who lives in seaside Malibu and was educated at California State University at Fullerton, sent the cast to Hawai’i’s rainforests before production in order for the actors to gain a feel for the tropical setting in Avatar, which explores the conflict between American invaders and the native population of another planet. Thus the movie, like many others, underscores Hollywood’s extensive Pacific Basin connections. Those ties are also seen among some of the leading actors in the industry. For example, New Zealand and Australia together have provided Hollywood with some of its major box-office draws: Nicole Kidman, Russell Crowe, Naomi Watts, Mel Gibson, Cate Blanchett, the late Heath Ledger, and Geoffrey Rush.

Theme parks, likewise, contribute to California’s entertainment economy. For example, the Walt Disney Company, headquartered in Burbank, in Los Angeles County, is the world’s largest entertainment conglomerate, reportedly earning more than $40 billion in 2011. In addition to Anaheim’s Disneyland (see Chapter 12) and other such theme parks in

North America and Europe, the corporate giant - either singly or in foreign business partnerships - has established Disneyland parks across the Pacific in Tokyo, Japan, in 1983 and in Hong Kong, China, in 2005, and is currently building another in nearby Shanghai.

Regarding California’s high-technology enterprises, Apple, with a market valuation of $500 billion and rising in early 2012, has ascended to the rank of the world’s leader in computer products, and recently surpassed Exxon Mobil to become the most valuable company on the planet. Market valuation constitutes the total combined worth of all of a corporation’s shares of stock. The company’s sales to China alone in 2011 amounted to $13 billion, up from $3 billion the preceding year. Apple’s co-founder the late Steve Jobs has been surrounded in Bay Area high-tech circles by numerous entrepreneurial geniuses like himself. Mark Zuckerberg, CEO and co-founder of Facebook, an internet social networking service, dropped out of Harvard and with his girlfriend Priscilla Chan relocated in Palo Alto, where his firm has thrived. Zuckerberg was Time magazine’s Person of the Year in 2010, when Facebook had more than 400 million users worldwide. Forbes, a premier news service and publisher of financial information, estimated his wealth a year later at $17.5 billion, making the 1984-born whiz one of the youngest billionaires in the world. A Hollywood movie, The Social Network, dramatizing Zuckerberg’s story as Facebook’s titular leader, was released in 2010 and won three Academy Awards. In early 2012 Facebook claimed to have more than 800 million users per month and industry analysts estimated its then impending IPO (Initial Public Offering, that is, the worth of the company when it sells stocks publicly) to be between $50 and $100 billion. A number of glitches attended the corporation’s IPO on May 18, and shares that opened at $38 dropped steadily in value to $25.52 during the next weeks causing jitters among investors. Still, Facebook’s Asian Pacific market has been booming: as of March 31, 2012, Zuckerberg’s social networking corporation reported that it had 195,034,380 Facebook users in that region, which is but a fraction of the potential users in that highly populated part of the world. Drew Houston is another of the Bay Area’s young entrepreneurial computer savants. Scoring a perfect 1600 on his SATs, he attended MIT before coming to California and settling into a modest San Francisco apartment, from where his rise began. The 28-year-old co-founder and president of Dropbox, an online file-sharing and storage company with 50 million users, built his San Francisco-based business into a $4 billion enterprise by 2012. Houston rejected Steve Jobs’s offer three years earlier to buy Dropbox, a clear sign that the young CEO has big plans for his company.

California’s national lead in high-technology industries has recently been broadened to include space exploration and missions. In late May 2012 the world learned of the success of the first private sector-sponsored space mission: the docking of SpaceX’s Dragon capsule at the orbiting International Space Station 250 miles above northwest Australia. SpaceX is the shortened name for Space Exploration Technologies Corp, headquartered in Hawthorne, California and led by 40-year-old billionaire Elon Musk who founded the company and serves as its chief executive. A dream and hard work on the part of Musk and his 1,800 employees made this happen. Addressing the significance of this accomplishment, National Aeronautics and Space Administration spokesperson Charles Bolden stated: “Now that a U. S. company has proven its ability to resupply the space station, it opens a new frontier for commercial opportunities in space - and new job creation opportunities right here in

The U. S.” The Pacific splash-down of the capsule 560 miles west of the coast of Baja California symbolizes SpaceX’s recent landing of a $1.6 billion NASA contract to haul U. S. government cargo to the orbiting space outpost.

A Time magazine cover story (November 2, 2009), titled “Why California Is Still the Nation’s Future,” recognized the Golden State’s unmatched innovation in advanced technology. While acknowledging the state’s serious budget problems, the author inserted an arresting and seldom-mentioned piece of information: “In 2008, California’s wipeout economy attracted more venture capital than the rest of the nation combined.” The article then pointed out that the state’s next gold rush is already in the making: clean technology. For example, SunPower, a world leader in solar energy technologies for homes and commercial properties, is headquartered in San Jose, California. From modest beginnings in the 1970s it employed more than 5,000 workers in 2009. Other pioneering California firms in the solar business include BrightSource, eSolar, and Nanosolar. “The San Francisco utility Pacific Gas & Electric, which recently bolted the U. S. Chamber of Commerce over climate policy, has 40 percent of the nation’s solar roofs in its territory,” the article continued. In biotechnology San Diego is home to more than 500 research-intensive companies that have established that city as “the world capital of algae-to-fuel experiments.”

While the Time magazine article had good reason to be cheery about the prospects for California’s solar power industry, the road forward has been rocky. Solyndra, a former solar panel producer headquartered in the Bay Area City of Fremont, stunned alternative energy enthusiasts when after receiving a $535 million loan guarantee from the U. S. Department of Energy in 2009 the corporation suspended operations and declared bankruptcy in 2011. Still, the buzz surrounding two major commercial solar energy conferences in the state - the Solar POWER-GEN & Renewable Energy World Conference & Expo in Long Beach in February 2012 and the other sponsored by IntertechPira in San Diego in April of that year - suggests that California will maintain its lead in the solar power industry. Moreover, China’s production of solar panels has had the effect of lowering prices for utilizing this energy source, which, in turn, promotes competition, stirring further California business activity in this enterprise.

At the same time that the Golden State has been advancing in various high-technology sectors, its maritime commerce has continued to grow impressively. International trade, particularly with Pacific Rim nations, is a pillar of California’s economy in the early 2000s. The ports in the Bay Area, including those in the Delta region, San Pedro Bay, and San Diego, are all involved to varying degrees in this burgeoning maritime commerce. Consequently, the Los Angeles-Long Beach port complex has maintained its number one ranking in the United States in terms of both volume and value of cargoes handled. Jock O’Connell, international trade adviser to Beacon Economics of San Rafael, California, affirms: “As long as China remains the principal source of U. S. imports, then the Los Angeles and Long Beach ports should thrive.” Oakland, similarly, has retained its number four ranking among the nation’s ports.

California’s China trade, mainly in Silicon Valley high-technology exports, is centered in the Bay Area, which also sends an array of agricultural goods to other parts of Asia. Forty percent of the Central Valley’s agricultural exports go to East Asia, 22 percent to Canada, and the remainder to Europe and Russia. Most often, these products are transported by

Figure 14.5 Chart of leading California export markets, 2008-11. Exports from California accounted for 11 percent of total U. S. exports in 2011. California's top trading partners are Mexico, Canada, China, Japan, and South Korea. California trade and exports translate into high-paying jobs for over 1 million Californians. Source: U. S. Department of Commerce.

Leading California Export Markets (In $ U. S. Billions)

Sea. For example, the inland Delta sea/river ports of Sacramento and Stockton, connected by waterways to San Francisco Bay, regularly ship nearly half of the state’s rice harvest to Japan, Taiwan, and Korea.

Foreign trade is the leading element in southern California’s mammoth economy, says James Flanigan, author of Smile Southern California, You’re the Center of the Universe (2009). According to UC San Diego political scientist Steven Erie, the twin ports of Los Angeles-Long Beach have become America’s “Gateway for the Pacific Rim,” evidenced by the increase of that maritime trade from $200 billion in 1999 to $300 billion in 2005, and its projected growth to $661 billion by 2020. The Los Angeles County Economic Development Corporation estimates that in the 2010s the ports will need to operate 24/7 to handle the growing transpacific commerce. A 20-mile-long Alameda Corridor from San Pedro Bay to downtown Los Angeles, completed in April 2002 at a cost of $2.4 billion, enables the whisking of container cargoes to and from the twin ports by rail. A 2007 report found that that trade corridor was responsible for creating 3.3 million jobs nationwide, a measure of Greater California’s impact on America’s economy. Within California, the Los Angeles Times noted in September 2011 that the two San Pedro Bay ports “are the primary reason more than half of the state’s 1.1 million logistics jobs are in Southern California.” In December Los Angeles Mayor Villaraigosa headed a trade mission to Asia, comprised of former federal officials, current city administrators, and Southland business executives. Among other

Yields, including new and lucrative business partnerships between Asian and Los Angeles firms, the group returned with South Korean shipping conglomerate Hyundai Merchant Marine agreeing to build a new terminal at the Port of Los Angeles. The Los Angeles Times reported on December 30 that the San Pedro Bay shipping complex had surged back from the recession, handling 20.3 percent more cargo in 2011 than the year before. Southward, trade at the Port of San Diego was dwarfed by its counterpart at Los Angeles-Long Beach. In 2010, for example, San Diego’s imports amounted to slightly more than $4.5 billion and exports totaled almost $88 million.

Several challenges to California’s dominance of Pacific maritime trade lie on the horizon. One of these is Mexico’s building of a $4 billion port at the village of Punta Colonet, 150 miles below Tijuana along the Baja coast. Scheduled for completion in 2014, Asian shippers may find it cheaper and easier to use that facility, where loose environmental standards and lower labor costs serve as inducements to doing business. Similarly Canada’s Prince Rupert port is upgrading its cargo-handling and railroad-transporting capacity in hopes of becoming a major Asian gateway to goods destined for the United States. Additionally, and perhaps most importantly, the widening and deepening of the Panama Canal (scheduled for completion in 2014) could divert as much as 25 percent of Asia’s transpacific shipping away from the linked ports of Los Angeles-Long Beach. To meet all of these challenges, Los Angeles port officials and their business and labor allies are continuing their efforts to expedite the transfer of goods by upgrading terminals and shortening transit times along the above-mentioned Alameda Corridor. Mayor Villaraigosa announced in early 2012 that $1.5 billion in capital improvements would be invested in the port during the next five years. Regardless of how well California meets these challenges, for which it is preparing, they underscore the extent to which the Golden State’s future, like so much of its past, is connected to the Pacific maritime world.

On a much smaller scale, trade cargoes leave California for foreign and domestic destinations by air. In 2006 Los Angeles International Airport ranked as the world’s fifth-busiest passenger and eleventh-busiest cargo airport. LA/Ontario International Airport, located approximately 38 miles east of downtown Los Angeles, is a major hub for United Parcel Service packages bound for Pacific Rim destinations. “Four of the six direct weekly flights UPS sends to China originate at Ontario,” says USC international relations expert Abraham F. Lowenthal.

Sports-wise, in addition to the numerous revenue-generating activities mentioned previously (see Chapters 12 and 13), San Francisco is anticipating windfall profits from its hosting of what many regard as the world’s premier sailing competition: the 34th America’s Cup race in 2013, which will take place on California’s Pacific coastline. As the defending world champion, the San Francisco Yacht Club’s BMW Oracle Racing Team will compete against top international challengers on the waters of San Francisco Bay. According to the city’s website: “The economic impact of San Francisco hosting the 34th America’s Cup is significant, and includes an estimated 8,800 jobs, distributed widely across occupations from food and beverage to hospitality, transportation, and the construction trades, and nearly $1.4 billion in economic impacts to San Francisco and the Bay Area region.” In addition to these expected material benefits, California’s already formidable stature in maritime history should be enhanced even further by the hosting of this premier event in the City by the Bay.

Closely related to sports, the state’s fitness gym industry reflects southern California’s image as a Pacific playground of sun, sand, and surf, enjoyed by people with well-toned bodies. LA Fitness, a corporate purveyor of this image, is headquartered in Irvine. In 2010 LA Fitness generated nearly $1 billion in revenue. The following year it purchased Chicago-based Bally health clubs, formerly America’s largest gym chain. With more than 500 clubs throughout the country, including the East Coast, LA Fitness is the nation’s leader in its field and an embodiment of the economic and cultural reach of Greater California.

As in its economic clout, in national politics, too, the Golden State continues to wield outsized power. Besides the state’s unrivaled numerical dominance in Congress and the Electoral College, in recent times a number of Californians have held and continue to hold prominent positions in the Federal Government. Representative Nancy Pelosi served as Speaker of the House from 2007 to 2011, the first woman to hold that high office. Since that time she has been serving as the House Democratic (or Minority) Leader. Leon E. Panetta served as director of the Central Intelligence Agency from 2009 to 2011, after which President Obama appointed him secretary of defense. As noted, since 2009 Steven Chu has been serving as secretary of energy in the Obama Administration, and since that year Hilda L. Solis has occupied the secretary of labor cabinet post. From 2009 to 2010 UC Berkeley economics Professor Christina Romer chaired the president’s Council of Economic Advisors.

Figure 14.6 Hilda Solis, U. S. secretary of labor. Her high-school counselor told her mother that the girl should forget about college and become a secretary. Courtesy of U. S. Department of Labor.