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Fall 2003

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California and the Crisis of Consumer Democracy

Nathan Gardels is editor-in-chief of NPQ and of Global Editorial Services at the Los Angeles Times Syndicate/Tribune Media. His latest book is "The Changing Global Order: World Leaders Reflect (Blackwell, 1998). From 1979 to 1982 he was an advisor to the governor of California on trade, investment, the Pacific Basin and Mexico.

Los Angeles-California is in crisis, plagued by a sharp downturn in the information economy, a deficit gap that would qualify it for IMF assistance and an unprecedented recall effort-on the constitutional books for 92 years but never used-against the current Democratic governor, Gray Davis, who was only recently reelected to a second term. For lack of funds, prisoners are being let go. Teachers are being laid off. Public schools are at the bottom of the national heap. More than 50 percent of the state's population can't afford a home. Even smog is coming back.

California in crisis is, of course, still California, an overdeveloped paradise struggling with the challenge, as Wallace Stegner once wrote, of building a civilization that matches the magnificence of its landscape. As the world knows, California is always on the cutting edge-and sometimes over it. The SUVs which clog its freeways may be heating up the planet, but no smoking is allowed. It is the home of Humvees, Hispanics and Hollywood, of Sharon Stone and SunMicrosystems, of Baywatch and eBay, of the pristine Yosemite Valley and limitless posturban sprawl. It is the land of the military industrial complex and the Sierra Club, of Slow Food-type farmers' markets and agribusiness, of Wolfgang Puck and McDonalds.

Despite forces behind the current crisis that would undermine it, California remains America's frontier outpost of what Octavio Paz called "the republic of the future," a multicultural collage where you get a second chance in a life that went nowhere in the American Mid-West or in another homeland altogether, even if you are a weapon-wielding weightlifter with a barely understandable Austrian accent.

California is where the children of Korean and Chinese immigrants are among the few who persist with Beethoven and Mozart against the din of hip-hop, where there are more Iranians than anywhere outside Iran with their own TV channel that subversively beams images of student protests against the mullahs back home to Teheran by satellite. Vietnamese run nearly all the nail salons and Arabs run most of the gas stations. Hindis and Sikhs are behind the counter at most 7-Eleven convenience stores. For the poorest south of the border who can find no work, Los Angeles is the heart of the Mexican dream.

BENEATH THE SUNSHINE | But something else has been simmering beneath the sunshine for the last couple of decades, of which the recall election and current ?nancial crisis are symptoms: the emergence of a consumer democracy. Fareed Zakaria has rightly warned of the dangers of "illberal democracy" whereby the majority, as perhaps in a more democratic Iraq, would not be so favorable to liberal values such as separation of religion and state or equal rights for women and minorities. But little attention has been paid to the nominally attractive consumer democracy in the advanced world, which has its own dangers.

In California, like much of America but more so, the mass market is geared to giving consumers what they want, at the lowest cost and inconvenience, when they want it-which is now. The consumer is king and queen. He and she determine the flops and fortunes at the Hollywood box office as well as the fad or failure of every product from jeans to brands of soda.

It is for their make-it-quick microwave lifestyle that entire industries have been built: Drive-thru fast food restaurants like In-N-Out Burger; Starbucks where you take out gourmet coffee in paper cups to sip in traffic, 24-hour minimarkets and ATM machines and just-in-time delivery of packages. If exercise and dieting are too taxing or time consuming, there is always liposuction. Teeth with decades of stains can be made glistening white by lasers in less than an hour. A little Botox takes away the tired wrinkles of time.

The calculus of the consumer is self-interest, not general interest. The instinct of gratification is immediate, not delayed.

Now, politics itself has become a branch of the consumer society with its own sales and marketing teams and its own "focus groups" and daily polling to test which way the wind is blowing among the fickle public. Like product success in a perpetually shifting marketplace, power accrues to those with their finger on the present pulse.

And, in California, the "initiative" process whereby voters can place binding referenda on the ballot without going through the legislative process gives the consumer electorate direct power.

This conflation of political and consumer choice within a market culture is creating what the French philosopher Bernard-Henri Levy has called a Diet- Coke Civilization. To want a sweet drink without the calories of sugar is one thing. But schools and public services without taxes? War without casualties?

Politically speaking, there is no constituency for the future or hard choice in a consumer democracy, only for the present pleasures of self-interest. In such a polity, the governing class no longer mediates between what the voter wants and what the state or country needs. In effect, the governing class as such virtually ceases to exist and is replaced by the body politic itself. Indeed, 44 percent of California's general fund budget consists of expenditures mandated by voter-passed initiatives. Instead of governing society in the general long-term interest, politicians become an "im-medium," the pure expression of the special interest of the short term.

The birth of consumer democracy can be dated to 1978 when California voters passed Proposition 13, which limits the property taxes that fund public education to 2 percent of home value-a perfectly sensible act by homeowners who wanted oppressive government off their backs. But the consequence by 2003 is that California has one of the most poorly educated urban workforces in the advanced world. This is retail sanity, but wholesale madness. It springs from the same culture of molecular self-interest that bans smoking for health reasons, but embraces ever bigger SUVs that damage the whole earth through global warming.

The paradox for California is that, infused with the consumerist ethos, those measures designed over the years to promote and protect the public interest-referendum, recall and term limits-are undermining it. The recall and referendum mechanisms were originally introduced in California politics early in the 20th century as populist measures to counter the great railroad and land barons who were the powers behind the statehouse. The term limits mechanism (which limits legislators to two terms in office) was introduced in 1990 to institutionally insure that "the rascals would be thrown out" on a regular basis.

Instead of improved governance, however, the result of these measures has been to create a permanent campaign dominated by consultants and lobbyists for a variety of special interests from agribusiness to trial lawyers to anti-immigrant groups to public employees who run circles around inexperienced elected politicians. Worse yet, the combination of limiting taxation while mandating spending programs has sentenced California to a perpetual structural deficit.

In short, the kind of consumer democracy that has arisen in California is what the founding fathers were studiously careful to avoid in setting up American institutions: A directly plebiscitary regime that delivers whim, not wisdom, in the name of the people.

Ironically, Gray Davis, the consummate politician of California's consumer democracy-not so much a leader as an characterless entrepot through whom pass political favors in one direction and campaign funds in the other-may well be cast away like an overexposed brand by the very system which he rode to power. Davis became the embodiment of the permanent candidate permanently fund-raising in a permanent campaign.

As is now becoming evident, plurality-rule populist mechanisms in the consumer age tend to undermine the very democratic premise they were created to enhance. In the case of the recall, which bypasses both the legislature and the political parties, more than a hundred candidates are seeking to replace Davis. While the governor is required to win majority support to stay in office, his prospective replacement will be the candidate who only wins the most votes, no matter how small that total. Because there are more than 100 candidates, the next governor could theoretically win with as few as 60,000 votes-despite the fact that Davis received 8 million votes in his reelection!

A BRIEF HISTORY OF THE LAST DECADE | California was down once before. That was in the early 1990s, the years of the Rodney King riots, the great Malibu fire, the Northridge earthquake and the end of the Cold War, which depressed the state's aerospace industry. People left in droves. Newsweek magazine asked then, "Is the California Dream Dead?"

Though they had initially stimulated California employment, the vast national deficits of Republican Keynesianism-the combined legacy of Ronald Reagan's tax cuts and military buildup aimed at forcing the Soviet Union into bankruptcy-were by the early '90s casting a long shadow of joblessness and weak growth over the entire US. Remember Bill Clinton's rallying campaign slogan against Bush-the-elder: "It's the economy, stupid."

Beneath the pessimism, however, the new economy was bubbling. Then the dot.com boom exploded, lifting the entire stock market during the long stretch of speculative growth that piled up projected budget surpluses in Washington and Sacramento, the state capital. Mostly mandated by voter-passed initiatives, California proceeded to spend lavishly on schools-k-12 education funding increased by 37 percent during Davis' term-as well as parks and social welfare.

The bulk of revenue flowing into state coffers came as a result of taxes related to the high incomes of the high-tech boom. For example, California's steeply progressive income tax meant that just over half of the $40 billion paid taxes in 2000 (54 percent) came from those earning over $300,000 per year. More than 30 percent came from millionaires.

The subsequent dot.com crash is where today's troubles began. California had been a disproportionate beneficiary of that boom, much of it rippling out of Silicon Valley, and thus suffered disproportionately when the bubble burst.

And no sooner had the bubble deflated than the costly, but as it turns out phony, energy crisis hit the state, which bled the pockets of California consumers by some $30 billion. Federal regulators earlier this year concluded that Enron and other giants of the energy trading industry manipulated the market by holding back supply. But by then, Davis had signed long-term contracts with energy suppliers to ensure reliable supply at a prefixed cost that, at today's less manipulated market price, is quite high indeed.

Davis' tenure in office so far has straddled this dot.com collapse and the energy gouge. Despite reelection less than a year ago-after the energy crisis-his Republican opponents claim he has so "mismanaged" California's economy that he requires a new mandate if he wants to stay.

LIMITS OF GOVERNANCE | With a population of 35 million and an economy that is nominally the sixth largest in the world, California is nonetheless embedded in a national and global economy and is not an autonomous entity. As I learned during the late 1970s when I was an adviser to then-Governor Jerry Brown, California's chief executive can, for good or ill, have only a marginal impact on the state's economy.

All the big economic decisions that affect California-from the national income tax take (three to four times the state rate) to interest rates to the vast federal budget with its pork-barrel outlays to trade policy to military buildup to war-are made along the shores of the Potomac in Washington, not Sacramento. More than a third of California's budget expenditures-such as immigrants services-are mandated from Washington.

State government in America is mainly about schools, prisons, transportation and regulation of the workplace, the environment and energy. Increasingly, state government is called upon to fund the gap in health care left by the federal government, mainly in prescriptions and long-term care. To be sure, infrastructural investments can have a long-term impact, but mean little in the short run. Worker compensation rules can impact the formation of small businesses. But the fortunes of all the main industries in California-construction, agriculture, high technology, the military-industrial complex and Hollywood (the media-industrial complex)-rise and fall with the tides of the American and world economies as a whole.

If anything, California's main economic instrument is the investment of its whopping $250 billion in public employees and teachers' pension funds, which largely finance the national secondary mortgage market, dominate the stock and bond markets and, at least until Jerry Brown was governor, were prime financers of nuclear power plants across the US. But the governor has no direct influence over the use of those retirement savings.

In short, for a governor to claim responsibility for the health of the California economy is like Al Gore claiming credit for inventing the Internet. Conversely, to blame a governor for huge state deficits in the wake of a national recession and in the aftermath of a diving stock market is seriously misplaced.

The president of the US, George Bush, can of course not be blamed for the dot.com bust and the stock market crash either,. The Federal Reserve, not the White House, sets interest rates. But he is responsible for tax cuts that have hoisted the federal deficit with little short-term stimulus to economic growth. In time, burgeoning deficits will crowd the capital markets, push up long-term interest rates and impede credit expansion.

And the president is responsible for waging war through the back door with Iraq, arguing at first that it was about terrorism and mass destruction weapons and now telling the unobliging public that it was really about bringing democracy to the Arab Middle East, and that will take decades and cost billions.

The overall California budget deficit is $39 billion. Bush is now spending about $87 billion a year in Iraq. When Bush took office, there was a $334 billion projected federal surplus, which has now become a $455 billion deficit, a swing of $789 billion, of which some $177 billion is due to tax cuts.

As Lester Thurow has pointed out, looking at US-GDP growth rates, President Bush's record and that of his father are emerging to be quite similar. In the year of what was supposed to have been Bush-the-elder's reelection, 1992, the economy grew only 3 percent. This is close to the current consensus forecast for 2004 under Bush-the-younger.

But there is a big difference if one looks at employment. Bush-the-elder could claim to have created 3.6 million jobs in his four years in office. Thus far Bush-the-younger has lost 2.4 million jobs and is currently losing jobs at the rate of 400,000 every three months. He is thus is very likely to end up being the only American president since Herbert Hoover to preside over an American economy with fewer jobs when he runs for reelection than when he was first elected. At 6.6 percent, California's unemployment rate is the highest in a decade.

THE POLITICAL ARC | Electorally speaking, California never cared much for George Bush. He lost badly to Al Gore in his presidential bid and remains unpopular, which is why critics of the recall argue that its impetus is a "power grab" by sour -grape Republicans who couldn't take the state in a fair election. Instead of a legitimate run at the polls in the normal course of the four-year election cycle, these critics say, the Republicans merely had to gather 1 million signatures on a petition and can gain the governorship by a mere plurality of those who muster the interest to go to the polls in an off-election.

How can the forces allied with a locally unpopular president manage to oust an equally unpopular governor from the opposite party in this way, especially so soon after he was elected?

The answer is that the California body politic is so diverse-gays, Hispanics and other immigrants, elderly retirees, conservative entrepreneurs, labor unionists, homeowners, renters, anti-growth ecologists and so on-that political forces will emerge when an issue or a candidate pushes their button, and then melt back into the private pursuit of happiness when the vote doesn't concern them.

The referendum, or initiative, process-which allows the public to vote directly on an issue if enough signatures are gathered to place it on the ballot-compounds this pattern. Unlike in parliamentary Europe with its plethora of parties, there is no permanent representation of the broad array of interests. Instead, they are expressed by single-issue "initiatives" presented for referendum.

Thus, the same state that voted for Bill Clinton as president turned back affirmative action in a state-wide referendum. Twenty-five years ago, the same state that elected Ronald Reagan as governor turned around in the following election and put Jerry Brown in office. Reagan was a hardline crime-busting, pro-business, free market anti-communist; Brown was a soft whale-saving ecologist friend of the grape-picking farm workers who opposed the death penalty.

These divergent constituencies appear and recede with regularity from within the narrative arc of modern California history sketched by the succession of gubernatorial administrations. Edmund G. "Pat" Brown, governor in the late 1950s and early 1960s, was the great builder. Under his reign, the freeways, the universities and the pharaonic-scale canals that bring water from the north to the south and through the great agricultural Central Valley were established. California's post war boom followed.

Then came Reagan, who fought student radicals at Berkeley and campaigned to roll back what he viewed as Pat Brown's excessive government intervention. After Reagan, came Jerry Brown, Pat's son, who sought not only to limit government but to limit the growth spawned by his father's policies. (The late University of California president David Saxon once quipped that while Reagan hated public institutions, Jerry Brown hated all institutions).

Brown-the-younger preached that small was beautiful (which is why he supported early Silicon Valley pioneers like Steve Jobs of Apple Computer), favored conservation of the coastline and mountains to protect them from developers, introduced smog controls on cars, appointed women and minorities to public posts and championed the rights of Mexican immigrant farm workers led by Cesar Chavez.

After an unremarkable term by a Californian of Armenian descent, George Deukmajian, Pete Wilson was elected. His main claims to fame were to initiate the deregulation of energy and his effort, through support of a controversial initiative, to limit illegal Mexican immigration by denying social services to such immigrants and their children. This issue bitterly divided California along racial lines even though Wilson's main contention was that California was forced to pay for immigrant services mandated by Washington with its own budget outlays. The measure passed by a landslide of 60 percent in support, but was later thrown out by the courts.

Then came Gray Davis, who had been Jerry Brown's chief of staff. Though broadly speaking Davis is on the (American) liberal side of things-favoring affirmative action, parent home leave, gay rights and abortion while opposing off-shore oil drilling-he is widely held in contempt as a silver-haired empty suit skilled mainly at fund-raising but lacking any convictions or leadership qualities. He is pure political process swimming among the tides of consumer preference to stay afloat.

Judging by his 30 percent approval rating, the majority of Californians could easily do with a different governor. The only difference is between those who believe his inattention and lack of leadership is insufficiently different from any other politician to warrant a recall, and those who think he should go now, despite the fact he was just reelected, because "the mood smells right," as the political marketeers like to say.

POSTMODERN MADISON AND MONTESQUIEU? | There is simply too much momentum, too much raw immigrant energy and fevered entrepreneurial imagination, for California to dwell long in the doldrums. Its economy will recover in the short term. But the long-term erosion of the culture of the future will continue unless the systemic crisis is addressed.

The central problem with the wholesale embrace of consumer ideology is that there is no way to remember the future. But how do we create checks and balances in a system that yields to consumer populism? How to allow the freedom of retail choice but still preserve the general interest, including that of succeeding generations?

Over the years, I have discussed this broader issue with a wide array of figures. If failed communism taught us to forget the future, I once asked Mikhail Gorbachev after he had become head of environmental group, Green Cross International, how will we remember it? "The way to remember the future," he answered as Tolstoy might have, "is to live virtuously in the present."

When Jacques Attali was still Francois Mitterrand's gatekeeper at the Elysee, his response to this question was, in the French way, to propose a new institution: Council of Elders who, in the wisdom of their years, would act against the rush of immediacy. "On the contrary!" countered Jacques Cousteau when he was 85, "what we need is a Council of Youngers." Cousteau explained that while it was true that, in past civilizations, elders "linked worlds; the other world was also present in this one. The problem is that experience teaches fear of change. It kills imagination. It makes people conservative. What we are facing tomorrow requires the force of imagination, not wisdom from yesterday." Indeed, in 1993, Mitterrand set up a commission "to defend the future" headed by Cousteau.

A chemistry professor by training, former Italian Foreign Minister Gianni De Michelis pondered this issue back in 1992* [this and the following exchanges were published in NPQ Vol. 9, No. 4 "Democracy After the Nation State"] when Italy was in the opening throes of the revolt against "partyocracy." The source of the revolt, argued De Michelis, was that the clunky, mechanical "Newtonian democracy" that worked with mass parties of industrial society no longer ?t the diverse, differentiated, niche electorate of the information era.

What was needed was a new, direct democracy with more instantaneous feedback to guide the political class. At the time, De Michelis sympathetically noted the American populist Ross Perot's proposal for an "electronic democracy" that would make democracy truly responsive and interactive.

This idea greatly worried Harvard political scientist Michael Sandel, who warned, well before Silvio Berlusconi replaced partyocracy with mediacracy in Italy, that "though plebiscitary democracy is a great temptation in a time of distant and unresponsive government, it would not lead to genuine self-government, but to Bonapartism."

De Michelis also worried about the demagogic possibilities, writing, "In their Constitution, the American founders understood that sound government must prevent rule by the pure wash of immediacy and populist emotion.

If, for example, long-term common interests, such as preservation of the environment and human rights for all, are unable to check and balance the immediate interests of the consumer or the narrow fears of the racist, the unmediated reign of public opinion will end up destroying democracy itself."

He continued, "Montesquieu devised checks and balances among the legislative, judicial and legislative branch for Newtonian democracy. What we need today is a Montesquieu for the information age." To this, the American historian Arthur Schlesinger Jr. added: "Deliberative governance, not representation, is the issue today. James Madison was everlastingly right in insisting on the importance of mediating institutions that can 'refine and enlarge the public views.'" Madison had in mind a legislature and, later, the political parties. One might also say we need a Madison for the age of consumer democracy.

Clearly, this is a set of issues relevant not only to the present California crisis, but also to all the advanced countries making the transition from industrial to consumer democracy.

Now that the California recall is upon us, let us hope that the new Montesquieu and Madison are not far behind.