The Economy Hub
8:00 AM EST, March 2, 2014
There are two broad categories of government reformer. One is the type who tries addressing government inequities where and as they occur — a housing crisis here, a water crisis there, racial discrimination here, there and everywhere. Then there's the type who advocates throwing out the old system wholesale and starting from scratch.
Timothy C. Draper, 55, a successful venture capital investor with a lengthy record of public involvement to his name, plainly has thrown in his lot with the latter group. His new idea, an initiative to break up California into six states, has just been cleared for signature collection, with an outside chance of making it onto the statewide ballot as soon as November. To be sure, there are some virtues in Draper's idea, though they wouldn't come from going through with it.
Draper's initiative glosses over so many complexities (just for starters, the six-state realignment would have to be approved by Congress) that the first question he often gets asked by interviewers is whether he's actually serious. Let's just say that he sure sounds sincere.
"Sacramento's a monolith," he told me. "We're out of touch with it. By creating six states, we have the ability to become closer to our government."
Yet the dream of government realignment as a solution to government ineffectiveness is an old one, and almost never works. Europe's current experimental rearranging of national authority has created as many new problems as it's solved, and its outcome is uncertain.
Travel around Africa and you'll hear many experts argue that solving its economic problems requires breaking up its big countries into smaller ones, and just as many argue that the answer is to merge its small nations into big ones.
Political scientists' solutions for bureaucratic inefficiencies, too, oscillate between calling for decentralized administration (when everything is run out of the capital) and centralized management (after decentralization fails).
What that suggests is that tampering with established structures isn't the answer. In the case of California, the consequences of the breakup Draper advocates could be horrific.
For one thing, breaking up California means severing the economic ties that give the state's economy diversity to protect it from the swings and roundabouts of economic cycles — having an economy that incorporates agriculture, high tech, manufacturing, entertainment, international trade and scientific research isn't a drawback but an advantage, since those sectors don't always rise and fall in sync.
Draper's roots in Silicon Valley inevitably raise the suspicion that his goal is to preserve the economic advantages of his home region by sloughing off the burden imposed on its residents by other, less vibrant, parts of the state. His proposed state of Silicon Valley would incorporate everything from San Francisco to Monterey, Santa Cruz and the East Bay.
He says that's not so, but as the nonpartisan Legislative Analyst's Office observes, not only would Silicon Valley be the richest new state, but the Central Valley state of Central California — Fresno, Merced, etc. — would instantly become the poorest state in the nation, with an annual per capita income $150 less than that of Mississippi.
Draper dismisses that finding. "All six will be among the richest states in the country," he declares, "though that might be 10 years down the road." The key, he says, is that their citizens will be so close to their governments that "some sacred cows will go away and special interests might fade into the distance. They're going to be created in modern terms."
Indeed, he maintains that the most support for his idea isn't coming from the richest parts of the state but the poorest, places like the Central Valley and the far north, a region his initiative calls Jefferson.
"The people way up there in Jefferson feel very distant from where their tax dollars are going and where their laws are coming from," he says.
But he's not doing those people any favors by glossing over the truth about their economic situation. Jefferson, which would include Humboldt, Modoc, Siskiyou, Mendocino and 10 other mostly rural counties, would be the second-poorest state of the six.
According to the legislative analyst, those counties are charged the lowest per capita state income tax and have the smallest sales tax base and the lowest property valuation. They spend the most on K-12 education of any of the would-be states per pupil (more even than Silicon Valley); two-thirds of that money comes from Sacramento.
For someone with an unassailable record of business success, Draper can come off as a bit starry-eyed. That's especially so when he suggests that social or political issues can be solved more easily by individual states dealing with each other, like parties in a business dispute, than by leaders working within a single state.
But business disagreements tend to yield to the pitiless dictates of dollars and cents, profit and loss. Not so issues such as, say, water rights.
When I asked Draper how six separate states would deal with the issue of water appropriation that California is grappling with today, he replied, "Six states can have compacts between each other with regard to water and all these other issues."
It's not so easy. Consider the history of the Colorado River Compact, the seminal document governing Western water rights. It was negotiated by seven states, including California, in 1922 following decades of squabbling. One of the negotiating states, Arizona, didn't ratify the deal for 22 years, and only after calling out its National Guard against California. The compact is the subject of constant disagreement and renegotiation to this day.
The same goes for his favorite example of a well-run government that raised its people from poverty to wealth: Singapore. "That was all based on how that government operates," he says, comparing it favorably with management from Sacramento.
Well, sorta. Singapore's rise in per capita gross domestic product from about $2,300 in 1960 to $34,000 now (inflation adjusted) was fueled by a rigidly and centrally managed economy and a government that ruthlessly punishes dissent. It's unclear whether even the voters of the new state of Silicon Valley would accept that trade-off.
Draper's idea has the surface sheen of an easy, obvious solution to government complexity, but there are far more direct and cheaper ways to achieve his goals. It's true that Californians have lost contact with their government as more budgeting and administration has been upstreamed to Sacramento.
But that's not because California's big; it's because the financing strictures of Proposition 13 forced the state government into the role of the chief disburser of money to local governments and school boards. That's taken decision-making for everything from pothole repair to art and music classes out of the hands of the locals.
But you hardly have to create six whole new states to give it back; you need to restructure the tax and budgeting system — not an easy job, but a lot easier than the one Draper advocates.
That's where the virtue lies in Draper's proposal. If it gets on the ballot, it will create an opportunity for a broad debate over what sort of state we all want California to be, and how to get there — what sort of educational standards we should fund, how we should apportion our water, whom we should tax and how much.
The vision of reaching these answers not as a single polity seeking to uphold its common statewide interests but as six independent, unequally endowed yet self-interested states isn't a dream but a nightmare.
Michael Hiltzik's column appears Sundays and Wednesdays. Read his blog, the Economy Hub, at latimes.com/business/hiltzik, reach him at email@example.com, check out facebook.com/hiltzik and follow @hiltzikm on Twitter.
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