Lt. Gov. Gavin Newsom: Regaining California’s Place as America’s Opportunity Capital

Bill Allen (President & CEO, LAEDC): When I first read the Lieutenant Governor’s Economic Growth and Competitiveness Agenda I was struck with how well the plan articulated our state’s built-in assets, recognized the importance of our distinctive regional economies, and emphasized the power of partnerships between business, labor, education, and government, while also clearly identifying specific strategies to drive innovation, reinvigorate manufacturing, and substantially increase our export activity. I would be remiss, however, if I didn’t mention a couple of lessons we have learned here in California’s largest and most diverse regional economy—the world’s twentieth largest if L.A. County were its own nation. Recently, the L.A.E.D.C. engaged in a similar strategic planning process to facilitate job creation and economic growth in our region. The result was the first ever consensus strategic plan for economic development in L.A. County: a set of strategies to ensure a strong, diverse, and sustainable economy for our residents and for our communities. We learned throughout our process that consensus is an essential piece of the foundation for success. The L.A.E.D.C. engaged over 1080 stakeholders, from business, labor, education, the environmental community, and the public sector to create 52 specific strategies. 

We in Los Angeles County knew that putting ideas on paper is the relatively easy part. To ensure that our own strategic plan would not end up on a shelf gathering dust, we created a strategy of implementation. We are now in the second year of a five-year implementation strategy and have seen our plan endorsed by 84 of the county’s 88 cities. By committing to implementation we are seeing that the plan will be put into action by our city councils, by our chambers of commerce, and throughout our communities, as civic stewards, like all of you gathered here today, from our diverse sectors activate the goals laid out. Let me offer a challenge this morning to our Lieutenant Governor, to the leadership of our state assembled here, and to all of our local community leaders and civic stewards: with the nation’s highest unemployment continuing to hover around 12 percent, California needs immediate action that leads our state’s communities out of their jobless nightmare. This Economic Growth and Competitiveness Agenda for California represents a positive framework to solve the greatest economic crisis of our time, but we must put these ideas and goals into action. To our leadership I say, “We in L.A. County are willing to be your foot soldiers. Put us to work helping to rebuild and strengthen our state’s economy.” 

Our county is home to some of the world’s leading research institutions, great universities, medical centers, aerospace facilities, and others. One of the challenges for us is that companies spun out of these institutions have a difficult time accessing capital. How does the plan address this issue of job financing?

Lieutenant Governor Gavin Newsom: Let me make one fundamental point: my concern is not the 2,157,000 people that are actively looking for jobs in this state, though that number is 12 percent, seasonally adjusted. That number, by the way, does not reflect the underemployment numbers, which the Milken Institute estimates is close to 23 percent—almost one in every four people are underemployed or unemployed in the state of California. In African American and Latino communities these numbers are more ominously high. 18 counties have unemployment north of 15 percent. In Imperial County in August their number hit 32.4 percent. 

What makes me more fearful is what’s happened the last 30 years. Between 1950 and 1980 we cleaned everybody’s clock. There was not a state in our nation that grew on an annual job production basis like the state of California. We grew at 3.7 percent, and the nation grew at 2.2 percent in annual job growth. But from 1980 to 2010 we flat-lined to about 1.1 percent, with the nation slightly better at 1.2 percent. We’re about average. This state has never been ‘about average’. This plan fundamentally is not about our solvency: it’s about our greatness. I think we have to assert that proposition and that point of view because there’s an extraordinary amount that can be done, and I would argue that we’ve been resting on our laurels. We have got to be inspired by what’s going on around us. That’s why we spent six months with Brookings and McKinsey looking at what’s happening, not just in this state, but across the country. 

For example, in the Third Frontier program in Ohio, Democrats and Republicans overwhelmingly supported the notion of dealing with that ‘valley of death’ for those new companies that start up, have a little seed capital, but need to scale. They’re in that ‘valley of death’ because they can’t access that capital, despite their good ideas and inspiration. Ohio put $2.3 billion up in 2010, focusing on start-ups. Think about where Ohio was in 2010. 

My point of saying all this, however, is not to impress but to impress upon you. The answers are out there. There’s not a problem that hasn’t been solved by somebody, somewhere. It’s incumbent upon us to have the courage to find out what’s going on. I’m a guy who’s got about one thousand employees in this state; I started about 17 small businesses. We have to adopt that same entrepreneurial framework in government and governance. We have to recognize that we’re not the only game in town; we have to be more globally savvy than we have ever been. 

Bill Allen: We’ve said that California will clearly be a major player in the green economy and will clearly be the nation’s largest market for green products and services. Will we also be the largest provider and producer of these products and services? Will we be manufacturing the solutions that help us reach our green aspirations? 

Lieutenant Governor Gavin Newsom: The foundation, I said, was not solvency but greatness. There’s a second foundation: you’ve got to move away from an economy of paper and perks to an economy of people and products. With the size and scope of this economy—still $1.9 trillion a year economy—we can create markets. We lost about a third of our manufacturing between 2001 and 2009 in the state of California, but it’s still the most robust manufacturing economy in the United States. The U.S. economy until 2010 still produced more goods than any other country in the world—over $1 trillion a year. It’s wasn’t until 2009 or early 2010 when China actually clipped the U.S. We still have a vibrant manufacturing base.

We’ve got to get back into the business of building things and creating things. We have a framework where we looked at best practices around the world. What has Germany been doing in the last few decades to get its manufacturing back? What’s the state of Bavaria doing? Bavaria is one of the best practices in the world. It’s got a highly regulated environmental model, and it’s also got a highly regulated labor market. Yet they’ve had an exports-driven strategy that has dramatically increased their manufacturing base. There are a lot of very important lessons that we can learn from Bavaria. We’ve populated those ideas loosely in the plan, and then we backed them up with hundreds of pages to support strategies. 

We can compete with Bangalore and Beijing. We can start insourcing jobs by focusing on some of these models that others countries have advanced. There are ways that we can streamline regulations without getting rid of regulations. I’m not just talking about CEQA. I’m talking about the permitting that local city council members are advancing, things that building departments and planning commissions have the real influence over. We need to focus on regions and counties in alignment with state strategy. Darryl Steinberg’s been doing a lot of great work on this, and there’s a lot more that we can do bottom-up, not top-down. 

Bill Allen: Let’s talk about another area where our Senate President has shown real leadership: education and workforce development. As you know we have a critical skills gap in California and increasingly in our nation as a whole. It’s crucial that we have an educated, well-trained, well-prepared workforce for the jobs in the next economy. How does the competitiveness agenda address this? How do we bring industry in earlier in the process of educating and training our workforce so that the skills they’re provided with are as relevant as possible to the jobs of today and tomorrow?

Lieutenant Governor Gavin Newsom: This is so profound. I was talking to Christopher, over there, and he was telling me his folks couldn’t get jobs as cashiers because they don’t have backgrounds in math. A good friend of mine runs probably the most robust jobs database in the world. On his site, called Simply Hired, I typed in L.A. today. There are over 120,000 open jobs in Los Angeles alone. 537,000 jobs in California are posted. Here are the jobs: software engineer, wireless site acquisition manager, bi-lingual part-time driver. 

We’re in a hyper-connected world with the merger of globalization and I.T. This economy is changing at a rate that none of us could have imagined five years ago, let alone 25 years ago. Just consider Tom Friedman who wrote his book The World is Flat at the same time that the state of California decided to shut down its trade and commerce offices. This happened about a year before the book was published. Tom wrote that book in 2004, and it came out in 2005. He jokes in his new book that he looked back to see if Facebook was mentioned in The World is Flat, and in 2005 it wasn’t. Twitter, in 2005, was a sound; LinkedIn was a prison; the Cloud was in the sky; 4G was a parking space; and Skype, for most of us, was a typo. That was just five years ago. The world is changing at such a rate that we have to reconcile that our politics no longer are relevant in that context. There’s a global curve now, and that curve is getting graded much higher. 

Two billion people in the last 20 years have entered into the workforce. They’re competing with us, and it’s no longer cheap labor: it’s cheap genius. Education is not just some poll-tested thing the President keeps saying. If we’re not out educating, we’re not even going to be average, and we can’t even afford to be average again. This is serious stuff. This skills mismatch is alarming. The number one complaint I get in Silicon Valley is that we cannot find talent. The problem now is H-1B visas are booked up after just four months, only 65,000 people a year. We have something called AB5s, I bet most of you have never heard of it because we don’t even promote it. That’s to encourage foreign direct investment into startups, which is something even the most hardened anti-immigrant reform person would say is a good idea, considering that half of Silicon Valley startups, 52 percent, are foreign-born startups. 

So workforce training is fundamental on this. That’s why no one liked those higher education cuts. This is our secret sauce, and it’s why unemployment is not at 20 percent. 

Bill Allen: What are the next steps in this agenda? How can this audience help in advancing the principles of this agenda, turning them into implementation?

Lieutenant Governor Gavin Newsom: We have 38 specific action items, and we’ve populated them with work groups. We are hoping to have an annual summit to update the state’s economic development plan by populating it with regional plans that are being updated on an annual basis as well. So it’s not a state top-down plan; it’s a regional bottom-up, race-to-the-top plan.

One of the things I know from business is that if you’re not asserting yourself and taking risks, you’re not going to find new ways of doing things. And we’ve got to be willing to try a lot of new ideas and organize ourselves in a much more robust way than we’ve done in the past.