The fall of the Golden State

In the last decades of the 20th century, California reinvented a brash new capitalism that created new, more innovative archetypes. Today, some of those companies – Apple, Google and Facebook – are among the largest in the world, with assets greater than those of all but a few countries.

The power of these firms, no longer feisty startups, remains formidable on paper, but they are no longer an economic engine for broad-based prosperity. Once seen as evidence of capitalism’s remarkable ability to create mass wealth, the California economy is now characterised by stark inequality and a lack of opportunity, providing grist for those who wish to undermine the market system and tax away the wealth accumulated by its most successful citizens.

To be sure, if you judge an economy by financial assets, California is a super-performer. The huge run-up in tech-company valuations was enough to prompt Bloomberg to suggest that Governor Gavin Newsom should be credited as the ‘maestro’ of the world’s greatest economy.

Such praise could be handy as Newsom tries to propel himself into the White House. Seeking more kudos, the Brylcreem politician has also tapped nearly $20million in state funds to rehabilitate California’s business image – a move that Dan Walters, the dean of California political reporters, rightly described as a ‘contribution from California taxpayers to Newsom’s forthcoming campaign for the presidency’.

But the real issue here is not Newsom – it is how the case of California raises the question of what an economy is for. Measured by stock and housing prices, California is, as Newsom crows, ‘an economic powerhouse’. But it is also a stark failure, with the country’s highest cost-of-living-adjusted poverty rate, one of the highest levels of functional illiteracy, and the worst housing affordability in the continental US. Overall, according to one recent study, the average Californian, despite higher wages, actually has 35 per cent less disposable income on average than residents in the rest of the US due largely to higher costs and taxes.

Much of this can be traced to the behaviour of tech giants. AI startups may concentrate in the Bay Area, but big players like Salesforce, Meta and Google have aggressively cut their payrolls. Overall, the state’s tech and high-end business services workforce, under pressure everywhere, is shrinking faster than anywhere else in the country, notes economist Gad Levanon. Since 2020, the state’s share of the nation’s high-tech jobs has dropped from 19 per cent to 16 per cent.

Simply put, AI creates opportunities largely for a small subset of established and highly educated workers, but far fewer for recent graduates, and even fewer for those without elite training. Many of the once-celebrated benefits of being a tech hub have diminished, as seen in the large office vacancies in Oakland, San Francisco and even San Jose, the self-proclaimed ‘capital of Silicon Valley’. The much-anticipated Google Downtown campus will not be built anytime soon.

The value of being close to the world’s wealthiest companies appears less compelling than in the past. These firms were once part of a system that created good jobs and opportunities. Today, California increasingly resembles a neo-feudal state, where a handful of large companies drive the economy while the vast majority of workers endure high energy and housing costs, high taxes and diminishing opportunity. How this occurred is a cautionary tale for anyone interested in preventing the market system from undermining itself.

Once proudly capitalist, today’s California has become a surprisingly fertile ground for socialist agitation – a place where May Day seems more widely embraced than the Fourth of July. A new wealth-tax initiative, backed by the Service Employees International Union and which Newsom opposes, has qualified for the November ballot and is currently ahead in the polls. Progressives in Sacramento are also looking to raise the state’s income tax, already the nation’s highest, and to impose new payroll and excise taxes. Other proposals include a 32-hour workweek and multi-billion-dollar reparations for descendants of former slaves (California was never a slave state).

This unrest has the oligarchy in an uproar, but in reality, much of the blame lies with them. After all, they are providing fodder for the anti-capitalist left by laying off workers at rapid rates, even as they invest heavily in artificial intelligence and generate enormous profits. Increasingly, oligarchic wealth primarily benefits its holders. California now ranks as the worst state for creating jobs that pay above average and has lost some 1.6million good jobs over the past decade.

The biggest losers are those, particularly Latinos, connected to what a recent Chapman report describes as the ‘carbon economy’. This includes manufacturing, logistics, agriculture, construction and energy production. Latinos make up well over 90 per cent of agricultural workers, over 50 per cent of construction workers, the majority of factory workers, and roughly 30 per cent of oil and gas workers. Construction often involves heavy machinery and carbon-intensive materials, while transportation relies heavily on fossil fuels.

The new jobs that are being created tend to be in government-funded sectors such as education, healthcare and the civil service. This has strengthened the influence of those workers and their unions – especially teachers – who are arguably now among the most powerful and radical political forces in the state, forming a persistent lobby for ever-greater government spending. In contrast, private-sector employment has stagnated, with many companies leaving the state. So too are residents, particularly families and members of the middle and working classes, even in Silicon Valley. One recent study found that many are faring better elsewhere.

The path to upward mobility, once California’s hallmark, is increasingly blocked. The education system, heavily influenced by social-justice-focussed teachers’ unions, performs worse.) than most Deep South states, particularly in educating African American and Latino students, most notably in San Francisco. Most concerningly, the unemployment rate among teenagers exceeds 21 per cent, nearly double the national average. For Gen Z workers under 30, it ranks second in the nation, just ahead of Mississippi. Unsurprisingly, California now faces the largest projected decline in school enrollment of any state, with an expected drop of one million public-school students by 2031.

A more enlightened elite might have recognised the long-term risks of these trends. But California’s tech-heavy wealthy – who make up the largest billionaire population in the US – are peculiarly clueless. Even as they have accumulated immense wealth, they and their families have long funded the proliferation of left-leaning NGOs in the state. They have been particularly active in supporting climate groups, or what analyst Robert Bryce has dubbed the ‘anti-industry industry’.

Google co-founder Sergey Brin may attract conservative attention with his criticism of the wealth tax and efforts to block new levies, but his company has consistently supported and promote progressive programmes. Like many tech firms, Alphabet (Google’s parent) entered into an implicit alliance with the Democratic Party: in exchange for support, it would help fund an expanding welfare state, including housing and healthcare subsidies for the poor, underemployed and undocumented populations, almost a third of whom live below the poverty line.

This alignment also reflects the views of many tech employees, who tend to lean left. As Jim Wunderman, former head of the Bay Area Council, observed, some tech leaders are ‘scared of their own employees’ if they deviate from progressive views. This has included organised efforts to oppose company contracts with the US Department of Defence. In 2024, two of Kamala Harris’s top five sources of corporate support – including employees – were Alphabet and Apple, with the University of California also ranking highly.

But this alliance is beginning to strain under its own weight. Despite a strong stock market, the cost of California’s welfare state has become increasingly burdensome, generating persistent deficits. Under Newsom, the state budget has ballooned by 72 per cent despite stagnant population growth, with social spending rising far faster than revenues. The state’s legislative analysts now project large multibillion-dollar deficits this year, worsening into a long-term structural shortfall ranging from $20 billion to $35 billion annually.
These deficits have intensified calls for redistribution. Advocates argue that the wealthiest residents – particularly the top one per cent, who already pay roughly half of all income taxes – should contribute even more. The proposed wealth tax is seen as a first step toward taxing unrealised capital gains among the state’s affluent upper middle class. Critics warn that this could accelerate the ongoing migration of wealth, though supporters are less concerned about that risk.

Only now are some tech moguls feeling the consequences. Energy costs, for example, are among the highest in the nation.), potentially undermining California’s role in AI development, which requires vast energy resources. Companies like Nvidia and Samsung have already located data centres and manufacturing in states such as Arizona and Texas, where electricity is cheaper.
Meanwhile, progressives in California and elsewhere are increasingly advocating for stricter regulation of AI and even opposing the expansion of data centres. Protests, including home assaults, targeting figures like Sam Altman reflect a broader anti-corporate bias that has become deeply embedded in the state’s political culture.

The tech oligarchs’ huge opposition to the wealth tax is a desperate attempt to stem the tide. But things may get even worse in Sacramento, depending on the result of the state’s chaotic ‘jungle primary’. The candidate preferred by many in tech – the pro-business moderate, San Jose mayor Matt Mahan – still has under 10 per cent support, far behind leftist candidates, including renegade green billionaire Tom Steyer and Elizabeth Warren acolyte Katie Porter. Xavier Becerra, who is now gaining in polls, is an old Biden hand likely to follow Newsom’s disastrous course.

If enacted, the wealth tax could pave the way for higher taxation of the vast upper middle class, whose pockets are easier to pick than those of lawyered-up oligarchs. Combined with diminished opportunities in the private sector and a growing low-income population, there will be ever-greater pressure to expand the state’s notoriously inefficient government, plagued by massive fraud and the insane overruns of the ‘bullet train’. The cost of the latter has ballooned from the $33 billion approved by the voters in 2008 to $231 billion today.

If wealthier residents continue to leave the state, this could further strain the economic model. Recent reports suggest that several of California’s richest individuals have already relocated or plan to do so, raising concerns about long-term fiscal sustainability.

Ultimately, the woke oligarchs may find that they have virtue-signalled their way to a confiscatory form of socialism. For years, the tech elites and their minions have served as key enablers of progressives and their programme. They fed this monster, and now the beast seems ready to devour them.

Joel Kotkin is a spiked columnist, a presidential fellow in Urban Studies at Chapman University in Orange, California, and a senior research fellow at the University of Texas’ Civitas Institute. Find him on Substack here.