* Find this article at:
* http://www.time.com/time/nation/arti...931582,00.html

Friday, Oct. 23, 2009
Despite Its Woes, California's Dream Still Lives
By Michael Grunwald

California, you may have heard, is an apocalyptic mess of raging wildfires,
soaring unemployment, mass foreclosures and political paralysis. It's
dysfunctional. It's ungovernable. Its bond rating is barely above junk. It's
so broke, it had to hand out IOUs while its leaders debated how many
prisoners to release and parks to close. Nevada aired ads mocking
California's business climate to lure its entrepreneurs. The media portray
California as a noir fantasyland of overcrowded schools, perpetual droughts,
celebrity breakdowns, illegal immigration, hellish congestion and general
malaise, captured in headlines like "Meltdown on the Ocean" and "California's
Wipeout Economy" and "Will California Become America's First Failed State?"
(See pictures of the clean-up after California wildfires.)

Actually, it won't.

Ignore the California whinery. It's still a dream state. In fact, the
pioneering megastate that gave us microchips, freeways, blue jeans, tax
revolts, extreme sports, energy efficiency, health clubs, Google searches,
Craigslist, iPhones and the Hollywood vision of success is still the cutting
edge of the American future — economically, environmentally,
demographically, culturally and maybe politically. It's the greenest and most
diverse state, the most globalized in general and most Asia-oriented in
particular at a time when the world is heading in all those directions. It's
also an unparalleled engine of innovation, the mecca of high tech, biotech
and now clean tech. In 2008, California's wipeout economy attracted more
venture capital than the rest of the nation combined. Somehow its supposedly
hostile business climate has nurtured Google, Apple, Hewlett-Packard,
Facebook, Twitter, Disney, Cisco, Intel, eBay, YouTube, MySpace, the Gap and
countless other companies that drive the way we live. (See pictures of
California First Lady Maria Shriver.)

"Whenever we have a problem, everyone makes a big drama — 'Oh, my God, it's
the end. California is over,'" Governor Arnold Schwarzenegger told me. "It's
all bogus." Schwarzenegger likes spin and drama too — he's issued warnings
about a "financial Armageddon" — and he literally blew smoke in my eyes
while we spoke. But his belief in the anything-is-possible dream of
California is more than spin; he is, after all, its ultimate embodiment. (See
how marijuana is taxed in California.)

California, to borrow a phrase, will be back. It's been stuck in an awful
recession — not quite as awful as Nevada's — but it's getting unstuck. It's
made nasty cuts to close ugly deficits, but it hasn't had to release
prisoners or close parks, and its IOUs are being paid. Its businesses aren't
fleeing to Nevada or anywhere else; Jed Kolko, an economist at the Public
Policy Institute of California, has shown that fewer than one-tenth of 1% of
its jobs leave the state each year. Even California's real problems tend to
get magnified by its size. If it were a country, it would be in the G-8. So,
yes, California has the most foreclosures and layoffs. With 38 million
residents and a $1.8 trillion economy, it also has by far the most homes and
jobs. (See pictures of California modernist homes.)

It can be perilous to generalize about a place this gigantic, an
overwhelmingly metropolitan state that leads the nation in agricultural
production, a majority-minority state with a white-majority electorate. There
are real differences between (crunchy, techy) Northern and (hipster, surfer)
Southern California, and especially (richer, denser, bluer) coastal and
(poorer, sparser, redder) inland California. But one generalization has held
true from the Gold Rush to the human-potential movement to the dotcom boom:
California stands for change, for disruption of the status quo. "California
is not another American state," concluded Carey McWilliams in his 1949
history California: The Great Exception. "It is a revolution within the
states."

Today, it's still the home of the new new thing. It is electric-vehicle
start-ups like Tesla, Fisker and Better Place taking on the Big Three, or the
local-organic foodies behind California cuisine going after Big Ag. It's
Kaiser Permanente, the HMO whose model of salaried doctors in group practice
may be the future of health care, or the University of California at Irvine's
law school, which opened this semester with free tuition and was instantly
more selective than Harvard or Yale. It's SpaceX, the private
rocket-launching company, or Kogi, the Korean taco truck that announces its
location over Twitter to flash mobs of Angelenos. "The beauty of California
is the idea that you can reinvent yourself and do something totally
creative," says Kogi's Roy Choi, a former chef at the Beverly Hilton. "It's
still the Wild West that way."

California is a state of early adopters — not only in fashion, technology
and design but in politics too. Its voters approved huge bonds for stem-cell
research, high-speed rail and repairs to aging infrastructure while
Washington was dragging its feet; its politicians adopted first-in-the-nation
greenhouse-gas regulations, green building codes and efficiency standards for
automobiles and appliances that have rearranged the national energy debate.
Yes, it was also an early adopter of subprime mortgages — Countrywide,
Golden West and IndyMac were all California-based — but life on the frontier
has always been risky. "This is the most dynamic place for change on earth,"
genomic pioneer J. Craig Venter said on a recent tour of his San Diego labs,
where researchers are studying ways to convert algae into oil, coal into
natural gas and human wastewater into electricity. "That's why we're here."
Dressed in shorts, flip-flops and a crazy-loud floral shirt on a typically
perfect day, Venter noted that California's quality of life isn't bad either:
"It is pretty nice not to have to wear pants."

California has long inspired its own premature obituaries. The 1855 book The
Land of Gold dismissed it as "lawless, penniless and powerless." TIME
published a woe-is-California issue called "The Endangered Dream" in 1991
after the aerospace industry collapsed. But even with 12% unemployment,
California still has an enviably young and productive workforce. And it's
still a magnet for dice-rolling dreamers who want to start anew, make money
and change the world, with or without pants. "I see my own pattern repeated
again and again — people who want to invent the future and aren't afraid to
fail," says billionaire Silicon Valley financier Vinod Khosla, an Indian
immigrant who helped found Sun Microsystems and recently unveiled a $1.1
billion venture fund for investments in clean technology.

Which just happens to be the next California gold rush.

The New Gold Rush

Tom Dinwoodie is standing on a roof, staring at the future. The roof covers
Richmond's grand "daylight factory" overlooking San Francisco Bay, where Ford
built Model A's before World War II and then the iconic Rosie the Riveter
built jeeps and tanks during the war. Now SunPower Corp. uses it to assemble
the world's most efficient solar panels, including a sleek array on its roof.
That's where Dinwoodie, SunPower's chief technology officer, likes to go to
look across the bay at a collection of hulking tanks in which Chevron stores
fossil fuels. If we don't stop global warming, he says, that water will rise.
But if solar and other renewables keep growing as fast as they are in
California, "we'll turn those tanks into hot tubs."

If you think solar is an eco-fantasy, you probably don't live in California,
where rooftop installations have doubled for two years in a row, to 50,000,
heading to the state goal of 1 million by 2017. The San Francisco utility
Pacific Gas & Electric, which recently bolted the U.S. Chamber of Commerce
over climate policy, has 40% of the nation's solar roofs in its territory.
SunPower now has more than 5,000 employees. It's building massive power
plants for utilities, as well as roof panels for big-box stores, complete
subdivisions and individual homes. Prices are plummeting, and competition is
fierce, most of it from California firms like BrightSource, Solar City,
eSolar, Nanosolar and Solyndra. "The scramble is on, and California is leaps
and bounds ahead of the rest of the country," says Dinwoodie. "That's true of
all energy issues." (Read a 2003 profile of Arnold Schwarzenegger.)

When it comes to energy, California is not just ahead of the game; it's
playing a different game. Its carbon emissions per capita are less than half
the U.S. average. And from 2006 to '08, it attracted $3 of every $5 invested
in U.S. clean tech — five times as much as the No. 2 state. It's by far the
national leader in green jobs, green patents, supply from renewables and
savings from efficiency. It's also leading the way toward electric cars,
zero-emission homes, advanced biofuels and a smarter grid: its electric
utilities plan to install smart meters in every California home. It's even
launched a belated battle against car-dependent sprawl, with unprecedented
rules forcing communities to consider carbon emissions in their land-use
plans.

California has been preparing for its clean-energy future for a long time.
Starting in the energy crisis of the 1970s, California revamped its
electricity markets so that utilities could make more money by helping their
customers use less power. It also began enacting groundbreaking efficiency
standards for buildings, appliances, pool heaters and almost anything else
that needs juice. It just proposed the first standards for flat-screen TVs.
As a result, per capita energy use has remained stable in California while
soaring 50% nationwide, saving Californians an estimated $56 billion and
avoiding the need for 24 new gas-fired power plants. On the supply side, the
state has required utilities to provide one-fifth of their power from
renewables by 2010, which will jump to one-third by 2020. And California's
soup-to-nuts effort to slash emissions — including a cap-and-trade regimen
in 2012 — is the blueprint for federal climate legislation. (Download a PDF
on California's industries, labs and technologies.)

This public-sector foresight has created alluring opportunities for the most
tech-savvy private sector on earth. The venture capitalists behind the
high-tech and biotech booms see clean tech as the next big score. The
necessary engineers, scientists, accountants, lawyers, marketers and other
knowledge workers are already there. "We've already turned industries on
their heads, so we assume we can do it again," says Steve Dolezalek,
VantagePoint Venture Partners' managing director, who oversaw the firm's
software and life-sciences investments before heading its clean-tech group.

The lines between sectors are blurring fast. As its name suggests, eSolar is
essentially a software play; its added value is advanced code that positions
vast arrays of mirrors to the millimeter to maximize their exposure to
sunlight. The company was spawned by IdeaLab, a Pasadena incubator that
developed NetZero, Picasa, pay-per-click ads and online car-selling. "We only
do ideas that challenge the status quo, and California is the only place we'd
do it," says CEO Bill Gross. (See pictures of San Francisco.)

Chip-industry veterans are also drifting into solar, as well as LED lighting
and green materials, while Cisco, which made the guts of the Internet, is
pivoting to make the guts of the digitized grid. San Diego's cluster of more
than 500 biotech companies is now the world capital of algae-to-fuel
experiments, including a new $600 million joint venture between ExxonMobil
and Venter's Synthetic Genomics. Khosla's investments include Calera, a
carbon-capturing-cement start-up founded by a Stanford expert in medical
cement; Amyris, which has Berkeley malaria researchers working to turn sugar
into diesel; and Soladigm, which exploits semiconductor-industry expertise to
make energy-efficient windows.

California scores poorly in most "business friendly" ratings, which tend to
focus on tax rates and wage levels rather than on, say, worker productivity
or creativity. And the state has more than its share of no-no-no types
protesting nanotechnology, synthetic biology and even some SunPower
solar-energy projects, which could possibly imperil kangaroo rats and fairy
shrimp. But the state's business culture fetishizes long-shot ventures and
game-changing ideas. Failure is appreciated, not stigmatized, and an
entrepreneur without a few busted start-ups on his re'sume' is almost
suspect. (See TIME's City Guide: Los Angeles.)

Guido Jouret, who oversees Cisco's emerging technologies, explained this
creative destruction when we talked over TelePresence, an
ultra-high-definition substitute for the hassle, expense and carbon footprint
of business travel. We were 3,000 miles (4,800 km) apart, but I kept
forgetting we weren't at the same conference table. One of Steven Spielberg's
cinematographers helped Cisco get the illusion of intimacy just right.
"California has a very welcoming attitude, but it's a Darwinian society,"
Jouret said. "Companies come and grow and die, and no one sheds a tear. And
there's a real sense that it isn't worth doing if it won't change the world."

California's high-tech community has concluded en masse that the next Google
guys are going to be the visionaries who figure out how to harness the sun,
build a battery to store the wind or engineer the renewable fuel that won't
compete with the food supply. (It could be the actual Google guys, who have
launched an aggressive clean-energy initiative.) "Inventing a better gadget
isn't enough anymore. We're trying to reshape the way people live," says
SolarCity CEO Lyndon Rive, a South African who went to California for the
world underwater-hockey championships, got caught up in the Internet boom and
never left. He built and sold an IT-support company; now he's reshaping its
software to monitor solar panels.

The State of Progress

So why all the end-is-nighism? Schwarzenegger thinks California gets slagged
nationwide for the same reason the U.S. gets slagged worldwide: it's natural
to resent the big kahuna. (He should know; his approval rating has dipped
below 30%.) In a poolside interview after hosting a global climate summit in
Century City, he suggested that outsiders envy California's immense resources
— beaches, mountains and redwoods; Hollywood, Napa and Disneyland; the best
in stem-cell research, fruits and vegetables, entertainment and fashion. (He
was sporting a suit with a zebra-print lining.) "We're all about the cutting
edge," he said. "I mean, come on. California is wild!" He's right about the
schadenfreude, and it was fun to hear him say the word. It is easy to gloat
when the cool jock with the hot girlfriend wrecks his sweet car, especially
if he seems kind of smug. I was reminded of this during Rob Lowe's talk at
the summit, when he declared that everyone has an obligation to join the
fight against global warming, then continued, "For my part, I'll be doing The
Ellen DeGeneres Show."

Then again, California has legitimate problems that inspire legitimate
criticism: gangs, sprawl, disturbing dropout rates, water shortages that
don't seem to stop farmers from irrigating rice and cotton in the desert, the
crazymaking traffic that Hollywood immortalized in Falling Down. It's still
sitting on a fault line. Its expensive housing, even after the real estate
crash, poses a real obstacle to the dream of upward mobility. So do its
public schools and other public services, which have been deteriorating for
years — in part because older white voters have been reluctant to subsidize
younger minorities. (Watch TIME's 10 Questions video with Nancy Pelosi.)

This gets to the one area where California really is dysfunctional: its
budget. Californians generally enjoy government spending more than they enjoy
paying for it, which is a national problem, but they've also straitjacketed
their politicians with scads of lobbyist-produced ballot initiatives locking
in huge outlays for various goodies, as well as the notorious Proposition 13,
which has severely restricted local property taxes since 1978. California is
also one of only three states that need a two-thirds supermajority to pass a
budget or raise taxes, a virtual impossibility in its ultra-partisan
legislature. So it relies on a boom-and-bust tax base that even many liberals
admit is overreliant on the rich. The state's economy actually grew last
year, but its revenues crashed because its top earners had lower incomes and
capital gains. That meant sharp cutbacks, especially in education, which in
California is unusually dependent on state cash. "We have an incredibly
dynamic economy, but we'll still end up in federal receivership if our
government can't pay its bills," says historian Kevin Starr, a prolific
chronicler of the state.

Fortunately, help may be on the way. Nonpartisan groups like Repair
California and California Forward have built momentum for sweeping reforms
that could stop the unsustainable chaos — including an end to the two-thirds
rule, limits on ballot initiatives and a new system of taxation.
Schwarzenegger is pushing for a gargantuan water-sharing agreement that could
help prevent the state from running dry. And his potential successors are
also formidable go-getters with forward-thinking credentials — including
former governor and current attorney general Jerry Brown, golden-boy San
Francisco mayor Gavin Newsom and former eBay CEO Meg Whitman. Brown, the
early front runner, was widely mocked as Governor Moonbeam back in the 1970s,
but some of his ideas — including energy efficiency, as well as the
emergency-communications satellite that inspired his nickname — no longer
seem so flaky. (Download a PDF on California's industries, labs and
technologies.)

But the krazy-Kalifornia criticism is likely to continue regardless of the
facts on the ground — not just because of envy, but because of ideology as
well. The collapse of the Golden State provides an irresistible parable for
hippie-lefty vegan politics, the failure of a quasi-Scandinavian progressive
experiment symbolized by MoveOn.org, Daily Kos and the Sierra Club; yoga,
crystals and medical marijuana; "Hollywood values" and "San Francisco
values." California has a tradition of activist government, and public
support for the University of California, federal energy labs and the
military-aerospace-industrial complex played a huge role in creating Silicon
Valley, San Diego's biotech cluster and the state's other private-sector
centers of innovation. So it's been a juicy target for right-wingers who
consider Schwarzenegger a squishy sellout. If a low-carbon, Big Government,
change-obsessed state with high taxes on the wealthy, draconian environmental
regulations, a porous border and the nation's most vibrant labor movement
were imploding, what would that say about the age of Obama?

Then again, the home state of Richard Nixon and Ronald Reagan has been a
conservative trendsetter as well, leading the backlash against taxes,
affirmative action and illegal aliens and enacting the first three-strikes
law against career criminals. Its economy is much closer than the nation's to
a true model of free-enterprise capitalism, in which government sets rules
and enforces a level playing field but declines to pick winners. And what
could be more Californian than the conservative megapastor Rick Warren urging
his multimedia flock to make a fresh start with a forgiving God? "A clean
slate is possible!" he wrote in his best seller God's Power to Change Your
Life. "It's a lot like my son's Etch A Sketch."

In any case, California is not imploding, which ought to be heartening to
Americans regardless of ideology or geography. Because America is essentially
the land of the Etch A Sketch, and California is America but more so,
beckoning dreamers who want to cook Korean tacos or convert fuel tanks into
hot tubs. It's progressive more in the literal than in the political sense of
the word. And it's where America is going: a greener, more advanced and more
global economy; a browner and more metropolitan population; and, yes, some
staggering debts and other governance problems that need to be resolved. It's
expensive and crowded — because people still want to be there! — and it's
recovering from an economic earthquake. But it continues to have a powerful
claim on the future. "In the depths of the breakdown, you can see the next
narrative," says Mark Muro of the Brookings Institution's metropolitan-policy
program. "It's California. The next economy is already in place there, and
it's amazing."