The Bear Flag Revolution; California’s Experiment in the New Federalism
February 2007
INTRODUCTION
Something important is happening in California. A profound experiment in Federalism, led by a Republican Governor and a Democratic legislature is taking shape and it is the first break with an American political culture that has been centralizing power in Washington since 1932. In four years the state has passed laws on auto emissions, CO2 levels, stem cell research, personal data privacy and appliance energy standards all of which have clashed with the neoconservative agenda of the Bush administration. As the governor pointed out, the power and size of the California economy has allowed the state to create defacto national standards that the corporate sector has been forced to follow. And although both the auto, oil and banking industries have joined with the Bush administration to sue for relief from the California standards, to date the courts have not struck down any of the state laws. Now California is poised to go farther in its quest for independence from a Federal government many feel is headed towards the rocky shoals of fiscal shipwreck. Since the election of Ronald Reagan in 1980 the American political ruling ideology has been based on the twin poles of the Neoconservative philosophy first elucidated by Irving Kristol in The Public Interest in 1965: in domestic affairs the national government should shrink its revenue base (by cutting taxes and business regulations) and in foreign affairs the government should grow its budget (by becoming the world’s sole military superpower). The net result of this seeming contradiction is an America that is living beyond her means, spending more than she is earning. As our military commitments continue to rise our government and our people are on a global credit card binge, dependant on the “kindness of strangers” to not call in the loans. The day of negative real interest rates is over and the Japanese and Chinese who hold close to $2 trillion of US debt will soon have domestic needs for their large pool of savings (for their aging populations) and the cost of our twin deficits (budget and current account) will rise dramatically. As Stephen Roach, Chief Economist of Morgan Stanley wrote recently, “In my view, the US economy is an accident waiting to happen. That’s the message to be taken from a record shortfall in national saving, a record current-account deficit, record levels of household indebtedness, a record deficiency of personal saving, and outsize government budget deficits.”
For a knowledge economy like California, whose entertainment, technology and software businesses are the major source of America’s export economy, the rise of America’s aggressive military posture has led to a rise in Anti-Americanism in cultural goods as well. Retail consultant Lawrence McNaughton was quoted as saying "If you hate America, it's real easy to hate Coke, Disney or McDonald's. The two primary criteria for determining risk would be if you're in business internationally and you're a cultural icon." For California’s Governor to pointedly separate himselffrom the Bush Doctrine by noting that the California “Nation-state” is a “prosperous, peaceful golden state” that will as the world’s sixth largest economy, to do its part to cut CO2 emissions, be a fair trading partner with the world and a welcome port for knowledge immigrants.
What the Governor and many in our state have concluded is that the only way forward for the American republic is a radical form of political devolution. I have called it The New Federalism in an earlier essay, and its principle comes from Jefferson’s belief that “The true theory of our Constitution is that the states are independent as to everything within themselves, and united as to everything respecting foreign nations.” Even Jefferson’s archrival Madison expressed concern that if the nation grew too large, elites in the capitol would divide and overwhelm a widely dispersed population, producing “tyranny.” While the idea of returning more power to the regions, states and cities has been discussed for years, it now has a national champion in California’s Governor Schwarzenegger who is openly experimenting with The New Federalism. It is only fitting that this experiment is taking place in California, birthplace of this country’s digital revolution. The tools built in Silicon Valley will prove to be the accelerator of this political devolution. For this we know: despite a new economic populism, the era of globalization cannot be contained and the devolutionary forces of the Internet are pushing power to the edges of almost every organization. The skeptics of the New Federalism are legion. How can a country reverse seventy five years of moving political power to the Federal government from the states? And although the election of 2006 brought the neoconservative era to a close, it did not define “the new order” and so we find ourselves in a political interregnum.