Today California is probably the most hostile state in the U.S. towards private business, and with the global warming act nearing implementation, things are going to get much worse.  But big changes could be closer than you think.

It isn’t easy to understand just how bad California’s business climate is until you talk to people from out of state - or if you have always lived here, until you try to start a business that aspires to actually move dirt or build something.  But California’s tradition as an international trendsetter does not mean her current climate of hostility towards business, and the resulting gridlock, is destiny.  Quite the contrary.

Even the Long-billed Curlew doesn’t discourage prey from creating shelter and consuming energy and water.

A good example of the current difference between California and the rest of the nation came a few weeks ago when I interviewed a former colleague who recently started working for a construction company doing projects in Texas, among other places. 

He recounted his astonishment when he was preparing a budget and operational timeline for a project in the greater Dallas area, and asked the onsite general manager how much to budget for building fees.  The reply was “about $5,000,” to which he replied “per house?” 

The answer was, “no, that’s how much we’ll pay in fees for the entire development [of several hundred homes].”  Equally astonishing was the timeline - this project’s permit cycle was expected to last three months.  That’s how they do things in Texas.

In California, if you want to break ground on a planned community of several hundred homes, expect to pay millions in fees.  During the real estate bubble that crested in mid 2005, local building fees got as high as $90,000 per home - and the cities and counties spent this money as though collecting such a high volume of these exhorbitant fees would continue year after year.  And that’s only half of it - in California, expect to spend additional millions defending lawsuits from environmental groups.  As for the permitting cycle, expect to spend several years, if not decades, trying to get your project approved.

Even California’s Governor Schwarzenegger, who might be characterized as a tepid friend of the business community - has expressed frustration with the environmentalist community for blocking construction of solar thermal power stations, even though environmentalists are the ones demanding renewable fuel.  But any scratch in the ground, any disruption to any ecosystem, anywhere, is sufficient to cause lawsuits to rain down upon anyone intemperate enough to want to supply power, or shelter, or water, to ordinary consumers.  And once housing is unaffordable, thanks to the environmentalists, the environmental justice people come in and demand taxpayer subsidized affordable housing.

California’s business sectors survive either because their operations predate the rise of environmental extremism - agriculture and timber, or because they are far more virtual or intangible and are not as easily assailed - entertainment and information technology.  California’s business sectors, to the extent they do thrive, do so in spite of California’s government, not because of it.

Another recent anecdote provides further illustration of the gridlock that defines California in 2008.  I recently interviewed a man who intended to build a biodiesel refinery in Fresno County.  The plant would have processed agricultural waste; grape seed and cotton seed in particular, and would have initially output 1.2 million gallons per year.  Biodiesel from waste, that when blended with petro-diesel results in a cleaner burning fuel.  Doesn’t this sound like a good idea?

This project never got off the ground for a variety of reasons, all of them relating to government gridlock if not outright hostility to business, including the following:  It took 13 months for the entrepreneur to get a conditional use permit.  Without this development agreement, the entrepreneur couldn’t get a permit from the regional Air Quality Management District.  When he finally had this agreement, commodities prices had increased and he was required to scale back his plans.  This required yet another development agreement, which promised to take several more months.  The regional AQMD informed him they, too, would require several months to approve his application, and couldn’t give him any firm estimate as to when they’d be ready.  He abandoned the project.

What has happened in California is a combination of two powerful forces - unions and environmentalists - working in tandem to crush entrepreneurship and undermine California’s economy.  But these forces are not monolithic, and now that California has neither the internet boom nor the real-estate bubble to create temporary economic well being, this combination may soon be shattered.  Here are the schisms that are coming - and when they do, California will again surprise the world.

(1)  Private sector unions will split with public sector unions.  This is inevitable, since in the private sector unions operate in a competitive global economy and if they aren’t reasonable, they will kill the company and kill the jobs.  Unions have learned this, which is why most of the excessive union power today is in the public sector, since it takes longer to destroy an entire economy than it does to destroy one company, or one industrial sector.  Private sector unions will be among the first to realize the public sector unions have taken for themselves the tax revenues that should have been used to help all workers, they will realize that environmentalist obstruction is stifling economic growth, and they will abandon the paper thin alliance they have with their brethren in the public sector, and their powerful collaborators, the extreme environmentalists.

(2)  Public employee unions will realize their benefits - unreasonably high salaries, excessive vacation, comprehensive insurance, pervasive overtime, early retirements, and generous pensions - have bankrupted virtually every public entity in the state.  Suddenly these good people will realize that crippling pension fund liabilities can only be managed if pensions for new and recently arrived public employees are dramatically reduced, if not eliminated altogether.  They will realize that with pensions phased out, more money will be available to increase public sector services, helping the economy and the community.  Even the notoriously left leaning teacher’s unions will begin to appreciate the value of corporate profits, since that is what pays the taxes that in turn funds their salaries - and summer vacations.  The brainwashing will begin to subside.  Reason will begin to be restored.  The alliance between unions and extreme environmentalists will be over.

(3)  Last but certainly not least, the powerful environmentalist movement will fracture - with the extremists who currently wield nearly absolute control over the green agenda suddenly finding themselves competing with a robust alternative vision of environmentalism, one that balances the needs of people and profit with the needs of ecosystems.  A vision of environmentalism that emphasizes clean abundance through using liberalized land development policies to produce more water and power, instead of government rationing which does nothing but kill jobs and maintain a venal status quo.

Since the gold rush of 1849, California has been the distant destination of dreamers and individualists from everywhere on earth.  This dynamism that defines California provides a seismic momentum far more powerful than any institution.  California will be greater than ever, because the day will come when it will again be possible to build homes and create jobs without unreasonable harrassment.