SACRAMENTO, CA - A survey of California in the May 1-7 Economist ventures that something remarkable might be happening in the state. The governor has the right ideas, says the highly regarded British publication, but problems remain, including waste, energy, and the business climate.

Even if the entire deficit were to be closed out by spending cuts, that would still leave per-capita spending higher than it was in the late 1990s when, says the Economist, California spent "like a drunken sailor." The state even spent $722,000 to monitor and house one released child molester.

California has been destroying its competitive advantage by snarling up business in red tape, a state of affairs the Economist blames on "too many left-of-center politicians." As a case study, the magazine cites Rodeo Carpet Mills, a business in the City of Commerce owned by Carmen Saenz-Murray, an immigrant's daughter who rose from receptionist to owner.

This firm, which employs 30, must devote one of five administrative jobs just to deal with government. Workers compensation costs rose from $1,200 to $4,900 a month in three years. Saenz-Murray told the magazine that if things have not changed when her lease comes up in 2007, her company will move out of the state.

On the energy front, the main cause of the electricity crisis was California's "adamant refusal to let anybody build power plants," and a "deregulation" scheme that held retail prices stable but let wholesale prices fluctuate. Nothing much has been done, the Economist warns, to prevent the crisis from happening again. But energy reform is back on the table.

In late April, Governor Schwarzenegger noted that high energy prices are one of the biggest obstacles to business. "By fostering competitive wholesale and retail electricity markets that are properly monitored by regulators," he wrote, "California can begin to lower electricity bills and once again become the job-creation machine it once was."

The governor advocates a system that would allow big business to bypass traditional utilities and shop around for competitive rates. That is a sensible approach but it drew fire from Assembly Speaker Fabian Nunez.

In a statement, the speaker accused the governor of relying too much on "the so-called 'invisible hand' of the marketplace . . ." Note the double pejorative, dismissive quotes coupled with "so-called." Mr. Nunez has an energy plan of his own, one that evidently relies on the visible hand of regulators and politicians, but his scowling is instructive in other ways.

Hostility to the marketplace is the hallmark of those the Economist calls "left-of-center politicians." Those unfamiliar with arguments for regulation instead of the market should consider an area more vital than energy: food. No visible hand of regulation determines the food supply in California. No politician or bureaucrat mandates how many acres should be planted in corn, how many potatoes should be sent to Fresno, or how much milk and bread shipped to San Francisco.

Individuals acting in the marketplace determine all that. Food is plentiful and cheap. Where the state commands the food supply, on the other hand, rationing, scarcity, and even starvation are the rule.

As the Economist shows, California's current attempts at reform are commendable. But as the Speaker's reaction reveals, what lies beneath is a political culture wedded to the heavy hand of government and hostile to competition and freedom of choice.

K. Lloyd Billingsley is editorial director at the Pacific Research Institute in San Francisco. He can be reached via
email at klbillingsley@pacificresearch.org.