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Why
California Matters
California's
attempt to recall its governor is another example of the vast influence the
state wields over the nation. A similar effort to oust an elected official in
any other state might make national news, but it would be unlikely to dominate
the headlines in the same way.
As far as the United States is concerned, California is an 800-pound gorilla,
even when politics are not concerned. Like it or not, what happens in the Golden
State can ripple across the nation and further.
But the reverse is also true. California is a leading producer in many
industries, and a major consumer as well. Even though California is a superpower
among states, its power is derived both from the revenues it earns and the goods
it buys from the rest of the nation.
"If California has troubles, the country has troubles," said
investment guru Warren Buffett, an economic adviser to Arnold Schwarzenegger's
gubernatorial campaign.1
Budget Buster
California's record $38 billion budget deficit, a leading motivation for the
recall, has been blamed on plummeting revenues and skyrocketing spending. Many
of the state's business owners fear the budget will be balanced on their backs.
If fees and taxes go up and regulations tighten, the effect on publicly traded
companies could send spooked investors on a selling spree, potentially causing
stock prices to fall.
Firms that decide to close their doors or pack up and leave could antagonize the
already high national unemployment rate. Some 13% of Americans who were
unemployed in July 2003 reside in California.2
Bigger than Nations
California's $1.35 trillion economy is the fifth largest in the world and 10% of
the U.S. economy. Only the United States itself, followed by Japan, Germany, and
the United Kingdom, have larger economies.3
Despite the shift toward industry as its core economy -- and a well-known lack
of water -- California remains the leading U.S. producer of fruits, vegetables,
and dairy products. It also is responsible for the major share of the nation's
wine output.4
Whoa! Technology, Dude!
California's Silicon Valley was the epicenter of the technology boom that caused
the stock market to reach record levels in the late 1990s -- an event with
global implications that are still being felt today. Despite the tech industry's
subsequent crash, the state is still the country's leading semiconductor
manufacturer.5
Subsidy for the 49
About a quarter of the money that California contributes to federal tax revenues
never returns to the state. The Tax Foundation found that only about $0.76 of
every dollar that Californians pay to the federal government returns to the
state in the form of federal spending.6
It's easy to see why California's role in the national economy is so important.
Keeping an eye on what happens in the Golden State may help you understand
what's happening closer to home.
1, 3) CNN/Money, August 21, 2003
2) California Employment Development Department, 2003
4, 5) The Columbia Encyclopedia, Sixth Edition, 2001
6) Tax Foundation, 2002
© 2003
Emerald Publications
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