Fifty years ago, New York state stood astride the world—a demographic and economic giant that had few equals. For 150 years, since the opening of the Erie Canal, New York had leveraged population growth to create prosperity and economic power. Not only was New York City the financial, corporate, and media capital of the world, but both the city and upstate New York were manufacturing powerhouses. And there was no reason to believe that this cycle of endless growth would end.
But it did. Without warning, New York state suddenly lost 700,000 people in the 1970s. New York City bled manufacturing jobs and middle-class residents and went bankrupt. Upstate’s powerful manufacturing cities—Buffalo, Rochester, Syracuse—saw similar population declines and massive factory closures.
And yet the state’s leaders moved forward as if nothing had changed. New York City stumbled from one financial crisis to another. The downstate suburbs became trapped in a vicious cycle of population decline and increased property taxes. Rochester went ahead with a plan to install a sewer system that covered the entire county—a plan based on the assumption that the region would add a half-million people by the year 2000. It took decades for New York to realize that the glory days of population growth were never coming back, and adjust accordingly.
Today, California is experiencing something similar. Ever since the gold rush 170 years ago, the Golden State has been built on the assumption of population growth, leveraging it to create prosperity and economic power almost unequaled anywhere in the world. As was the case in New York, this assumption is baked into everything that happens in the state: the educational system, public finance, the approach to economic development.
But almost without warning, California is now losing population—600,000 people in the past three years—with no end in sight. And the situation is quickly creating a series of crises the likes of which California has never seen.
Downtown San Francisco—once the strongest office market in the nation, outside of Manhattan—has cratered. School districts, especially in coastal areas too expensive for young families, are hemorrhaging money because of declining enrollment. Cities that have balanced their budgets and improved their infrastructure on the back of new development are finding their communities crumbling with no way to finance repairs. And the state’s boom-and-bust budget has already begun to run red ink. The economic engine of population growth that has driven California for so long simply does not exist anymore.
So what will happen next? Will California become the new New York—a place accustomed to thinking of itself as the center of the world, but all of a sudden isn’t anymore? Or will California shed its long-standing growth assumption and pivot to a different model for a sustainable society? The answer is important not only to California but to the entire United States, because California—like New York before it—is one of the pillars of the nation’s economy. New York’s decline was one of the reasons the nation struggled through persistent economic doldrums in the 1970s. A declining California could have the same effect in the 2020s.
Simply put, it’s time for California to accept reality. There will never be “50 Million Californians,” as demographers have predicted for decades. Instead, the population will stall out at about 40 million. Eventually, California will fall behind Texas as the nation’s most populous state, just as New York fell behind California back in the ’60s.
For many Californians, especially the state’s political leaders, this is a heretical idea—like saying nobody in California’s going to surf anymore. California has been the Golden State for so long that it’s almost impossible to imagine a future in shades of bronze. But the truth is impossible to ignore. One recent poll found that 4 in 10 Californians are considering leaving.
So let Arizona, Nevada, and Texas try to build prosperity based on population growth.
California must pivot—quickly—to a future with a stable population, not a growing one. Like other places where population growth has stalled, the state must now focus on strengthening its assets, growing its wealth, and making sure that its young people are well positioned to take advantage of the opportunity that does exist. In addition, the state and its local governments must abandon the “growth must pay for itself” approach to public finance that came about in the wake of Proposition 13, the 1978 referendum that keeps property taxes in the state so low.
New York City lost a million people, and took years to work itself out of bankruptcy, in part because the city did not come to terms with declining revenues in the face of strong public unions accustomed to getting pay increases. Eventually the city doubled down on its role as the financial capital of the world—a role that has only strengthened, even in a time of electronic transactions. But the city did lose most of its middle class, just as California is doing now.
Meanwhile, upstate New York experienced decades of wintry economic weather before rediscovering its enormous assets in research and education (SUNY Buffalo, Cornell, Rochester Institute of Technology, Rensselaer Polytechnic, and others) and connecting them to the region’s long-standing skill at manufacturing. (Syracuse recently won Micron’s massive semiconductor plant, beating out Austin.)
Other cities with stable populations have prospered as well, using a similar playbook. Pittsburgh, for example, successfully pivoted from a manufacturing economy to a high-tech innovation economy, largely by exploiting the presence of Carnegie Mellon University and building on a tradition of government, philanthropy, academia, and industry working together to solve regional issues that dated back to the air pollution problems of the 1940s. St. Louis has followed a similar path. Instead of focusing on population growth—living off of expansion—it has had to focus on strengthening its assets and creating wealth.
California can do the same. Despite the recent move of Tesla’s headquarters and other corporate offices to Texas, California is still the world’s leading innovation economy, and the state must do everything it can to strengthen its position. The state’s higher education and research assets are still unmatched anywhere else in the world—and unaffected by the tumultuous culture-war attacks on universities in Texas and Florida.
California also has to focus on the upward mobility of those who already live in it. If more people aren’t going to move to the state, native Californians need the education and training to take advantage of the state’s dynamic economy. This too is a change from the days when jobs were filled primarily by people who moved to California.
And California’s cities must abandon the “growth must pay for itself” philosophy that has prevailed since the passage of Proposition 13 almost a half-century ago. Cities today impose huge fees on new development because they can’t raise property taxes. And they also ruthlessly poach retail businesses from one another in order to increase their sales-tax revenues. These are the bad habits of a society that feeds off population growth.
A declining population does not mean there’s no need to address the housing question, however. The state remains in the throes of a housing-price and homelessness crisis brought about by 30 years of housing underproduction. Even a state with a stable population must ensure that its residents are housed in a way that is affordable to them. (Indeed, New York Gov. Kathy Hochul is aggressively pursuing housing production as a policy goal in New York.)
The most important thing for California to do is to acknowledge that things have changed and pivot now. The state cannot make the mistake that New York made: simply assuming that someday things will return to normal—“normal” meaning a growing population that can feed economic expansion without much work. No matter what, the state will be the new New York. The question is whether California’s leaders will embrace this change and make it work for California’s 40 million residents, rather than pretending that change is not occurring.
