California, America and the World to 2050

Presentation to the California Bankers Association by Joel Kotkin, Distinguished Presidential Fellow,

Chapman UniversitySanta Barbara, CA January 11, 2013

Long Term Fundamentals

• U.S. has healthier long-term demographics than most competitors

• U.S. only advanced country with large, growing population

• We still have a significant resource, energy, land and water base

• Growth will come --- but how about California?

0

1000000000

2000000000

3000000000

4000000000

5000000000

6000000000

7000000000

8000000000

9000000000

0%

2%

4%

6%

8%

10%

Less developed regionsMore developed regions

Gro

wth

Rat

e

Growth Rate

UN World Population Prospects, 2008 rev

Declining Global Population Rate

More Crowding to Come: US Population Growth 1960-2050

Source: Bureau of the Census, CensusScope

1960 1970 1980 1990 2000 2010 2020 2030 2040 20500

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

400,000,000

450,000,000

5

Labor Force Growth

U.S. Census Bureau, International Database

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050-45%

-35%

-25%

-15%

-5%

5%

15%

25%

35%

45%

United States 37%

Korea -30%

Europe -21%

China -10%

Japan -39%

Growth in Age 15-64

In a post-industrial age, stuff still matters…

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

UnitedStates

Canada Australia Germany UnitedKingdom

China India SouthKorea

Arable Land (thousand hectares)

Room to Grow Total Arable Land

North Americ

a

South Americ

a

EuropeAfric

aAsia

0.0080.008

0.002

0.006

0.002

Freshwater Reserves per CapitaCubic Kilometers per Person

Ag Exports Increasing

Driven by solid worldwide demand, increased productivity, and strong commodity prices, America’s ag sector has seen overall export levels steadily increase over the past decade.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201140.0

60.0

80.0

100.0

120.0

140.0

US Ag Exports, 2000-2011

Billi

ons o

f Dol

lars

Source: USDA Economic Research Service

Leading in Gas Production

United StatesRussia

European UnionCanada

IranQatar

NorwayChina

NetherlandsAlgeria

Saudi ArabiaIndonesia

611,000,000,000

588,900,000,000

182,300,000,000

152,300,000,000

138,500,000,000

116,700,000,000

106,300,000,000

96,800,000,000

85,170,000,000

85,140,000,000

83,940,000,000

82,800,000,000

Natural Gas Production, Billions of Cu M

CIA World Factbook

TexasOklahoma

ColoradoCaliforniaLouisiana

PennsylvaniaKansasFlorida

New MexicoNorth Dakota

OhioWyomingArkansas

West VirginiaIllinois

MichiganMississippi

AlaskaUtah

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000

Oil and Gas Extraction Job Growth, 2001-2011

Source: EMSI Complete Employment, 2011.4

0%

1%

2%

3%

4%

5%

6%

1.7

4.7

5.2

Real GDP Industrial Production: Manufacturing 2011 2011 Feb. 2011 to Feb. 2012

Growth Rates: Real GDP vs. Manuafacturing

New Drivers of Growth for US States

• Back to Basics Economics• Rise of Commodities• Energy Revolution

• Favorable Demographics

GDP GrowthDecember 2001-December 2011

Color threshold is Zero

Employment GrowthDecember 2001-December 2011

Color threshold is Zero

NY

CA

IL

MI

OH

PA

GA

NC

TX

FL

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Millions: Net Domestic Migration

Domestic Migration by State: 2000-200910 LARGEST STATES

Data fromCensus Bueau

-151

-215

-389

-434

-384

-256

-151

-92 -81-63

-46

-120-97

-160

-249

-313

-265

-143

-99

-54 -51

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Domestic Migration

Center for Economic Research and ForecastingCalifornia - (thousands of persons)

Day after day more people moving away

Net Outflows to Blue Net Inflows from Orange

IRS Tax Return Data. Net flow of tax return exemptions

Los Angeles County Net Migration Flows, 2000-2010

Top Inflows of Gross Income Due to Net Migration, 2004-2008

O’Neil Center for Global Markets and FinanceSMU Cox School of Business

DetroitSan Francisco

ChicagoSt. Louis

Los AngelesColumbus

MinneapolisNew York

PhiladelphiaDenver

BaltimoreTampaAtlanta

DallasSan Diego

SeattleMiami

WashingtonHoustonPhoenix

Riverside

-11.4%-4.8%

-0.5%1.2%1.4%

1.9%2.0%2.1%2.3%

3.2%5.1%

5.9%6.2%

6.8%7.0%7.5%

8.6%10.8%

13.4%17.9%

21.3%

Employment Change, 2001-2011

Metropolitan AreasMeasures job change Mar-May2001 to Mar-May 2011. Source: U.S. Bureau ofLabor Statistics Current Employment Survey

California Smaller Part of U.S. Economy

11.4%

11.2%

10.9%

10.6%10.7%

10.8%

11.0%11.1% 11.1% 11.1%

11.0%

10.8%10.7%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

California Nonfarm Jobs as a share of United States

Center for Economic Research and ForecastingCalifornia - (percent of U.S.)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12

Percent of Labor Force

California Unemployment RateSeasonally Adjusted Data

California Unemployment RateSeasonally Adjusted Data

United States Unemployment RateSeasonally Adjusted Data

90.0

95.0

100.0

105.0

110.0

115.0

120.0

125.0

130.0

1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008

California's Share of U.S. Per-capita Personal Income

1.7

-0.1

0.9

-0.6-0.7-1.1

-3.5

-6.3

-8.7

-7.3

-5.8

-1.1-1.2

3.2

-0.4

1.41.5

-0.1

0.4

2.51.71.92.2

1.30.80.60.60.81.11.31.6

2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1

Non-Farm Jobs-SA

Center for Economic Research and ForecastingCalifornia - (saar q-o-q percent change)

Slow Job Growth

Grand Delusions won’t save California

*Green Jobs and forced density*High-Speed Rail

*Social Media “boom”

1950 1970 2000 20120.0

1.0

2.0

3.0

4.0

5.0

6.0

2.5

2.02.4

2.92.8

2.3

3.1

3.7

2.82.6

4.5

5.9

Liberal MarketsSmart Growth Not Calif.California

Med

ian

Mul

tiple

Figure 33

Housing Affordability: 1970-2012LIBERAL, CALIFORNIA & OTHER SMART GROWTH MARKETS

1970: From Census Bureau1980-2009: From Harvard University

2010-2012: Demographia

Median Multiple: Median House Price divided by Median Household Income

Housing Affordability

Demographia Housing Affordability Survey

Affordability: Below 3.0

San FranciscoNew York

Los AngelesBostonSeattle

PortlandRaleighAustin

HoustonNashville

Dallas-Fort WorthDetroit

KalamazooIndianapolis

Fort WayneGrand Rapids

South Bend

7.26.1

5.95.05.0

4.43.5

3.32.92.9

2.72.52.5

2.42.2

2.02.0

Median Multiple: Median housing price divided by median family income

Afforda

ble (3

.0 & Und

er)

Modera

tely Una

fforda

ble (3

.1-4.0

)

Seriou

sly Una

fforda

ble (4

.1-5.0

)

Severe

ly Una

fforda

ble (5

.1 & Ove

r)

-4%

-2%

0%

2%

4%

6%

8%

10%

-2.5%1.3%

3.0%

9.7%

Population per Square Mile

Varia

tion

from

Nati

onal

Ave

rage

No Children: Housing AffordabilityMETROPOLITAN AREAS: WOMEN AGED 15-45: 2010

VARIATION FROMNATIONAL AVERAGE

Median Multiple(Median House Price/

Median Household Income)2001-2010 Average

No own children at homeHigher where higher density

Raleigh

Las Vegas

Austin

Charlotte

Phoenix

Atlanta

Dallas-Fort Worth

Orlando

Houston

AVERAGE

New York

Los Angeles

Buffalo

-20% -10% 0% 10% 20% 30% 40% 50% 60%

Chan

geChange in 5-17 Population: 2000-2010

MAJOR METROPOLITAN AREA EXAMPLES

Source:Census Data

Squandering Our Advantage: Is This California’s Future?

Critical Problems for California

• Widespread Anti-Growth Attitude, particularly in aging, affluent coast

• Too Much Regulation and Taxation• Lack of Balanced Approach on environment• Higher than average income inequality and a

shrinking middle class

Texas California US Aggregate

14.7%

2.1%

5.3%

Growth in Middle Skill Jobs, 2002-2010

Source: EMSI Complete Employment, 3rd Quarter 2010Analysis by Praxis Strategy Group

Seattle-Tacoma-Bellevue, WA

Houston-Sugar Land-Baytown, TX

Austin-Round Rock-San Marcos, TX

San Diego-Carlsbad-San Marcos, CA

Dallas-Fort Worth-Arlington, TX

San Francisco-Oakland-Fremont, CA

Nation

Boston-Cambridge-Quincy, MA-NH

San Jose-Sunnyvale-Santa Clara, CA

Los Angeles-Long Beach-Santa Ana, CA

25.5%

20.5%

16.8%

11.7%

11.5%

11.0%

7.5%

5.7%

4.1%

-1.5%

STEM Occupation Growth, 2002-2012

Source: EMSI Class of Worker Employment, 2012.2

Is There a Way Back?• California needs to take advantage in responsible way of its

competitive strengths in basic industries• Create a better environment for small and immigrant

businesses• Educate and use the skills of newcomers• Focus government from funding pensions and salaries to

necessary infrastructure

PhiladelphiaDetroit

RiversideSeattleBostonAtlantaChicagoPhoenix

WashingtonHouston

DallasNew York

San FranciscoLos Angeles

Miami

2.1

2.5

3.3

4.1

4.6

4.8

5.2

5.8

6.0

6.5

6.5

7.4

7.5

8.0

10.1

Immigration Rates Top 15 RegionsAnnual Average, 2001-2008

Areas are MSA U.S. Census Population Estimates

Ethnic Purchasing Power Continues To Soar

Source: Selig Center for Economic Growth, Terry College of Business, University of Georgia (2008)

Spending Power by Ethnic Groups (in Billions) 1990, 2000, 2008, with 2013 projections

Black

Hispanic

Asian

$318.1

$211.9

$116.5

$590.2

$489.5

$268.9

$913.1

$951.0

$509.1

$1,239.5

$1,386.2

$752.3

2013 2008 2000 1990

Total Los Angeles Co Orange Co Riverside

8.0%

10.4%

8.5%8.3%

5.8% 5.7%

6.9%

4.8%

Self Employment Rate, 2006Foreign Born Native Born

Big Changes in Composition of New Entrepreneurs

Share of All New Entrepreneurs (1996, 2010)

Washington

Maryland

Massachusetts

Virginia

Colorado

New Jersey

California

Delaware

New Mexico

Minnesota

Michigan

New Hampshire

Alaska

Connecticut

Idaho

Oregon

Texas

Utah

Arizona

Nation

1.50

1.49

1.48

1.48

1.36

1.17

1.15

1.15

1.13

1.11

1.10

1.09

1.08

1.07

1.04

1.03

1.03

1.03

1.01

1.00

STEM Job Concentration, Highest States, 2010

California Is Becoming Less Educated Than Other States

Numbers in Table Show Rank Among States in Percent of Population with College Degrees)

Age Group: AA or Higher BA or Higher>64 2nd 5th

45-64 11th 10th

35-44 21st 16th

25-34 30th 23rd

The Pipeline

It all depends on her…

Education is the biggest challenge for California…once our greatest strength

now becoming a critical weakness

The Biggest Challenge: The Issue of Class

• Growth of poorly educated newcomers and youngsters poses a unique problem

• High drop-out rates in high schools can guarantee the rise of an underclass.

• 54% percent of SB public school students qualify for free lunch --- highest percentage in a decade

• Economic development needs to focus on upward mobility — basic industries like agriculture, manufacturing, warehousing, energy can provide a strong base

Low Low Middle Central Middle

Upper Middle

High

-1.3% -1.3%

1.1%

4.1%

3.4%

Low Income Families Not Sharing in RecoveryChange in median income from wage and

salary, 2008-2009 to 2010

“The Great Recession and Distribution of Income in California”Public Policy Institute of California

0.0

5.0

10.0

15.0

20.0

25.0U.S. Census Bureau

CA Capital Outlay Share of Total Expenditures

California Back to Basics

• In 1960 20 percent of state Budget went to infrastructure• Today Less than 3 percent• California schools, roads, ports,

water and power once pre-eminent, now fading

• Solution: A return to basics oriented government focused on industries that can employ a broad segment of Californians

The Good Brown: Pat Brown

The Political Challenge: Get Beyond the Partisan Agenda

“There is no Republican or Democratic way to clean streets."

New York Mayor Fiorello LaGuardia

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It is upon the success or failure of these communities that the American future rests.

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