Introduction
If California would be considered as an individual country, it could be having an economy larger than most nations. The state used to be fifth on the list of world’s largest economies as measured by GDP (gross domestic product). However, it recently slipped to ninth position behind Brazil, UK and Italy according to a report from the CCSCE (Center For Continuing Study of the California Economy) dated September 2012.
By 2008, California’s economy had greatly reduced in terms of per capita income. The economy of California has continued to decline in the recent past (National Affairs, 2009). Lately, the Gross Domestic Product of California has downsized and is ranked 8th behind Brazil and Italy.
Many people believe that California has made significant contribution towards the collapse of the United States’ economy. Most of the positive aspects associated with California have since been swapped away. This has been caused by a number of factors such as increasing cases of unemployment, natural disasters, taxes, foreclosures, increased taxes, increase in rate of crime, and rising tax rates.
Such incidences have made many people to vacate the state of California and move to other states where the economy has not been affected. The state of California has been hit by major anti-business socialists leading into the closure of many manufacturing companies in different cities.
In terms of health care, several emergency rooms in hospitals are not in a position to accommodate the increasing number of patients who are in need of medical attention. This means that patients have to wait for long hours before being attended to. This scenario increases unnecessary death rates.
A lot of blame is placed particularly on the politicians since they are believed to be behind the creation of policies that have increased peoples dependence on the government other than engaging in constructive activities. Most of the political leaders in California do not also portray acts of fairness, while others have engaged in other self centered interests without minding the future of California (Shatz & Public Policy Institute of California, 2003).
California has five major sectors that control how its economy operates. These sectors run California’s economy by creating myriads of job opportunities to its residents. California has one of the largest manufacturing industries in the United States.
It is also the third largest state in term of high unemployment rates in the United States (Gordon, 2007). The chart below shows the contributions of the major sectors in the gross domestic product of California.
Figure 1: Gross Domestic Product of California by sector for 2008.
From the chart above, it can be noted that the GDP of California is evenly distributed in all sectors. If any of these sectors does not function well, then the whole economy of California may be equally affected.
International Trade and Tourism
This has been a major source of revenue for California for many years. However, in the recent past California’s export and tourism has greatly downsized. According to the US census Bureau, the state’s exports stood at 15.4% by the year 2000, compared to 11.1% recorded in the year 2008.
California has recorded a decreased export of its products. This ranges from electronics, agricultural products, automobiles and general chemicals (2010). This decline is associated with the global financial crisis (Gordon, 2007). The level of recovery in California is generally low.
Moreover, the only sector that has picked up is air travel industry which recorded a positive growth in recent years. These might have been triggered by the global financial recession. Currently, measures have been put in place to rebuild the international trade links.
Agriculture
This is a major industry in California. The industry produces fruits, dairy products, vegetables, and wine products. California is ranked as the fifth largest producer and supplier of agricultural products (Gordon, 2007). It is also a $36.6 billion industry.
About $100billion is contributed by agriculture in the state of California. The productivity level of agriculture in California has however declined due to the low international trade that has affected the revenue sourced from agriculture (National Affairs, 2009).
Personal income
The per capita income in California has dwindled over the recent past. However, by the year 2006, the per capita income in California was $38,956. This was ranked as the 11th in the US. The most expensive housing units in the United States are found in California. Technology has also helped most parts of California to completely eliminate poverty.
This has resulted into mainstreaming in the state of California. As much as technology has improved the status of most parts in California, many people lost their jobs due to this factor. This has affected the per capita income in the recent past. California had recorded an unemployment rate of 9.3% by December 2009 (Books and General Books, 2010).
The state government
Being the most populous state in the US, California has the largest budget. It also contributes the largest amount to the local government. The economic troubles of California have not spared the states’ operations. It is currently running on a deficit budget (Books and General Books, 2010). Most of its functions depend on the support from the federal government.
Education and Health
The government has cut down spending that is directed towards education. The major institutions of the state are the worst hit by the economic downfall of California (Books and General Books, 2010).
Causes
Many Californians attribute the declining economy to a number of elements such as the external causes. Examples of external sources that have made California’s economy to decline include the end of the Cold War which made several people to lose defense-related jobs that were highly paying.
Another cause for declined California economy is attributed to the deep discontent that exists among the business community. The decline of California economy is also worsened by the fiscal troubles that that are currently being experienced, mainly in the health sector.
For instance, the crime rate has been on the rise in California. The state of healthcare is also an issue of concern. Such a situation makes it difficult for people to engage in other activities. The business people are the worst affected because they always live in fear of being attacked by these criminals (Taylor & Weerapana, 2010).
The state of infrastructure has contributed to the decline of California’s economy. In some cities like San Francisco and los Angeles, the roads are quite congested.As a result, employers lose billions of money due to poor productivity. The poor infrastructure makes it difficult to transport raw materials needed by manufacturing companies.
This eventually causes shortage of basic commodities that compels the state to rely on other states. The state also suffers from massive water rationing. The effect of this move has been felt in the recent years where the state has experienced frequent interruption of electricity supply.
Considering the fact that many industries rely on electricity in production, it becomes difficult to engage in continuous production. Such problems also increase the rate of unemployment because majority of the workers in manufacturing industries cannot continue working in situations where power generation is not constant (Taylor & Weerapana, 2010).
The economy of California has also declined because the political and elite class has failed to carry out their mandate as expected. There are myriads of economic challenges that need to be resolved. For example, the number of citizens without high school and college education has been on the rise. This has resulted into an increase in the number of problems that relate to social stratification.
Outcomes
Downsizing of the economy affects both the Californians and the US economy at large. Californians are affected in various ways. For instance, loss of jobs has consequently increased the level of unemployment. In such situations, the living standards tend to decrease while dependence on the government increases.
Similarly, the US economy is affected by a declining economy in various ways. The most notable effects include decline in the level of exports and instability in the rate of exchange. A decline in the level of exports would result into subsequent decline in the level of growth particularly to countries that rely on the US for exports.
This means that the level of inflows generated by such countries is likely to reduce. A drastic fall in exports also affects the level of aggregate demand in a negative way. In terms of the exchange rate, unstable rate of exchange results into devaluation of a country’s currency.
As a result, it becomes difficult for the country to gain competitive advantage over other countries especially when the country is exporting products (Twombly & Townsend, 2000). It is possible for California’s GDP to get in track if appropriate strategies are developed. Such strategies include improvement of key sectors such as infrastructure.
Recommendations and Conclusions
The situation in California is not completely out of control. The state government and the federal government have put up measures to ensure that California stabilizes its economy. There are positive signs of the recovery of California. Currently, jobs are available and opportunities are increasing by the passage of time (Gordon, 2007).
The economy is stabilizing after the federal government decided to fund the state government and help it to recover. This recovery can only succeed if the state government puts up policies that will ensure stability of the economy and reduction of the debt owed by the government.
This recovery is however being achieved at the cost of increasing the tax burden to the citizens of the state (Gordon, 2007). A balance between the government’s expenditure and the tax collected should be established so that the recovery runs smoothly. If this is not done, then the financial crisis may even get worse.
The government should also come up with incentives that will foster the recovery of the agricultural industry which is the backbone of the state’s economy. Agricultural industry is the food store for United States. The fall of California in any way will also affect the well being of the United States (Books and General Books, 2010).
References
Books, LLC. & General Books, LLC. (2010). Economic History of California: California Electricity Crisis, 2008-10 California Budget Crisis. California, CA: General Books.
Gordon, T. M. (2007). Fiscal Realities: Budget Tradeoffs in California Government. California, CA: Public Policy Institute of California.
National Affairs (2009). Who Killed California? Web.
Shatz, H. J., & Public Policy Institute of California. (2003). Business without borders?: The globalization of the California economy. San Francisco, CA: Public Policy Institute of California.
Taylor, J. B., & Weerapana, A. (2010). Principles of macroeconomics: Global financial crisis edition. Mason, OH: South-Western Cengage Learning.
Twombly, S. B., & Townsend, B. K. (2000). Community colleges: Policy in the future context. Westport, Conn: Ablex Pub. Corp.