CALIFORNIA COMMENTARY : Recapture the Taste for Risk : Without investment in those who innovate and invest, we will become ‘ordinary’ and lower our standard of living.

California has always been a place that rewarded people who were willing to take risks. From the Forty-Niners to the oil wildcatters and Dust Bowl migrants, to Silicon Valley garage geniuses and “boat people,” our history is the story of people who risked everything for a better future. Risks, innovation, change are a part of who we are as Californians.

As California changes, we must shape the future to keep our state competitive. We must help the state’s businesses--those who pay for all we enjoy--to innovate and compete. We must provide them services, as well or better than any of our competitors. And we must make it worth everyone’s while to continually reinvest in the future, whether by buying a new machine, learning a new skill or cleaning up the environment.

Prosperity is not a birthright of any nation or state. It can be earned only by exporting products or services that the rest of the world wants to buy and by improving them fast enough to stay ahead of the competition.

California risks becoming “ordinary,” which in the post-industrial United States could mean little further improvement and even shrinkage in our standard of living. Throughout the period from the 1940s through the 1960s, when most of today’s business and government leaders were growing up, Californians produced 20% more with the same resources than the rest of the country. We had a young and highly educated work force, and the most modern facilities and infrastructure available. That meant California workers could earn and spend or invest 20% more, and they did, allowing one of the steadiest booms in history.

Beginning in the early 1970s, however, we went from leading the nation in productivity growth to trailing it. Today, the margin of California incomes over the national average has shrunk to 5%, even though national income growth has hardly been impressive. In other words, we have been modernizing more slowly than the rest of the country, and many times more slowly than our principal international competitors.

As a result, we now stand at a threshold between two competing futures. In a “do nothing” future, our average living standards would shrink at the same time that we were becoming two economies: one skilled and prosperous, the other unskilled and poor. Without prosperity, our industries would not have the monies to invest (as their competition would), innovate or cutcosts. Without the ability to offer new and different products, more and more companies would be forced to become low-cost producers to survive. They would have to find labor that will work for poverty-level wages--here or elsewhere. If this happens, no one wins: not the state, not the companies’ owners and certainly not their employees.

By contrast, in a “continuously innovating” future, companies would have the resources to stay modern and see California as a healthy business environment. Our competitive advantages--an educated work force, a clean environment--which make this state such a desirable location would be preserved. Government would support and facilitate the private sector, adding, not subtracting value wherever possible. It would give good value in the provision of public services and especially in public investment such as infrastructure. Government intervention in commerce would be restricted to instances where there was a clear and broad public interest, and it would be carried out efficiently.

There is a common element behind that portion of our progress that we can control (for we must realize that in a global economy much is outside our control). That element is a belief on the part of anyone who allocates resources--from CEOs to teen-agers--that the future will reward those who invest and those who take risks. Without investors and risk-takers (and they are often the same people), we cannot grow as an economy or as a society. (Bill Clinton, take note as you raise taxes.) Historically, the defining characteristic of Californians has been a willingness to dare to try new things. We must recapture that culture, or we will become the mere salaried employees of those in other states and nations who do.