Tuesday, September 13, 2005


On Monday, Gov. Schwarzenegger formally launched what’s left of his November campaign to reform California government. It’s a reminder that the real summer blockbuster in the Golden State was Arnold’s unexpected political meltdown. And if Props 75 (paycheck protection) and 77 (redistricting) fail, not only will Schwarzenegger likely become a lame duck; California may well become ungovernable.

A year after pulling in unprecedentedly stellar approval ratings, his favorables have plummeted toward the Gray (Davis) Zone. (If it’s any solace to Arnold, at least Californians continue to despise the Legislature.) See the latest Public Policy Institute of California survey here.

To be sure, some of Arnold’s wounds are/were self-inflicted, perhaps a sign of political naivete. Letting corporate-bankrolled nonprofits underwrite the costs of his Sacramento offices? Dumb – and a betrayal of his vow to govern transparently, not influenced by special interests.

Allowing third parties (Allan Zaremberg, Ted Costa) to control two key initiatives in his reform agenda, rather than commanding his political operatives to scrutinize every jot and tittle of the process? Damn near suicidal. Drafting blunders by the outsiders a) forced Arnold to pull from the ballot the crucial proposition that would revamp state pensions; and b) spawned a court battle that nearly bumped Prop. 77 from the special election.

But these weren’t entirely rookie mistakes. It looks like Arnold realized – belatedly – that being CEO of a state government isn’t the same as sealing a commercial real-estate deal or producing a movie. It’s a real-world lesson in public-choice theory that has presumably chastened Schwarzenegger and should caution other corporate types who hope to enter the elite levels of politics, especially in an executive-branch role, where accountability matters.

That’s why I think Arnold shifted from conciliatory gestures toward the Sacramento establishment last year into a declaration of war. Because there are two big differences between business and politics: The processes and incentives aren’t the same.

Making a movie or negotiating a real-estate transfer are finite processes. It happens, or it doesn’t. Once the process begins, there’s an endpoint: The film reaches theaters, the new owner takes title to the property. Then everybody moves on. Schwarzenegger thrived in this environment.

Governing, by contrast, is continuous; bureaucracies are perpetual. You may balance this year’s budget, but then the next fiscal year begins. Will spending programs that are on automatic escalators (like public-employee retirement plans) crowd out resources for other programs? Will an economic slowdown depress tax revenues? Will wildfires or earthquakes sap funding for other projects? Roads crumble, kids need educating, people get sick, fires rage, bad guys have to be locked up. Even though governments are awful at long-term fiscal planning, it has to be done or the tax-and-spending environment becomes chaotic – and the investors who buy government debt look to other jurisdictions.

The incentives faced by negotiating partners and the branches of government are different, too. Once a studio decides to produce a movie, it’s in the interests of everyone – the studio, the financiers, the writers/directors, the crew, the on-screen talent – to finish the job. If this film never reaches the big screen, it’s tough to produce the next one.

But inside the Capitol, there’s no incentive to change. The establishment likes things fine as they are. Bulletproof districts mean that legislators of both parties have guaranteed tenure, 14 years if they want it, once elected. Term limits don’t make them accountable to voters; instead, senators and assemblymen just move from one body to another (or to cushy political sinecures) when their term limits kick in.

The public employee unions love the status quo, too. Teacher unions give heavily to Democrats; the public safety types (cops, firefighters, prison guards) ply Republicans with cash. Compensation packages keep getting plumper; everybody – except the taxpayers, of course – is delighted.

Sacramento Bee sage columnist Dan Walters has said that Arnold figured this out sometime during the 2004 legislative session, and decided that he had to fight the establishment, not schmooze it. (Walters, who’s no right-winger, has also said that if an outsider with Schwarzenegger’s forceful personality and broad appeal can’t govern California, no one can.) This shift, though, forced Schwarzenegger to drop the “uniter, not divider” persona that he adopted during the recall. And it left him an easy target for the political barrage he’s endured from the unions and their legislative allies.

It’s possible that – other than the strategic blunders he made with the initiatives – Arnold did as well as he could. Had he campaigned like Tom McClintock, as a feisty foe of state spending and the unions and the bureaucracy, rather than a populist who vowed to topple the Capitol’s special interests, Davis might have prevailed in the recall.

Whatever happens in November, though, champions of industry who hope to prevail in politics have much to learn from Arnold Schwarzenegger’s brief tenure in office, especially if they assume that a market-based business model would seamlessly apply to governing.

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