Top Five Reasons Why California Resembles an Asian Tiger State
Is California growing an economy look like its neighbors across the Pacific?
January 26, 2001
Terming California a “Tiger” state is, of course, not referring to the state’s vast and rapidly growing population of Asian immigrants. Instead, in the global economic debate, the term “Tiger” refers to any country pinning its hopes for the future on the combination of rapid exports, strong GDP growth rates and new technologies.
Last year, while U.S. GDP grew by a remarkable 5%, California’s Gross State Product raced ahead by 8.7%. This puts it into the same league as China, Hong Kong, Singapore and South Korea, which are all growing at 8-10% rates.
The California blackouts resemble the power failures on the island of Luzon, the industrial hub of the Philippines, in the early 1990s.
Back then, many U.S. multinationals with manufacturing operations in the country threatened to move production elsewhere unless the government solved the problem.
That is precisely what Intel, the world’s leading chipmaker, just announced it would do in the case of California.
In the past, California has gone through rapid boom-bust cycles that are generally considered typical of the Asian Tigers. The current bloodbath among IT and Internet start-ups in California’s Silicon Valley, which are either going bust, down-sizing or hemorrhaging employees, is but an example of that.
In the late 1980s and early 1990s, a similar bust hit California’s defense and aerospace industries with the end of the Cold War. And the ups and downs of real estate values in Los Angeles and San Francisco bring to mind similar roller-coaster rides that are a recurring feature of the Hong Kong or Tokyo property markets.
In part, the problem behind the current power crisis was a result of California’s short-sightedness. Over the last decade, the state’s population grew by over four million — 13% — without a single new power plant being added to the electricity grid. Coupled with years of rapid economic growth, eventual power shortages were foreseeable.
This short-sighted attitude bears a resemblance to what happened in Asia in 1997. In that case, companies in Thailand, Malaysia and South Korea borrowed in hard currency, convinced that their currencies would remain stable against the U.S. dollar. When the baht, the ringitt and the won were devalued, local debtors were crushed under the burden of their unhedged dollar exposure.
The political rhetoric coming from Sacramento, California’s state capital, has a distinctly Asian tiger flavor. Governor Gray Davis, until recently a rising star in the Democratic establishment, was quick to blame “out-of-state” power generating companies for price gouging and profiting from California’s woes.
As luck would have it, these were headquartered mainly in Texas, the home state of U.S. President George W. Bush. That sounds remarkably like Dr. Mahathir Mohamad, prime minister of Malaysia, when he blamed Western speculators — and George Soros personally — for his country’s financial woes.