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Gavin Newsom is as familiar as anyone with the media narratives of earthquakes, lingering wildfires, droughts, homelessness and corporations fleeing California to Texas to live a tax- and regulation-free lifestyle. This is nothing new. The governor of California recalls a 1994 Time magazine cover story that said: “A series of disasters is shaking the state to its core, forcing Californians to contemplate their fate and the fading glory of its golden dream. “
And yet “the California dream is still alive and well,” the state’s 40th governor said in a Zoom interview a month before his expected re-election.
He’s not wrong. California’s economy has proven relatively resilient, first during the pandemic and now during the current period of elevated inflation. So much so that the Golden State’s gross domestic product is on the verge of overtaking Germany as the fourth largest in the world after the US, China and Japan. It had already overtaken Brazil (No.7) and France (No.6) in 2015 and ousted Great Britain (No.5) in 2017. Though many of California’s current numbers won’t be released until 2023, estimates suggest the state could have already caught up with Germany, with at least one forecast putting California ahead at $72 billion using the country’s most recent growth rate State considered.
California’s performance is most evident in the growing divergence between its 379 companies with a market value of at least $1 billion and the 155 publicly traded companies based in Germany that meet a similar benchmark. While sales and corporate market caps in California have grown 147% and 117%, respectively, over the past three years, Germany has seen smaller gains of 41% and 34%, respectively, according to data compiled by Bloomberg. The range of Germany’s nominal GDP of $4.22 trillion versus California’s $3.357 trillion last year was the smallest on record and is on the verge of disappearing as Europe’s largest economy grows little in 2022 and is expected to contract in 2023 becomes.
“All of this data continues to disprove the prevailing narrative and illusion” that California’s “best days are behind us,” Newsom said. “As someone who grew up in California, I’m proud of California’s resilience, its leadership, its entrepreneurs, its winning formula that stretches back over half a century,” he said, highlighting the state’s “talent conveyor belt.”
The truth is that California outperforms the US and the rest of the world in many industries. That’s especially true in renewable energy, the fastest growing business in California and Germany. The market cap of California companies in this business has grown 731%, or 1.74 times more than their German counterparts, over the past three years, according to data compiled by Bloomberg. Notable examples include Freemont-based Enphase Energy Inc., a provider of solar and storage solutions, which gained 916%, or more than double the 410% achieved by wind farm manufacturer PNE AG in Cuxhaven on Germany’s North Sea coast.
The dichotomy between corporate California and corporate Germany is most pronounced in their three main industries. California’s technology hardware, media, and software have seen sales growth of 63%, 95%, and 115% over the past three years, pushing market valuations up 184%, 54%, and 58%, respectively, according to data compiled by Bloomberg . In Germany, healthcare, consumer discretionary, and industrials were erratic, rising 43% and falling 2% and 7%, respectively, over the same periods. Market values rose a meager 40%, 8%, and 10%, respectively.
California’s three-to-one growth lead is also reflected in a comparison of the top 10 companies. Companies run by Google parent Alphabet Inc., Apple Inc. and Visa Inc. will see an 8% increase in revenue if they turn $100 in revenue into $49 in profit, after last year’s 34% surge. They increased their employment by 10%. Germany, led by S` SE, Deutsche Telekom AG and Siemens AG, will sell 4% more of its products in 2023 compared to a 10% increase in 2021, while still posting a profit of $44 per $100 in revenue. The German workforce fell by an average of 2%, according to data from Bloomberg. Of course, Germany is badly affected by the war in Ukraine.
Still, California’s economy, with just 40 million people, surpasses its weight on the world stage. Job creation is a particularly strong area, with the unemployment rate falling to 3.9% in July, the lowest since the data was collected in 1976, before rising to 4.1% in August. The gap separating the state from the US national rate of 3.5% is the narrowest since August 2021, and for the first time since 2006, unemployment in California fell below that of Texas (the top two states for nonfarm payrolls). and payroll). The state’s unemployment rate also surpassed Germany by nearly a percentage point, the highest since February 2020, data compiled by Bloomberg shows.
Contrary to prevailing perceptions of business disruption and brain drain since the start of the Covid-19 pandemic, the San Francisco Bay Area accounts for 78% of the market capitalization of all publicly traded companies in California, up from 70% five years ago. San Francisco’s 42 public companies, which are forecast to post 14% revenue growth in 2023 and 2024, are 62% larger today than they were at the end of 2018, when London Breed became the city’s first black woman and 45th mayor. Oakland, home to the state’s third-busiest port and the US’s eighth-busiest port, has been growing faster monthly (9.9%) than No. 1 Los Angeles (0.3%) and No. 2 Long Beach (8.7%). ) since 2015, when Libby Schaaf became the city’s 50th mayor.
“There’s a reason people keep doing business here,” Breed said in an interview with Bloomberg News at City Hall earlier this month. “It’s the talent.” Breed also said she’s hearing from people who are moving back to the Bay Area. “A lot of the same people” who decided to leave “don’t want to stay in areas where they feel like there’s no community, culture — that brings San Francisco to the table.”
Schaaf, who grew up in Oakland and is completing her second term in January, agrees. “We value innovation, but we also value diversity and equity,” she told Bloomberg News earlier this month in an interview in her City Hall office. “It’s nice to see these values being economically rewarded because California has been badly abused during the Trump administration.”
More from Bloomberg Opinion:
• California’s solar problem will be solved by offshore wind: Liam Denning
• Downtown San Francisco can’t shake working from home: Justin Fox
• A European crisis is imminent. What kind will it be?: Tyler Cowen
–Assisted by Shin Pei and Keith Gerstein.
This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.
Matthew A. Winkler, editor emeritus of Bloomberg News, writes about markets.
For more stories like this, visit bloomberg.com/opinion
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