Economic Impact of Democrats’ Success

Is the election of Gray Davis as governor ominous for business? Or potentially positive? The answer is probably more positive than many business people anticipate.

With a Democratic governor and Legislature in control in Sacramento for the first time in 16 years, the business community fears a return of anti-business sentiment in state government. Davis’ closeness to labor unions, environmental groups and trial lawyers arouses particular concern.

But not all business people hold such views. Many describe Davis as a shrewd operator who can make a deal. Davis himself said in his victory statement Tuesday night that voters wanted “a moderate path for California. That is how I will govern.”

The reality is that Davis, who has been in state government for 23 years, is smart enough to recognize that California is growing in population and economic importance. He therefore has a chance to lead the state creatively in an expansionary era, comparable only to the great years of the late Gov. Edmund G. “Pat” Brown four decades ago. The betting is that Davis won’t blow that chance.

More immediately, however, when Davis takes office and the Legislature convenes in January, a raft of legislation affecting business will be introduced. Bills to restore overtime pay after eight hours of work and to raise the minimum wage above the current $5.75 per hour will come forward.

A legislative package called the Health Access Patient Bill of Rights will be presented anew and very likely will become law. The package includes 11 bills that tighten regulation of health maintenance organizations. For example, one bill decrees that patients can sue directors of health maintenance organizations for malpractice, just like they can doctors. Other bills guarantee patients access through HMOs to diagnoses and early treatment for diabetes and breast and prostate cancer.

The bill of rights package passed the California Assembly and Senate in recent sessions but never became law because Republican Gov. Pete Wilson vetoed it. Now such measures will pass and be signed by the Democratic governor. “There will be a more balanced approach toward working people,” predicts John Perez, executive director of the International Food and Commercial Workers Union, who is involved in political work.

Davis comes to the governorship at a good time for the economy and for state government. The state budget had a $4-billion surplus last year, and the flow of tax revenue promises another surplus in the current fiscal year, which ends June 30.

But Davis will have different priorities for the surplus than did Wilson, who proposed using it to cut taxes. Davis will spend some of the money on infrastructure, building and restoring facilities for higher education, particularly community colleges, say political and economic analysts. Programs for training and retraining workers will also get funding.

The business community’s greatest fears about Davis stem from his many years of collecting money from unions and trial lawyer groups to run for office. Davis, 55, started his political life as chief of staff to Gov. Edmund G. “Jerry” Brown in 1975 and later served eight years in the Assembly. He was elected state controller in 1986 and lieutenant governor eight years ago.

“Gray has been a vacuum cleaner for money but he’s never had the chance to reward those who backed him. Now he has that chance,” says a contributor to Democratic campaigns who did not back Davis in this year’s primary.

A business leader in Orange County warns bluntly: “If Davis supports trial lawyers and frivolous lawsuits, it will do grave damage to the medical device and biomedical firms here.”

Davis himself has spoken out only rarely on business subjects in this year’s campaign. In stated positions released by his staff, Davis said he “promotes small business.” He favors tax credits for expenditures on research and development and for the purchase of manufacturing equipment, measures that benefit the high-tech industry.

On foreign trade, Davis has pledged to improve relations with Mexico and pursue an aggressive trade policy, seeking annual meetings with trade partners in Asia and Latin America to work out export-import benchmarks.

“Gray is not an ideologue. He’s not about to go far out on any issue,” says a businessman with long experience in Sacramento. “He knows all the mechanisms of state government, and he can serve as a moderating force on the positions put up by the Legislature.”

A leading Democrat agrees. “Everything will be on the table, legislative proposals that people have wanted to put forward for a long time. But not all will be serious,” says Assemblyman Robert Hertzberg (D-Sherman Oaks). “Gray will deal with the serious matters.”

One thing Davis will have to keep in mind is that perception counts. In the early ‘90s, California developed an anti-business reputation. Personal injury lawyers and malingering workers abused the workers’ compensation system. State agencies treated businesspeople as criminals.

“If you went to discuss an environmental matter, the attitude was pay your fine and talk later,” says the chief executive of a large Southern California company.

Gov. Wilson and committees of legislators and businesspeople reformed workers’ comp and turned around the anti-business perception. Davis’ job will be to see that negative perceptions don’t return--and chances are he’ll do that.

Davis understands perception. He has withstood years of his own party regarding him as the second or third choice and dismissing him as dull. He has been consistently underestimated. Such men can be surprising when they take charge.

In the next few years, California will be challenged to accommodate a growing population by restoring its educational leadership and coming up with a new water policy. When California faced growth challenges 40 years ago, Gov. Pat Brown launched education, water and transportation programs. And the state has been living on Brown’s legacy ever since.

Now the task of building a new legacy falls to Davis. Business people should steady their fears and offer to help.

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How the Voters Saw Them

Voters who went to the polls Tuesday expressed pro-government sentiments and perhaps signaled a shift away from the “cut-our-taxes” fervor of recent years.

Gray Davis: He will provide a “balanced approach toward working people.”

Barbara Boxer: She used managed-care reform as a successful issue.

Bill Clinton: His position on “saving Social Security” prevailed

Newt Gingrich: He won’t get to fulfill his pledge to cut taxes.