Economy Has Taken a Back Seat in Race

The most significant economic fact about the race for governor is that both Lt. Gov. Gray Davis, the Democratic candidate, and state Atty. Gen. Dan Lungren, the Republican, have the good fortune to be running in a time of general prosperity in California.

No burning issues of unemployment, budget deficits or sweeping tax policies confront them. On the contrary, based on current tax revenues, the winning candidate can look forward to budget surpluses upon taking office. Money will be available for state programs, with something left over to give back to voters in tax cuts.

The Asian financial crisis has hit the state, but not so hard that either candidate has taken much notice. “California still will grow 2% to 4% next year,” Davis declared recently.

Maybe it will. UCLA’s latest forecast is that the state’s economy will add about 300,000 jobs next year--a 2.3% growth rate--as its diverse mix of small to medium-sized businesses keeps finding ways to adapt and innovate. Other forecasts, such as one issued by the Milken Institute, a Santa Monica think tank, see more damage to the state from Asia’s troubles.

Beyond the immediate future, California has growth prospects as exciting--but also as challenging--as any the state has seen in 40 years. In fact, the task of the next governor will be to not mess up a good thing--and to know how to fix it if outside forces do mess it up.

How do Davis and Lungren propose to meet that challenge? That has been a problem of this campaign: The economy, in its short-term or long-term prospects, has not been a “hot button” issue.

There has been little debate on economic matters, and the candidates’ statements on them to small groups or in interviews have been mild generalities for the most part. The issues are more dramatic than the candidates’ responses to them.

The biggest issue is state growth. California will add about one-third to its population in the next 20 years, becoming a state of 45 million people rather than its present 32 million, according to conservative Census Bureau estimates.

The implications are profound. Water shortages are already predicted for Southern California in the next two years. Major decisions on water for the next 40 years have to be made soon.

Yet water was not a major topic in the campaign debates. Both Davis and Lungren in statements to water issue groups said they endorse the effort of state and federal agencies to work out solutions in conference with water districts, farmers and environmentalists.

Davis calls for a “comprehensive water infrastructure plan for California that will address the needs of all stakeholders, from the agricultural community to the environmental community to industry and consumers.”

Lungren would put all water user groups together to hammer out the “Lungren water plan--a work in progress. I would say to them: ‘We’ve talked enough. You can’t get 100% of what you want, so compromise or we’ll be destroyed.’ ”

Both men advocate new water conservation efforts.

Growth will also impose a need for $90 billion in spending on schools and roads and other transportation systems. Major civic and private groups are urging Davis and Lungren to form policies on regional planning and housing density to curb sprawl and on ways to solve a statewide crisis in local community financing.

But those are knotty issues, filled with political pitfalls. The candidates avoided detailed comment on them.

Lungren said in an interview that “the next governor must meet infrastructure needs for water, transportation and schools,” and he pledged to convene a conference on state and local governance as a way to find solutions for the city finance problem.

Davis, in a statement prepared by his campaign staff, endorsed “infrastructure growth--ports expansion, airport growth for tourism, employing technology to move goods and people efficiently.”

Neither candidate spoke in detail on how to finance infrastructure generally, much less build airports, an issue that arouses vehement opposition everywhere.

Differing Views on Government’s Role

To be sure, there are many people, particularly in business, who don’t expect governors to know or do much about the economy. “They’re politicians. Neither has ever held a real job,” the founder of a major California company said recently of Davis and Lungren.

But the businessman’s sentiment is misguided. The California governorship is not a minor job. The winner of next week’s election will administer a $75-billion budget in a $1-trillion state economy. By his policies, his stands on legislation, his veto power, the governor will lead the state.

Lungren, 52, served 10 years in Congress, most of them during the presidency of Ronald Reagan. He recalls supporting the Reagan tax cut programs, and is for cutting taxes in California today, including an elimination of vehicle license fees and taxes on capital gains.

He sees the government’s role as relying on private industry to keep the economy going. “Government should remember the Hippocratic oath: ‘First do no harm,’ ” said Lungren, a doctor’s son.

Davis, 55, believes in more government activism on the economy. His tenure would see more “interaction between the governor’s office and business interests,” he said.

What that means, precisely, is hard to say. Both candidates back tax credits for research and development and for investment in manufacturing equipment, fiscal moves that support the state’s high-technology industries.

The candidates differ somewhat on foreign trade, a critical part of the state’s economy. Lungren, an enthusiastic backer of free trade, would expand the North American Free Trade Agreement. “I’d like to see a free trade zone from one end of the Americas to the other,” he said.

There is also a tactical aspect to his backing of NAFTA in this election, as it could embarrass Davis, whose labor union supporters oppose the agreement with Mexico and Canada.

Davis has said repeatedly that, if elected, he will strengthen ties with Mexico, which is both a policy statement and a tactical jab at Gov. Pete Wilson’s Republican administration, which has had sour relations with that nation.

On the overall subject of trade, Davis favors more negotiated and controlled trade pacts. He would “establish import/export benchmarks with Mexico and our Pacific Rim trading partners in Asia,” he said.

Not surprisingly, each candidate’s stance reflects his major financial supporters--Davis’ backing by labor unions that tend to question free trade; Lungren’s backing by business groups that tend to favor it.

What it all adds up to is that the next governor’s economic policies will emerge as he confronts specific challenges--a sudden squall hitting the state’s economy, perhaps, or fundamental reforms that must be made if California is to go on prospering.

Voters are not likely to know more about such policies before Tuesday. They will certainly find out more about them in the next four years.

Profiles of Gray Davis and Dan Lungren, their positions on key issues, and video clips from their debates are available on The Times’ Web site: http://161.35.110.226/elect98