Location California: Taking Charge of Energy, Manufacturing, Higher Education, and Entrepreneurship
California charts its destiny by acting like its own nation.
Steve Stackhouse-Kaelble (Apr/May 08)

When it comes to vitality and innovation, size has its benefits. The state of California is at or near the top of a wide range of economic and demographic statistics, so dominant that it is in many ways more than just a state. Its size, along with an inventive, can-do attitude on the part of its people and its leaders, set a tone of problem-solving and forward-thinking.

"The governor refers to California as a nation-state because of the sheer geographic size, the population, the seventh-largest economy in the world," says Brian McGowan, deputy secretary for economic development and commerce. "We really are like a country, made up of lots of regions" - each with its own economic makeup, cost structures and competitive advantages.

Acting On Its Own

The past few years have provided a number of examples of how the ability to act as a "nation-state" has put California in charge of its own destiny, and put it in a position to lead the way for others. Consider the state's infrastructure initiative. Fixing infrastructure has been at the forefront of national public discussion since the interstate highway bridge collapse in Minnesota last year, but the state was already making big infrastructure plans before that. "We're not waiting for the federal government to do it for us," says McGowan.

About $20 billion is to be spent on transportation infrastructure, upgrading public infrastructure and reducing congestion. Projects that impact the movement of goods are to be addressed as well, says McGowan, followed by affordable-housing projects. "We're taking the challenge head-on and will continue to be a global leader," he says.

For another example, consider how the state approached the sometimes controversial issue of stem cell research. For several years, the nation has debated the merits and ethics of expanding medical research in areas where stem cell-linked advances might be possible. Other countries, meanwhile, have moved ahead with their research programs. California decided to act more like a country than a state.

Voters in 2004 passed a $3 billion R&D initiative aimed at making California a global leader in stem cell research. The approval paved the way for creation of the California Institute for Regenerative Medicine, or CIRM, which is charged with distributing the funds. Through February, CIRM had approved 156 research grants totaling almost $260 million, making it the world's largest source of funding for human embryonic stem cell research. In May, CIRM's Major Facilities Grants program expects to approve another $262 million in funding for projects likely to generate nearly a half-billion dollars in matching funding commitments.

The stem cell initiative seems to be having its intended effect - allowing California to chart its own course much like an independent country would. "The research facilities established by the CIRM Major Facility Grants will provide a safe haven from federal government restrictions for stem cell scientists to conduct research," predicts Alan Trounson, president of the CIRM. "That will lead to therapies and cures for millions of patients who suffer from chronic disease and injury."

CIRM also has provided grants to M.D. and Ph.D. scientists, hoping to persuade them to base their work in California. "A key objective of these grants is to build a strong, statewide foundation of extraordinary young scientists and clinicians whose faculty commitment is to stem cell research," says Robert Klein, chairperson of the governing board of the CIRM. "This is an opportunity to build the intellectual infrastructure that will carry this critical new field of research forward in California's leading universities, medical schools, and research institutes."

Stem cell research is just one area of medical R&D fueling California's life sciences sector. McGowan points out that just about everybody wants a piece of this lucrative pie, but California is fortunate to have three distinct regions that are busy with life sciences activity: the areas surrounding San Francisco, San Diego, and Los Angeles/Orange County.

Take climate change as another example. California has long been at the forefront when it comes to putting lower-emitting vehicles on the roads. Now, the state is busy meeting and signing climate-protecting agreements with international representatives from such places as Mexico, South America, the United Kingdom, and Canada, as well as other U.S. states. "We recognize it as something that needs to be done and something we can't wait to do," says McGowan. One recent example is the memorandum of understanding signed by Governor Arnold Schwarzenegger and Mexican President Felipe Calderón, vowing cooperation in environmental protection, conservation of natural resources, and the fight against climate change.

Another example is the recently announced solar installation project on ProLogis rooftops in Fontana. It will be the largest such installation in the country, able to power 162,000 typical California homes with green energy. As Schwarzenegger noted in making the announcement in March, "If commercial buildings statewide partnered with utilities to put this solar technology on their rooftops, it would set off a huge wave of renewable energy growth." That's the strategy behind the state's "Million Solar Roofs Plan" unveiled in 2006, an incentive program aimed at encouraging placement of solar panels on at least a million rooftops, which would create some 3,000 megawatts of green energy and cut greenhouse gases by 3 million tons, which would be like taking a million cars off the road.

Still another recent example is the state's response to economic troubles in housing and credit. State leaders have met directly with lending-industry representatives to come up with ways to mitigate the ill effects of the subprime crisis on California neighborhoods and citizens. "There are some innovative approaches," says McGowan.

Even more examples of California taking its future into its own hands:

• The state is boosting educational programs in an effort to bring 20,000 new engineers into the work force.
• California has embarked on its own plan for bringing health coverage to the uninsured and underinsured, ultimately hoping to benefit business' bottom lines and the state's quality of life.
• California is investing in job creation through programs aimed at newly discharged veterans, as well as nurse training. The state also recently announced $10.5 million to boost training and job services for residential construction workers and others whose jobs have been affected by the slump in the housing market.

Victories and Successes

"People have always written off manufacturing as a thing of the past," says McGowan. Yet the California manufacturing sector continues to record successes and expansions, he says. Here are some examples from recent months:

• USG Corp. picked Stockton for a new environmentally advanced manufacturing plant that will use recycled materials to create drywall. The company was looking at sites in Oregon and Nevada, but chose the Stockton location, citing the state's healthy business climate and the site's proximity to Bay Area ports. The $220 million project is to open in 2010 and create up to 170 well-paying jobs along the world's largest drywall manufacturing line.
• Kyoho Manufacturing California is investing $62 million into a plant that will produce door frames for Toyota's Matrix and Pontiac's Vibe, both built in Fremont. The three-phase project in Stockton could employ as many as 1,200 people by 2013.
• The Cargill Beef packing plant in Fresno announced plans to add about 200 jobs as part of a $105 million investment.
• United States Steel, SeAH Steel, and POSCO Steel picked the California community of Pittsburg for a joint-venture manufacturing plant called United Spiral Pipe. The $93 million plant is to produce large-diameter steel pipes and employ as many as 175.

It's no surprise that R&D is big business in California. Among the big news in recent months, Genentech announced plans to create some 160 jobs by building a research laboratory in Dixon. The 140,000-square-foot building will house biotechnology technicians and research scientists.

"We're also continuing to grow our leadership in clean air technology, green technology and nanotechnology," says McGowan. Aerospace, too - among other things, the state has a significant role in the creation of the next generation space vehicle and new Mars rover, he says. Though the state's not as known for space launches or Mission Control, the fact is that, according to McGowan, "NASA spends more in California than in any other state."

Innovative business developments take many forms in California, some with spectacular potential. For example, the University of California-Irvine's California Institute for Telecommunications and Information Technology is helping Unimodal Systems develop control software for its proposed SkyTran personalized rapid transit system. The system would move commuters in two-person, "Jetsons"-like pods traveling at 100 miles per hour on elevated magnetic field tracks. Not far away is Blizzard Entertainment, the software designer behind the wildly popular "World of Warcraft" game, which helped propel the California electronic gaming sector into a multibillion-dollar industry.

Economic Assets

What's California's greatest economic asset? State officials often place higher education at the top of the list, including the 10 prestigious locations of the University of California and the 23-campus California State University system. Some 250 colleges and universities across the state currently enroll about 2.5 million people, representing some of the nation's best and brightest students. Many come to California to learn and are so impressed with the quality of life that they never leave. That helps to explain the fact that the state has the nation's highest concentration of scientists, engineers, mathematicians, and skilled technicians.

"We have a million high-tech workers, more than any other state," says McGowan. In fact, that's one-sixth of the entire nation's high-tech payroll, all in one place. More than two-fifths of the nation's biotech workers can be found in California, along with a third of the biotech company headquarters. The state tops the employment list in such areas as computer systems design, telecommunications, R&D laboratories, and engineering services.

Adding to the list of assets is the availability of funding for both R&D and entrepreneurial ventures. California receives more venture capital than any other state, helping boost the innovation sector. The biggest recipients include the software, biotechnology, telecommunications, medical device, and semiconductor industries.

Manufacturing is alive and well, too, despite the common reports of the sector's demise. Since 1977, California has been the nation's top manufacturing state. Of course, a lot of that is high-tech manufacturing, which accounts for nearly half of the state's value-added manufacturing workers.

California offers a different twist on the location advantage. True, a major chunk of the nation's population lives outside that magical "within a day's drive" circle that some locations herald. But, the state has a huge population of its own - home to one of every eight Americans and growing quickly - which makes it a prime location for serving lots of customers. That's the reason why grocery giant Kroger signed a $207 million, 30-year lease for a 552,000-square-foot distribution center southeast of Los Angeles.

And the fact that California is on the West Coast, with nearly a dozen cargo seaports, means excellent access to Pacific Rim markets and status as a logistics gateway for Asian companies targeting American markets. No wonder thriving logistics hubs have developed in the San Joaquin Valley and Inland Empire regions, among others, and no wonder California is the top American destination for foreign direct investment.

California is home to more than 100 Nobel laureates, lured by the combination of an innovation-based economy and an enviable lifestyle. And what's not to like about life in a state that has a moderate climate, beaches, mountains, deserts and everything in between? There are a thousand golf courses, more than 40 snow resorts, nearly two dozen pro sports teams, and countless world-famous wineries and vineyards.

"Talented people want to live where it's cool," says McGowan. "California has a lifestyle that's the envy of the world, and it attracts talented people from around the world."

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