October 09, 2003

Now that was a great flick, wasn't it? In Arnold I: The Campaign, California - its massive economy having crashed with the rest of the nation's - revolts against its second-term governor, the aptly named Gray Davis, booting him out in Tuesday's recall vote in favor of a big, buff action hero.

What a show, with its Dickensian cast of candidates (some X-rated) and the final-act charges of boorish groping on the part of the next governor, the body-builder-turned-movie-star-turned-Republican-hope. Then of course there was the accusation of a once admiring take on Hitler.

Problem solved? Not exactly. As even Arnold Schwarzenegger acknowledged in victory, now comes the hard part - the sequel, Arnold II: Governing.

California's economic bust triggered the deep voter resentment powering the recall. And these persisting economic and state budget problems don't lend themselves to quick and easy solutions by any Sacramento governor, no matter how charismatic.

America's most populous state may be its economic, technological and cultural cutting edge, but the health of its huge economy - as large as France's - essentially parallels that of the nation; happier days likely will return only with a national up-turn.

And here's the really bad news for Mr. Schwarzenegger: In California, state taxing and spending are so constrained by the more than 50 statewide initiatives passed over the last two decades that there's very little that even the world's strongest man could do. Mr. Schwarzenegger himself is responsible for one of those initiatives - to expand after-school programs at a cost of as much as $550 million a year.

That's not to say Mr. Davis - beholden to labor, particularly the state's powerful public employee unions - was on the right track. He was slow off the mark in reacting to the state's electricity crisis and to its budget deficit, once approaching $40 billion. Right up to the end, he was piling on new state regulations forcing businesses with more than 50 workers to offer health insurance - a good idea on paper, but hardly one suitable for a state where manufacturing costs already run a third higher than the national average and that has lost 300,000 manufacturing jobs the last three years.

Mr. Schwarzenegger talks about cutting state spending, but the reality is that California's general-fund spending growth averaged just 1 percent a year in the 1990s, much less than the state average since 1960. Substantial new taxes? Let's avoid the tempting puns, and just say: No way. One of the more curious aspects of Mr. Schwarzenegger's campaign was the early involvement of the esteemed Warren E. Buffett. But when the no-nonsense mega-investor suggested fiddling with Proposition 13, the state's 25-year-old initiative severely limiting property taxes, Arnold wasted no time publicly slapping him down.

Truth is, the recall campaign was so - thankfully - short and Mr. Schwarzenegger's statements so thin that no one can predict the script of Arnold II. The new governor is ambitious, hardly a dummy and may figure out his new role independent of his handlers. But our guess is that this sequel will be a stream of well-crafted sound bites while waiting to take credit for the national economy refloating California's.

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