Summary:

Michael Milken, Chairman of the Milken Institute, opened the 2002 State of the State Conference with his vision of California. California, he said, is a state of natural wonders and beauty. It is the fourth largest economy in the world and the largest in the U.S. It is home to the headquarters of many of the nation′s leading businesses and has a system of higher education second to none.

What makes the difference? His answer: Investment in science and technology. California ranked third on the recently released Milken Institute Science and Technology Index, lagging Massachusetts and Colorado only by a small margin.

Yet, the state faces some serious issues that must be tackled if California is to strengthen its economy and social structure for the future. Among those that Milken cited were immigration, housing and a worsening business climate.

While Milken sees the high influx of new immigrants from south of our border as a "huge and profound opportunity" — pointing out that the GDP of California and Mexico combined constitute the third highest in the world — the greatest challenge to California is educating young immigrant children so that they integrate successfully into society and the economy.

Then he asked, "Where are they going to live?" California has the lowest percentage of home ownership in the nation. Home prices are 60 percent higher in California than elsewhere in the nation and while interest rates are helping, lack of supply keeps affordable homes out of reach. According to Fannie Mae, "California will have to double its rate of home production each of the next eight years to meet California′s needs."

Finally, Milken pointed out that business conditions in the state have worsened. High business costs, such as those in California, inhibit growth and heighten the risk that businesses will leave for neighboring states. Among the top 12 priorities Californians cited to improve quality of living in the state were decreased taxes, increased training, decreased regulation, increased energy supply, increased spending on traffic congestion, increased median and average income housing, and by far the most important, improved K-12 education.

Quoting John Adams, Milken said, "The preservation of liberty depends on the diffusion of knowledge among the body of a nation." In 1950, 60 percent of our workforce was unskilled labor. In 2000, unskilled labor accounted for only 15 percent of the workforce. Yet, more than 50 percent of California students entering the California State University system are not prepared for college.

"The American dream depends upon education," Milken said, a theme he has personally done much to advance. Milken concluded on a high note, confident that this state of entrepreneurs and innovation has the capacity to meet these challenges and thrive in the 21st century.