California, you may have heard, is an apocalyptic mess of raging wildfires, soaring unemployment, mass foreclosures and political paralysis. It's dysfunctional. It's ungovernable. Its bond rating is barely above junk. It's so broke, it had to hand out IOUs while its leaders debated how many prisoners to release and parks to close. Nevada aired ads mocking California's business climate to lure its entrepreneurs. The media portray California as a noir fantasyland of overcrowded schools, perpetual droughts, celebrity breakdowns, illegal immigration, hellish congestion and general malaise, captured in headlines like "Meltdown on the Ocean" and "California's Wipeout Economy" and "Will California Become America's First Failed State?"
Actually, it won't.
Ignore the California whinery. It's still a dream state. In fact, the pioneering megastate that gave us microchips, freeways, blue jeans, tax revolts, extreme sports, energy efficiency, health clubs, Google searches, Craigslist, iPhones and the Hollywood vision of success is still the cutting edge of the American future economically, environmentally, demographically, culturally and maybe politically. It's the greenest and most diverse state, the most globalized in general and most Asia-oriented in particular at a time when the world is heading in all those directions. It's also an unparalleled engine of innovation, the mecca of high tech, biotech and now clean tech. In 2008, California's wipeout economy attracted more venture capital than the rest of the nation combined. Somehow its supposedly hostile business climate has nurtured Google, Apple, Hewlett-Packard, Facebook, Twitter, Disney, Cisco, Intel, eBay, YouTube, MySpace, the Gap and countless other companies that drive the way we live.
"Whenever we have a problem, everyone makes a big drama 'Oh, my God, it's the end. California is over,'" Governor Arnold Schwarzenegger told me. "It's all bogus." Schwarzenegger likes spin and drama too he's issued warnings about a "financial Armageddon" and he literally blew smoke in my eyes while we spoke. But his belief in the anything-is-possible dream of California is more than spin; he is, after all, its ultimate embodiment.
California, to borrow a phrase, will be back. It's been stuck in an awful recession not quite as awful as Nevada's but it's getting unstuck. It's made nasty cuts to close ugly deficits, but it hasn't had to release prisoners or close parks, and its IOUs are being paid. Its businesses aren't fleeing to Nevada or anywhere else; Jed Kolko, an economist at the Public Policy Institute of California, has shown that fewer than one-tenth of 1% of its jobs leave the state each year. Even California's real problems tend to get magnified by its size. If it were a country, it would be in the G-8. So, yes, California has the most foreclosures and layoffs. With 38 million residents and a $1.8 trillion economy, it also has by far the most homes and jobs.
It can be perilous to generalize about a place this gigantic, an overwhelmingly metropolitan state that leads the nation in agricultural production, a majority-minority state with a white-majority electorate. There are real differences between (crunchy, techy) Northern and (hipster, surfer) Southern California, and especially (richer, denser, bluer) coastal and (poorer, sparser, redder) inland California. But one generalization has held true from the Gold Rush to the human-potential movement to the dotcom boom: California stands for change, for disruption of the status quo. "California is not another American state," concluded Carey McWilliams in his 1949 history California: The Great Exception. "It is a revolution within the states."
Today, it's still the home of the new new thing. It is electric-vehicle start-ups like Tesla, Fisker and Better Place taking on the Big Three, or the local-organic foodies behind California cuisine going after Big Ag. It's Kaiser Permanente, the HMO whose model of salaried doctors in group practice may be the future of health care, or the University of California at Irvine's law school, which opened this semester with free tuition and was instantly more selective than Harvard or Yale. It's SpaceX, the private rocket-launching company, or Kogi, the Korean taco truck that announces its location over Twitter to flash mobs of Angelenos. "The beauty of California is the idea that you can reinvent yourself and do something totally creative," says Kogi's Roy Choi, a former chef at the Beverly Hilton. "It's still the Wild West that way."
California is a state of early adopters not only in fashion, technology and design but in politics too. Its voters approved huge bonds for stem-cell research, high-speed rail and repairs to aging infrastructure while Washington was dragging its feet; its politicians adopted first-in-the-nation greenhouse-gas regulations, green building codes and efficiency standards for automobiles and appliances that have rearranged the national energy debate. Yes, it was also an early adopter of subprime mortgages Countrywide, Golden West and IndyMac were all California-based but life on the frontier has always been risky. "This is the most dynamic place for change on earth," genomic pioneer J. Craig Venter said on a recent tour of his San Diego labs, where researchers are studying ways to convert algae into oil, coal into natural gas and human wastewater into electricity. "That's why we're here." Dressed in shorts, flip-flops and a crazy-loud floral shirt on a typically perfect day, Venter noted that California's quality of life isn't bad either: "It is pretty nice not to have to wear pants."
California has long inspired its own premature obituaries. The 1855 book The Land of Gold dismissed it as "lawless, penniless and powerless." TIME published a woe-is-California issue called "The Endangered Dream" in 1991 after the aerospace industry collapsed. But even with 12% unemployment, California still has an enviably young and productive workforce. And it's still a magnet for dice-rolling dreamers who want to start anew, make money and change the world, with or without pants. "I see my own pattern repeated again and again people who want to invent the future and aren't afraid to fail," says billionaire Silicon Valley financier Vinod Khosla, an Indian immigrant who helped found Sun Microsystems and recently unveiled a $1.1 billion venture fund for investments in clean technology.
Which just happens to be the next California gold rush.