“Today, the largest companies coming out of Silicon Valley no longer exclusively target greenfield territory. Take some of the highest valuation companies from the past year, such as Airbnb and Uber. These companies are not operating in empty space, but rather against significant entrenched non-technology businesses. This is a first for Silicon Valley, and it is the start of something fundamental – we are not just creating whole new categories, but reconfiguring non-technology ones as well.

“This new type of disruption is far more pernicious and far more political to boot. Silicon Valley still believes that it exists in a creation world, where it builds new things that create exclusively positive value. That has been a fair assessment historically, but that is no longer the case. Today’s companies are increasingly destroying the value of existing companies to create the next generation of products and services. We can argue whether the end result is a net benefit to society, but we cannot avoid the immediate impact our work has on the rest of the country anymore. …

“[Silicon Valley startups have] almost always been bolstered by positive media coverage and a general sense from policymakers that what we did was fundamentally good. Now that the Valley’s companies are increasingly competing against traditional businesses, society is not so quick to give us a pass on this behavior. Take Airbnb and Uber again, both of which have attempted to avoid regulations and taxes in their fields (hotel taxes and taxi and license commission regulations, respectively).”

Social issues not a helpful focus

Given that Silicon Valley is by far the greatest creator of wealth in California, the political implications of the backlash it’s facing are something that the Republican Party should think about.

The tech world already has a libertarian impulse. It hates the “you didn’t built that” mentality of liberals; it can barely hide its contempt for the increasing complaints from the left that a lack of “diversity” is a big problem in IT firms, which are as meritocratic as it gets. The techies I know express disbelief that anyone — read, Democrats — believes government should guide and/or dominate the economy.

If the California GOP can position itself as a pro-free market, pro-entrepreneur defender of Silicon Valley against unfair critics, the party could benefit for decades to come. Tech political power is going to keep getting bigger and bigger.

If Republicans want to take advantage of this, focusing on culture wars and hot-button social issues is the absolute wrong thing to do. Instead, they should celebrate and stick up for the state’s most transformative businesses and their workers.

No way, as illustrated by a new report from state Auditor Elaine Howle on “high-risk” government programs that got cursory coverage from the Capitol press corps. The state teachers’ pension system, the prison system, emergency preparedness, computer systems and public health efforts are all found wanting. Those are some pretty crucial categories of government operations.

Here’s a sample of Howle’s warnings:

“The funding status of the Defined Benefit Program of the California State Teachers’ Retirement System (CalSTRS) has not improved, and it remains on the high-risk list. … The inability to adjust contributions, as well as poor investment returns due to economic recessions, have caused the funding ratio of the CalSTRS Defined Benefit Program to decrease from 98 percent in 2001 to 67 percent in 2012, well below the 80 percent considered fiscally sound. At the current contribution rate and actuarially estimated rate of return on investments, the Defined Benefit Program’s funding ratio will continue to drop and assets will eventually be depleted. Similarly, the State’s estimated accrued liability of $63.85 billion related to retiree health benefits is almost completely unfunded and continues to increase. …”

“We have added the 2011 realignment of funding and responsibility between the State and local governments as a new high-risk issue. Realignment shifts the funding of and responsibility for many criminal justice and social services programs from the State primarily to county governments. The funding for these programs totals approximately $6 billion. The State does not currently have access to reliable and meaningful data concerning the realignment. As a result, the impact of realignment cannot be fully evaluated at this time. Even so, initial data indicate that local jails may not have adequate capacity and services to handle the influx of inmates caused by realignment.”

Infrastructure, workfore prep, emergency records all weak

“Maintaining and improving the State’s infrastructure remains on our list of high-risk issues. The State’s investments in transportation and water supply and flood management infrastructure have not kept up with demands. The California Transportation Commission estimated that the State faces a funding shortfall of more than $290 billion to adequately maintain its transportation infrastructure for the 10-year period from 2011 through 2020. Similarly, the State’s water supply and flood management infrastructure requires significant investments. …”

“The State continues to face challenges related to its workforce and succession planning as the proportion of employees approaching retirement age increases. While state agencies we reviewed had generally developed workforce and succession plans to ensure continuity of critical services, we identified notable exceptions. Further, with the recent reorganization combining the State Personnel Board and the California Department of Personnel Administration into the California Department of Human Resources, the State faces the general risk associated with this type of structural change.”

“The State’s emergency preparedness remains an area of high risk. Two key California agencies that oversee statewide emergency management — the California Department of Public Health (Public Health) and the California Governor’s Office of Emergency Services (Cal OES) — lack fully developed strategic plans to guide their emergency preparedness efforts. “

Home to Silicon Valley still a joke on IT front

Then there’s the hardy perennial: the state’s computer klutziness.

“The high costs of certain projects and the failure of others continues to make the State’s oversight of information technology (IT) projects an area of high risk. As of July 2013 the California Department of Technology (CalTech) reported that 46 IT projects with total costs of more than $4.9 billion were under development. In our August 2011 high risk report, we discussed four large IT projects that would have a major impact on state operations — the State Controller’s Office’s 21st Century Project, the Judicial Branch’s California Court Case Management System, the California Department of Finance’s Financial Information System for California, and Corrections’ Strategic Offender Management System. With this update, we examined the status of these projects, as well as the California Department of Motor Vehicles’ IT Modernization Project. We found that three of the five IT projects experienced major problems that require either part of the project or the entire project to be suspended or even terminated. “

“Finally, Public Health and the California Department of Health Care Services (Health Care Services) remain on the list of agencies exhibiting high-risk characteristics. Public Health continues to face challenges and weaknesses in program administration and is slow to implement audit recommendations with a direct impact on public health. Its unresolved recommendations have increased from 20 to 23 in the past two years. Many of these recommendations have a direct impact on public health and safety and, if not implemented, could adversely affect the State.”

This doesn’t exactly paint a picture of a well-run government. Somehow I doubt The New York Times or any of the other Jerry Brown fans in East Coast newsrooms will get around to mentioning any of this.

By Chris Reed

Bloomberg News, which is doing an increasingly good job covering California of late, had an important article Wednesday about likely problems in developing the Golden State’s massive shale reserves. Those reserves could transform the state’s economy, according to a University of Southern California study that said drilling for the energy reserves could generate as many as 2.8 million jobs and $24.6 billion in state and local tax revenue by 2020.

Why was it important? Because its downbeat tone mostly didn’t come from the expected sources: the green cultists who hate fossil fuel and who constantly dispense lies about hydraulic fracturing, the improved drilling process behind the brown energy revolution in the Dakotas, Montana, East Texas, Ohio and Pennsylvania. The skepticism instead came from credible people.

From Wall Street:

“’The Monterey shale was supposed to be the greatest thing since sliced bread, but so far has not lived up to the hype,’ Fadel Gheit, an oil and gas analyst at Oppenheimer & Co. in New York, said in a telephone interview. ‘It’s not conclusive that the emperor has no clothes. So far, it has not shown any big sign that this is going to be another Bakken or Eagle Ford.'”

From Chevron:

“’Based on our drilling results, our view is that the oil has migrated out of the formation and is now found in pockets outside of the Monterey shale,’ said Kurt Glaubitz, a spokesman for San Ramon, California-based Chevron Corp. (CVX), the second-biggest U.S. oil producer. ‘We don’t believe it’s going to compete for our investment. We have other opportunities that are more economical for us to develop.’”

And from a scientist who explained what’s behind the skepticism:

“The Monterey shale is more expensive to explore than the Bakken shale that’s yielded an oil boom in North Dakota and the Eagle Ford shale in Texas, said Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis.

“’The Eagle Ford is like a pound cake,’ Jaffe said in a telephone interview. ‘The Monterey shale is like a nine-layer chocolate cake and to get all the layers straightened up and put in all the frosting every place we wanted — that’s going to be more complicated and it takes more skill.'”

Betting — and betting big — that the skeptics are wrong

But the company that’s got the most invested in drilling the Monterey shale is far more confident than the skeptics. As I wrote in November, Occidental Petroleum Corp., the Los Angeles-based energy giant, “estimates the shale reserves on California land it already controls to have over 20 billion barrels of potential oil –- a claim that the company says is made in accordance with the Securities and Exchange Commission’s rule that only ‘economically producible’ reserves can be cited in SEC filings.”

That last point is not a small one at all. Energy companies have a history of being cautious in their stock prospectuses and in representations to shareholders and regulators. Oxy has been eying the Monterey shale for a long time and believes it is up to the challenge.

And the context is crucial to remember here. It wasn’t long ago that the Bakken and Eagle Ford shale formations were considered impossible to develop. But then along came the information-technology revolution. The reason hydraulic fracturing, or fracking, is so much more efficient than it used to be doesn’t have to do with crude factors. It’s not the drillers using more powerful streams of water or larger water cannons to fracture rock underground. Instead, IT now allows drillers to use the equivalent of MRIs of vast swaths of underground areas, and to use this information to know where to precisely aim their water cannons.

NYT: ‘New Technologies Redraw the World’s Energy Picture’

And hydraulic fracturing is getting more refined and more efficient with every year. So if Occidental believes it can access California’s Monterey shale, it has good reason to be optimistic.

The question, alas, remains whether California’s political class will allow fracking’s magic in the Golden State. Even as fracking increasingly gives the U.S. a huge competitive advantage over Europe — detailed here — the environmentalists who dominate the state Democratic Party continue to pretend the brown energy revolution isn’t happening.

Perhaps they should read The New York Times.

By Chris Reed

The Sacramento Bee’s Jon Ortiz had a piece Thursday about the grotesque mess that is California state government that had lots of interesting details about the extent of the dysfunction:

“Last year, Gov. Jerry Brown christened an overhaul of the state’s personnel system, aiming to correct the wandering course of a government beset with arcane, conflicting rules that confound even the most experienced human resources managers.

“Now that overhaul faces a very public test with the state’s probe into ‘additional appointments.’

“Several agencies have cited the obscure 34-year-old policy as justification for giving salaried managers and supervisors secondary jobs that pay an hourly wage. The policy is so old that it exists only on paper. It’s confusing, imprecise and desperately needs updating.

“There are probably dozens — maybe hundreds — of similar personnel rules and regulations that departments — those that know about them, anyway — read and apply differently.”

Not in public employees’ interest to fix state’s mess

But Ortiz’s column, like so many other stories and analyses over the years, doesn’t acknowledge one reason why the chaos exists and has been tolerated. Indeed, he even asserts that it’s in everyone’s interest to fix the mess, because ….

” … an archaic, dysfunctional state government personnel system hurts everyone.

“‘Calcified personnel practices that were intended to measure “merit” discourage highly qualified people from applying for and landing state jobs, the independent, bipartisan Little Hoover Commission concluded eight years ago.”

Oh, what a load of hooey. An “archaic, dysfunctional state government” is one in which employee performance can’t be measured, employee efficiency can’t be improved and employee positions can’t be reduced.

Connect the dots. If the information-technology revolution had been allowed to transform the public sector as it has the private sector, we’d see government doing as much as it used to with far fewer workers. Instead, the IT revolution never made it to the public sector, including and especially in the state that’s home to Silicon Valley. Instead of doing more with less, we have chaos and overlap and confusion.

Government productivity gains could be ‘huge’

And, no, it’s not true that the public and private sectors are so different that the IT revolution couldn’t make a difference in government efficiency. Here’s what the respected McKinsey consulting group said nearly a decade ago: “the opportunity to improve government productivity is huge … [with] three classic management tools . . . organizational redesign, strategic procurement and operational redesign.”

More on the topic from a column I did last year to mark the 200th anniversary of the peak of the Luddite movement in England:

“The key to [government] redesign is to stop building off the presumption that we need to have workers gather in the same building to handle routine tasks, and to require that consumers of government services go to these buildings, too.

“I once had to go to the Poway DMV to get a copy of a vehicle registration that I had lost because it was the only local DMV that had an appointment slot available within two weeks. Why? Why? Why? For God’s sake, in an era in which you can design your next car and do a zillion other things on the Internet, why do you ever have to drive to a government office anywhere to fill out a permit or pick up a form?

“Where are the virtual offices? Where are the MBA consultants who come in and spot ineffeciences and outline changes that seem obvious in retrospect? Why don’t we see the IT revolution depopulate government bureaucracies the same way it wiped out travel agencies?

“Because of 21st-century Luddites who hide behind claims of defending the middle class. The reality is that we’re seeing what is in essence immense featherbedding across all levels of government.”

This is why California’s state government is dysfunctional and chaotic: Because if it were run rationally and like a competent large corporation, we probably could get by just fine with half the state workers we now have.

This is what’s at stake in the fight over making state government more functional. Jon Ortiz may not have figured it out, but you can bet the unions have. And if the lunatics running the state Public Employment Relation Board have their say, the Brown administration will end its reform push after having been told that reform is only OK if it’s been collectively bargained.

By Chris Reed

Friday’s news that state Controller John Chiang had fired the second contractor hired to upgrade the state government’s computer payroll system for incompetence and poor work — a few years after the first contractor was fired for the same reason — is an amazing commentary on the disconnect between the genius of California’s private sector and the stupidity of Sacramento.

This is where the information technology revolution began! And we have a payroll system built on punch-card computers from the 1970s? And after nearly a decade of trying to fix it, we’ve made no progress???

“This is the home of Silicon Valley; it’s so embarrassing,” said Debra Bowen.

But that wasn’t Bowen in her present role as California’s secretary of state. That was what she said in 1999, when she was a state senator commenting on another computer debacle.

In April 2012, I whined about a Sacramento Bee report which (my description) warned that “the California Public Employees’ Retirement System was having so many problems with its new $514 million computer system that some retirees are getting notices that their health insurance policies are being canceled because of CalPERS’ nonpayment of premiums.”

Computer debacles the Sacramento norm

As I detailed then, this was nothing new:

“In 1994, a state audit found the Department of Motor Vehicles wasted nearly $50 million on a computer ‘modernization’ project that would actually have yielded a slower computer system than the relic it was to replace.

“In 1999, Gov. Gray Davis canceled an $18 million state program to integrate computer systems tracking welfare and social services recipients because it offered no hope of progress – the fifth failed effort at the same task that decade. The state ended up paying fines of nearly $1 billion for delays in meeting a federal mandate to have a functional computerized system to track child support payments.

“In 2005, a Sacramento Bee report found that efforts to implement reforms of the state prison system were impossible to evaluate for their effectiveness because the state Department of Corrections – despite huge budget increases – had never set up a central computer database to track individual prisoners and employees as it was directed to do in 1992. This poor tracking led to more violence in overcrowded prisons and to arguably higher recidivism because of an inability to evaluate which prisoners would respond to programs meant to help them integrate back into public life.”

This next paragraph involves the project where Chiang fired the contractor Friday:

“In 2009, efforts to furlough state employees and reduce their pay were called impossible by experts in and out of state government because the state payroll system relied on decrepit computers using half-century-old programming language. The ’21st Century Project’ upgrade of the system – originally bid out to a contractor at $69 million – now seems likely to cost $500 million.

“In 2011, a state audit lambasted a planned statewide computer system meant to link courts in all 58 counties. The audit said the system could end up costing $1.9 billion – seven times the original $260 million estimate.”

Do you, yunno, see a pattern here?

I see this as part of a larger continuum in which California Democrats and much of the media who constantly and at times correctly rail against the private sector for corruption, cutting corners and being amoral completely absolve the public sector when seeing similar epic fiascos. Why? Do even Democrats believe the cheap jokes about “government work”? Apparently.

It’s 2013, and even after spending more than $250 million, California has a payroll system based on computer programs from the 1970s. The same California where computer geniuses have changed the world with their hardware and software breakthroughs since the 1970s.

Write your own punchline.