California’s retort to Mancur Olson

How political ambition, social media, and smart dealmaking overturned the interest-group trough in a liberal bastion.

Last month, a glowing Gavin Newsom signed into law what he called “the most consequential housing reform in modern history in the state of California.” That’s not an overstatement, and the governor deserves every bit of the credit he claims.

In mid-May, Newsom had dropped a bomb. At a press conference about the state’s budget, he declared that it was time for top-to-bottom reform of the California Environmental Quality Act, known by its unwieldy acronym, CEQA. The governor vowed that he wouldn’t sign the budget unless the Legislature rolled a pair of previously long-shot CEQA overhaul bills into the package. Ideas that no California Democrat had even dared to propose prior to 2025 were not only on the table, they were now yoked to the budget and bore the governor’s seal of approval. Six weeks of backroom bargaining ensued. Labor and environmental groups won some concessions, but the final package largely abolishes CEQA as an obstacle to housing development in urban and suburban communities.

That this happened at all challenges the pessimism of thinkers from Reihan Salam to Mancur Olson, and has important lessons for Abundance advocates.

Writing in The Atlantic two years ago, Salam posited that the Democratic Party is structurally incapable of enacting effective, abundance-oriented policies. Democratic legislators are simply too dependent on organized groups that benefit from a sclerotic status quo, most prominently labor unions and homeowners’ associations. Salam’s essay echoed The Rise and Decline of Nations, in which the late economist Mancur Olson argued that long periods of political stability invariably drag democracies into economic senescence due to accumulations of special-interest sludge.

Olson doubted that the sludge could be cleared without war or revolution. Salam and others on the right may have thought (or hoped) it would at minimum require a Republican Party takeover. Against this intellectual backdrop, it was surely jarring to watch the Democratic governor of California, flanked by Democratic legislators and union leaders, stick a dagger into CEQA.

CEQA is an Olsonian Frankenstein. It conjoins abstract ideals that have enormous appeal (especially for progressives) to legal mechanisms that give organized groups enormous leverage over project sponsors. The law’s ideals are commonsensical: Before the government does something that could hurt the environment, it should take a moment and see if there’s a less harmful way to get the job done. It should listen, too, answering the concerns of citizens who have submitted comments about a project or spoken their mind at a public hearing.

To thinkers who believed California’s liberal coalition could not change, it was surely jarring to watch the Democratic governor of California, flanked by Democratic legislators and union leaders, stick a dagger into the state’s enviromental-review law.

The trouble with CEQA is that it also lets anyone bring a lawsuit if they fault a project’s environmental paperwork. These cases can take years to resolve.

CEQA litigation sometimes protects the environment, but day in and day out, what CEQA does is allow labor unions, homeowners’ associations, self-described equity groups, and economic competitors to exercise an almost-free “delay option” with respect to any proposed development. Groups that credibly threaten to exercise this option can extract side payments from developers, because for a developer, time is literally money. Labor unions have perfected the art and for years they’ve insisted that any statutory limits on CEQA be limited to projects that use unionized workers or pay union-negotiated wages.

Until now, Labor has largely had its way. And until now, the governor has been stuck on the sidelines.

CEQA actually authorizes executive-branch agencies to craft exemptions and prescribe methodologies that streamline environmental reviews. I’ve hammered this point repeatedly in public writing. A couple of years ago, an insider told me that the governor had heard the message but that acting upon it was just too risky: Streamlining CEQA through unilateral executive action would infuriate the trade unions, poisoning the well should Newsom run for president.

So what changed? I can’t be sure, but I’d point to four factors that I think contributed to this year’s stunning CEQA-reform win. First, the Abundance movement has opened up a new lane for ambitious governors eyeing their next gig. At the press conference celebrating the bills’ passage, Governor Newsom name-checked Ezra Klein, the book Abundance, and “the NIMBY movement that's now being replaced by the YIMBY movement, go YIMBYs!” Delivering on CEQA reform may have cost him with the building trades. But it gives him standing with abundance-aligned donors if he runs for president, it lets him hobnob proudly with the likes of Ezra Klein, and it might lead to a cool media or think-tank job if succeeding President Trump doesn’t pan out.

Second, the legislative vehicle really mattered. At the bill-signing ceremony, Newsom thanked lawmakers for “indulging” his decision to fold CEQA reform into the budget, in lieu of the usual convention in which controversial bills must run a gauntlet of legislative committees. “To allow the process to unfold as it has for the last generation [would] invariably [have resulted in these bills] falling prey to all kinds of pratfall,” he said.

He was right.

As I’m writing, another important California housing bill (allowing large apartment buildings near fixed transit) is getting pratfalled in the second house. Not on account of powerful labor unions, but because naive or credulous progressives have apparently convinced themselves that untrammeled market-rate housing development would be bad for tenants, and because environmental groups are behaving as if the unquestioned demands of self-appointed spokespersons for disadvantaged communities are more important than the green groups’ own mission.

A third factor is that the soup of social media in which we all swim has engendered a strange kind of accountability for politicians who see themselves as problem-solvers. Since the dawn of the YIMBY era, California has passed scores of housing bills, but it hasn’t moved the needle on production (apart from accessory dwelling units). This isn’t a secret, and it’s a bit of an embarrassment for the governor and the state’s prohousing leaders. If backroom deals had transformed the CEQA bills into everything bagels, with requirements that builders use high-cost labor and provide lots of money-losing affordable housing, the governor would have been roasted online.

Legislators have told me: “Your tweets are our conscience.” It’s a strange thing for an academic to hear. But it might be true.

In the days after the CEQA bills passed, I was inundated with calls from journalists. Everyone wanted to know, “How many new homes will the CEQA reforms deliver?” That question can't be answered with any confidence, but the fact that everyone’s asking it shows how the discourse has changed. Results are in vogue.

Finally, the politicians who delivered the CEQA package — Newsom, Assemblywoman Buffy Wicks, and Senator Scott Wiener — are phenomenal talents who have carefully cultivated allies. They knew they couldn’t pass CEQA reform in the teeth of unified Labor opposition. Over the last several years, Wicks, Wiener, and California Yimby (the state’s leading prohousing group) developed a productive working relationship with the California Conference of Carpenters, who split from the obstructionist State Building and Construction Trades Council and backed several Yimby bills.

Wicks’s relationship with the Carpenters ultimately led to an innovative proposal that conditioned a project’s exemption from CEQA on the developer paying a new, two-tier minimum wage for construction labor. The Trades went ballistic: In the past, such exemptions have been conditioned on the much-higher “prevailing wages” modeled on union contracts, or had actually required union workers.

One union leader declared that the measure “will compel our workers to be shackled and start singing chain gang songs.”

In sum, the politicians did what outstanding politicians ought to do. They didn’t make Mancur Olson’s problem go away, but they showed that war isn’t the only way to cut through the sludge.

The Trades ultimately agreed to go neutral on Wicks’s bill in exchange for having the minimum wage idea removed and a new provision added that compels developers of high-rise projects to use union labor if they receive several bids from union contractors. That’s the technical way of saying that a small group of politically-connected, high-wage workers threw a fit and threw a much larger group of vulnerable workers under the bus. But from a housing production perspective, the concession to the Trades was trivial. High rises are very expensive to build with or without union labor, so they’ll never comprise a big share of the market. What’s more significant is that the Carpenters didn’t abandon Wicks, Wiener, and Newsom. Though they lost the homebuilders’ minimum wage, the Carpenters were still there at the bill signing, all smiles in hardhats and construction vests.

The Carpenters did have a reason to smile. The enacted legislation says that if all of the units in a project will be deed-restricted affordable housing, the developer must pay union-negotiated “prevailing wages” in order to claim the CEQA exemption. This will make Carpenters-affiliated contractors more competitive in the market to build subsidized affordable housing. It will also mean fewer affordable housing units, relative to a world of unconditional CEQA exemptions. (Fortunately, there are other ways to deliver housing to poor people, like vouchers, and the federal voucher program will serve many more renters if California finally unleashes market-rate development.)

In sum, the politicians did what outstanding politicians ought to do. They took advantage of new currents of elite and mass opinion, and a must-pass legislative vehicle, to push through an incredibly promising package of reforms, giving away just enough to neutralize the most powerful would-be opponents (high rises for the Trades), and a bit more to reward long-term allies (100 percent-affordable for the Carpenters).

The politicians didn’t make Mancur Olson’s problem go away, but they showed that war isn’t the only way to cut through the sludge. When an ambitious governor sees a new lane in national politics open up, when he’s able to piggyback on the work of talented state legislators and advocates, and when he’s checked by social and traditional media, great things really do become possible.

The lesson for Abundanistas? Invest in good governors, and nurture the ecosystem that helps them to thrive—as governor, and as whatever comes next.

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Chris Elmendorf is Martin Luther King Jr. Professor of Law at UC Davis.