Long division: America’s busy state legislatures

Hello and welcome to The Intelligence from The Economist. In New York, I'm Jon Fassman. Every weekday, we provide a fresh perspective on the events shaping your world. In 2022, Mark Zuckerberg's social media empire, Meta, announced its first-ever year-on-year declines in quarterly revenue. But this year, thanks to improvements in AI capacity and some clever cost-cutting, things are looking up. And Pervez Musharraf spent 7 years as president of Pakistan, becoming one of America's staunchest allies in George W. Bush's war on terror. He died in exile on Sunday. Our Asia editor reflects on his legacy.

But first, our $227 billion budget will include unprecedented investments in areas that will make a positive impact in people's lives. That'll make the New York dream—

Last week, New York's Democratic governor, Kathy Hochul, proposed a deep blue budget with tax hikes on big companies lavish spending on climate, and measures intended to curb gun crime.

We're going to continue to protect and enshrine the basic rights that we cherish here in New York as other states slide backwards. We will be nation-leading, and the nation expects that. They do look to us.

Meanwhile, Ron DeSantis, Florida's governor and a possible 2024 presidential candidate, did the opposite. He wants to spend taxpayer funds on busing migrants to blue states. And he's continued his crusade to reform public education.

There's really a debate going on about what is the purpose of higher education. The dominant view is to impose ideological conformity, to try to promote political activism, and that that's what a university should be. That's not what we believe is appropriate in this country. —instead—

This year, many states are flush with cash, and plenty of governors are legislating with one eye on a White House run. Usually, state lawmakers and legislatures get just a fraction of the attention that Congress does. But in 2023 especially, they're worth keeping an eye on.

There are going to be a few big themes to watch playing out in state legislatures this year.

Alexandra Sewicz-Bass is The Economist's senior correspondent for politics, technology, and society.

The first is the continuing rise of hyperpolarized policies. We're going to see blue and red states push farther apart. A second will be lawmakers taking aim at companies that defy their agendas. And a third is the way that governors are going to use these legislative sessions as resume building for or their campaigns for higher office. While Congress is gridlocked, the statehouses in America are very much not. And this year, many of the nation's hottest issues are gonna play out in state capitals.

So let's start with the first theme you mentioned, the hyperpolarized policies. Tell us more about that.

You're going to see red and blue states take on a whole range of issues, some of which they've already grappled with, some of which are going to be newer in 2023. We'll see them take on voting rights, abortion again, gay rights, education, and taxation. And they're going to push apart. So we're going to see Democratic states push in one direction and red states push in the other. So one illustration of this is a recent proposal that came out in Wyoming to ban the sale of all new electric vehicles starting in the year 2035, purportedly in order to protect the state's oil and gas industry. But that was a direct swipe at California's regulations that are attempting to ban the sale of petrol-powered cars starting in 2035. Of course, there will be others as well. Guns will be a battleground. In California, which already has very strict gun laws, there are new proposals after recent mass shootings to increase the taxes on firearms or lengthen sentences for gun-related crimes. In Florida, they're pushing in the opposite direction by embracing what is called permitless carry, which allows people to carry around a gun in public without training or a permit. These are all different issues, but they're united by one simple similar trend, which is one-party control. There are 39 states in which a single political party controls all three branches of government, both chambers of the legislature and the governor's office. They're known as trifecta states, and it's the lack of political competition in these states that allows for these proposals to pass into law without much debate or being slowed down by either gridlock or dissent.

And what about the second theme you mentioned, bills taking aim at corporations? Where are we seeing those?

This is an emerging trend, but one we saw very prominently last year when Governor Ron DeSantis in Florida took aim at Disney for coming out against a bill that the state legislature and the governor had supported on parental rights and education, otherwise known as the Don't Say Gay bill.

Saw a lot of this, but then for Disney to come out and put a statement and say that the bill should have never passed and that they are going to actively work to repeal it, I think one, was fundamentally dishonest, but two, I think that crossed the line. This state is going—

and we're likely to see this happen a lot in 2023. So one example is that some Republican states are proposing that they would revoke firms' tax incentives if those companies help their employees get abortions. There are also examples of several states, including Arkansas and Missouri, that are trying to propose bills to prohibit or punish firms that use environmental, social, and governance principles in their investing. These are corporate concepts that are really dirty words in the Republican ethos. And on the Democratic side, we're going to see states take aim also at companies. One example to watch would be California lawmakers, which are mulling a cap on oil firms' profits.

And the third theme you mentioned, governors using the legislative sessions to polish their resumes for higher office. Who are you thinking of, and where are we seeing that?

This is going to play out across newspaper front pages in the months ahead. The most high-profile example, I think, is Ron DeSantis, who is a leading contender for the Republican nomination for president, and he's using this legislative session as a way to show what he stands for in the public eye. That means taking on issues that are specific to Florida and also issues that don't really have to do with Florida or aren't state priorities, but he thinks will play out pretty prominently on the national stage. Meanwhile, Texas and other states are likely to copy some of Mr. DeSantis' signature policies that helped get him so much attention last year. There are, of course, other governors too that have aspirations for higher office. Those include Republican governors Glenn Youngkin of Virginia and Kristi Noem of South Dakota, but also Democrats Gretchen Whitmer of Michigan and Gavin Newsom of California.

So we've talked about hot-button culture war issues and about resume polishing. What about sort of substantive bread-and-butter issues like the economy? What are we gonna see there from state legislatures?

It's a really interesting moment for state legislatures because many have very large surpluses, but the economic outlook is looking uncertain. And so how those states are going to use their surpluses and how much they should save for more difficult times will be a very hot topic of debate across various states. In Texas, it's playing out in an interesting way. The state has a record surplus of about $33 billion. The governor, Greg Abbott, has said he wants to use that to cut property taxes. Others, including Democrats, which are of course in the minority in Texas, are suggesting using the money to raise teacher pay. But there are going to be a lot of different suggestions about how to use these surpluses in many states that are enjoying them. One of the exceptions is California, which is actually facing a deficit of around $20 billion this fiscal year.

How will all of this activity affect the national policy conversation?

I think that this legislative session really encapsulates the divisions that we're seeing in the country between red and blue states. So I would watch Texas and Florida to understand where the Republican agenda is going. And I would watch California and to a certain extent New York to understand where the Democratic agenda is going. But there's also a really interesting category of states to watch. And those are the states that have actually flipped in the 2022 election to having one-party control. So I think it will be worth watching both Michigan and Minnesota, which became Democratic trifectas in 2022, to see which sorts of policies they're likely to pursue. Some are expecting Michigan to repeal the anti-union right-to-work law. That will be a really interesting lens onto where the Democratic Party sees opportunity and what the party's priorities are likely to be.

You've really painted a picture of states moving in markedly different directions depending on their politics. We're seeing the emergence, it feels like, of two very different Americas. Do you think this trend will continue?

Yes, I think that today where you are born or where you choose to live confers very different rights and opportunities. We're seeing states take up a whole range of policy issues, many of which will really change the lived experience of people depending on where they are. And I expect that to only continue this session in the months ahead, But then in the years ahead as well, as states face less political competition within their boundaries, there's less reason to compromise or listen to alternative opinions. And so I think we're only going to see a further divergence in policy among states going forward.

All right, Alexandra, thank you so much for your time today.

Thank you, Jon. Always a pleasure.

Tech companies endured a painful 2022.

Stocks ending in the red.

It was a broad tech-led sell-off today. Nerves rattled on tech, seeing hard times as this month's sell-off continues. Also driving factors is— and steep declines in valuations after the pandemic tech boom fizzled led to heavy job losses at the start of this year.

Yet another wave of tech downsizing with Google's parent company Alphabet slashing 12,000 jobs this week. That drives total tech layoffs to over 200,000 since the start of 2022.

Meta, one of the giants that benefited the most during the stellar months, has been slashing costs and setting out a plan for a year of efficiency. And if recent financial results are anything to go by, its future is looking a little rosier.

So like a lot of big technology companies, Meta had a very rough 2022.

Jan Pietrowski is The Economist's business editor.

But in the past few months, its share price has actually been recovering. And for investors, there's been hope that it may perhaps have finally turned a corner.

And remind us, what did 2022 look like for Meta?

Well, it really was so rough that Meta has plausibly been booted out of the big tech category altogether because it's no longer a trillion-dollar company, which it was in mid-2021. It sort of became a company worth something on the order of $300 billion, which is obviously very large and successful, but puny compared to Apple at $2 trillion, for example. So the reasons for that were basically a downturn in its main business, which is advertising on its social networks. And in July 2022, the company announced its first year-on-year decline in quarterly revenues ever. Then 3 months later, it reported another such decline. By November, Meta had lost roughly 3/5 of its market value. And then shortly after that, Mark Zuckerberg, its founder and boss, sacked 11,000 people or 13% of its workforce.

But you say there's hope it may have turned a corner. Why is that?

First, it has to be said that its latest earnings report, it did actually report another decline in sales of 4.5% year on year in the fourth quarter of 2022. But that drop, very importantly, was much smaller than expected. And more importantly, the company also put out a very optimistic forecast for the current quarter and the rest of the year. And it thinks that in the first 3 months of 2023, revenue could reach $28.5 billion. And now that is important because that would be more than in the first 3 months of 2021, which was before Apple tightened privacy rules for iPhones and other devices, which really hit Meta's revenues in 2022.

So do you think what we're looking at is a brief upward blip, or do you think Zuckerberg has somehow turned the company around?

Well, it's interesting. I mean, I think in many ways there was a bit of an overcorrection in the case of Meta. It is a company which, despite its recent troubles, continues to make an enormous amount of money, profits, as opposed to just growing for the sake of growing, which is the case for many smaller tech firms and many of the privately held unicorns and startups. It has some very clever engineers working for it. It's made some strides in artificial intelligence. It is also using AI to make its Reels short video format, which is a rival to TikTok, its big competitor, much more engaging for users. And it has also been using clever software and algorithms to get around Apple's privacy settings, which which basically meant that it's much harder for advertisers to follow the users of its social networks around the internet. So it has a lot going for it, and most of all, a very, very profitable core business.

So that's the thoughtful bull's view. Give me the thoughtful bear's view. What are the problems lurking on the horizon?

Well, the main reason is about the future of this lucrative advertising business, which has become much more cyclical in the past couple of years. And it does appear as though the economy in Meta's biggest markets is going to slow down and perhaps even enter a recession. And that would obviously have knock-on effects for advertising spending. So that's one sort of big immediate reason to be a little bit wary of Meta's prospects. In the longer term, the bet on the metaverse remains a very, very large one and a very, very uncertain one. I mean, it does appear that there is going to be room for some version of the metaverse in the future. How expansive it will be is still a very open question. And whether Meta is the one company that's going to benefit from it despite being a pioneer is also another question. I mean, you have companies like Apple getting into augmented and virtual reality headsets. Apple is going to launch its first device reportedly later this year, and it will compete with Meta in that sphere.

What about Facebook's other competitors? How do they shape its future?

Well, in its core business, and this is one of the reasons that investors have actually taken fright or had taken fright, is it is finally seeing a credible competitor for the first time in social media. And that is TikTok drawing eyeballs of just about every American under the age of 30. And with those eyeballs come advertising dollars, which would otherwise have been funneled to Instagram or Facebook, at least in part. Then in the latter half of last year, it seemed like TikTok began to attract a lot of scrutiny from American politicians. And amid all the China bashing in Washington, D.C., especially, there has been a fair amount of TikTok bashing with some proposals coming out of Congress to actually ban the app. So that's sort of one thing that's drawn attention away from Meta. And the other big thing that's drawn attention away from Meta and from its role as the bogeyman of American social media is everything that's been going on with Twitter after Elon Musk acquired it a few months ago. So basically the headlines have been quite kind to Mark Zuckerberg. And taken together, all these things mean that investors have in fact become much more bullish about Meta.

Ultimately, Jan, how and when will we be able to judge whether Zuckerberg's bet on the metaverse has been a success?

GHION.AI] I mean, that's really hard to say. The technology is not yet, I think, ready for primetime. It's going to be useful and is used, you know, by niche areas like gaming, but it's probably not going to become widespread until a relatively lightweight device that you can carry around on your head without looking very silly comes up. And for that, you still need some technological breakthroughs, much smaller batteries, much higher processing power, better display technology that's sort of in the works but not ready yet. So I don't think that the result of that bet will be clear for many years, to be perfectly honest. I suspect we might not really know until at least early in the next decade. Although, you know, technology sometimes changes rapidly and all of a sudden, and I may well be proven wrong.

All right, Jan, thanks so much for joining us today.

Thanks, John.

Pervez Musharraf ruled Pakistan for almost a decade. He was a giant of South Asian politics.

James Astill is The Economist's Asia editor.

Tremendously important to American foreign policy in the War on Terror for most of his rule. And yet he was a very surprising choice as army chief when he rose to the top of that institution. Moreover, he didn't quite conform to the usual pattern of a senior Pakistani general. Most Pakistani top brass are from Punjab, or from the northwest of the country. He, by contrast, was from a family that came from India at British India's partition. So he spoke Urdu as his first language, not Punjabi or Pashto. So he was just a little bit of an outlier, as well as being by no means the most senior and expected choice at the time that he was made Army Chief. Musharraf was born into a well-to-do, middle-class, educated family. He spent a lot of his childhood in Turkey, where his father was stationed as a diplomat. And he retained from that experience in Turkey a great regard for Turkey's great secular reformist, Kemal Atatürk. And I think that Musharraf, as leader of Pakistan, modeled himself on that secular, somewhat liberal reformist leader. For sure, he was a God-fearing Muslim, but he still drank in private, enjoyed Western culture. He loved pop music. He promoted popular culture when he was president. So he was a rather unusual left-field choice at the top of the Pakistani Army, and he brought those unusual qualities to his presidency. So as a senior Pakistani Army officer, Musharraf belonged to the premier institution of the an institution that had presumed to run Pakistan for most of its independent history. No previous Pakistani prime minister had ever been allowed to complete a full term in office by the army. The army was always intervening in Pakistani politics on this pretext or another, but ultimately because the army saw itself as the only competent arbiter of Pakistani security. It saw Pakistan's security as paramount. And Musharraf was entirely in that tradition. He launched his own coup just a year after he was made army chief because he'd caught wind of the fact that Nawaz Sharif, the prime minister, who'd come to suspect him, had found him too independent-minded, was planning to remove Musharraf as army chief. There was a template for army government when Musharraf came in in '99. Democratic governance in Pakistan is messy, is corrupt, is immature, unsurprisingly perhaps given the army's frequent intrusions into the democracy. And the economy suffers from this, politics suffers from this. So as before, Musharraf came into a country which had a grave economic crisis, politics was a mess. And so just by virtue of being the military ruler of the country, that familiar figure, he was able to bring a measure of stability and calm as previous army dictators had done. He did some things to improve the lot of Pakistani women. He liberalized the Pakistani media with astonishing success, notwithstanding the damage that he himself as a coupster had done to Pakistani democracy and its democratic institutions, the constitution, the courts. By intervening in politics, he was nonetheless quite commendable in his broader agenda, in that liberal reformist agenda that he pushed. Musharraf's initial relations with the West were terrible. Pakistan was already in the doghouse in the 1990s. It was not considered to be a particularly relevant or dependable American ally anymore. The events of 9/11 absolutely spun that on a dime. Suddenly, Pakistan the neighbor of Afghanistan, the supporter, even the architect of the Afghan Taliban who had harbored al-Qaeda in Afghanistan, was enormously strategically relevant. America couldn't really prosecute a serious war on terror unless it had some degree of cooperation from the Pakistanis. Musharraf himself became a celebrated ally and partner in the war on terror in Washington, D.C. George W. Bush was always talking him up.

This president is a strong defender of freedom and the people of Pakistan, and I appreciate your leadership. He understands that we are in a struggle against extremists who will use terror as a weapon. He understands it just about as good as anybody in the world.

After all, they've tried to take his life.

But it was very difficult for Musharraf in Pakistan. It was unpopular. He became a target of extremist assassination attempts. He was always surviving some assassination attempt or other, half a dozen or more, and he just brushed those attempts off. He was courageous, no doubt about that. So Musharraf was this rather contradictory figure. He was the head of an increasingly and quite extremely Islamicized army, but himself, you know, rather a moderate, even in some ways liberal figure. His record, his time in power is so emblematic of the enormous geopolitical importance that Pakistan had in the early 2000s as the center, the heart of the War on Terror, America's key, difficult, unreliable partner, but indispensable partner of sorts. Musharraf was the architect of that relationship with America. He won billions of dollars of aid for Pakistan in the process from America. It was an extraordinary moment in the country's history. And that's all gone now as the war on terror has ended ingloriously. America's obsessed with China, with Russia, not thinking about South Asia much beyond its partnership with India. And I think Musharraf's passing is a very interesting moment to reflect upon that. I think we can say that whatever the merits of Pakistan's next army ruler, and there probably will be one sooner or later, we can say that he will not be welcomed in Washington, D.C. as Musharraf was so very often.

James Astill on Pervez Musharraf, who died at the age of 79. That's all for this episode of The Intelligence. Let us know what you think of the show. You can get in touch at podcasts@economist.com, and you can subscribe to The Economist at economist.com/intelligenceoffer. The link is in the show notes. We'll see you back here tomorrow.

Healthcare can feel complicated. That's why Optum uses technology to connect the people and processes that make healthcare easier, more affordable, and more effective. We're making it clearer for you to know exactly what your benefits cover. And to help you better manage your health, we're coordinating care between your doctors and your technology. We believe better, simpler healthcare is always possible. That's healthy optimism. That's Optum. Visit Optum.com to learn more.