CA Lieutenant Governor Eleni Kounalakis on the ‘Secret Sauce’ of California’s Global Economy
With California’s economy rising to rank 4th largest globally, CA Lieutenant Governor Eleni Kounalakis joined LAEDC’s 10th annual Select LA Summit on May 8 to reflect on the factors driving the state’s position as a global economic engine. Marking the release of the 2025 Foreign Direct Investment in California Report, in conversation with WTC-LA/LAEDC President & CEO Stephen Cheung, Kounalakis highlights the state’s leadership in trade, manufacturing, capital, agriculture, clean energy, and technology and cites the pathway to prosperity that attracts top talent to the state. Recognizing the affordability challenges wrought by rising costs and federal trade volatility, Kounalakis advocates for improving productivity by easing barriers for small and mid-sized businesses navigating the state’s complicated processes of regulation and compliance.
“California is number one in foreign direct investment; number one in two-way trade, number one in manufacturing, number one in access to capital, number one in technology—and our growth is outpacing the rest of the country.”
Stephen Cheung: Prior to her government service, Ambassador Kounalakis spent 18 years as an executive at one of California's most respected housing development firms, AKT development, and since then, she's been doing so much for the state of California. We had the pleasure of doing a fireside conversation about international trade a few years ago in the Palm Desert. As we're moving forward in this fight, this conversation is so relevant and timely right now. There are many consul generals and many countries that are represented here, so as we start with this conversation, I want to set the stage and get your perspective.
California has now become the fourth largest economy in the world. What do you think are the key drivers behind this extraordinary growth?
Eleni Kounalakis: First of all, Stephen, it's always wonderful to be with you. We've worked together so closely over the last seven years since I've been in this position, and it's really a pleasure to be here with all of you people who help drive the California economy.
California, as we know, is number one in two-way trade. We estimate that 1 out of every 5 jobs in the state of California is a result of two-way trade, foreign direct investment, and tourism. The Select LA program—all of your participation; the countries you represent; the companies you represent—it's a very, very big part of the California economy.
When we think about this shift, there are a lot of things that underpin it, and I don't know that I could necessarily lay it out any more clearly than Professor Tang. What a wonderful presentation, I think there were many things in there that would be very helpful for elected officials in Sacramento to know. But certainly, the fact that we have 500 miles of frontage on the Pacific Rim--we are deeply integrated into the global economy.
We are deeply integrated with the world, by virtue of our people. Nationally, about 14% of Americans are foreign born; 27% of Californians are foreign born. I spend a lot of time traveling the state, and I'm going to go back to you, Professor Tang, and your enthusiasm—you could not hide your own pride in being a Californian, and I see that same pride every day, across the board from people, whether they have moved here from outside the country or from other parts of the United States. And so, it's our people; it's our geography; it's our history; it's our connectivity to the world, which maybe we'll go a little bit deeper into. It is also our university system.
We have about 2.8 million students enrolled in public higher education in the state of California right now, most of those are in community colleges getting real training experience. This is the workforce of the future. It is the society of the future, and almost 40% of those 2.8 million students are the first in their family to go to college.
I don't need to tell all of you that it is an observable phenomenon that talent is equally distributed around the world, but when you have that kind of ambition, and energy, and innovative capability that has a pathway, through education, into the kind of opportunity that the fourth largest economy in the world represents—this is the foundation for the strength of our economy today and in future.
Stephen Cheung: As you're mentioning the international side, can you share a little bit in terms of what we want our narrative to be for the international audience, in terms of California?
Eleni Kounalakis: You're presenting this study for foreign direct investment with LMU, LAEDC and GO-Biz. First, I want to thank you for doing this.
California is number one in foreign direct investment; number one in two-way trade, number one in manufacturing, number one in access to capital, number one in technology—and our growth is outpacing the rest of the country.
It is a state that is very large, the largest by population. It is a state that has its challenges, and the affordability challenge is serious for us. We also have a very complex system of regulation—a complex system of governance structure because of state, local, and federal overlapping. But this is where the future happens first. This is still the place where people come to start their businesses and to grow their businesses.
As we think about the magic within all of that, it really does go back to our people. The secret sauce, as far as I'm concerned, is this welcoming open society that we have that attracts people—just from the image of California as a place where you can go pursue your dreams and to be who you want to be.
Stephen Cheung: I love that. Switching gears a little bit, earlier in the day we had another panel, and of course, the issue of the wildfires came up. This is going to be affecting not only LA but the United States as a whole--and the world. Climate change is having that specific impact on us, and we have to be very mindful in terms of how we proceed. How does California's leadership in climate policy translate into real economic opportunities for investors, and how is your administration supporting industry critical to the energy transition like clean tech, EV manufacturing, battery innovation, and other related industries?
Eleni Kounalakis: Well, there's so much happening in the world right now that if you were to ask me this question six months ago, honestly, I would have a different answer. Six months ago, I would have talked about the record investment that California is making to achieve our 2045 goal of being carbon neutral. I would have talked about the Inflation Reduction Act investments coming from Washington, so much of which was landing here. I would have talked about the hydrogen hub. I would have talked about the fact that 25% of the new cars sold here are zero emission vehicles, and that that was only getting stronger; that we're building out the infrastructure for charging; that we have grants across government for those starting businesses in and around the clean energy future.
Today, we are in a situation where Washington is challenging us in terms of our ability to set our emission standards, in terms of giving us the waivers that we need. Washington is waging what I call a trade war. I don't know how we can think of it as anything less than that right now. That doesn't mean that I'm not going to take side of my country, but it doesn't mean that I like it because I don't think that the way that they are approaching this is going to be helpful for us.
When I put it in the context of our clean energy goals and clean energy transition, what are we going to do if the solar panels that we need in order to reduce our dependence on oil and gas--if those solar panels that come from China have 145% tariff on them? How are we going to get there in the context of all of this?
We are in a different moment, and I think it's important that Sacramento, the governor's office, and all of these agencies are taking into consideration the reality of the environment that we're in.
We call it a transition to clean energy for a reason, because it's a transition, and that means that we have to be somewhat flexible and somewhat nimble in being able to respond to a changing environment and the environment that we're in right now economically. But I am absolutely willing to say that California's pathway to investing in clean energy— for being the leader in the technology and the innovation that's going to get us there—California's role is not going to change. We are already so deeply invested, and it is already a big part of our economy; a big part of the tech sector; a big part of government investment--but it is also a big part of our culture.
As I travel to the universities and the national laboratories that we have under the University of California, it’s another real challenge that NIH grants are being cut, and a lot of that work is housed there. Nevertheless, young people in particular are determined to be part of the next wave of innovators because of the opportunity that it provides, but also because of the reality associated with the changing climate—like the wildfires.
Stephen Cheung: Based on the World Trade Organization’s projections, if we continue with the trade war, especially with China, they're anticipating that the U.S. and China's trade relationship to decrease by 80%. Given that China is our number one trading partner, it's going to have significant impact on those jobs we're talking about. And just one last story is that we actually were working with a company yesterday that wanted to manufacture the batteries here in California. However, their equipment to manufacture those batteries are stuck overseas, and they don't want to bring it over here because of the tariffs. To your very point, we can't meet our environmental goals because of these tariffs.
Eleni Kounalakis: That’s such a great example, because it shows the nuance involved in these things. California is the number one manufacturing state. I don't think you can find many Americans who would disagree that onshoring more manufacturing—of course we would want that. Bringing back more jobs here, good paying jobs in particular, near shoring, friend shoring--all of that is in our interest. But if you can't work through this without having the capacity to deal with the challenge exactly like that one, it does not bode well.
Gene Seroka, a friend of yours, a friend of mine, a great Californian—he is the Director of the Port of Los Angeles. He has been all over the news talking about this. Right after COVID hit, the number of bookings for container ships into LA went down 50%. Right now, those bookings are down 40%, so I don't know how they cannot see that there are going to be some very, very serious consequences to this. I just don't think they're going to be able to somehow use rhetoric to make up for the increase in prices that Americans are going to pay for goods and the lack of choices that Americans rely on.
Donald Trump said, “instead of 30 dolls, you’ll have 2 dolls.” No, it's the whole host of things that are made outside of the country. The amount of manufacturing that happens in China is the equivalent of the manufacturing of the United States, Japan, and Germany combined. And then there are whole sectors--the United States doesn't manufacture clothing.
On the flip side of that, we only consume about 1/3 of all the agricultural products that we produce in the United States. Add that to the list, California is the number one agricultural state. Our farmers have to get the products to market, and that can have a devastating impact on the farming sector.
What's been interesting to me is that politics is so rarefied right now that the wishful thinking and the rose-colored glasses that many people in business have--that somehow this could be painful at the beginning, but it's going to be great overall. It's very worrisome to me. We need to have this be driven by facts and by the laws of economics, and I worry that those facts are not being watched closely enough.
Stephen Cheung: As are we. That's why we're so focused on making sure that we have reports and data information going all the way back. I also want to thank you. You probably won't remember this, but you and I were sitting on a panel up in Northern California, and you were using information, and you'd giving your speech about foreign direct investment. At that point, LAEDC-WTC had just done our first or second report—the report that you saw—and you were quoting Southern California data because we only did it for Southern California. And you said to me, “Steven, why don't you do more and do it for the entire state?”
That's why we connected with GO-Biz, and because of your comment, we're now able to do it for the entire state of California. So, thank you for your guidance, your leadership on that.
In LA County alone, 94% of our companies have less than 20 employees.
Eleni Kounalakis: That’s true statewide. In the state of California, somewhere around 93% of California companies have fewer than 20 employees.
Stephen Cheung: Given this is such a big segment of our population and our workforce as well, how is California supporting small and mid-sized enterprises to help them grow and especially compete globally?
Eleni Kounalakis: That’s a great question. I know it's very important to people in this room. I want to recognize Emily Desai is here from the Governor's Office of Business and Economic Development. Governor Newsom and I, seven years ago, decided that we can work together on this portfolio, and I'm really proud of the work that my office has done. Evan Reid, who was at the State Department for 27 years, joined my team, and the governor's support for this relationship has allowed us to really build out the work that this state does. Emily has really taken that ball and run with it in a very big way over at GO-Biz, and she's going to be up on a panel later, talking about all the grant programs, training, tax credit programs, and the things that have been funded by this administration in order to help all businesses--but particularly small and medium sized businesses. So, I’m going to let her answer that specifically.
But I do want to say another thing that I learned from Professor Tang this morning when he was talking about productivity and affordability. I come out of a housing background, and maybe why I believe so much in the immigration part of the equation is like many Californians, my dad was a refugee to the United States. He came alone while he was fourteen, landed in the fields of Lodi, moved in with an uncle who sponsored him. He was encouraged to go to college, so he went to Sacramento State, and he worked his way through Sacramento State University as a waiter in the governor's mansion.
The reason I tell that story is because he's started a business, and very often, the pathway to that California dream is starting your own business, which is why they have so many small businesses. By the way, half of the small businesses in this state are owned and founded by members of underrepresented communities. It's an important part of the story. Our business is housing. So, I spent more than 20 years--I say 18, because that's when I was on payroll--but even as a kid, I worked answering phones in my father's office, and we built master planned housing communities. So, I'm a businesswoman.
Right now, in Sacramento, the key buzzword is affordability. Everybody's talking about affordability. Nothing drives the affordability crisis in the state more than housing. People are saying to me, “Look what we're doing on housing--housing, housing, housing. Look at these housing bills. What else should we be doing? Is it enough?”
The reality is that we have to solve the housing crisis in order to solve the affordability crisis, and we are not going to solve the housing crisis overnight. So, what is it that we do long term about the California economy?
Professor [Tang], when you talk about the importance of productivity, there are a lot of things we can do while we are working toward the affordability crisis and the housing crisis. There's a lot that we can do to support business that will allow them to be more productive, and that really relies on government looking at the regime of everything from emissions to permit processing—these networks and complicated processes of regulation and compliance that we have in California— that's the kind of thing we can do almost overnight with good leadership in Sacramento.
So, I'm going to be talking a lot more about the impact of productivity to the economy and the importance of investing in productivity while we are working on the affordability crisis. What a wonderful thing to learn today and it's true. In my own way, I've been talking about this, but it's great to see it crystallized because we have to help businesses succeed. We have to help businesses with fewer than 20 employees. A lot of the rhetoric you hear in government is concern over big businesses, but it's the smaller businesses that struggle so much to comply.
Stephen Cheung: You also mentioned a bit about the regulations. So, what do you tell the international investors and delegation members who are here, who still perceive California, because there's this narrative, that we're a high-cost and high-regulation state? What are we doing as a state to make it easier for businesses, especially international or out-of-state businesses, that want to set up operations here?
Eleni Kounalakis: This is why we set up the unit in GO-Biz that we did. When I was in the Obama administration as Ambassador to Hungary, and I saw the way that the Department of Commerce operated with desk officers as well as, of course, the State Department. It used to be that California had trade offices in the world. They're very expensive to operate, and it's hard to explain to everyday Californians why it's important.
With changes in communication and technology, it made a lot more sense to me, much more efficient and affordable, to put our trade specialists in Sacramento in GO-Biz rather than sending them abroad. So that's what we did. We grew that unit, and now we have phones that ring when businesses from outside of California or government delegations are here and want to talk to someone in state government.
Now, I do want to say that even though we've had to significantly scale that up at the state level, a lot of work has always been taking place regionally--with the work that you've done at the Trade Center and LAEDC. Los Angeles has always had a very strong presence. San Diego has a very active center for economic development—SANDAG. Up in the Bay Area, you have the Bay Area Council, and even Sacramento had its own, but we felt it was very important to build that out at the state level.
What GO-Biz does, and what it was set up to do under Jerry Brown, is help California companies work through the regulatory environment. What we did together was expand that so that foreign businesses would have that kind of assistance as well.
Stephen Cheung: Last question, what are the bold bets California is making to stay ahead? What role do you see international partners playing in that future?
Eleni Kounalakis: I want to be honest, I feel like we’re a little on our heels right now, but there's always more you can do. The federal government controls the trade machine, but you might have seen Visit California, which is our extraordinary tourism board for the state run by Caroline Beteta. She and the governor just launched a campaign to bring Canadians. Any Canadians in the room? We love you-- and that is actually the name of the ad campaign from Visit California. Ads across Canada are running—“California loves Canada.” We will absolutely continue to use every tool in the toolkit to project to the world that we appreciate being part of global trade, that we appreciate those who come here from around the world as tourists, who come here to invest and to partner, and we will continue to do everything we can to be able to show that appreciation.
