Since 1995, when its last recession ended, California has built a powerhouse economy and created more than 2 million jobs, an all-time record. Most states would celebrate such a stunning success. In California, however, an anti-growth backlash is shattering the state's Democratic center-left coalition and gaining steam--just as its economic future turns uncertain.

Split largely along class lines, wealthier Democrats increasingly recoil from the economic and social demands of their less fortunate party members, particularly the surging Latino community. Their anti-sprawl obsessions, perhaps inadvertently, feed anti-immigrant activism. Urban environmental constraints such as new storm-water regulations and the still-unresolved "brownfields" land-reuse standards stymie inner-city school and infrastructure construction. Even as the state's less privileged seek the wherewithal for social advancement--ample water, energy and education, for example--more affluent Democrats want to reverse course.

Ensuring economic opportunities for the widest range of people was once a crucial goal of progressive politics. Robust employment growth enhances social mobility, reduces crime, improves health and fattens public budgets. As late as the 1994 gubernatorial elections, California Democrats built their electoral message around rescuing the state from what they portrayed as a bottomless, Depression-era economic calamity.

Then the economy markedly improved. Statewide employment grew 3.4% a year, 50% faster than the national rate. Buoyant industrial machinery, metal, chemical and electronic-component production boosted manufacturing employment by 127,000, while the nation was shedding more than 250,000 blue-collar jobs. A series of Republican blunders marginalized the state GOP. State Democrats suddenly found themselves alone at the helm of an unheralded industrial miracle.

These fortuitous circumstances, however, allowed an anti-growth agenda to emerge, spearheaded by Bay Area and western Los Angeles County politicians, disaffected academics, environmentalists and NIMBY homeowners. They regarded economic development as synonymous with spewing filth into the air and water, snarling traffic, carpeting pristine lands with ghastly urban sprawl and luring hordes of people to already overcrowded areas. California's resilient capacity for growth and for fostering widespread upward mobility was condemned as a disease, not a blessing.

In budget debates, anti-growth Democrats elevated conservation over social priorities. Legal and bureaucratic maneuvers to thwart development, including urgently needed programs like urban school construction, sprung up. A few high-end industries like movies or the Internet might be allowed to expand, but, otherwise, the state's no-growth elites yearned for a Starbucks society.

These sentiments increasingly conflicted with Democrats who represent the working class, immigrant groups and less-developed regions of the state. Growth remains essential for these constituencies' economic and social well-being.

Although often skeptical of corporate motives, pro-growth Democrats were willing to support economic development to generate jobs and to boost tax revenues. They pushed for increased infrastructure and social spending. During the 1990s' boom, they emerged as California's most effective development advocates.

Inevitably, the party's anti- and pro-growth forces collided. When the scale of California's energy debacle became apparent earlier this year, a pro-growth faction, led by Gov. Gray Davis, suspended some environmental regulations to speed up power-plant construction. This outraged coastal, no-growth elites. Many privately hoped the energy shortage would scare away prospective residents or consume a budget surplus that might be spent on undesirable "growth-inducing" programs.

Conflict also erupted over the state's proposed "zero emissions vehicle," or ZEV, mandate, which would force major automobile manufacturers to subsidize electric and alternative-car sales in the state. Mainstream environmentalists want car makers to meet fixed, inflexible sales goals. Pro-growth Democrats, who think electric vehicles are an impracticable affectation, would allow auto makers to satisfy the new statewide obligations in part by investing directly in underprivileged communities.

The sharpest disagreements may center on education. Inner-city communities with burgeoning, younger populations desperately need new schools to ease overcrowding and replace decrepit facilities. Environmental bureaucracies closely aligned with no-growth interests, however, have been unable to resolve such issues as defining safe cleanup standards for previously used inner-city properties. To the dismay of pro-growth Democrats, urban school construction has been curtailed by this debate. Even highly motivated officials like the new Los Angeles Unified School District leaders have been unable to site a single new facility in the urban regions they serve.

None of this seemed to matter while the California economy was on autopilot. Statewide Democrats had little appetite for overt business-incentive programs like tax or regulatory cutbacks. Their pro-growth faction, however, managed to restrain truly draconian anti-economic environmental, zoning and similar initiatives.

California may not be able to afford such diffidence in the future. More than 20% of the state's budget depends on revenue generated by stock options and capital gains that have been severely devalued by the stock market bust. Regulatory activism is reaching new heights with little prospect of relief at the state level, where such prerogatives are religiously protected by no-growth elites. Federal anti-growth activism affecting California's air, water and land use is also unlikely to subside because Washington's new leaders have little reason to help the region. Coupled with overseas and domestic market weakness, it seems likely that the state's supercharged economy will slow.

If so, California Democrats will have to decide whether they truly want a robust economy or whether they will chart a new course. There are three basic options for resolving this choice.

One is to foster a New York-style slow- growth economy that promotes only high- and low-end employment at the expense of blue-collar and middle-class industries. Although this approach appeals to many no-growth proponents, it is only possible if the population is stable or declining. California is far younger and growing much more rapidly than the Northeast. Even if the state immediately stopped gaining new residents, its existing needs require a more dynamic, full-spectrum economy.

Alternatively, recognizing its unavoidable demographic realities, California might model itself after aggressively pro- development states in the South or Intermountain West, which offer major tax and regulatory incentive packages to stimulate business investment. Parts of California, like booming Riverside and San Bernardino counties or many Central Valley communities, show some affinity for these strategies. It seems farfetched, however, to think that influential no-growth advocates would ever allow California to significantly move in this direction.

That leaves the need to craft a political compromise to facilitate broad-based economic development while addressing legitimate concerns about development's adverse effects. Unfortunately, no such consensus exists, but its outlines can be anticipated.

Any effective governing consensus must recognize that urban areas are where economic activity should occur. Current policies that constrain urban development and push industry and housing into the less regulated, but resource-rich periphery must be reversed. Conservation programs should be focused on preserving the state's remaining open space, not used to thwart business, school and other crucial urban redevelopment efforts.

This approach, for instance, is almost precisely what Oakland Mayor Jerry Brown, the son of California's greatest pro-growth Democrat, has begun to advocate. Believing that open space should be protected and preserved as much as possible, Brown backed a Bay Area anti- sprawl initiative in the last election. At the same time, he has sought to limit the abuse of environmental and other regulatory regimes by urban no-growthers so that inner cities can generate what he calls "elegant density"--an attractive, fully functional urban economy and society.

Whether this intriguing vision offers a blueprint for assuring the state's continued vitality is anyone's guess. Having inherited one of world's greatest economies, California's ruling Democrats must now decide if they want to, or can, sustain it.