Los Angeles Joins National Slump
International trade has grown rapidly, but so have housing prices, regulations on business
LOS ANGELES — TRAFFIC congestion. Smog. Illegal immigration. Housing costs. Education woes. The dreary litany of urban problems that has become synonymous with Los Angeles is also the list of key hurdles to the city's economic future. The problems are being heard on the lips of corporate chiefs like James Morgan of Applied Materials, which makes silicon wafers for microchips. He recently chose Texas over possible sites in southern California for a $100 million facility for 2,000 workers.
And they are on the lips of auto-parts distributors, soy-sauce makers, and furniture builders who say the city's march to global prominence is beginning to hurt the working people who helped get it there.
``L.A. has reached a new phase in its history, ... that of a world city,'' says Joel Kotkin, author and a senior fellow at the Center for the New West. ``The emerging pattern is those industries which don't need to be in a world city will move out, while those that do will move in.''
Three-and-a-half million people came here in the 1980s, the largest tide of humanity since Europeans flooded New York at the turn of the century. A population above that of 42 states produced an economic output that would make the 4,100-square-mile metropolitan area the world's eighth most productive nation.
Obliterating its image as merely an entertainment capital (Hollywood accounts for only 2 percent of the region's jobs) and aerospace center (another 7 percent), southern California has become one of the strongest and most diverse economies in the world. Pacific Rim trade has made the Los Angeles/Long Beach port the most important center of international trade in the US, outpacing the Port of New York in annual tonnage.
``Los Angeles has become the global intersect of the North American economy with Asia and Latin America,'' says Phillip Vincent, an economist for First Interstate Bancorp. ``It has become a must for any global corporation that wants to do anything in North America.''
With world-class status comes world-class problems and the often-stifling regulations to control them. Regulations on travel, parking, building, and manufacturing are beginning to straitjacket the citadel of sun and freedom.
The world's most ambitious attempt to combat air pollution - a minutely detailed, 20-year strategy - has the business community gasping for air. The three-foot-high document drawn up by the South Coast Air Quality Management District (SCAQMD) governs everything from the consistency of glues and paints for jets to the use of barbecues at theme parks. Estimated cost of compliance for the area's 67,000 small businesses: $3 billion to $6 billion, the state commerce department says.
Many have moved to Mexico, others to surrounding states. Local news reports are peppered with stories of businessmen who have replaced the question, ``Why leave?'' with ``Why stay?'' David Hensley, an economic forecaster at the University of California at Los Angeles, says that, by the year 2000, the departure of companies could be a flood.
The tide of immigrants ready to take their place - many of them poor, many illegal - is contributing to a dumbbell-shaped economy, with the affluent rich at one end, and a swelling underclass at the other. Many wonder whether Los Angeles will continue growing as a vibrant, stable economy or become a third-world metropolis like Mexico City.
Without the core downtown that typifies most cities, Los Angeles is a landscape of several mini-downtowns: Universal City, Century City, mid-Wilshire, Westwood, Brentwood, Beverly Hills.
It is also a city of separate micro-economies - Korean, Chinese, Hispanic, black, Indian, Armenian - that do not relate to a single, dominant establishment the way most cities do. In the coming decade, Los Angeles ``will continue to develop along these separate micro-economies, and will favor the small businessman over large corporations,'' says Hiroshi Yahagi, bureau chief for Nihon Keizai Shimbun, the Japan Economic Journal.
The L.A. County economy has seen a decade of strong growth, distributed among such sectors as manufacturing, construction, and services - from personal and business to financial, transportation, and government. That diversity buffers Los Angeles but also chains it to national expansions and contractions. Though not to the extent of the Northeast, an economic slump has exacerbated recent downswings in aerospace, construction, and real estate industries.
Loss of defense contracts will cost Los Angeles 18,000 jobs this year, 15,000 next, and will continue downward for at least five years, according the Los Angeles Area Chamber of Commerce. Residential and nonresidential construction will be down for at least two years, though there will be a 25 percent increase in prime office space downtown by 1992.
The economic slowdown has taken its toll on the five-county basin's 160 separate city governments - most notably, the $3.6 billion L.A. city budget. To avoid a $120 million shortfall, the city hiked business taxes 10 percent, levied a first-ever 10 percent parking tax, and doubled fees for sanitation trucks. Nine months after predicting 1989-90 a ``very good year,'' Mayor Tom Bradley asked every department to walk a ``financial tightrope.''
Los Angeles County home owners enjoyed a boom in housing prices during the late 1980s, accruing an estimated $150 billion in wealth since 1986. But since mid-1989, median prices of single-family homes have dropped 5 percent. Even with the decline, the median price ($200,445) is more than twice the national median. Homes costing two to three times the national average ``drive out the young that are the future of the economy,'' UCLA's Hensley says.
Mobility is the quality-of-life issue most raised by prospective Los Angeles businesses. In a recent Los Angeles Times poll, more than 70 percent of respondents mentioned some problem getting around.
A rail network which will crisscross the region in the next 10 years is expected to vastly improve commuting conditions.
The population that uses those trains will differ widely even from today's diverse population of over 170 ethnic groups. Whites in general will soon be displaced as the city's majority, dropping to 41 percent of the population by 2010 from 61 percent in 1980. The proportion of Hispanics will jump to 40 percent from 24 percent, and black and Asian populations will grow.
``How the Los Angeles business community deals with the area's growing ethnic diversity will determine our economic health for years to come,'' says Sergio Munoz, editor of La Opinion, a Spanish-language daily.
By 2010, the student population in Los Angeles-area schools will swell to 3.2 million students, up a third from 1980. The proportion of white children will tumble to 29 percent from 50 percent, and the number of Hispanics will rise by a third. Meanwhile, public aid to education has fallen behind the rate of inflation.