A SPECIAL REPORT ON THE SOUTHERN CALIFORNIA ECONOMY : THE SOUTHLAND’S INDUSTRIES : The High-Tech Sector Shifts to a Lower Gear
After driving the region’s economy to unprecedented heights for more than a decade, Southern California’s powerful high-technology engine is about to slow to a more modest pace for most of the next decade.
Although the region’s high-tech sector--currently the largest manufacturing portion of the Southern California economy--will hardly come to a crawl, economists unanimously predict that a slowdown in defense spending will mean the end of the dizzying growth rates that high-tech companies became accustomed to over the last 10 years.
No one is predicting massive layoffs or plant closures, but any slower pace is bound to mean fewer new jobs and factories and slower replacement hiring.
“We’ve just about peaked out in defense. There will be no new jobs,” says Phillip E. Vincent, senior economist at First Interstate Bank in Los Angeles. “President Reagan’s defense buildup (which gave area high-tech firms a steady stream of business) has ended and there are no new big defense programs planned.”
‘Competitive Advantage’
To be sure, technology companies are expected to remain among the region’s handful of “competitive advantage” businesses--those in which Southern California is considered superior to other areas--but the growth may not be as eye-popping as it has been. In fact, the expected moderation of high-tech growth here may not be too painful because Southern California’s high-tech industry has always been more diversified than many others and hence has more non-defense business to fall back on.
“There is no question that California is still the nation’s high-tech leader and will remain so,” says Larry J. Kimbell, director of the UCLA Business Forecast.
Economists note that high-tech growth in the first half of the 1980s--thanks largely to Reagan’s defense priorities and the incredible boom in personal computers--came at such a rapid clip that it was bound to moderate under any circumstances.
According to a recent study by Grubb & Ellis, the real estate brokerage firm, four of the 15 fastest-growing centers of high-tech employment in the nation from 1980 to 1986 were in Southern California.
Los Angeles County added the third-highest number of high-tech jobs, Orange County was sixth, San Diego was 11th and Ventura County was 15th. All together, the study says 60,100 new high-technology jobs were added in the four counties from 1980-86, bringing the combined total high-tech employment to 505,000.
Given such a large and diverse industrial base, economists say a growth slowdown in a single sector--even one as important as high technology--is not likely to inflict substantial pain.
Furthermore, they cautiously predict that other sectors of high-tech manufacturing and development--particularly medical electronics, civilian aircraft, software and, perhaps, computers--still have strong growth prospects on the horizon.
Clearly, the experts’ fears for the next decade center on the defense industry.
After six years of consistent increases in defense spending, averaging about 6% annually, employment at the region’s large aerospace firms, including McDonnell Douglas, Lockheed, Rockwell, TRW, Hughes, General Dynamics and Ford, has ballooned. In Los Angeles and Orange counties alone, the state Employment Development Department reports, aerospace employment totals 236,000.
But economists predict that congressional budget-cutting and uncertainty over the future of the Strategic Defense Initiative, or “Star Wars,” will bring the rate of growth in the region’s aerospace industry to just 1% to 2% annually.
Some of that void in the high-tech sector, economists say, might be filled by strong demand for civilian aircraft, a rebounding computer market, continuing call for computer software services and increasing sales of medical electronics.
Of those products, sales of computer and computer parts remain the most problematical.
After several years of unparalleled growth in the early 1980s, the computer industry fell dramatically in 1984, and still has not regained its earlier momentum. And several economists predict that the computer market will not rebound to previous growth levels, but instead will grow more slowly and steadily
Still, Stephen Levy, director and senior economist at the Center for the Continuing Study of the California Economy in Palo Alto, says job growth in the computer and semiconductor field will not keep pace with sales increases. Levy argues that productivity increases, including automation and increased manufacturing abroad, will slow the need for additional workers in computer and chip-making plants.
Productivity Advances
However, Levy sees great opportunity in the fields of computer distribution, software development and computer repair because these areas rely heavily on labor and because they grow in proportion to, or even faster than, sales of hardware.
Software, in particular, is expected to be a source of strong growth in Southern California because of the large number of small publishers and installers serving the vast number of companies relying on computers to operate their businesses.
According to the state Employment Development Department, software-related jobs are expected to total well over 100,000 by 1990 in the five-county region that includes Los Angeles, Orange, Riverside, San Bernardino and San Diego.
Another source of fast growth is in the field of medical electronics, a market that is particularly strong in Orange and San Diego counties. However, economists caution that, because the market is still so small for medical instruments, even a big growth spurt is not likely to have much of an impact on the entire economy, and certainly can’t begin to make up for the downturn in the aerospace economy.
And still another source of potential strong growth is in civilian aircraft. According to a recent UCLA Business Forecast study, civilian air traffic is currently at peak levels and demand for new aircraft is expected to rise, spurring employment increases.
Aircraft Demand
Orders at McDonnell Douglas have been mounting, especially for its new generation jetliner, the MD-11 tri-jets.
Overall, the prediction is for moderate growth. “Some parts are going to go up. Some parts are going to go down,” Vincent says. “But on balance the growth won’t be the same in Southern California as it was in the early 1980s.”
PROJECTED GROWTH IN HIGH TECH JOBS
County 1980 1990 % Increase Los Angeles 443,555 482,285 8.7% Orange 143,000 175,600 22.8% San Diego 67,600 99,300 46.9% Riverside/San Bernardino 14,093 20,207 43.4% Southern California 668,248 777,392 16.3%
Source: California Employment Development Department
