Jobs: Creating Them / Keeping Them

The future health of Southern California’s diverse society is imperiled by the continuing--and rising--loss of better-paying industrial jobs. Should this trend, most recently magnified by massive cutbacks in defense spending, persist, an economic ladder for the region’s growing, largely immigrant working-class population will be removed.

The threatened industries include many in the metal-bending and electronic-component fields, which rely heavily on local military and aerospace contracts. The proposed Pentagon strategy of funding research and development costs, but not production, for new weapons systems puts these companies at even greater risk. In addition, these businesses frequently use manufacturing processes that run afoul of the police from the Air Quality Management District and other environmental agencies.

As a result, the middle-rung industrial company is an increasingly endangered species, accounting for many, if not most, of the roughly 100,000 manufacturing jobs lost to the regional economy during the last two years.

To some free-market economists, as well as to their frequent nemesis, the environmental lobby, these job losses are a natural, even positive, phenomena--Southern California evolving toward a smokeless, “post-industrial” future. Yet the social and economic costs associated with a steady erosion of the core industrial base in Southern California can only be ignored at the expense of the region’s economic prospects--and social order.

Perhaps the critical element in all this is that mid-range industrial companies provide the best economic opportunities for newcomers, mainly Latino and Asian, to the region. In comparison with garment jobs, which, in 1990, averaged a weekly wage of $250 to $300, employment in fields such as metal bending or high-technology electronic components can average $500 to $700 weekly.

Alarmingly, most recent data suggest that it is this higher-paying sector of industrial jobs that is eroding most rapidly. In the Los Angeles area, for example, the percentage of manufacturing jobs classified as low wage grew from 6%, in 1969, to more than 20%, in 1987.

The declining availability of good-paying jobs has prompted some in the media and in academia to rally around the defense giants or relics like the former General Motors plants in Van Nuys. Yet, these industrial dinosaurs are not the future of Los Angeles’ vital core manufacturing.

Indeed, the region’s manufacturing economy already depends largely on smaller firms. By the late 1980s, the Los Angeles area was home to more fast-growing manufacturing companies than Chicago, Pittsburgh and Detroit combined . According to one survey, nearly 2,500 of the country’s fastest-growing industrial concerns do business here. The current decline in defense procurement has strengthened the region’s dependence on such firms.

These smaller firms, not the slow-moving, bureaucracy-encrusted defense giants, hold the key to maintaining Los Angeles’ mid-range industrial base.

This is nothing unusual for Southern California. During similarly wrenching transitions after World War II, the Korean and Vietnam wars, it was new, smaller firms, often started by unemployed engineers formerly employed by large defense companies, who helped the region overcome what was then an even greater dependence on Pentagon and aerospace activities. By contrast, attempts to diversify into commercial fields, notably by defense giants such as Lockheed, proved miserable failures.

Today, once again, such huge military contractors as General Dynamics and Northrop concentrate their prime energies on carving up the shrinking defense pie, while mid-sized, formerly defense-oriented companies, such as Kavlico, a maker of electronic components in Moorpark, have already made the transition to a more commercially oriented climate. So, too, have many smaller subcontractors, sometimes with as few as one to 10 employees, who market their services through such organizations as the 70-member American Manufacturers Network, or Amanet.

These firms, says Amanet President Robert Barbour, are well along in their diversification quest, producing auto parts, boating supplies, commercial-aircraft parts, biomedical devices and consumer electronics products. Their skills and willingness to take on the niche markets, which increasingly characterize today’s manufacturing environment, suggest how the more vital, high-value-added portions of industrial Southern California can survive into the next century.

To some extent, the current restructuring of Southern California’s industrial economy could improve prospects for the smaller firms. Rising industrial vacancy rates, although well below those for offices and shopping malls, have reduced industrial rents, particularly in the formerly aerospace-oriented South Bay. Meanwhile, the recent aerospace and defense cutbacks have made available a new pool of skilled workers--the most critical element in the new manufacturing era--to newly emerging companies.

These smaller firms also benefit from the region’s demographic shifts. Immigrants already constitute not only the vast majority of workers in the local machine shops, tool-and-die makers and other key sectors, but, increasingly, most of the owners.

“Eighty to 90% of the machinists and sheet-metal shop people in this town are immigrants--Hungarians, Romanians, Russians and a great number of Latinos,” says Barbour. “The labor force helping to keep manufacturing above ground, and two-thirds of the owners, are from the new groups who see this as their opportunity.”

There are five ways to nurture this embryonic industrial base.

Global regionalism , not protectionism . Long term, the “Buy American” campaigns and protectionism will weaken Southern California’s competitiveness and squander the potential benefits of technology transfers and continued investment from abroad. The focus should be on attracting partners capable of transferring skills and capabilities to local workers and industrial companies. Similar approaches have worked in numerous other countries, most notably Singapore, which insist on a higher value-added component in their inbound overseas investment.

Economic, not political, correctness . Well-meaning attempts to guarantee “results” for minorities through set-asides or workers’ wages through compulsory unionization could steer scarce resources away from the most dynamic and innovative smaller industrial shops. In Atlanta, where PC policies have become entrenched, economic growth has fled almost totally to the suburbs, leaving the city with among the poorest populations in the nation.

Redirected regulatory effects: Southern California must not deviate from its strict environmental policies, but should weigh more closely the economic costs of implementing its regulations. Priority should be given to finding ways to help smaller industrial firms, now the prime targets of the regulatory police, comply with environmental standards. For many companies, the slow pace of permitting approval and the staggering array of regulatory agencies, not the environmental standards themselves, present the greatest burden.

Develop a positive government role . Stimulating the production of affordable housing for workers and middle managers, improving education, and building highways and transit are the main elements of any pro-industrial government policy. Local agencies should develop an industrial equivalent of the decades-old Agricultural Extension Service, which could provide, at relatively low cost, critical research, training and technical assistance, particularly to smaller, less sophisticated firms.

Expand the use of local industrial networks . Rather than look for economic leadership in the old-line industrial powers, such as the large aerospace firms, cultivate such small-firm networks as the Southern California Technology Executive’s Network and Amanet, which help share information and market intelligence among entrepreneurs. These groups should be mobilized to begin influencing public policy toward a more pro-active industrial strategy.

Southern California’s assets--its strategic location on the Pacific Rim and its concentration of creative personnel--help to ensure that tourism, entertainment, international trade, software and warehousing will strongly rebound once the economy picks up. Even some manufacturing-related sectors--the research-intensive end of high technology--and low-wage industries--garment--can be expected to flourish, due largely to the presense of technical and entrepreneurial talent and immigrant labor.

Yet the region’s industrial heart of middle-sector industrial firms will continue to grow weaker without a determined commitment from business and government. Short of that, the economically vibrant barrios could become like many minority communities in New York City, where drug dealing is often the only viable economic activity.

HOW TO CREATE MORE JOBS: From artist to bank president, from entrepreneur to government official--all have suggestions on what should be done. Page 2

PERSONAL PERSPECTIVE: Akio Morita on why Japan must become less competitive. Page 3.