CALIFORNIA COMMENTARY : Low, Cheap Road Awaits the Passive : The region’s economy is unwinding. If we grab at quick fixes, we may degrade the character of our work and living.

From the late 1940s to the mid-1980s, Southern California’s economy performed with persistent and extraordinary vigor. Despite occasional cyclical downswings, the economy grew steadily in terms of jobs, new business opportunities, commercial and technological innovation and total output. True, this growth was not an unmixed blessing, and it created many problems from soaring house prices to air pollution to sweatshop factories. It was growth nonetheless, and to the region as a whole it brought enormous prosperity.

Over the last few years, this prosperity has been endangered by the relentless job loss that has occurred in many sectors of the economy. To be sure, the loss is in part a result of the current recession, and a period of shallow recovery is foreseeable. But there is also evidence that the region’s economy is in the midst of a long-term industrial restructuring. In the absence of any effective public response, it may continue to unwind over the rest of the 1990s.

In the postwar decades, much of Southern California’s growth was fueled by generous Defense Department spending on local aerospace-electronics products. Since the mid-1980s, this spending has been sharply curtailed. Equally troubling has been the decline in California’s share of the Defense Department’s prime contract awards, from about 20% of the national total in 1985 to 15% today. Employment in the aerospace-electronics industries of Los Angeles County was 295,600 in 1987. By November, 1991, employment in these industries stood at 226,900, a decline of about 23%. More than half of this drop occurred in 1991 alone. For every job lost in this way, another two to three are lost in the local economy as a result of wages unspent and subcontract orders forgone.

Southern California also enjoyed until recently a virtually unchallenged mastery in its main high-technology products. No other region in the world could match its capabilities in the production of military aircraft, missiles, space equipment and advanced electronics systems. Now, however, governments in Europe and Japan have singled out just such industries for strategic support. Levels of global competitions are rapidly intensifying.

Meanwhile, over the last couple of decades, a vast, Dickensian, low-wage, low-skill sweatshop system has emerged as a major element of the region’s manufacturing base. The system is particularly widespread in small-firm sectors like clothing, furniture, plastics, metal-working and electronics assembly. In such sectors, price-gouging, wage-cutting and illegal employment practices are common. Partly as a reflection of this state of things, the average annual wage (in 1987 dollars) of manufacturing production workers in Los Angeles fell between 1972 and 1987 from $21,824 to $20,172. Competitive strategies in much of the Los Angeles economy today focus singlemindedly on cost-cutting and the use of cheap labor, while our most formidable competitors (especially Germany and Japan) have increasingly opted for a strategy of constant improvement in wages, skills and product quality.

An agenda for action should focus on:

--Development of new kinds of private-public institutions (like the technology centers sprouting throughout Western Europe) devoted to the production and commercialization of technological innovations.

--Strategic monitoring of infant industries that show particular promise (like electric vehicles or medical instruments in Southern California), or of sectors that seem to be failing in the competitive race (like furniture or aircraft).

--Encouragement of more creative collaboration between industrial firms in the interests of superior competitive performance on wider markets. Japan’s industries have been particularly active in developing this way of working.

--A new deal for labor, in particular strong wage guarantees and active upgrading of worker skills.

--More rational systems of regional government with the power to implement meaningful local development strategies.

There is great political temptation to yield to rising pressure for short-term and opportunistic solutions to the region’s economic woes. We hear the cry that our environmental legislation has become too burdensome, that labor is too expensive, that workers’ compensation and other benefits have become a shackle on growth. But to abandon our hard-won gains in these areas and move back toward raw laissez-faire markets is a recipe for eventual catastrophe.

Southern California’s economic future is not going to be ensured by a recrudescence of 19th-Century century standards of urban life.

The most successful capitalist economies of the late 20th Century are those that have learned how to supplement market forces with institutional structures that secure high wages and skill levels, rising productivity and superior product quality.

For much of the local economy, then, the outlook is bleak, or it is if we choose to remain passive. We can no longer afford to neglect the example of our competitors, who have relentlessly and successfully used public policy to push industrial development and to compete in international markets. The example suggests that we stand desperately in want of concerted political efforts--local, state, and federal--to revitalize our manufacturing economy.

We need a road map to show us how to get from here to there. The time is overdue for a public debate, not on whether we shall have an industrial policy but on the particular shape and form that it must take.