CALIFORNIA PORTFOLIO : Business Winners That Get Ignored Amid the Whiners

California’s yearlong obsession with economic whiners and losers has culminated in the bizarre selection of Wilford D. Godbold Jr. as chairman of the state Chamber of Com merce. Godbold’s chief claim to fame is having moved the bulk of his business to Utah, while selling off much of its technology to the Japanese.

But there is a less bizarre side to the state’s economic story. There is a remarkable crop of new and expanding California companies that are staking out leadership positions in virtually every major growth industry of the post-Cold War era. What makes these firms successful should be a basis for a new economic strategy.

California’s entrepreneurial excellence is underscored by its domination of almost every list of fast-growing companies. During the past two years, for example, the number of California companies on the Inc. 500 list was 30% greater than all the other Western states combined.

Similarly, more than one in four, or 58, companies on the 1991-92 Fortune surveys of the 100 top mid-sized public companies in America were Californian. The highly hyped industrial “Valhallas” of Utah, Nevada and Arizona combined for fewer than three. The only surveys in which California performs poorly are those ranking slow-growth, declining companies, such as the Fortune 500.

California’s small and mid-sized winners are creating employment at double- and sometimes triple-digit rates, though not enough to offset the thousands of jobs being shed by larger companies. This is one reason why, despite talk about a manufacturing exodus from the state, California’s commercial, non-defense high-tech firms have better survived the recession than their rivals elsewhere, losing 5.5% of their work force compared with nearly 9% nationwide.

Technology companies remain key to California’s domination. They accounted for more than half of Business Week’s annual “high-tech hotshots.” No other region came close. On the Inc. list, the state’s computer-related firms, which made up one-third of the list, covered everything from hardware, software to system integrators. In biotechnology, California placed not only four of the five largest companies, but three of the nation’s six largest concentrations of companies in the field. The state, according to industry experts, is also home to the nation’s largest concentration of companies in biomedical instrumentation, another growth industry.

Meanwhile, California companies have emerged as leaders in less obvious growth industries. The state’s tough environmental laws, for example, a source of complaints from business lobbyists, have accelerated the development of companies specializing in cleaning up waste. Five of the 10 largest environmental engineering contractors in the country are located in California. Also, the state’s burgeoning ranks of “eco-entrepreneurs,” according to a study by the San Diego-based Environmental Business Journal, are expected to generate another 64,000 new jobs statewide by 1996.

California’s winners also include specialty-food producers, telecommunications experts and, perhaps surprisingly, such industries as textiles and injection molding, once thought permanently lost to cheaper labor in Mexico or Southeast Asia. Today, highly adaptable bulk-textile producers have built a billion-dollar industry in the region. Plastics producers, from Orange County to Montebello, are successfully competing with Asians in everything from state-of-the-art products to simple plastic furniture and toys.

Critical to the success of most of these industries is their membership in design, manufacturing and marketing networks, some tied directly to local immigrant communities. John Tu, president of Fountain Valley-based Kingston Technologies, the No. 1 firm on 1992’s Inc. 500 survey, cites regional supply networks and the availability of skilled labor, drawn heavily from the local Chinese and Vietnamese communities, as critical factors favoring continuing growth in California. Other California companies, like AST Research, are building factories to move their production back from Asia.

With low-wage pressure building to our south and increased high-technology competition from Asia, such network-based economies can provide an invaluable edge in sustaining the state’s diversified industrial base. Having done well with, at best, the benign neglect of local government, these companies might prosper if incentives to bolster networks and agglomerations of skill were adopted. Other policies that would encourage and reward network-building include a sales-tax exemption for manufacturing equipment installed in California and elimination of captial-gains taxes for long-term investments in small and new companies. The result could be thousands of new jobs and opportunities for Californians.

Of course, California needs to address more persistent problems like worker’s compensation and bureaucratic overregulation, which also impede growth companies. This is critical not only for the inner city but for such outlying areas as the Inland Empire, where modest job growth cannot absorb the rapid increases in the labor force.

With such enormous challenges in job and wealth creation ahead, pursuing an economic strategy centered on whiners and losers seems misplaced, if not absurd. Rather, our limited resources should go to strengthen California’s creators of new employment opportunities, so that they can get on with doing the most important job of all.