Economy Showing Some Signs of Life--Despite the Political ‘Leaders’ : CALIFORNIA PORTFOLIO

The two-day California economic summit unfolded in a time-warp. It was at least two years too late to deal seriously with the deepest problems brought on by the reces sion. Unable to draw up a specific blueprint to guide even the most urgently needed reforms--streamlining regulations and overhauling workers’ compensation--the summiteers barely touched on the issue of how to handle the state’s long-term economic future.

Yet, while many Establishment politicians engaged in an economic death dance, signs of a recovery in California may be slowly surfacing, all but unrecognized by the political elites and many in the media.

* The investment surge in California stocks. As the summit participants wailed their tales of woe, investors in New York and elsewhere have begun to buy California stocks. Sensing that the state’s assets have been devalued enough, and that many of its leading companies have successfully restructured, big-time investors are buying into Bank of America, Wells Fargo and home builder Kaufman & Broad.

* Drought recovery . Replenished water supplies are a critical element to the state’s recovery, particularly to the all-important agribusiness sector. Already, there are indications that the state’s ailing $18-billion landscaping and nursery industry--the nation’s largest--is poised to recapture lost sales and tens of thousands of jobs. A return to assured water supplies also removes one element of uncertainty for those considering industrial or real-estate investments in the state.

* Regional recovery . Contrary to the claim that regulatory and insurance issues are stifling growth everywhere, some parts of the state, notably Northern California, are tracking the national recovery. Some key state industries--textiles, semiconductors and entertainment--have started to expand again. Indeed, California’s share of the nation’s non-defense high-tech, as well as garment, employment has grown during the recession.

* Clintonomics . After four years of George Bush’s “anywhere but California” approach to government procurement and policy priorities, the state has a willing--even eager--ally in the White House. Clinton’s economic policies, with their emphasis on providing incentives for engineering, high-technology and small growth companies, including those in the inner city, play precisely to California’s intrinsic strengths. The state’s environmental-cleanup industry, now the nation’s largest, is expected to add tens of thousands of jobs annually, boosted in large part by new regulatory rigor from Washington.

* International trade . Although virtually ignored at the economic summit, international trade remains the fastest growth sector in the state, with exports expected to rise to $80 billion from $63 billion in 1990. Much of the trade is directed to burgeoning markets in non-Japanese East Asia and Latin America. In 1993, according to several studies on the California economy, Los Angeles will pass New York as the nation’s largest trading area.

* Arrival of bargain hunters. Although investors from Japan are clearly pulling back, investors from the Chinese diaspora, Latin America and Korea smell a bargain and are buying depreciated California assets. Some groups, backed by billions in Asian capital, are reportedly preparing to invest heavily in cash-starved electronics concerns throughout the state; opportunistic American investors, including some who cashed in on earlier downturns in Texas, also seem ready to make deals.

* Increased home sales . Recent rises in California home resales, boosted by lower prices and interest rates, foreshadow at least some relief for the state’s hard-hit construction and real-estate industries, which collectively account for the largest percentage of statewide job losses. Although high-priced properties still are not moving, sales of affordable housing continue to show growth, helping to close the once enormous price gap between California housing prices and those of other major urban areas. Demand seems certain to grow with the state’s population, which rose by 600,000 this year alone, according to estimates from First Interstate Bank.

* The national recover y. California’s producers should soon be getting a boost from an accelerating national recovery. After two years of spectacular job losses, the state economy may create upward of 340,000 new jobs over the next 18 months. With economic growth close to 4% nationally, as opposed to the 2% or 3% assumed by most pessimistic state forecasters, California’s high unemployment rate may soon begin to recede, with job growth exceeding the national average by next year.

With some notable exceptions, few of the political Establishment at the summit, or from the old-line business and labor leaders who dominated the proceedings, seemed to have even an inkling about any of these underlying trends. Hopefully, when the economy turns around, a new generation of political and business leaders will emerge to devise policies that can accelerate the renewal, rather than perpetuate the decline, of the California economy.