Recovery That May Create More Economic Refugees

With California in the early stages of economic recovery, the state’s key concern for the balance of the ‘90s may well be what to do about those left on the sidelines. Two emerging job realities help focus the issue.

In one, workers with certain technical skills or with marketing and entrepreneurial savvy in such sectors as medical equipment, entertainment, international trade and telecommunications are much in demand. In the other reality, workers with less marketable skills, including many who perform clerical, assembly, distribution and service duties, face declining employment prospects and falling pay relative to the college-educated. Southern California, as usual, sharply reflects both these national trends.

Greater Los Angeles, for example, is home to one of the highest concentrations of college graduates in the country. According to a recent Price Waterhouse study, Southern California--notably western Los Angeles County, Orange and San Diego counties--boasts percentages of college-educated people between 25% to 50% above the national average. Similar numbers apply to regions adjacent to San Francisco Bay.

Orange County epitomizes the rewards of education in a knowledge-driven economy. With a share of college-educated workers at almost 50% above the national average, and with the number of households earning $75,000 or more at greater than twice the national average, Orange County’s unemployment rate has dropped to that of the country. Boosted by new entrepreneurial activity, research-and-development space is becoming scarce; even office vacancy rates are falling.

By contrast, southeast Los Angeles County reflects the other job-future reality. With a population one-third immigrant and with the number of college graduates living there about 33% below the national average, the region’s fate in California’s emerging economy seems far less assured. This is already evident in the state’s incipient recovery.

Job losses in aerospace and construction have been large, but growth in the healthier sectors of the economy--medical equipment, textiles and international trade--has yet to expand rapidly enough to pick up the slack. Office absorption is virtually negligible; industrial vacancies remain in the high double digits.

Faced with declining economic prospects, older, less educated residents have been moving out of state since the mid-’80s, according to a Michigan study. But many in poorer parts of California--generally younger, often minority--cannot so easily cash out and leave. What were essentially healthy working-class communities could turn into versions of Brazil’s infamous favelas .

The long-term consequences of this kind of economic deterioration may prove catastrophic to the region’s social stability. History bears this out.

Starting in the early 1960s, large-scale manufacturing in automobile and other consumer durables began to leave South Los Angeles. California’s growing prosperity, pushed along by the Vietnam War, bypassed the region. In 1965, for example, amid a generally robust regional economy, unemployment in the Watts area reached nearly 35%. At the time of the riots, 35,000 jobless adults, and one in five families, were on welfare.

Unfortunately, the official response to the Watts riots, and similar disorders elsewhere, failed to address these fundamental economic problems. Instead of focusing on economic development, entrepreneurship and self-help, government efforts centered on social-service programs, which only helped to deepen patterns of dependency. Despite the expenditure of billions of dollars over 10 years, by the late 1970s, median family incomes in South-Central Los Angeles were growing at barely one-third the rate for the region as a whole.

Today, as the national economy and that of Southern California recovers, the critical challenge will be to ensure that the new growth does not circumvent these poor and working-class areas. This is not only important for South-Central Los Angeles. As the shift to a knowledge-intensive economy grows, the regions that may be economically marginalized include the fringes of suburbia, particularly industrially oriented areas like the East San Fernando Valley, central Orange County and the Inland Empire.

The possibility that California’s zones of economic despair may grow even as the pace of recovery quickens suggests the need for a new urban policy that transcends both the self-defeating welfare policies of the 1960s and the right’s fixation on building an ever expanded prison system.

This effort would require that attention be paid to basically non-economic issues--education and crime--that affect business. But central to it would be an economic strategy that encourages growth in those sectors of the economy--small-scale manufacturing and trade-related activity--that have the best chance of restarting the economic engine in more depressed areas.

Among governmental initiatives that could boost regions left on the sidelines during previous cycles of economic growth is the $1.8-billion Alameda Corridor Project. Expansion of the transportation network that links the Los Angeles-Long Beach Harbor with Downtown and, through rail and freeways, to the rest of North America, would greatly accelerate the movement of goods through the artery, along the way creating opportunities for scores of smaller industrial and service companies.

In many ways, southeastern Los Angeles is a natural economic play. The Alameda Corridor runs through it, and it is home to a largely immigrant population eager to rise up the economic ladder. Significantly, a developed corridor would serve companies with strong reasons to stay put, since they rely on local resources. Moreover, many are owned and operated by minority entrepreneurs who have with ties to the local communities.

Government certainly has a role to play in getting this economic engine on the move. For one, it can lighten the regulatory burden fast-growing small companies carry. But innovative private investment will be indispensable. The decision by Calpers, the state’s pension fund, to lend to small business is a prime example of a new source of capital.

Such a course offers the best hope to reconnect the economically disconnected regions of Southern California. In 1965, and again in 1992, we experienced the man-made shocks caused by past miscalculations. The emerging recovery offers the opportunity to make amends.