Losing Ground : As California Heals, Defense-Reliant San Diego Is Still in Acute Pain
When Iraq invaded Kuwait in 1990 and the Pentagon shipped 60,000 uniformed personnel from here to the Middle East, most people assumed the sharp economic jolt this caused--lowered retail and home sales, for example--would end when the troops returned.
But that short-lived episode turned out to be a teaser for more fundamental woes to come. Even in the context of California’s dismal 1990s economy, San Diego--unduly dependent on the shrinking military-industrial complex--has been a special case.
Though the region has tried to diversify its economy, exploit its economic ties to burgeoning Tijuana and retrain its work force, San Diego is still losing ground as the state overall has begun to show signs of recovery.
“San Diego is the exception to the rule, one of just a couple of metropolitan areas in California--the other being San Jose--still losing jobs,” Salomon Bros. economist David Hensley said. “It’s a painful period for the region to go through.”
By the time San Diego County-based sailors and Marines returned from Operation Desert Storm in 1991, the full force of defense budget cutbacks was under way. It was the beginning of a torturous belt-tightening in a regional economy that had been 20% reliant on defense and aerospace. More than three years later, the hemorrhaging seems open-ended.
The final, painful withdrawal of General Dynamics--employer of 17,000 in San Diego as recently as the late 1980s--will drag out through 1995 when its last 1,900 local jobs will vanish as a result of July’s announcement that it is transferring its Convair division. It will mark the end of General Dynamics’ 59-year history in San Diego.
Already, the departure of General Dynamics and steep cutbacks by Teledyne Ryan, Loral, Rohr and other defense and aerospace companies have caused a net loss of 41,000 jobs in four years, a 4% decline in San Diego’s job base. A quarter of those jobs have been lost this year, even as the rest of the state is on track for a 1% gain in overall jobs.
Yet defense isn’t the only ongoing problem.
Two big financial institutions--San Diego Trust & Savings, the city’s largest remaining locally based financial institution, and American Residential Mortgage--have merged with larger companies this year at a cost of 1,000 jobs to date and hundreds more to come.
This jolt came on top of the failures of San Diego’s three big savings and loans--HomeFed Bank, Great American Bank and Imperial Savings--at a cost of 4,000 jobs since 1989.
San Diego is pinning its economic hopes on what Mayor Susan Golding calls “the four Ts”--trade, tourism, telecommunications and technology. But that has a familiar ring.
During the region’s salad days in the late 1980s, many business leaders in San Diego seemed to take comfort in the notion that the local economy was diverse enough in tourism, technology and biomedicine to withstand problems in the defense sector. But the slow pace of the recovery here has exposed that as a myth.
Tourism? “We’ve been floundering for the last four years. The major indicators--visitor spending, hotel occupancy and overnight visitors--have been about flat,” said Lynn Mohrfeld, research manager at the San Diego Convention and Visitors Bureau. Like the rest of Southern California, San Diego’s tourism has suffered from the regional recession and a sharp decline in Japanese visitors.
Biotechnology, the epitome of a “clean” industry with its synergistic links to San Diego’s thriving academic and research communities, was seen as an economic savior. But with only 8,700 employees and 128 companies, the industry is still too small to be of much more than symbolic importance in California’s second-largest city.
And this year has seen a halt to the breakneck growth of the recent past as uncertainty over health care reform cast a pall over biotechnology nationwide. According to a new Ernst & Young survey of the industry, biotechnology jobs in San Diego grew only 6% this year, compared with growth of 20% and more in previous years.
About the only trend heading in the right direction for San Diego is the boom in trade with Mexico, and city leaders are trying to make the most of it. Indeed, the San Diego Economic Development Corp., the quasi-public agency charged with bringing companies and jobs to the region, is marketing Tijuana nearly as hard as San Diego.
The agency’s efforts succeeded last April in helping persuade Samsung, the Korean consumer electronics giant, to build a huge industrial complex in east Tijuana. Sanyo of Japan is also expanding on both sides of the U.S.-Mexico border. Sanyo’s new personal computer manufacturing facility here will mean 200 more jobs, said Economic Development Corp. Vice President Neil Whiteley-Ross.
Matsushita, another Japanese giant, has decided to relocate the Western headquarters for its consumer electronics operations to San Diego from Franklin Park, Ill., a move that could mean more than 100 executive-level jobs for San Diego.
There are other positive signs, but some suggest more about how bad things were than how good they’re getting. For example, new housing starts in San Diego County are running 23% ahead of 1993--but that was the worst year since 1947. Median prices of existing houses have been flat for four years.
Meanwhile, though San Diego learned recently it will be home port to three more aircraft carriers under an expected “megaport” designation by the U.S. Navy, future withdrawals--such as the 1996 closure of the Navy’s recruit training center at a cost to the economy of $100 million--will leave San Diego with fewer uniformed personnel in the long term.
Economists say that while the community’s efforts to spur growth can be helpful, they will ultimately be dwarfed by market forces.
“There is not much that the state or municipal governments can do to promote economic growth. They certainly weren’t responsible for the good things that happened here in the 1980s,” said UC San Diego economist Ross Starr. “The business-friendly steps that states can take are excellent policies but they have an impact not over the course of months and quarters but years and decades.”
The region’s other major emphasis has been to attempt to retrain its work force. This year alone, some $40 million in federal job-training funds is pouring into the area. But there is a false promise in such programs when no jobs await their graduates.
“We don’t have the manufacturing facilities that benefit from a big improvement in the state and national economies. If we did, our plants would be supplying stuff to companies all across the nation and California,” said University of San Diego economist Alan Gin.
And those who do find work are often taking big cuts in pay, a sobering reminder of just how good the defense and aerospace jobs were.
“The defense sector was just a lovely gold mine and it’s gone, like a mining deposit that’s played out,” Starr said.
The defense workers who retrain and re-enter the San Diego work force typically do so at a 20% drop in pay, according to officials at the San Diego Career Center, the city’s main retraining site.
As jobs and salaries decline, San Diego County’s population continues to grow, due to rising birth rate and immigration. The result: a less affluent population. Signs of that reduced affluence abound.
For example, retail sales per capita are off 20% in inflation-adjusted dollars since 1987, according to the Greater San Diego Chamber of Commerce, an indication of San Diegans’ sharply reduced spending power.
The region is even losing ground in the number of television sets. In an insult both symbolic and financially hurtful, Nielsen Media Research last month downgraded the San Diego media market from 24th-largest in the nation to 27th based on the number of households with televisions--dropping San Diego out of the top 25 markets targeted by most national advertisers.
Among those unlikely to be buying a new television set soon are Ruben and Carol Cantu, both of whom lost their longtime jobs.
“The economy is getting away from aerospace, but there is no equivalent to aerospace-type work, so that leaves me out in the cold,” said Cantu, 51, a government contracts administrator who was laid off in July after eight years with Sundstrand Power Systems.
Cantu is still looking for work as he takes computer classes at a job retraining center. But he has always specialized in defense contracts administration, a shrinking industry with limited job horizons.
His wife, Carol, was also laid off in July after 15 years as a secretary at General Dynamics. She at least found a new job at a local school district--but at a 40% drop in pay.
San Diego’s Decline
Job losses in the face of a rising population have made San Diego County less affluent, leading to steep declines in per-capita spending and construction of new homes.
