The State : The Growing Economy That Wilson Ignores at His Own Peril

Having won reelection on the mostly negative issues of crime and illegal immigration, Pete Wilson needs an uplifting message to govern. He should follow the lead of his political mentor, Richard M. Nixon, who reinivented himself and went to China, and create “a new Wilson” who appeals to hope as well as to fear.

To do this, Wilson will have to re-educate himself about California’s economy. In many ways, the governor is unaware of the economic activity going on in his back and front yards and that, in some respects, helped seal his victory. Long a protector of large-scale defense and manufacturing interests, he has all but ignored many of the industries--mostly service- and design-oriented--that are creating jobs today in California.

An analysis of the 150,000 net new jobs created since March, 1993, discloses few, if any, among Wilson’s historic economic allies. According to Center for the Continuing Study of the California Economy, most have sprung up in high-wage non-manufacturing sectors--such as software and motion-picture production, which each added 15,000 positions last year--or in engineering and management services--which added a combined 30,000 slots. The center estimates these companies are creating 10,000 new jobs in California every month.

Even in defense-dependent Southern California, such industries are beginning to surpass aerospace in total employment. Today, for example, the percentage of people employed in defense-related jobs in the Los Angeles Basin has fallen to 2.5%, from 5% about 10 years ago. Entertainment now employs more people in Southern California than aerospace.

In addition, California boasts the nation’s two largest concentrations of computer-oriented jobs. Statewide employment in biomedical manufacturing, now at 134,000, is larger than in New York and New Jersey combined, two states where such manufacturing also flourishes. In such low-tech industries as textiles--where an estimated 11,000 work--and cosmetics--another 7,700--Los Angeles County ranks first among all urban areas.

Meanwhile, the state is home to the largest port and to more than 60% of the nation’s fastest-growing exporters; it has more than doubled its share of America’s global trade during the past 20 years.

Contrary to common perceptions, salaries in these growing industries generally are far higher than those attached to lost aerospace jobs. The companies are also better suited for multicultural California.

One reason the state’s new economy has largely gone unnoticed is that it is difficult to measure. Many are “micro-businesses” employing one or two people who frequently work out of their homes. Indeed, five of the top 10 metropolitan subregions--locally, Century City/Beverly Hills, Calabasas and Santa Monica--in which people work at home and travel the information superhighway, instead of the freeway, are in the state.

California’s economic future will increasingly depend on such “micro,” small and mid-sized firms. Fortunately, even as the big companies in the state continued to restructure, many of these smaller firms were beginning to show signs of revival in 1994, according to a recent report, with their prospects for growth, profits and new employment considered superior to their counterparts nationwide.

Yet, these companies face different challenges and have different needs from the old industrial warhorses. For example, most rely heavily on an ability to attract and hold onto talented personnel who might be lured away to other states by “quality of life” considerations. Others are intricately tied to networks of local producers and thus are unlikely to benefit from the broad-brush incentive packages beloved by politicians and corporations.

To be sure, some of Wilson’s late accomplishments--particularly, reform of the workers’ compensation system--helped to slow the exodus of companies from the state. But rather than dust off such old standbys as tax breaks, the governor should pursue policies that aim to foster a business-friendly infrastructure, starting with a “one-stop” permitting process. Approaches that encourage links between new and growing companies and university and college research programs would also help grease the economic engine much as the Silicone Valley profited from its academic ties.

Most of these growing firms, furthermore, place a higher priority on regulatory relief than lower taxes. Wilson would do well to address this need by reinventing the state’s horrendously awkward regulatory regime. And he should promote a more interactive relationship between state and local government to overcome what many companies feel is Sacramento’s indifference to their needs.

A particular challenge for Wilson lies in the international arena. With California exports up by 13.5% over last year, foreign markets are continuing to supplant the Pentagon as the state’s key customer. At the same time, foreign tourists account for virtually all the new net growth in the state’s travel industry, which remains the nation’s largest, employing more than 200,000 people in the Los Angeles Basin alone.

By attaching himself to the anti-immigrant Proposition 187, Wilson risks alienating some of the fastest-growing and most dynamic elements in the state’s economic life. Already, California’s relations with Mexico have suffered, an outcome that may hurt Republican strongholds. For example, Mexico is a growing market for Orange County businesses, which have seen their southbound exports grow from slightly more than $300 million to an estimated $1.4 billion this year.

Although Wilson may be culturally uncomfortable with the idea, immigrants increasingly predominate as investors, owners of and managers at many of the smaller companies now replenishing the state’s depleted job rolls. Moreover, his ill-founded assertions that immigrants primarily come to California to enjoy its welfare benefits have contributed to the general--and false--impression that the newcomers comprise an economically worthless lump of unskilled and uneducated proletarians. But Wilson must learn that immigrants who are ill-educated, even illegal, have demonstrated a remarkable work ethic, albeit often in the oft-overlooked “underground economy.” Politically impotent, these immigrants remain vital to such key state industries as textiles, garments and agriculture.

For Wilson to learn the new economic forces at work in his state, and to take a “bottom-up” approach to pushing them forward, would mean changing a life’s worth of experience identifying “business” with the wishes of well-heeled corporate lobbyists. But as the “new” Nixon went to China, so a “new” Wilson must make his pilgrimage to the new California, or risk hindering the state’s full economic and psychological recovery--and his political ambitions.*