BLINDSIDED / ORANGE COUNTY’S FINANCIAL CRISIS : ESSAY : No Longer Riding High in the Saddle : A Orange County became a cosmopolitan outpost, its political leaders still tried to run it as if it were a frontier town.

The critics at home and abroad who have been caterwauling all week about bankruptcy and the California Dream do not know Orange County. That’s not surprising. Many residents and neighbors don’t know it either.

But if the community is to come back after this blow and continue to bloom and develop, we all should understand what Orange County is and has become and what flaw allowed this disaster to occur.

Oddly enough, an accurate appraisal should start with the big statue of John Wayne at Orange County’s airport.

That statue of the Duke, an Orange County resident until his death in 1979, says that this is Middletown U.S.A., the representative community of the American middle class with a reverence for the Wayne-like virtues of courage and reliability.

But the statue of the actor in one of his cowboy roles also says that Orange County often thinks of itself as a frontier Western town and has been governed accordingly--with now-disastrous results.

Orange County is neither frontier town nor suburb. Rather, it is a complex of 31 cities with 2.6 million people, about the size of the Minneapolis or Dallas areas but with more cultural activities than either.

It is a highly sophisticated center of the global information industry, with an $80-billion annual output of goods and services. It exports brainpower to the world in the form of computers, medical instruments, engineering and environmental knowledge; it welcomes companies and investors from Asia and Europe and Latin America. In short, it’s a thoroughly cosmopolitan place.

You would never know it from the slipshod way its Board of Supervisors and many of its city managers governed public tax money in the Orange County investment fund, where 187 cities, school districts and special agency investors are right now losing far more than the initial estimates of $1.5 billion.

No one can accurately estimate the losses, say bankruptcy law experts, because the county’s supervisors and counsel have mistakenly allowed Wall Street houses to unload the fund’s holdings.

Slipshod government is not a one-time mistake in Orange County, but a chronic flaw. “This is a place that has always insulated government from the economic process,” says Spencer Olin, history professor at UC Irvine and co-author with UC Irvine professors Rob Kling and Mark Poster of “Postsuburban California: The Transformation of Orange County since World War II,” a landmark 1991 book the authors are updating for paperback publication this very weekend.

Keeping government out of the loop on business matters was part of the process of Orange County’s rapid growth. It prevented political challenges on land-use questions as ranchland was developed into housing subdivisions and industrial parks. “Someday they’ll build a town here, Kate,” was a line in old Western movies. Orange County’s entrepreneurial developers made that line a reality.

Although private business grew to world-class sophistication along with the county’s economy, the public sector did not. Instead, supervisors who ran a sleepy rural county fell behind the curve as it became a center of advanced industry.

Nor did the business community--the big developers such as the Irvine Co.’s Donald Bren, or Anthony Moiso of Santa Margarita Co. or Arnel Development’s George Argyros--encourage smarter political leadership. World-class industry in a small-town setting seemed OK by them.

But that pattern of genial, inattentive local government came back to bite in the investment fund debacle. As the world has learned since the bankruptcy filing last Tuesday, no one monitored closely the activities of Treasurer Robert L. Citron as he leveraged $7.5 billion in tax money principal with $12 billion in borrowings to enhance the fund’s returns.

Ignorance was bliss for local officials because the extra 3% to 4% in interest that Orange County earned, compared to state of California or Los Angeles County investment funds, brought in an annual kitty of $600 million to $800 million. That money distributed among fund participants provided a budget cushion for many local communities.

Why did they need the money? Not to put Turtle Wax on millionaires’ Mercedeses, despite what critics say, but to reduce crowding in classrooms or hire more police or put up extra street lights.

Because truth is, Orange County is a modern urban area with problems, having suffered a 32% loss in aerospace jobs in the last five years. Some of its people are rich, some are poor, many are immigrants. And most are middle class and struggling, like people everywhere, to pay mortgages and orthodontists and keep the dream alive.

The bankruptcy will hurt, probably more than was initially thought last week. “I’m shocked that the county and its counsel didn’t seek an injunction to prevent collateral being sold,” said Marc Beilinson, a Los Angeles bankruptcy lawyer.

Again, Orange County’s amateur political leaders bumble around while its highly skilled business leaders fail to come forward to help. And so, ironically, Orange County will probably have to seek help from government in this crisis.

Sacramento may have to step in with emergency aid, or even Washington. Cities and school districts with money tied up in the bankrupt fund need emergency financing. (Not all may suffer; San Juan Capistrano and some other communities never invested tax money with the county fund, reasoning rightly that high returns were coming from unacceptable risk.)

But for the county government and that of most communities, rough times and hard choices lie ahead. “Orange County and its cities may be shut out of municipal debt markets for years,” says the head of a municipal finance company.

With public money harder to come by, choices will have to be made about pending developments. If baseball and football stadiums are to be built, private investment will have to build them. And local governments cannot be generous with tax breaks because they will have other, priority uses for revenues.

Special fees may be imposed--taxes in euphemism--to make up for investment fund losses. Budget priorities will have to be set rigorously. Schools are paramount in today’s economy; police and public safety are must expenditures in the modern urban setting. Other amenities, even nicer parks, will have to be privately financed or gone without.

Orange County from now on will be home to a disciplined California Dream.

But it need not be a straitened dream. The county’s economy is strong and involved in the new industries in which information--as in manufacturing processes informed by computers, or medical procedures facilitated by lasers and imaging, or, if you like, fast food made possible by computers and microwave cooking--is the real underlying value.

That’s the economy that even now is growing 6% a year--double the national rate--in sprawling Orange County, which is now a new kind of community more akin to other onetime suburbs that are now self-contained economic engines, such as Fairfax County, Va., and Broward County, Fla.

A major goal for the next few years must be to raise up a skilled public sector for Orange County’s new kind of community to match the acumen and flair of its private businesses.

Other handicaps, such as the high interest rates the county will have to pay on public finance, can be overcome. “Interest rates won’t be fundamental to our future, as international commerce and high-tech industry are fundamental,” says Kling of UC Irvine.

“The interest rates will be a modulating influence,” he adds. They will be a rein on Orange County’s galloping steed.

But then, reins are what guide the horse, channel its power. Maybe they should change that statue at the airport. Maybe the symbol for the future Orange County should be John Wayne the cavalry officer or World War II naval officer, the community leader who succeeded John Wayne, the lone cowpoke.