ECONOMIC DEVELOPMENT : Reforms That Can Save L.A. From Extinction

David Friedman is an urban economist who frequently writes on development issues

To a public obsessed with celebrity trials and mudslides, the recommendations advocated in recent reports issued by Los Angeles' Development Reform Committee and a nonprofit business group, Progress L.A., may seem tepid indeed: reduce the city's development fees; rationalize an arbitrary, Byzantine permit-approval procedure, and streamline a burdensome bureaucracy.

Truth be told, nothing is more critical to the region's future.

With its post-riot, defense-cutback gloom lifting, Los Angeles must cope with strategic challenges unprecedented among major metropolitan regions. Unlike other traditional urban centers, the city still has a vibrant, diversified industrial base. But neither city government nor the private sector has even begun to exploit this legacy with the kinds of initiatives that are now routine elsewhere. These include: fostering specialized regional industries, such as entertainment, that generate high wages and strong growth; strengthening links among universities, basic-research centers and real-world business; attacking regressive federal tax and regulatory policies, and restraining illegal business "recruitment" efforts of other states.

A major problem in the modern global economy, for example, is that companies selling garden-variety goods and services face almost instantaneous price and wage competition from other producers with much cheaper labor and resource costs. Without specialized skills and an ability to make ever-changing, unique products, firms in Los Angeles have no choice but to cut prices and wages, move to less costly areas or go out of business. Companies that do learn to specialize and collaborate--like Los Angeles' entertainment firms--earn enormous premiums in world markets and generate quality jobs and wages even in the heart of high-cost urban regions.

Numerous groups, including RLA, have been trying to encourage firms in Los Angeles' more fragmented industries--biomedical, furniture, computers, and mechanical engineering--to develop strategies in joint marketing, technology and product development and local supply that correlate with economic success. While such efforts have produced high-wage regional industries in areas as diverse as Silicon Valley (computers), San Diego (biomedical), Lehigh Valley, Pa. (metalworking) and Grand Rapids, Mich. (office furniture), most have been stymied in Los Angeles.

The reason for these failures is clear. No matter what the nominal development topic may be, virtually every gathering of L.A. company executives degenerates into a bitter discussion of regulatory horrors perpetrated by local officials. Before anyone will even consider deeper issues, the city must first show it can prune and thin the dense bureaucratic thicket that years of anti-business ideology and neglect have nurtured.

Reflecting months of bipartisan work by some of the region's most talented corporate, community and labor leaders, the recent reports confirm the grim reality of development in Los Angeles. Fraught with seemingly boundless bureaucratic discretion and endless administrative oversight, building permits for business, office and retail projects, as well as home construction and improvement, can cost up to 22 times more, take 15 times longer and add scores more procedural steps than in cities such as Anaheim, Las Vegas or Burbank. Compounding the problem is an out-of-control bureaucracy that actually increased its total development staff, and raised fees, even as the value of city building permits plunged a whopping 66% during the 1989-1993 recession.

In an era when cities throughout Southern California and the rest of the country openly tout their "business friendly" attitudes and strive to treat companies as "clients," Los Angeles' adversarial approach is a perverse anachronism. It reflects the historical accident of a major city blessed with at least two industries, entertainment and aerospace, seemingly impervious to the normal business cycles that afflict steel, auto or agricultural regions. Until recently, Los Angeles could impose even the most outlandish requirements and somewhere, somehow, growth would occur.

Also to blame is the continuing influence of an anti-business bias that most other regions long ago outgrew. Having no apparent need to aggressively support its economy, and faced with instances of real social concern, the city overcompensated by demonizing "developers" and other economic entities, and generating layer upon layer of bureaucracy designed to throttle "rapacious" big businesses. Even today, as City Council members profess support for economic development, more than a few of their offices sported such sophomoric slogans as "Vote Human Need, Not Corporate Greed" during the November elections.

In the modern economy, these views are dangerously misguided. The large corporate "demons" of the past have given way to smaller-scale, ethnically diverse companies that can least afford to traverse the city's arbitrary, costly development quagmire. The largest single block of permits issued in 1991-1993--40% of the total--went to individual homeowners seeking to remodel. All told, Los Angeles' archaic development system hurts small and large interests alike, and scares off billions of dollars of vital outside investment.

If the problem is staggering in scope, the reports' solutions are models of measured, responsible public policy. None of the scores of recommendations would change existing land-use designations protecting quiet neighborhoods or other fundamental environmental concerns. Instead, they focus on constraining the political and bureaucratic capriciousness of the current system by reducing the steps needed to get a permit; assuring that once a project satisfies applicable zoning and other requirements, approval cannot be arbitrarily denied, and improving the city's poor record of expense and delay.

The city's politicians must now demonstrate they can adopt what essentially amounts to "no-brainer" government reform as prelude to addressing much more complicated economic-development issues. Yet, a handful of special interests could still thwart this modest objective.

Despite their apparent support, one group of development-reform opponents will inevitably be the City Council members themselves, who derive enormous power--and campaign contributions--from a politicized permit system that forces constituents to seek help for what should otherwise be strictly administrative decisions. To have a prayer of reinvigorating the city, the council will have to ensure that public posturing for economic development translates into real, tangible legal and administrative improvements, even if political prerogatives are trimmed in the process.

Also sure to fight change will be the city's permitting bureaucracy, which can be expected to raise endless objections to the reports' recommendations, bury them in perpetual "study" or profess to implement remedial measures that, in reality, achieve little. A critical part of the development-reform effort will be to continually monitor the cost, time, simplification and certainty of the permit system to assure that performance is truly improved and that Los Angeles rapidly achieves standards that prevail in competitive jurisdictions.

A final source of opposition will be the traditional homeowners' groups who have long fed the city's antipathy toward developers and other economic "evils" and who enjoy remarkable influence on the council. There are already signs that certain intimidated council members are quietly seeking to block some recommended permit changes to appease these small but effective organizations.

Today, the need to foster industry, jobs and wealth--all of which require reasonable, predictable land-development rules--is the single most important issue for a region that once took growth for granted. It is difficult to exaggerate the stakes involved in the development-reform initiative. The region's industrial leaders privately admit that if rapid, positive results are not achieved, they will give up entirely on Los Angeles as a place to do business. Not only would this cause the city's still substantial economic resources to tragically hemorrhage away, but the entire region would also suffer from the incapacity of its single largest jurisdiction to reverse an international reputation for bureaucratic intransigence.

Fortunately, as the reports carefully document, it's entirely within our own power to prevent such an outcome.

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