Economy Found Undamaged by L.A. Smog Rules
For more than four decades, the Los Angeles Basin has struggled to strike a balance between nurturing the vitality of its economy and cleansing the air of its lung-searing, whiskey-brown haze.
“The fact must be faced,” said a 1953 report for Gov. Goodwin Knight, “that cleaning the air in this area is a tremendous task, one which many will doubtless find appallingly expensive.”
This week, in the most comprehensive analysis yet of this perpetual environment-economy clash, a team of economists reports that the Southland’s air pollution regulations--the world’s most stringent--have not weakened the region’s economy over the past two decades. Even the most regulated industries in the four-county basin outpaced their counterparts in cities with far weaker rules, the researchers reported.
“No evidence was found that air quality regulations created significant additions to the relative cost of doing business in California,” says the report by a team led by the Institute for Economic and Environmental Studies at Cal State Fullerton.
From the 1960s through 1990, the report state, “the region’s comparative (economic) performance improved, not deteriorated, over time.”
The findings of the yearlong study come as state and local officials begin implementing a sweeping new 15-year smog plan, which is expected to cost several billion dollars per year. Many Southern California business leaders worry that they face a competitive disadvantage because of the region’s rigorous smog rules.
But according to the new economic report, from 1969 through 1990:
* Earnings of six of the Los Angeles Basin’s industries with the highest cost of smog control grew 247%, nearly the same rate as nationwide. The earnings growth of those industries surpassed the rates in eight other industrial centers that have fewer smog controls, including New York, Pittsburgh and Chicago, although it was substantially slower than in other Sun Belt areas, such as Phoenix and Dallas.
* The Southland’s petroleum refining industry carried the burden of nearly two-thirds of the region’s air pollution expenses but its share of U.S. petroleum jobs grew from 7.4% in 1969 to 8.2% in 1990.
* Growth of the basin’s aerospace industry kept pace with the rest of the nation’s, with earnings increasing 296% compared to 298% nationwide. In the 1980s--when most smog rules targeting aerospace were adopted--the industry’s growth in the basin exceeded that in the rest of the country.
* In general, manufacturing jobs grew nearly 17% in the basin while declining 4% nationally.
The report does not provide the definitive word on a debate that has raged for years: Do clean air measures stimulate the economy by spurring demand for new, low-polluting technologies or slow it by eliminating jobs at traditional industries?
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Despite the findings, a key question remains unanswered for Southern California’s industrial leaders: How much faster would businesses have grown without such stringent air quality rules? Most economists say California, for a variety of geographic and social reasons, is so appealing that it will almost always outpace the rest of the country economically.
Bruce DeVine, chief economist for the Southern California Assn. of Governments, had not seen the report but said the findings seem based on “a sound methodological approach given the limitations” of trying to isolate the impact of smog rules.
The lead researcher in the study, Cal State Fullerton economist Jane Hall, acknowledged that “you can’t go back and re-create how the world would have been.” But “there is no evidence (air quality rules) have weakened the region’s economy in any way,” said Hall, who has studied air quality issues for 20 years.
Ray Remy, president of the Los Angeles Area Chamber of Commerce, said the region’s growth was so robust in the 1970s and 1980s that companies could weather the costs of pollution regulations. But he said the study, by focusing on the earlier decades, could have missed the impact on companies hurt by the recession that began in 1990.
“You had an economy that was very strong, very diverse, very hot, so people were willing to stay and even willing to think about expansion,” Remy said. “But once you began to have the economic downturn, which was started by significant defense cuts, then you have a lot of companies saying the booming economy of Southern California is not happening anymore and taking a good long look at all the things affecting their business.”
The Southland lost 400,000 jobs between 1990 and 1994, but the researchers contend in their 164-page report that air pollution rules played virtually no role. Hall said the California economy would not be climbing out of the recession now if the smog rules enacted by the South Coast Air Quality Management District had played a major role.
Larry Kimbell, director of the UCLA Business Forecasting Project, had not seen the report, but said smog rules must have harmed some industrial sectors. On the other hand, he does not believe the impact has been as devastating as some business leaders maintain.
“I would be shocked if you tell me things that look this expensive haven’t deflected some of the growth elsewhere,” he said. “That strikes me as very implausible.”
If some industries did experience losses in jobs or earnings because of air pollution rules, that does not mean the basin’s economy is unhealthy, Kimbell said. In fact, he argues the opposite: Some areas thrive because they restrict the types of industries allowed.
“People just won’t face up to the fact that it (smog control) is very costly,” he said. “But so what if it is? If polluting industries moved from here, it wouldn’t bother me a bit, but politically it is absolutely taboo. We should be more restrictive. We should say goodby to everyone who leaves and say my lungs are healthier because you are gone.”
Some industries, such as aircraft painting operations and furniture makers, probably lost jobs to other states, at least partly because of smog rules that restrict the use of paints and varnishes. But other industries, such as tourism, might have benefited because the region’s air is dramatically cleaner, with an 86% decline in smog alerts since the late 1970s.
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The best evidence of minimal economic impact, Hall said, is that growth of the Southland’s manufacturing industries accelerated in the 1980s, compared to the 1970s, during a time when the most stringent regulations went into effect.
“That suggests the regulations didn’t do any damage,” she said.
Six industries--paper, chemicals, petroleum refining, stone-clay-and-glass, primary metals and motor vehicle manufacture--shouldered a large part of the costs for smog cleanup, the researchers reported. But among those six, “the region maintained or increased its share of national jobs in each industry, except motor vehicles, between 1969 and 1990,” the report says.
A companion study about to be released by some of the same researchers concludes that companies’ decisions on where to locate or expand “are not significantly affected by air pollution regulations.” In many cases, company owners said labor laws and safety regulations mattered more, according to a survey of 2,000 randomly selected firms subject to AQMD rules.
“Even though half of regulated firms viewed government regulations as important location determinates, only one-sixth of these mentioned air quality regulations as being an important factor,” the report says.
Remy of the chamber of commerce and Kimbell of UCLA agree, but both noted that an air quality rule can sometimes be the last straw for an industry already unhappy with California’s taxes, housing costs and workers’ compensation system.
“There were a whole range of governmental intervention activities that were detrimental to business in California,” Remy said. “Air quality, with some exceptions, is not the single driving force. It is a factor, and in some industries a bigger factor than others.”
Remy stressed that effective clean air rules are imperative to ensure public health, but he said the way they are imposed makes a big difference in whether a business stays. The AQMD, under fire for being insensitive to industry, has shifted from what some called heavy-handed rules to the RECLAIM program, which allows companies to trade pollution credits when they reduce their emissions, he said.
“When you look for innovative ways like the district has been doing lately,’ he said, “you’re going to mitigate some of the job losses.”
