The ‘Silver’ Age of State’s Defense-Aerospace Economy
The end of the Cold War seemed to mark the demise of Southern California’s defense and aerospace-driven “golden age,” throwing the state into its worst recession in decades. But the region’s heritage as the world leader in military and space technology is now poised to boost its burgeoning information age economy.
Indeed, the announcement on Tuesday that Lockheed-Martin will build the new X-33 reusable spacecraft at its Palmdale facility, creating about 2,000 new jobs, fits into a wider picture of a restored Southland aerospace and defense industry.
Between the late 1980s and last year, roughly 55%, or 175,000, California aerospace-related workers lost their jobs. This year, despite widespread predictions of 20,000 additional layoffs, the industry seems to have stabilized; economist Stephen Levy sees the once-reeling sector creating net new jobs through 1999.
Nowhere will this reversal of fortune be more positively felt than in the Los Angeles area--where 80% of all the state’s aerospace job losses occurred, including 50,000 in 1993 alone. Even as the two other pegs of the local economy--the “creative industries” and international trade--have grown robustly, the depth of the defense-aerospace downturn seriously slowed growth in the critical high-technology sector.
The recent recovery in aerospace and defense electronics is critical because it has the potential to restore the region’s once-strong reputation as a center for technology development. During the economic free-fall of the early 1990s, Southern California was viewed nationally--and often viewed itself--as a technological laggard behind such areas as the Bay Area, Seattle and even Utah. This image of Southern California as little more than a “tinsel town” surrounded by Third World misery hurt the recruitment and promotional efforts of technology-related companies in such disparate fields as computer software and multimedia.
But today, with the resurgence in high-tech aerospace and defense electronics, Southern California’s position as a leading edge economic region is being restored. Los Angeles County now has an annual job growth rate equal to Seattle and higher than San Francisco--both widely regarded as boomtowns. For the first time in years, L.A. County’s employment engine is running hotter than that in suburban Orange County and the Inland Empire.
The improving defense-aerospace picture stems, in part, from changing federal procurement patterns, growing diversification into commercial fields by local defense companies and increased aircraft sales. Perhaps most important, the turnaround reflects a new emphasis in the U.S. military: away from large-scale weapons systems and toward information technologies. This shift represents, in the words of one analyst at the Army War College, “a revolution in military affairs.”
The military’s new direction has played directly to Southern California’s strength in defense electronics. It is increasingly clear that the Persian Gulf War, with its reliance on satellites and “smart” weapons, represented only the first phase of a continuing “digitalization” of military systems--encompassing sophisticated battlefield communications systems, satellites and anti-missile technology.
Engineers and scientists at TRW, for example, are working on a series of advanced systems for the army’s elite Force XXI, which is expected to become the model for the new, “digitized” army. Among the projects being worked on at TRW, most of whose defense operations are in the South Bay, are a new system of computer communications devices for mechanized forces; a special high-frequency identification system designed to prevent “friendly fire” accidents, and laser technologies designed to shoot down incoming missiles from terrorists.
As a result, TRW--a firm that cut roughly 9,000 jobs during the early 1990s--added more than 1,200 last year, largely high-skilled, well-paid workers. And it is planning to add another 1,300 this year. The decision to grow in Southern California is due largely to the region’s work force--which leads the nation in mathematicians, engineers and skilled technologists. As an overall scientific research center, the Southern California region ranks third nationally, behind only San Francisco and Boston.
“We chose to stay where we are--and we have asked the question--because fundamentally the No. 1 driver is the pool of technical talent,” explains Fred Brown, TRW group vice president for Space and Electronics. More than half of his division’s recent hires, he estimates, come from local colleges and universities.
Much the same process can be seen at other key defense firms in Southern California. Rockwell recently added 400 new jobs at its Anaheim Autonetics and Missile Systems plant and Hughes Electronics is expected to add another thousand workers this year. Although this is not the en masse hiring of factory workers that occurred in the 1980s and earlier, it signals a marked improvement in market conditions for the region’s scientific, engineering and technical talent.
Contributing much to the improving prospect has been the ability of defense firms, both large and small, to shift technologies into commercial markets. In contrast to the heavily hyped but relatively ineffective government “conversion” programs, such as the Calstart electric car effort, Los Angeles’ real defense restructuring has been a classically capitalist “creative destruction”--with the associated dose of pain.
Take TRW’s gallium arsenide technology, developed for military use in satellite and communications systems. It now has large new markets in such commercial areas as cellular phones, leading TRW to consider keeping its Redondo Beach foundry on 24-hour shifts to meet both commercial and military demand.
Similarly, Hughes, based in El Segundo, has focused on its satellite technology and its successful Direct TV enterprise, turning the defense firm into something of a telecommunications superpower. Defense has dropped from nearly two-thirds of the company’s revenues in the late 1980s to roughly 40%. Rockwell, another aerospace powerhouse, has cut its dependence on defense spending over the past decade from 50% to 15%. High-tech electronics now account for the largest share of company revenues.
An equally dramatic conversion has taken place among a plethora of smaller technology companies. Nurtured by research monies from the military or NASA, these firms are now shifting into commercial markets.
Particularly promising are a group of companies now using military-derived simulation and image processing technology to enter such growth fields as special effects and educational software. Raj Dutt, President of R&D; Laboratories in Culver City, has spent a decade creating advanced satellite systems for the military. Now the same technology can also be used to carry heavy data loads, something of increasing interest to telecommunications and entertainment firms.
Dutt, who expects to boost his nondefense share of business from 10% to nearly half over the next two years, suggests the biggest problem for companies like his may be “cultural.” Essentially, defense firms, large and small, must move away from their ultra-meticulous, 8-to-4 culture, to the more fast-paced environment characteristic of the commercial sector. “We have to learn how to compete in the real world,” says Dutt, a Caltech-trained physicist.
Yet, like RDL, many smaller defense firms find confronting reality not only necessary, but profitable. Perceptronics, based in Woodland Hills, is now using its warfare-honed simulation system for such things as electronic training systems for commercial trucking companies. Illusion Inc., a small contractor in Westlake Village, is now taking “virtual reality” technology, developed for designing aircraft and military training exercises, into such diverse venues as museums and movie special effects. In each of the past three years, Illusion Inc. has doubled its revenues and expects to expand to 50 employees by 1997, up from its current 20. “The future for companies like ours,” said Peter Beale, Illusion Inc.’s chairman, “is to combine the creative vision of Hollywood with the engineering vision of the defense industry.”
Such new uses for military technology and talents could also prove critical in providing the Southland economy with an important new source of high-wage jobs that lessen its current dependence on the volatile film industry or the always uncertain course of foreign trade. As Southern California begins to harvest the overlooked fruits of its rich defense industry heritage, it may enjoy the broad, diversified economic recovery that many thought could never happen here again.*
