The Upside of a 1990s Trauma
Southern California may yet see the upside of the 1990s recession from which it emerged more scarred and two years later than the rest of the country. The deep cuts in defense spending in the early 1990s eliminated one out of two high-paying jobs in the aerospace industry. But they also led to diversification of the local economy, making it more resistant to downturns. When the next downturn comes--in 2001, according to a UCLA forecast released last Monday--California’s export-oriented economy will benefit from growth in other markets. The state, however, must tackle shortages in capacity that the boom has created.
Predicting recessions has been a losing proposition in recent years. The financial crises in Asia and Russia in 1997-98 produced a flurry of gloomy forecasts, none of which came about. Last year, fear over the inability of some computers to switch from 1999 to 2000 without major problems led to predictions of a global economic meltdown; that was unfounded. But signs of economic slowdown are visible everywhere these days, lending credibility to downbeat predictions.
What will help Los Angeles and its surrounding counties is the variety of economic activities taking root here. The region will reap increasing benefits from trade--with more than $235 billion in goods passing through its ports--along with tourism and textile, apparel, furniture and metal fabrication industries. Defense budget increases are expected to bring in more contracts, offsetting a slump in demand for U.S. satellites.
The city’s most visible industry, Hollywood, with its $31 billion in annual movie production, is facing an uncertain year. Actor and screen writer contracts expiring in mid-2001 are expected to lead to crippling strikes. And even if strikes are avoided, accelerated production beforehand will probably shut down the studios for much of the summer. The uncertainty may shift production to elsewhere in the United States or to Canada.
Though California may fare better when recession comes, there are plenty of problems both city and state officials must address. Booming growth in recent years has overwhelmed the energy supply; ground and air transport infrastructures are strained to capacity, and industrial and office space is in short supply. The high cost of housing will keep many potential workers away. Each of those problems could endanger growth. City and state planners face a formidable challenge whether or not the economy takes a breather.
