‘Burbs to L.A.: Goodbye!

If the economy were a game show, Southern California’s counties might turn to Los Angeles and say: “You are the weakest link.”

In the business world, though, there is no bullying master of ceremonies to pronounce judgment. Instead, statistics tell the story: The L.A. core has been losing its middle class and providing fewer opportunities for its poor, low-skilled residents. Neighboring counties are gaining good-paying jobs and attracting growth industries such as high technology.

Despite record job creation across the state and country in the late 1990s, Los Angeles County had 76,900 fewer jobs at the end of last year than it did when employment peaked in December 1989. The county’s unemployment rate stands at 6.3%, far higher than in Orange and San Diego counties, where joblessness is less than 4%.

Los Angeles County also has the lowest family income and worst poverty among all the urban counties in Southern California.

That pattern of uneven development might worsen the already severe strain on schools, hospitals and other government services in the heart of Southern California. It probably means increasing separation of the poor, mainly Latino immigrants from the middle class. And if Los Angeles stops feeding companies, business services and educated workers to outlying counties, it eventually could hurt economic growth throughout the region.

“We’re reaching a critical juncture now in that many of the growth areas of Southern California are becoming more mature themselves. Without a solid core, it begins to harm their long-term economic development potential,” said Ross C. DeVol, director of regional studies for the Santa Monica-based Milken Institute.

The county’s economic problems have been masked somewhat by the strong recovery that Southern California as a whole made from its devastating downturn in the early 1990s. The region in the last year suffered only a minor slump while the Bay Area, and much of the country, struggled.

But the best economic news in Southern California is coming from outside Los Angeles. Many of the region’s biggest public companies, including some of its brightest high-tech stars, are headquartered in Orange, San Diego or Ventura counties. Manufacturing and distribution businesses have flocked to the Inland Empire.

To some extent, what’s happened in Los Angeles is part of a historical pattern that has occurred in other aging metropolitan areas. Wide-open spaces for development have become scarce, and existing buildings often are unsuitable for new, higher-tech industry or, for that matter, low-tech factories and warehouses.

Los Angeles, in the meantime, has not managed to develop a vibrant financial services industry or enough other thriving sectors to replace the companies being driven out by high costs and congestion.

“Big cities such as New York and Chicago have moved farther along in the transformational change,” DeVol said.

Given Los Angeles’ shortage of developable land, the low skills of much of its work force and long-term problems with red tape in city government, the prospects for radically transforming Southern California’s core any time soon appear dim. The recent Kosmont Cost of Doing Business Survey, which tracks the municipal burdens placed on companies in Southern California, once again ranked Los Angeles as the most expensive city in Southern California for business.

“L.A. is moving in the right direction, and faster than ever before,” said Larry Kosmont, president of the Kosmont Cos. real estate consulting organization, which sponsors the survey. “But because it has the highest business tax rate in the Southland, it has not been able to move quickly enough or far enough to keep more nimble neighbors from luring firms away.”

High-technology companies, though still abundant in Los Angeles County, increasingly are flourishing and producing jobs in the region’s outlying areas.

After looking around Southern California, Baxter BioScience Corp. last year decided to move its headquarters and 350 employees from Glendale to Westlake Village in Ventura County.

Baxter spokeswoman Tali Kaplan said the company had run out of room in Glendale and chose Ventura County with an eye toward the future. With 2001 sales topping $2 billion and plans to reach $10 billion by 2010, Baxter BioScience needed a location that could grow with the company, Kaplan said. Ventura County “is somewhat rural, and it has a nice quality of life,” she said.

Kaplan said Ventura County officials have been helpful, reflecting their long-standing desire to build a critical mass of high-paying bioscience jobs in a county that already boasts industry giant Amgen Inc.

San Diego, like Los Angeles, was hammered by crushing losses in aerospace jobs in the early 1990s that saw tens of thousands of high-paying jobs evaporate. But a concerted effort by business organizations, public officials and university leaders to foster high-tech employment has helped turn San Diego into a hotbed for technology entrepreneurship.

The rebuilding effort required leaders in San Diego County’s 18 cities as well as county government to buy into a shared vision for its future, said Marney Cox, chief economist with the San Diego Assn. of Governments. He doesn’t envy the task facing Los Angeles County, with its 88 cities and 10 million people.

“It’s just much more difficult to get consensus in Los Angeles because of the sheer magnitude of its size,” Cox said. “Sometimes big is not good when it comes to getting consensus on moving forward.”

Just three technology clusters--communications, biotechnology-pharmaceuticals and software-computer services--have replaced all the jobs lost in defense manufacturing in San Diego.

Canadian entrepreneur Dan Plashkes chose San Diego instead of Los Angeles, home of his beloved Dodgers, when it came time to set up his customer service software business.

“The business community here is very focused on [information technology], it’s easy to move around, the quality of labor is good, and it’s a beautiful place to live,” said Plashkes, president and chief executive of eAssist Global Solutions. “San Diego is a growth area. It’s a place for the future.”

Although Plashkes remains a big fan of Los Angeles and visits the city regularly--particularly during baseball season--others don’t share his enthusiasm. Images linger of Los Angeles as a place of high crime, civil unrest, lousy municipal services, poor immigrants and crumbling schools.

The high home values in Los Angeles would seem to be a sign of economic strength. But it is more an indication of a lack of residential construction that has created a housing shortage. Although that may be good news for existing homeowners, it means hardship for consumers looking to buy a house for the first time, as well as for apartment dwellers paying ever-escalating rents.

To be sure, the surrounding counties face the same challenges as Los Angeles County in dealing with traffic, air quality and a growing base of unskilled workers. Likewise, it is not all doom and gloom for Los Angeles. The county in the last decade has enjoyed expansion in the entertainment industry, foreign trade and some tech fields.

Strong pockets of vitality extend from the South Bay to Century City to the Santa Clarita Valley. Los Angeles’ income levels, by some measures, remain higher than those in the Inland Empire.

Stephen Levy, director of the Center for Continuing Study of the California Economy, said Los Angeles’ assets--including its large labor pool, its ports and its key location on the Pacific Rim--someday will foster a long-term recovery.

“It’s hard to see Los Angeles, amid the overall prosperity of the region, not doing fairly well itself,” Levy said. “The older areas are a more difficult challenge, and the recovery there won’t happen in the next year. But we’re in a recycling mode that will eventually recognize the locational value of the older areas and put new activities there.” The land and the location are valuable, he said, noting: “It was valuable 50 years ago, and it’s valuable now.”

Still, in 2000--a boom year for job creation in California--Los Angeles County ranked last in employment growth among the state’s eight largest metro areas. Last year, when the national and state economies sank into recession, San Diego County and four counties surrounding Los Angeles managed to gain a collective 69,600 jobs. By contrast, the latest statistics show L.A. losing 31,300 jobs in 2001.

“The growth spurt is over for Los Angeles, and it’s not going to catch up,” said Mark Schniepp, director of the California Economic Forecast Project in Santa Barbara.

Development experts say one of the principal obstacles to Los Angeles’ economic growth is a shortage of developable land.

“Our underlying problem is very simple. We’re out of sites,” said Barry R. Sedlik, chief operating officer of the Los Angeles County Economic Development Corp.

Volkswagen of America Inc. last year ditched a cramped low-slung building in the City of Industry for a new 343,000-square-foot facility in Ontario.

Not only was space cheaper at the Inland Empire site, but the new location has given the company a competitive advantage over its old quarters in Los Angeles County, said Eric Johnston, Volkswagen’s executive director of service and parts. Now just minutes from its air cargo haulers at Ontario International Airport, VW can accept later orders for next-day delivery.

The migration of factories and warehouses to the Inland Empire, while bringing pollution and congestion problems, also has fostered other kinds of business development. A case in point: More homes now are built every year in the Inland Empire counties of Riverside and San Bernardino than in much more populous Los Angeles County.

Los Angeles’ growing weakness since the 1980s also has been aggravated by the loss of the headquarters of big companies that once not only pumped dollars into the economy but also provided philanthropy and community leadership. The departures included such giants as Arco, Lockheed and the First Interstate and Security Pacific banking organizations, companies that aren’t easily replaced.

“It takes a generation to create companies like that,” said Russell Goldsmith, chief executive of Beverly Hills-based City National Bank.

What’s more, though Los Angeles is blessed with major research universities such as UCLA, USC and Caltech, they traditionally have not spawned nearby high-tech businesses to the extent UC San Diego and UC Irvine have.

The businesses they have sparked often wind up outside of Los Angeles. For instance, UCLA-affiliated scientists helped launch Ventura County-based Amgen, the nation’s biggest biotech company, and Broadcom, a leading telecommunications chip maker in Orange County. “UCLA made no effort to keep those guys in Westwood,” Goldsmith said.

All told, economic gauges often put Los Angeles County at the bottom among Southern California counties. One of the grimmest indicators is family income. In 1999, the most recently reported year for that measure, Los Angeles’ median family income was $44,784, lower than that of any of the surrounding counties or San Diego. Ten years earlier, Los Angeles ranked fourth among the six counties.

Deborah Reed, an economist at the Public Policy Institute of California, cautions against viewing low incomes and high poverty as signs that L.A. County’s economy is an overwhelming failure.

Rather, she said, those indicators signal that the county is attracting lots of immigrant laborers eager to improve their economic lot but who lack the skills to move into stable, well-paying employment. Many wind up taking jobs that are low paying by U.S. standards but that still provide an entry into the American work force.

Still, such workers’ movement up the economic ladder is limited. An analysis by the Washington-based Economic Policy Institute found that 1 in 10 adults in Los Angeles County has six years of education or less. The rate is the worst among all U.S. metropolitan areas and is more than double the rate of San Francisco and San Diego.

Improving the skills of these minimally educated workers presents a huge challenge. Because many are undocumented, they are ineligible for publicly funded training programs. Legislators have largely sidestepped the issue to avoid the hot-button topic of illegal immigration. But experts such as Linda Wong, work force development director for the Los Angeles-based Community Development Technologies Center, say doing nothing will continue to take a heavy toll on the Los Angeles economy for years to come.

“Los Angeles is already a bifurcated society, and that gap is only going to continue to grow,” Wong said. “It’s not good for our local economy, our standard of living or our quality of life.”

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