By JASON BOOTH

Staff Reporter

The Los Angeles economy, possibly more so than any other regional economy in the nation, has been transformed over the past 20 years by specific events that triggered macro-level changes in the business community.

Forces driving those events included the end of the Cold War, the collapse of the savings and loan industry, and the consolidation of corporate America.

But what if some of those events turned out differently?

What if, for example, the Cold War had continued, in turn keeping the local defense industry rolling along?

What if the Northridge earthquake had not occurred, leaving L.A. without billions in federal aid to jump-start the recession-ravaged economy?

What if Michael Milken had never been indicted, and Drexel Burnham Lambert had continued its meteoric growth free of scandal?

What if First Interstate Bancorp had not been rebuffed in its 1986 takeover bid for BankAmerica Corp., or Lockheed Corp. had acquired Martin Marietta Corp. rather than the other way around.

These and other “what ifs ” would have made Los Angeles a far different place today, though according to economists and business executives, not necessarily a better place.

“If these things hadn’t happened, L.A. would have been just like it was in the ’80s. We would have been an economy dominated by large corporations; we would be more dependent on federal money,” said G.U. Krueger, deputy chief economist for the California Association of Realtors. “But the question is, would this have allowed for the good that occurred in the ’90s, like the growth of technology, entertainment and multimedia? I’m not sure it would have. I tend to think that we would probably not be as dynamic as we are now. It was creative destruction.”

No single event in the last 20 years wrought more “creative destruction” than the end of the Cold War.

Since the aerospace peak in 1986, Los Angeles County has lost an estimated 150,000 jobs. And those weren’t the burger-flipping variety; they paid high wages and came with good benefits.

The post-Cold War defense cuts played a major role in the deep recession that gripped Los Angeles in the early 1990s. If the Cold War hadn’t ended, many of those jobs never would have been lost. Local property values would not have fallen as much and the recession would not have been as severe and drawn out.

But should Los Angeles still be weeping over the aerospace collapse?

Tom Lieser, director of the Anderson School Forecast at UCLA, doesn’t think so. In fact, he says it has turned out to be a blessing in disguise a notion shared by other analysts.

While L.A.’s middle class has yet to fully recover from the loss of those defense jobs, there is plenty of evidence that former defense workers, forced to develop new skills, have been a key force in L.A.’s emergence as a major technology center.

“Los Angeles took a hit,” said Lieser. “But in the process it freed up resources that that have contributed to market-driven technology.”

Strongly supporting that contention is a report released last week by the Milken Institute that ranks L.A. as the nation’s third most important tech center.

Goetz Wolff, professor of urban planning at UCLA, agreed with Lieser that the decline of aerospace freed up resources to fuel the growth of multimedia and other new tech components of the economy resources that would have gone into defense work had the Cold War not ended.

Another blessing in disguise was the Northridge earthquake of 1994. Dozens died and more than $40 billion worth of property damage was sustained. But quake-recovery efforts created thousands of construction jobs and sparked a wave of federal investment in the city that helped boost the economy from its years-long recession.

Len Betz, a project manager at the Community Redevelopment Agency, said the quake fostered a sense of civic unity and renewed vitality.

“The earthquake was a hard thing,” said Betz. “But its silver lining was that it helped galvanize the city. Before the earthquake, Los Angeles had been frustrated by civil unrest and racial divisions.”

And what if there had not been an earthquake?

For one, the hordes of construction workers who returned to L.A. after the quake would have stayed in Las Vegas, Phoenix and other high-growth markets where they had fled during the recession. And L.A. would have been slower to climb its way out of recession, further lagging the national recovery.

Less obviously, no earthquake might have meant no serious secession movement in the San Fernando Valley, Wolff said.

“I think the earthquake provided a kind of focus on the Valley, a greater focus, and got people together,” he said. “If there hadn’t been that additional focus, it might have been more difficult for that (secession movement) to take place.”

While not as jolting as the earthquake, the loss of L.A. companies, when considered in the aggregate over the past 20 years, has been significant.

Possibly the biggest loss was Drexel Burnham Lambert Inc. If Michael Milken, the firm’s Beverly Hills-based junk bond chief, hadn’t run afoul of the law and Drexel had continued to thrive, L.A.’s finance industry might have been far more prominent.

“I think if Drexel had continued, it would have created an incredible financial base for Los Angeles,” said Richard Capalbo, former head of marketing at Drexel. “I think it would have been the top firm in the industry.”

Whether Los Angeles would have been better off with Drexel intact remains an open question. In the wake of the firm’s meltdown, many former Drexelites went on to achieve considerable success at other firms.

One Drexel alumnus, Gary Winnick, founded Global Crossing Ltd., a telecommunications company that in recent years has elevated Winnick and several of his partners into the ranks of L.A.’s richest.

“Having a dominant institution in a market may have discouraged competition,” said Mark Lanigan, DLJ’s managing director of investment banking and a Drexel veteran. “Nobody wanted to compete against Drexel.”

Among the greatest “lost opportunities” was First Interstate Bancorp once considered a bulwark of L.A.’s financial services industry but ultimately taken over in 1996 by Wells Fargo & Co.

Could that have been prevented had First Interstate succeeded in its own hostile bid to take over BankAmerica Corp. in 1986?

Probably so, said William Siart, chairman of First Interstate at the time of the Wells takeover. “You would probably still have a major bank based in Los Angeles,” said Siart.

He argues that with the combination of First Interstate and BofA, plus further acquisitions that would have been initiated, First Interstate would have been big enough to fend off the hostile takeover attempt by Wells or any other unwanted suitor.

Others are less sure that First Interstate would have blossomed if only it had succeeded in its 1986 bid for BofA.

“I think the timing was off (in 1986),” said Christine McCarthy, formerly a First Interstate executive vice president who is now chief financial officer at Imperial Bancorp in Inglewood. “Given the structure of the bank at that time, I don’t think they would have been able to absorb BankAmerica’s problems.”

McCarthy said such a merger would have made more sense in the early ’90s, after First Interstate had undergone a major restructuring.

Other companies whose presence is missed in Los Angeles probably could not have been saved.

Even a continuation of the Cold War, for example, would probably not have been enough to save McDonnell Douglas Corp., which was bought by Boeing Co. in 1996, resulting in the loss of thousands of L.A.-area jobs.

“McDonnell Douglas died by a thousand cuts,” said Jon Kutler, president of Quarterdeck Investment Partners Inc., an aerospace/defense industry research and investment firm.

He said that the greatest problems at McDonnell Douglas dated back to the merger between McDonnell Corp. and Douglas Aircraft Co. in the 1960s. The two corporate cultures never fully melded, making the company vulnerable when European consortium Airbus Industrie began crowding the market.

Had those kinks been worked out much earlier, who knows McDonnell Douglas might have ended up buying Boeing. If so, Los Angeles could be poaching aerospace jobs from Seattle today rather than the other way around.

Other venerable L.A. companies slipped into extinction simply by failing to adapt to changes in the marketplace. For decades, Bullock’s was considered one of the nation’s finest department store chains, but the industry started to consolidate in the ’80s. After parent company Campeau Corp. sold Bullock’s to R.H. Macy & Co. in 1988, the chain was stripped of its identity and the Bullock’s stores were closed down or converted to Macy’s.

But what if Campeau had bought the Macy’s chain instead, and folded it into Bullock’s?

Jack Kyser, chief economist at the L.A. Economic Development Corp., said that if the chain had been able to weather the recession, Bullock’s could now be enjoying a revival.

“If the original Bullock’s could be dropped back into Los Angeles, it would have worked wonderfully today,” said Kyser. “If only they could have held on.”