Grassroots growth has transformed l.A. from a business backwater into a diversified Economic powerhouse
Each year, the Census Bureau issues its own version of sleeping pills a line-by-line breakdown of the L.A. economy.
The County Business Patterns report dutifully notes, for example, that Los Angeles County has 439 medical equipment and supply companies employing 9,431 workers and an annual payroll of $327 million. There also are 210 businesses in the navigation, measuring, medical and control instrument industry, with 22,313 workers and a $1.2 billion payroll.
Snoozing yet? Jack Kyser, chief economist of the Economic Development Corp., loves poring over this stuff. He carries notebooks crammed with these numbers wherever he goes, just in case some wiseacre reporter wants to know how the ophthalmic instrument industry is faring in L.A. (Pretty well, it turns out: Employment jumped from 681 workers in 1991 to almost 1,000 in 1997, the last year the Census Bureau has data.)
Look over enough of these numbers and a couple of things become clear.
– L.A.’s economy continues to transform itself into a community of little-known, seldom-followed small and mid-size businesses that make up a lion’s share of the county’s annual gross product. Such diverse growth was never planned it just happened. And it has insulated the area from the kind of economic carnage being found elsewhere.
– No matter how soft the economy becomes, L.A. remains such an enormous target for consumer products and services that retailers are desperate to plant their flags here.
L.A., in short, is too big to fail.
“It’s a total economic shift that is taking place,” said Dominic Ng, chairman of East West Bancorp and this year’s campaign chair of the United Way of Greater Los Angeles a position that’s given him a chance to survey the transformation.
Out-of-town skyline
All this might come as a surprise to those Eastern-based chroniclers who wrote off the place a few years ago. The big banks and aerospace companies either had been taken over or relocated their operations, and most of the technology money remained up north. L.A. had little or no corporate infrastructure no Microsoft or Intel, from which economic clusters are formed. The downtown skyline still looked impressive from afar, but the skyscrapers were topped with companies based elsewhere: Wells Fargo, AT & T;, Bank of America.
By the late ’90s, L.A. had become a New Economy backwater seldom showing up on those annual lists of the best places to do business and routinely derided in the media. In a sense the naysayers had a point: For all of L.A.’s vastness, it was the center of very little. Local business interests couldn’t even assemble a winning bid for an expansion NFL team, Corporate America’s unofficial acid test in determining a “big league” city.
Even Hollywood was becoming a wholly owned subsidiary. Media consolidation in the ’90s left Walt Disney Co. as the only major show biz company based in Southern California. All the others Warner Bros., Fox, Universal, Columbia were slivers of larger entities based somewhere else. That bruised any number of egos and left decision-making out of local hands.
Most important, the numbers were just plain bad. While U.S. gross domestic product grew 2.5 percent in 1992 (adjusted for inflation), L.A. County’s fell 0.2 percent. The next year, U.S. GDP grew 2.1 percent, while L.A. fell 1.5 percent. It wasn’t until 1995 that L.A. slightly outpaced national growth, but even then there were residues of economic disaster: foreclosures, usually a lagging economic indicator, didn’t peak until the third quarter of 1996 and the median price of an L.A. County home didn’t bottom until January of 1997.
Earthquake jumpstart
This wasn’t just about a few rough years. It was about a fundamental shift in the local economy that no longer had a corporate base with little or no hope of bringing in replacements. How to remake an economy that many believed to be on its knees?
From the start, it’s been clear that government would be of limited help. There was an immediate infusion of federal cash after the Northridge earthquake as well as $15.3 billion that eventually came from insurance payouts. Several economists point to that rebuilding period as a jumpstart Los Angeles so desperately needed. But jumpstarts alone can’t rehabilitate the engine.
What happened next could best be described as a kind of organic growth the kind that’s not reliant on government-funded giveaways or out-of-towners bringing in their factories. Such a transformation is painfully slow: a laid-off aerospace worker who sets up his own subcontracting shop; a recently arrived immigrant scrapes up enough money to start his own bakery; an upstart dress manufacturer lands a big sale with one of the department stores.
A lot of this growth has been sloppy, even ugly, because so much is unbridled. Which has made parts of L.A. sometimes resemble a Third World economy, where pretty much anything goes in the name of commerce. So, while chamber-of-commerce types boast that the area is a major apparel center, a backroom tour of the garment district reveals sweatshop conditions, limited enforcement and a ready supply of immigrant laborers who are willing to work in grunt-like conditions for a few bucks an hour. The same is true for the other low-wage jobs around town maids, car washers, gardeners and busboys.
L.A.’s economy is based on an implicit economic contract: recent arrivals need work to survive, while L.A.’s business classes be they entrepreneurs looking for manual labor or working parents looking for child care need cheap labor in order to control costs.
Those lower costs, helped along by a drop-off in real estate, have made Los Angeles a more affordable city and some would argue, helped turn the place around. By the fourth quarter of 1997, L.A.’s cost-of-living index stood at 117.6 (the average of all reporting areas is 100), compared with 237.7 for New York and 138.1 for Boston. That same year, L.A.’s gross product jumped 3.4 percent and then 4.2 percent the following year.
Dull but effective
While there is a price to be paid for a low-cost economy namely the huge income gap between rich and poor it does create opportunities for new businesses, especially those started by recently arrived immigrants. When the Lockheeds left town and the First Interstates were taken over by out-of-towners, the number of startups kept increasing. They weren’t the kind of businesses to make headlines, nor did they often require skilled labor. Still, they generated revenue.
L.A. had another building block the Los Angeles Customs District, which includes the ports of Long Beach and Los Angeles, Port Hueneme and Los Angeles International Airport. Consider that in 1993, when L.A.’s gross product fell 1.5 percent, the district’s two-way trade still increased 5.5 percent. L.A.’s trade traffic has increased every year in the ’90s except one 1998, and that was due to Asia’s economic collapse.
“It’s not glamorous and it’s out of everybody’s sight because you don’t drive past it, but the port was definitely one of the biggest growth engines through most of the ’90s,” said Kyser.
It goes beyond the ports and airports. Tom Lieser, senior economist for UCLA Anderson Forecast, points out L.A.’s importance as a distribution center, whether it’s warehousing merchandise or moving it by truck and rail. That’s why the $2.4 billion Alameda Corridor project due to be completed next year is such a big deal. It will speed up the process by which goods are transported to and from the ports.
Perhaps the most significant evidence of L.A. turning the corner is the most basic population growth. While the county showed negative growth in 1995 and 1996, there was a notable turnaround in 1997. By the end of this year, the county’s population is projected to reach 9.8 million, according to the EDC, a 1.6 percent increase from the year before. That’s equivalent to the ninth-largest state, just behind Michigan. By the end of next year, the EDC projects, there will be more than 10 million people in L.A. County.
New rat race
It is a mammoth consumer base evidenced by the throngs who line up each Saturday and Sunday morning to get into mass merchandise and discount stores like Costco, Home Depot and Orchard Supply Hardware. It’s also seen in the numbers: Personal income in L.A. County grew last year by nearly 11 percent.
“You can say it’s dull in the sense that if you just look at the economic statistics, they’re plodding along,” ventured Lieser. But there’s more going on than numbers. With so few corporate warhorses and so much reliance on small businesses, L.A. has become a new kind of rat race, with everybody looking to make a buck the best way they can.
“It’s a totally different paradigm,” said Ng, who cited his own bank, as well as Panda Restaurant Group Inc. and Indymac Bancorp Inc., as reflective of the new Los Angeles. “I wasn’t one of the original downtown crowd, so the folks I associate with are different. These companies, they all are going to be big some day.”
