For much of the disaster movie that has been Los Angeles in the '90s, the entertainment industry has played the hero, creating new jobs and bringing much-needed wealth to a beleaguered metropolis. Yet even as the region's recovery has blossomed, several troubling trends have emerged that could threaten the long-term growth of L.A.'s signature industry.

This is not to suggest that Los Angeles is about to lose its lead position in entertainment. But for the time being, industry growth has slowed significantly. Production days, which almost doubled between 1993 and 1997, have fallen off this year by as much as 8 to 10 percent, according to Cody Cluff, L.A.'s film czar and head the Entertainment Industry Development Corp. After adding an estimated 100,000 jobs over the past decade, the industry's job growth appears to have stagnated.

The downturn threatens to weaken everything from commercial real estate to the local home market, particularly in the east San Fernando Valley and the Westside.

Over the coming weeks, blame will be apportioned on dark outside forces. Yet perhaps more serious may be the forces within Hollywood particularly studio executives, directors, stars and producers who seem to be turning away from the very region that gave them opportunity and succor in the first place. "They are creating and facilitating a problem," suggests Cluff. "They have no loyalty to the place and people who live here."

Unfortunately, this shameful reality will not be the initial focus of those who are raising the issue of the entertainment slowdown. Instead, the fire at upcoming state public hearings will concentrate on Canada, where for years the federal and various provincial governments have attempted to lure production dollars. Subsidies and a plummeting Canadian dollar now worth barely 60 cents have made cities like Toronto, Vancouver and even Winnipeg attractive to producers of commercials, low-budget series and movies of the week.

Particularly incensed, with good reason, are the powerful Hollywood craft unions that now find themselves locked out of jobs going to Canadian grips, set-makers, cinematographers, directors and actors. Altogether, according to Cluff, an estimated $500 million in traditionally U.S.-based production has shifted to Canada this year. Roughly $200 million of this comes from Los Angeles; the rest represents lost work in U.S. locales traditionally used by lower-budget productions, such as Florida, North Carolina and Arizona. This is not much solace to L.A.-based craftspeople used to working on jobs in other parts of the country.

The Canadian problem reflects a broader structural issue. Although international market growth has been critical to Hollywood's 1990s expansion, big American studios, including Disney and Fox, have increasingly seen fit to set up new facilities in Europe, Australia and Canada in order to placate local governments.

Longstanding subsidies for local culture-based industries failed to stop Hollywood's juggernaut from garnering 70 percent of the European film market, up from 56 percent in 1987. Now these countries are increasingly willing to hand over the keys to the big studios, as long as they get to keep a portion of the production dollars and jobs.

These foreign challengers have their limitations. Many overseas productions, particularly in television, lack the quality and "look" that makes Hollywood unique; successful productions, such as the once-Canadian-based "X-Files," tend to drift back to Southern California. High personal income taxes, bad weather, and the need to be where the action is all work against foreign locations, particularly Canada.

"Where does Jim Cameron live?" Cluff asks, speaking of the Canadian-reared "Titanic" director. "In Santa Monica. Nobody who makes big money wants to live in a place where they tax 60 percent of your income."

Perhaps an even more serious threat are domestic challengers. This fall's hit insect movies "Antz" and "A Bug's Life" were made predominately by the technology-oriented production firms PDI and Pixar in Northern California. Although co-produced with DreamWorks and Disney, respectively, these films, along with the coming George Lucas Star Wars "prequel," reflect a growing creative prowess up north.

Sadly, the technologies perfected by firms like Pixar could have been developed here, but many L.A.-based studio executives were slow to see the potential of computer-generated imagery. Although Los Angeles has a host of very good CGI shops, including many small specialized houses, the unwillingness of studios and big-name producers to invest in the new technology has allowed the Bay Area to establish a strong base in this growing industry niche.

At the same time, L.A. faces a challenge from its longstanding rival, New York. Although Southern California's value of production is at least six times that of Gotham, the New York press' willingness to provide media baths for any star with a flat in New York as well as the desire of Time Warner, Viacom and Seagram to harvest the glitz closer to home promotes the notion that Gotham, not Los Angeles, is the real entertainment center.

Here again, the fault does not belong to the often fact-bending New Yorkers. Many among L.A.'s studios, producers, writers and stars are also swept up in the Gothamite propaganda. Many are, in fact, native New Yorkers who have moved their bodies, not their minds, to California. They still can't tell east Los Angeles or Monterey Park from Montauk, and seem incapable of imagining L.A. as a "real place" with real neighborhoods, families and stories. As a result, New York scripts often get green-lighted, drying up our locations and some of our jobs, while L.A.-centered ones get stranded in writers' disk drives.

Fortunately these trends may not prove permanent. Already, the spate of "Seinfeld" knockoffs is reaching overkill, and the current crop of New York movies including Woody Allen's "Celebrity" and "Meet Joe Black" have fizzled. Viewers also seem hip to the second-rate nature of most Canadian-made television shows; perhaps it will dawn on the studio bigwigs and their corporate overlords that cheaper is not always better, or more cost-effective.

Yet the warning signs of a slowdown or reversal of fortune should not be ignored. It's time for Hollywood's elite as well as the craft unions and local government to focus once again on nurturing the industry that has made this region the dream-making capital of the world.

Joel Kotkin is a senior fellow with the Pepperdine Institute for Public Policy and a research fellow with the Reason Public Policy Institute.

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