In the weeks since Sept. 11, one recurring theme has been the idea that the “new economy” is being replaced with a new “warfare” economy. This mantra sees a return to the 1940s kind of economic culture, with an emphasis on corporate and national loyalty, a spirit of self-sacrifice and a search for stability.
Placed into the dustbin of history has been the highly individualistic ethos of the 1990s with its emphasis on digital communications, personal choice and career mobility. As billions of dollars directed from Washington determine the growth patterns of the economy, we will see less entrepreneurship and more military-style organization rippling through our business culture.
This analysis, perhaps driven in part by the desire to put a “business” spin on current events, is largely misplaced. The 9/11 disaster and the upcoming war on terror clearly constitutes a turning point in American history, but that does not mean it obliterated the economic culture that has been developing over the past decade.
This time it’s different
For one thing, it is absurd to argue that we are entering the kind of “war economy” that characterized the 1940s, or even the Cold War. Military spending as a percentage of GDP will remain at levels below those of the 1970s and 1980s, much less the Vietnam period. The very nature of the current anti-terrorist war will require no mass mobilization of either troops or industry. We don’t need millions of young men to fight Osama bin Laden or thousands of new tanks or planes to deal with Afghanistan.
Instead, the impact will be more qualitative. It won’t change the direction of the economy but it will push technological innovation and economic dispersion faster than would have occurred under “normal” circumstances.
How will Los Angeles fare in this “new” new economy? Some pundits, like the real estate analysts at Case Schiller Weiss, predict that L.A. will be hit “as hard as New York.”
I guess I didn’t notice the huge hole where downtown used to be that’s roughly the equivalent of what Gotham just lost. But Case, whose views are inexplicably picked up by the Wall Street Journal, also predicted a dire fate for L.A. in 1997, just as the region was heading into a strong recovery. Maybe Woody Allen is their leading adviser.
The real picture that emerges contains both considerable promise and notable danger. Los Angeles will benefit from the kind of military procurement that is most likely to now become in vogue high-tech spy planes, satellite eavesdropping and imaging systems needed to wage war on terrorists and their nation-state protectors. The region, according to a recent Milken Institute study, produces nearly one-third of all the nation’s search and navigation equipment.
Local defense boom
This will particularly benefit the South Bay. That area, one of the biggest casualties of the early ’90s aerospace recession, has re-emerged as the epicenter for development of computer devices now being outfitted for the 21st century soldier, who carries small digital devices in his rucksack and on his helmet.
As a result, L.A. high-tech defense firms large and small from the local operations of Boeing, TRW and Northrop, as well as specialty providers like E-Team are likely to find themselves in better shape after 9/11 than before. The demand for new scientists, engineers and technicians likely will offset possible cutbacks in the commercial sector as the military, local police agencies and private security companies look to bolster their forces.
The dollars directed to security and surveillance, of course, take away from other sectors. Economic uncertainty is likely to depress consumer spending and Los Angeles as a garment center, producer of furniture and host of other products will likely suffer continued losses.
The biggest long-term impact may be in the economic geography of the region. The key both here and nationally will be “substitution effects” that is, the money that is not spent in “normal” ways and how it will now be spent.
On the negative side, reductions in air travel and tourism will loom large. Los Angeles is a big tourist destination and thousands of airport, hotel and other travel service jobs will be lost. But the downturn will have unexpected benefits for others. People who would otherwise be traveling to New York at Christmas, for example, might this time decide to spend their money closer to home.
More importantly, the current “stay put” syndrome, grown out of fear of travel, will accelerate one of the largest of all trends a growing reliance on telecommunications and digital technology. Long a telecommuting center, Los Angeles is a city that can be adapted easily into Tofflerian “electronic cottages.”
Certain key L.A. industries will be helped by the new trend towards dispersal. Telecommunications services Internet providers, consultants, satellite networks all can expect greater usage. The need to maintain dispersed operations will likely call for greater reliance on teleconferencing, videophones and other previously unexplored options.
Finally, the post 9/11 environment could benefit L.A.’s entertainment industry. As people substitute distance travel for “at home” entertainment, it is likely that film, cable and Internet-based content will be in demand. More of this content may be made here in Hollywood as the willingness of talent to fly to Vancouver or Toronto diminishes. Recent moves to slash Canada’s film subsidies may further help.
It’s clear the new business environment will not be an easy one, for L.A. or any region. But overall, the City of Angels may be one of the few major cities where the negative aftershocks could at least be somewhat off-set by new opportunities spawned by the dominant crisis of our time.
Joel Kotkin is a senior fellow at the Davenport Institute for Public Policy at Pepperdine University and at the Milken Institute in Santa Monica. He can be reached at [email protected].
