L.A.'s Economy Is Not Dead Yet


"This is the city," ran the famous introduction to the popular crime drama Dragnet. "Los Angeles, Calif. I work here." Of course, unlike Det. Sgt. Joe Friday, who spoke those words every episode, I am not a cop, but Los Angeles has been my home for over 35 years.

To Sgt. Friday, L.A. was a place full of opportunities to solve crimes, but for me Los Angeles has been an ideal barometer for the city of the future. For the better part of the last century, Los Angeles has been, as one architect once put it, "the original in the Xerox machine." It largely invented the blueprint of the modern American city: the car-oriented suburban way of life, the multi-polar metropolis around a largely unremarkable downtown, the sprawling jumble of ethnic and cultural enclaves of a Latin- and Asian-flavored mestizo society.

Yet right now even the most passionate Angeleno struggles to feel optimistic. A once powerful business culture is sputtering. The recent announcement of Northrop Corp.'s departure to suburban Washington was just the latest blow to the region's aerospace industry, long our technological crown jewel. The area now has one-fourth as many Fortune 500 companies as Houston, and fewer than much-smaller Minneapolis or Charlotte, N.C.

Other traditional linchpins are unraveling. The once thriving garment industry continues to shift jobs overseas and has lost much of its downtown base to real estate speculators. The port, perhaps the region's largest economic engine, has been mismanaged and now faces severe threats from competitors from the Pacific Northwest, Baja, Calif., and Houston. Although television and advertising shoots remain strong, the core motion picture shooting has been declining for years, with production being dispersed to such locations as Toronto, Louisiana, New Mexico, Michigan, New York and various locales overseas.

Once a reliable generator of new employment, over the past decade L.A. has fared worse than any of the major Sun Belt metros--including hard-hit Phoenix--losing over 167,000 jobs between 2000 and 2009. Historic rival New York notched modest gains, while the rising big metro competitors, Dallas and Houston, enjoyed strong and steady growth. L.A. may not be Detroit, and probably never will be, but its once proud and highly diversified industrial base is eroding rapidly, losing one-fifth of all its employment since 2004. In contrast to the rest of the country, unemployment still continues to rise.

To give you an idea how much L.A. has sunk, look to this year's Forbes best city rankings, which measures both short- and mid-term job growth. Once perched in the upper tier of major cities, Los Angeles now ranks a pathetic 59th out of 66 large metro areas, far below not only third-place Houston and fourth-place Dallas but also New York and even similar job-losing giants like San Francisco and Philadelphia.

It takes a kind of talent to sink this low given L.A.'s vast advantages: the best weather of any major global city, the largest port on this side of the Pacific, not to mention the glamour of Hollywood, the Lakers and one of the world's largest and most diverse populations of creative, entrepreneurial people.

Jose de Jesus Legaspi, a prominent local developer, pins much of the blame for this on what he describes as "a parochial political kingdom"--with Antonio Villaraigosa, mayor since 2005, wearing the tinsel crown. A sometimes charming pol utterly bereft of economic acumen, Villaraigosa is a poor manager who is also highly skilled at self-promotion. His idea of building an economy revolves around subsidizing downtown developers and pouring ever more funds into the pockets of public sector workers. No surprise then that L.A. suffers just about the highest unemployment rate of any of the nation's 10 largest cities outside Detroit. One in five county residents receive some form of public aid.

But the real power in L.A. today is not so much Villaraigosa but what the Los Angeles Weekly describes as a "labor-Latino political machine," whose influence extends all the way to Sacramento. These politicians represent, to a large extent, virtual extensions of the unions, particularly the public employees.

The rise of the Latino-labor coalition does stir some pride among Hispanics, but it has proved an economic disaster for almost everyone who doesn't collect a government paycheck--L.A.'s city council is the nation's highest paid--or subsidy. Although perhaps not as outrageously corrupt as the Chicago machine, it is also not as effective. L.A.'s version manages to be both thuggish and incompetent.

According to an analysis by former Mayor Richard Riordan, the city's soaring pension liabilities will grow by an additional $2.5 billion by 2014, by which date the city will probably be forced to declare bankruptcy.

So is the city of the future doomed for the long term? Not necessarily. Although Latino politicians and "progressive" allies strive to derail entrepreneurialism, our grassroots remains stubbornly entrepreneurial. This is particularly true of Latino and other immigrant businesspeople in Los Angeles. In 2006, for example, roughly 10% of the foreign born population was self-employed, almost twice the percentage of the native born.

To be sure, much of this activity takes place in smaller area municipalities--Burbank, Glendale, Lynwood, Monterey Park--that are mercifully outside the reach of the City of Los Angeles, which accounts for somewhat less than half of L.A. County's 10 million people. But as Legaspi, who came to L.A. from Zacatecas, Mexico, in 1965, points out, ethnic enterprises--Armenian, Iranian, Israeli, Korean, Chinese as well as Mexican and Salvadoran--continue to thrive even within the city limits. You rarely find in L.A. the kind of desolation found in dying cities like Detroit or Cleveland or even large swaths of New York or Chicago.

All this suggests there's still hope for Los Angeles to blossom further as a hub for international trade, global culture and fashion. But to achieve that goal the city needs a government that will nurture its grassroots rather than stomp or extort them. "Los Angeles is a potential great world city, but it needs to be ruled like a world city," Legaspi points out. Until that happens, our putative city of the future will exist more as dreamscape than reality.

This article originally appeared in Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in Febuary, 2010.

Photo by k.landerholm

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What About the Shift Away from Studio Content ?

Not just an issue of taxes/regulation, because it seems LA has lost a lot of its shine in media as the Bay Area has created Facebook, Twitter, YouTube, etc. Additionally, 42 states now offer tax incentives for movie production.

LA suffers the same problems

LA suffers the same problems the rest of the major Cali metros suffer from: High business and personal income tax, expensive housing ( not as bad as San Fran but still high by national standards) and an economy based on jobs that are all too easily shuffled away to another city in another state where all of these things are considerably cheaper. I have numerous friends who either worked or work in the film industry. Most have lost their jobs because their companies have started relying more and more on studio work in other cheaper states like New Mexico, Utah, and other countries like Taiwan, Canada, and now even China.

What it boils down to is that LA enjoyed a remarkable period of growth and was in many ways ideal for middle class Americans. That distinction is gone now and people are leaving in droves. Its a case of how too much of a good thing created an environment that was unsustainable.

I think the new place for opportunity if it were to be like that of California's past would be Texas.