Taking a Back Seat to Texas


The most important news recently to hit Southern California did not involve the heinous Donald Sterling, but Toyota’s decision to pull its U.S. headquarters out of the Los Angeles region in favor of greater Dallas. This is part of an ongoing process of disinvestment in the L.A. region, particularly among industrially related companies, that could presage a further weakening of the state’s middle class economy.

The Toyota decision also reflects the continued erosion of California’s historic economic diversity, which provided both stability and a wide variety of jobs to the state’s workers. We have seen this in the collapse of our once-burgeoning fossil-fuel energy industry, capped this year by the announced departure from Los Angeles of the headquarters of Occidental Petroleum. Blessed with huge fossil fuel reserves, California once stood as one of the global centers of the energy industry. Now, with the exception of Chevron, which is shifting more operations out of state, all the major oil companies are gone, converting California from a state of energy producers to energy consumers, and, in the process, sending billions of dollars to Texas, Canada and elsewhere for natural gas and oil that could have been produced here.

As did the oil industry, the auto industry, and, particularly, its Asian contingent, came to Southern California for good reasons. Some had to do with proximity to the largest port complex in North America, as well as the cultural comfort associated with the large Asian communities here. Back in the 1980s, the expansion of firms like Honda, Toyota and Nissan seemed to epitomize the unique appeal of the L.A. region – and California – to Asian companies. Today, only Honda retains its headquarters in Los Angeles (Nissan left in 2005), while Korean carmakers Hyundai and Kia make their U.S. homes in Orange County.

Retaining these last outposts will be critical, as Southern California struggles to retain its once-promising role as a true global city. With the exception of the entertainment industry – itself shifting more production out of town – our region is devolving toward marginality, largely as a tourist and celebrity haven.

Still, I’m concerned less about the region’s reputation than about the economic trajectory of its middle and working classes. The Toyota relocation from Torrance will eliminate 3,000 or more generally high-wage jobs, something that usually accompanies the presence of headquarters operations. It will cost the region, most particularly, the South Bay, an important corporate citizen, as, over time, the carmaker will likely shift its philanthropic emphasis toward Texas and its various manufacturing sectors.

Perhaps more disturbing are the fundamental reasons behind the Toyota move. According to Toyota’s U.S. chief, James Lentz, they weren’t even courted by Texas, which has fattened itself on California’s less-competitive business climate.

Some of Toyota’s reasoning is geographical. The port link is less essential now since close to three-quarters of Toyota’s vehicles sold in the U.S. are built here, up from 58 percent in 2008. At the same time, the growth of the “Third Coast” ports – Houston, Mobile, Ala., New Orleans and Tampa, Fla. – buoyed by the widening of the Panama Canal, makes it increasingly easy to ship components or cars in and out of the central U.S.

More troubling still is the logic, both on the part of Nissan and Toyota, linking headquarters operations – with their marketing, design and tech-oriented jobs – closer to their industrial facilities in the south and Midwest. Toyota, for example, has a large truck plant in San Antonio as well as auto assembly plants throughout the mid-South. Honda, now the last major Japanese carmaker with a Southern California headquarters, last year also moved a number of executives from Torrance to Columbus, Ohio, closer to the company’s prime Marysville, Ohio, production hub.

This pattern contradicts the notion, popular in both the Jerry Brown and Arnold Schwarzenegger administrations, that California’s massive loss of industrial jobs over the past decade can be offset by the creative industries, notably Hollywood and Silicon Valley. Since 2010, California has managed to miss out on a considerable industrial boom that has boosted economies from the Rust Belt states to the Great Plains and the Southeast. Los Angeles and Orange counties, the epicenter of the state’s industrial economy, have actually lost jobs. Since 2000, one-third of the state’s industrial employment base, 600,000 jobs, has disappeared, a rate of loss 13 percent worse than the rest of the country.

But, the prevailing notion in California’s ruling circles seems to be, if you have Google and Facebook, who needs dirty, energy-consuming factories or corporate operations filled with middle managers? Silicon Valley crony capitalists and urban developers who support our political class, and are willing participants in various subsidized green energyschemes, have little interest in traditional manufacturing, regardless the damage inflicted on blue-collar workers, whom progressives are happy to subsidize (and thus gain their unending support) outside the labor force or keep severely underemployed.

The deindustrialization of California was one reason behind the withdrawal of both Nissan and Toyota. Each automaker has established strong manufacturing operations in the mid-South and wanted to integrate technology, production, sales, marketing and design as a way to keep an edge in the competitive global industry. An area that seems determined to let its industrial base wither is not likely to attract companies whose basic business is building things.

What is too rarely understood is the link between production skills and high-end jobs. The Toyota jobs that are leaving L.A. County are largely white-collar and skilled. Toyota engineers will be headed to Texas, and many also to Michigan, where, despite the travails of the past few decades, the engineering base is already very deep – roughly twice as strong per capita as formerly engineer-rich Los Angeles.

This link between manufacturing and higher-end technical jobs is rarely appreciated among our political class. As President Clinton’s Board of Economic Advisors Chairman Laura D’Andrea Tyson points out, manufacturing is only about 11 percent of gross domestic product, but it employs the majority of the nation’s scientists and engineers, and accounts for 68 percent of business research and development spending, which, in turn, accounts for about 70 percent of total R&D spending.

Of course, neither Jerry Brown nor any other reigning political figure would cavalierly dismiss manufacturing jobs, or even those at a major port. Yet, as we move toward ever-higher energy prices – likely aggravated by California’s “cap and trade” regime against global warming – industrial firms seem increasingly reluctant, at least without massive subsidies, to move to or expand in California. And, contrary to arguments offered in Sacramento, and reflected in much of the media, there are never going to be enough “green” jobs to make up the difference.

Indeed, even Elon Musk, head of electric-car maker Tesla, though a primary beneficiary of California crony capitalism, is not considering the state for a proposed $5 billion battery plant, which would employ upward of 6,500.

In its nonresponse to the Toyota move, the Governor’s Office stressed the state’s role as the epicenter of the “new electric, zero-emission and self-driving” vehicle industry. Nevertheless, even as devout a “green” company as Tesla will likely locate its battery factory in Nevada, Arizona, New Mexico or Texas. California, reportsgreentechmedia.com “didn’t make the short list because of the potential for regulatory and environmental delays.”

For a state that has built its future vision on “green” industry, this is both ironic and tragic. It may not bother the Legislature, whose welfare state is now being propped up by windfall tech profits, but it leaves many localities outside the Silicon Valley exposed to more job and company losses. Think of Torrance Mayor Frank Scotto, who concedes the struggle to keep companies around is becoming ever more difficult. “A company can easily see where it would benefit by relocating someplace else,” Scotto said.

Even so, it is unlikely that Toyota’s leaving will impact the state’s leftward political trajectory. After all, if the New York Times regularly describes the California economy – fattened by stock market and real estate gains of the very rich – as “booming,” why should Gov. Brown, about to run for re-election, say otherwise, proclaiming to anyone who will listen that “California is back.”

True, California may not be in a Depression, as some conservatives contend, but it’s hardly accurate to proclaim the Golden State as back from the brink. But, if having among the country’s highest unemployment rates, the worst poverty levels, based on living costs, and being home to one-third of all U.S. welfare recipients can’t persuade the gentry about California’s true condition, Toyota’s move certainly won’t.

This article first appeared in the Orange County Register.

Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

Photo: Toyota Corolla by Paulo Keller

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CA vs TX

New Geography has always been fairly glib when reporting the news, but lately, you all are starting to sound desperate. First of all, Toyota made it pretty clear they were moving to TX to be closer to their Midwest plants which produce all their cars for the American market. When they first located in CA, all their American production was in Japan and it made sense to locate in CA just as it now makes sense to locate in the Midwest. Companies change priorities and move........just like people. Its a fact of life.

As for CA's economy, in March of this year, the state was in the top ten states producing jobs YOY. Not bad considering that CA is the largest state, population wise, and a mature economy. Employment growth for the state was 2.3% YOY with every major metro, including LA, over 2% YOY. The San Jose metro saw growth at 4.3% YOY besting every major metro in TX, including Austin. This is despite the fact TX keeps poaching companies from CA and other states as fast it can put together the money gifts in its state treasury. Did you ever wonder, Mr. Kotkin, why TX can't grow its own industries?

So I would chill with the funeral dirge for CA. Did I mention that CA was in the top ten states for median household income and top 15 for per capita income while TX was 25th and 30th respectively. Yeah, putting together those financial gifts for companies doesn't leave a lot left over the citizens of TX.

Which leads me to my final question, Mr. Kotkin. If you love TX so much, why don't you move there? I am sure they'd love to have you.

Just extrapolate the trend

People who bought their first home in CA when it was affordable, can afford to stay there. CA is also now distinguished by an aging population.

TX is getting most of the young people. So watch what happens with creativity etc.

It is all very well to say that incomes are higher in CA, but when a young person might be able to earn 10% more in CA but needs to pay 300% more for housing, there is not even a choice.

Actually the logical reason for someone older cashing up and leaving CA, is to free up the bubble capital that is in their house. I recall Gary North writing back in about 2007, of someone who sold their CA home (great timing) and bought seven houses in Atlanta with the money. They lived in one, and got rental income from the other six. This enabled quite a higher standard of living than staying in the bubble-value house in CA.

The course CA is on has to end in humiliation one day. Remember, Detroit was once the USA's highest-income city.

Trickle down jobs growth is obstructed too

"The Economist" reported recently a finding from San Francisco’s city
economist, Ted Egan. Research from Enrico Moretti of UC Berkeley for the USA as a whole suggested that every high-income job created, results in five other jobs being created. Egan found that in San Francisco there were only two trickle-down jobs created, and that the reason for this was San Francisco’s high housing costs which suck discretionary spending out of the local economy.

Ryan Avent actually made this suggestion in mid 2012, so it is interesting that Egan has confirmed it:


So it is no wonder "smart growth" local economies are socially unjust rentier's paradises. Richard Florida has recently been decent enough to admit that "trickle down urbanism" is a failure.

Great article, until......

This article was informative until paragraph 10, when the inflammatory finger-pointing began. I'm an urban planner, I know many other urban planners, and your divisive remarks do not resemble any of the planners I know. You've created a caricature of planners in your mind. Perhaps you should step out of your office more and actually have a conversation or two with some real planners, not the ones who only WRITE about planning on a theoretical plane.