Friday, February 7th, 2014

Los Angeles: A Time For Truth

I’ve been saying a while now that Los Angeles is a sick man economy. It never really recovered from the peace dividend, and the metro area has fewer jobs now than in 1990, though in fairness that’s in part only because its exurbs are considered a separate MSA. Los Angeles used to have bigtime corporate strength in not just entertainment, but also aerospace and defense, energy, automotive, financial services, and more, all of which have withered apart from entertainment. Even foreign migration to the region is weakening. New York draws two and half times as many immigrants. LA retains a spectacular economy, a powerful immigrant-fueled small business sector, has the ports, etc. and is even still the largest manufacturing center in the country, but it’s pretty clear there are big time problems. This is particularly obvious in contrast to the booming Bay Area.

A recent report called “A Time For Truth” put out by a group called the Los Angeles 2020 Commission lays out some of the grim facts. Though focused on the city and not the region, and thus likely overstating problems on a regional basis, it highlights a lot of the issues. Here are a few sample:

Los Angeles is barely treading water while the rest of the world is moving forward. We risk falling further behind in adapting to the realities of the 21st century and becoming a City in decline.

Activity in most of our key economic sectors is flat or in decline. We have repeat- edly ignored or fumbled opportunities in one of this era’s major growth industries, the intersection of science and engineering — a field where our university-based intellectual capital ought to make us a leader. With the closure of Boeing’s plant in Long Beach, there is no longer a large-scale aircraft, space vehicle fabrication or assembly facility left in the area.

Three decades ago, LA was home to 12 Fortune 500 headquarters. Today, there are 4. New York, in contrast, has 43 and has continued to add major employers in the last decade.

We have developed a “barbell” economy more typical of developing world cities, like São Paulo, rather than a major American urban area. We are experiencing growth at the top of the income ladder and at the bottom, while the middle class shrinks year after year.

The report includes a lot of unpleasant truths that have been written about before by others like Joel Kotkin. Maybe a fancy pants commission will be listened to, however. In any case, it’s worth a read to get a local take on the city. There’s more to come as this report focused on conditions rather than recommendations, though for that reason perhaps it will be less controversial.

21 Comments
Topics: Demographic Analysis, Economic Development
Cities: Los Angeles

21 Responses to “Los Angeles: A Time For Truth”

  1. Chris says:

    I like the barbell analogy. Here is a general statement. The wealthy (who I’m not criticizing) can afford to pay whatever it takes to live. The poor are subsidized just enough to get by while the middle class is neither. High taxes and over regulation devastate middle income people by driving their cost of living through the roof so they have no choice but to leave the LA and California area and move somewhere else.

  2. Anonymous says:

    On the subject of Los Angeles, that reminds me of that article from Joel Kotlin on City-Journal written in Summer 2011.
    http://www.city-journal.org/2011/21_3_los-angeles.html

    With an upgraded Panama Canal (and Nicaragua wants to built its own canal as well), I think Los Angeles might see a similar decline to what Montreal faced. I spotted a interesting post on this French forum about Montreal’s growth and decline. Here the approximate translation made by Google.

  3. Stéphane Dumas says:

    The anonymous comment posted at #2, was made by me. I forgot to put my name, I’m sorry for the inconvience. -_-;

  4. Matthew Hall says:

    Is the simple fact that being in LA is an unpleasant experience part of this equation? It is just repellant to me in a way that no other American city is, with the possible exceptions of Miami and Phoenix. Is this just an effect of the economics you describe or the cause of LAs failure to develop its internal economy?

  5. John Morris says:

    My bullish attitude towards places like Columbus is built my fairly negative view of many coastal cities.

    I don’t read Kotkin much, but his point that American cities pretty much fail the lower & middle class rings true.

  6. Jon Seisa says:

    I’ve said this on this website before and it was met with much objection by some, that LA has been experiencing “Middle Class Flight”, as well as CA experiencing a great exodus and for the first time, people leaving CA now exceeds those who are arriving.

    The Middle Class was the backbone of the economic engines for any region, and this nation. They are those who are self-starters by nature, law-abiding citizens, tax-paying property owners, those who either open and operate small businesses or provide the educated skills for other businesses or the development of innovative products for manufacturing, while the less educated and less skilled, those dependent on government aid and non-contributors to society are left behind in LA and seem to be mushrooming, mostly Hispanics and illegal aliens, destitute of English.

    I can literally see the multiplication of poverty here on the streets, not derelict individuals with alcoholic or drug addictions, but ordinary Middle Class people that were once prosperous contributors to society, some who look like your next door neighbor or someone’s well dressed middle-aged grandparents. There are subtle things you notice like relatively modern cars, less than 10 years old, driving by in neglect condition, dirty, with rickety sounding motors for lack of income to otherwise implement standard maintenance and upkeep.

    There is a video on YouTube where the cameraman drove through cul-de-sac neighborhoods at night in once affluent OC documenting people at home without any electricity turned on for lack of enough income, and noting inside one home through a large window many bottles of water, indicating a water shutoff. These were very nice Ranch-style Middle Class homes.

    If you happen to go to the grocery store on the night of the 3rd of the month, it is literally packed with welfare EBT-shoppers whose EBT-cards were just credited with a new month of Obama-handouts as they push around 1 to 2 shopping-carts overflowing with piles of unhealthy foods, while chatting on their Obama-provided welfare-cellphones. I recollect one clueless man-bystander in an aisle question this scene, the ‘EBT-Night @ the Grocery Store’, “What’s with all the people? Friday night at the grocery store?”

    In reality, all this is the result of skewed death-wish government economic policies that are hostile to the private sector and entrepreneurship. At some point the state and Fed Gov is going to run out of other people’s money to sustain this charade and house of cards (especially the money from the dwindling Middle Class revenue tax base). Then what? Dystopia? Mad Max Beyond Thunderdome?

  7. John Morris says:

    I would imagine, immigrant LA still does have a lot of dynamism, like one might see in Queens or Brooklyn.

    However, that dynamism is driven by the informal economy, the government hasn’t managed to stamp out.

  8. John Morris says:

    This is the revolting irony of places like Detroit, South Chicago or Cleveland where governments, crony capitalists and unions spent decades taxing & suppressing the normal economic activity of the poor- if not physically destroying their communities.

    Afterwords, the same people do studies noticing the vibrant economies of immigrants who live outside the dumb laws they made.

  9. Matthew hall says:

    Jon, that was more than a post, it was a soliloquy on California’s decline. I believe you. I’ve met several people who describe themselves as “refugees” from California in the last two years. They seemed genuinely happy to be in Nashville and Cincinnati, respectively. People would have only meant that as a joke a generation ago.

  10. Chris Barnett says:

    Okay, but…

    After a decade of tea-party/fundie-inspired governance (in many ways the exact opposite of LA and California generally), Indiana isn’t much better off. Median income and purchasing power have fallen. So is policy really the issue?

    Further, the long term growth numbers would not look quite as bad if one combined LA and Inland Empire over the past 40 years, when San Bernardino/Ontario growth really kicked in.

    I think it’s about declines in LA’s signature industries, entertainment and defense. Recent WSJ stories featured the rise of moviemaking in Atlanta, New Orleans, and other places not in SoCal. The wind-down of the SW Asia wars is a hit for defense. The banking/finance bailout saved NYC by injecting hundreds of billions of newly-mnufactured Bush dollars. Does anyone really think NYC would be booming (in contrast with LA) without TARP and AIG bailouts?

  11. John Morris says:

    So, if we all agree that LA is troubled and vulnerable (or in total decline) the billion dollar question is how do other cities exploit that void.

    One of my big themes is that media, entertainment & cultural centers are in flux- and ready for a potential shift away from the coasts. NYC, seems to have to have done enough to hang on.

    The other huge question is how Silicon Valley adopts to the decline of California’s manufacturing base. If one assumes, as I do that reshoring is a major trend (I doubt its ability to create lots of jobs) then America needs regions that can combine tech & software development, finance & marketing with manufacturing scale. Texas is just starting to hit critical mass.

  12. wkg in bham says:

    A mayor’s answer: (from city journal) “He’s currently supporting a push to build a massive new downtown football stadium, even though L.A. has no professional football team, and to displace much of the taxpayer-backed Convention Center, which would presumably need to be rebuilt with public funds.”

  13. John Morris says:

    Thereby undermining not just the tax base, but any pedestrian and transit oriented urbanism that might be emerging.

    LA is in absolute decline. The wildcard is the immigrant small business dynamism. NYC can’t absorb that completely, partly because NJ has failed to create real cities. Can Atlanta, Houston, Northern Virginia & other areas attract more of that.

  14. wkg in bham says:

    This in New Geography today: “Google, by some estimates, already enjoys more advertising revenues than either the newspaper or magazine industry. And they’re positioned to take over the the hardware side by supplanting the traditional telecommunications companies with their own series of global pipelines.

    This big tech takeover also previews a geographic shift from traditional centers of power like New York and Los Angeles to the new seats of influence, most notably Silicon Valley, San Francisco and the Puget Sound area.”

  15. John Morris says:

    But, Google itself has huge offices in NYC & Chicago & growing offices in Pittsburgh.

    People see that how bailouts and Fed pumping kept the old guard financial players afloat, but underestimate how this inflated tech & kept Silicon Valley alive.

    Google is expanding offices in Pittsburgh because many CMU kids don’t want to live in the Bay area. As tech involves itself in everything, it becomes something that transcends the old tech centers. Watch out for Austin.

  16. Michael Lewyn says:

    If you look at the past year or so LA County job growth is actually exceeding that of the rest of the country.

    http://www.bls.gov/news.release/pdf/cewqtr.pdf

  17. Matt Hall says:

    L.A. is an example of what happens when a place is more’open’ and ‘diverse’ than it can handle. Openness and diversity don’t have any economic benefit. In fact, just the opposite. They make it harder for people to relate and trust each other. The reason that ‘open’ and diverse places are sometimes more successful is because they ironically use the challenge of diversity as a spur to develop new institutions and relationships that DO give them an advantage of other less diverse places. Openness and diversity are the small piece of sand around which the pearl grows inside the clam. Having a full complement of skin colors and ethnic foods provides no economic benefits on their own . It is the response of some places to the challenges of diversity that provide economic benefit. Detroit fell on its racial diversity and L.A. seems less able to rise to the challenge of its extraordinary diversity. Like a fair number of American cities, it was faced with large difference between its people. Unlike the most successful cities, it hasn’t been able to create the institutions to overcome them. It has remained ‘open’ without becoming connected. Movement and difference are not themselves the source of economic value. They are the challenges to a society that inspired things of economic value; new companies and social identities that subsume the spaces between people in an open and diverse place. If you are “open” to good things, you are “open” to bad things, too. If people and money can easily enter a place, it can easily leave a place.

  18. urbanleftbehind says:

    Matt:

    Gird your loins – of all the three C’s, the Cincinnati metro area, particularly Butler County and even more so Northern Kentucky have some rather large inflows of hispanic population. Anecdotally, I’ve known two families that have moved from the SW side of Chicago to Fairfield OH and Florence KY, respectively. Also, my fraternal organization also started a chapter recently at NKU (which was recently brought up as a surprisingly “large” university in the Columbus Rebranding thread).

  19. Matt Hall says:

    Nothing you write, urbanleftbehind, in any way contradicts, or even directly addresses, my comments. What connection do you see between what you’ve written and what I’ve written? Your point is lost on me.

  20. urbanleftbehind says:

    Matt:

    I suppose I can only go so far on what in a law enforcement context would be on less-than-flimsy evidence. Your identification of Miami, Phoenix, along with Los Angeles as “unpleasant” experiences on top of your legitimate doubts about diversity as-a-an-end-in-itself may lead some to conclude you are not keen on hispanic in-migration. Admittedly, LA (especially the inland areas), Phoenix and Miami represent the spectrum of moisture settings (from opressively dry to oppressively human) coupled with unbearable heat – that alone could account for much day to day unpleasantness. Heck that’s why think I gravitated north along the lake from my native South Side Chicago as opposed to the 10 to 15 degrees warmer-in-summer west or southwest suburbs.

    My comment above was a way of saying that the Cincinnati area might have to face some of those same challenges, albeit at a much smaller/more manageable scale that clearly got the best of Los Angeles.

  21. Matt Hall says:

    I adore San Francisco and New York. They are among the most diverse places on the planet. I’m not for or against diversity. I like places that are able to successfully handle diversity and I don’t like places that fail to overcome their divisions. Diversity isn’t good or bad, it just is. How it is handled is what matters. I choose a more successful place that is less diverse over a less successful place that is more diverse. Diversity should never be a goal. Putting diversity first is like saying, I don’t care about the final dish, I only care about how many ingredients the recipe contains.

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