September 19, 2006 - From the September, 2006 issue

Kotkin Questions L.A.'s Ability to Absorb Newcomers and Maintain a Healthy Economy

While the L.A. region's countless attributes continue to attract immigrants and businesses, prosperity has not blanketed the region uniformly. While real estate and the region's other traditionally strong industries have created countless jobs, more are needed to absorb the predicted stream of immigrants over the next few decades. Noted urbanist Joel Kotkin has been tracking the region's economy, and, as he explains in this TPR interview, the city of L.A. should carefully analyze its economic development strategies so that it keeps pace with the rest of the region.


Joel Kotkin

You've been writing about the economy-globally, nationally, and here in Los Angeles-for a long time. How well is the L.A. economy performing?

I think the L.A. economy is doing OK. It is middle of the pack among big cities but certainly under-performing the rest of the region by quite a bit. And I think it has a lot of vulnerabilities; I think California has vulnerabilities, but L.A. has particular ones, especially in the city of L.A.

What are the region's current assets-the place-based resource that will drive economic growth in the next decade?

L.A. has three great assets. One is the port, which is the lynchpin of the economy, although not well appreciated. Second is entertainment. I would call entertainment the media, fashion industry-that whole cluster of industries that depend on the fact that L.A. is a trend-setter of one sort or another. The third is this vast, diversified, largely immigrant-driven economy of companies that are here just people emigrate here and want to start businesses.

One million new people are projected to be residing in Los Angeles in the next decade. Are there enough jobs to support those people; and, who will be creating the new jobs needed?

Right now I don't see anything remotely close to creating the jobs for those people. First of all, many of the people coming to Los Angeles now-as well as many kids in our public schools-do not have much in the way of marketable skills. Many of them are first-generation immigrants willing to work at low wages because it's better than, for example, being in El Salvador. The problem is that I don't think their children are going to have the same feelings.

Are we generating high-wage employment? We are doing OK in business services; we're not getting hammered the way we were in the early 1990s. But, the industrial sector continues to shrink. A lot of jobs have been created in construction, and I think that is going to decrease pretty seriously although the infrastructure bonds may help to ameliorate it. I don't see an emphasis by local leadership on: What are going to be the drivers of this economy? How are we going to make it easier for the industries that are already here to stay here? And how will we make it easier for new industries to form?

Studies by the LAEDC suggest that the city of L.A. is not producing jobs and is dragging down job growth in the county. Can you elaborate on LAEDC's findings?

I think the city of L.A. has the reverse Midas touch. The Westside is generating some jobs; it's not doing badly. The Valley has been reasonably strong. But the central core of Los Angeles is more frightening. Downtown and South L.A. have been losing jobs. Despite all the hype, the central core is continuing to hollow out, and we really need to know why is that happening. Why are businesses that are doing well elsewhere failing to flourish nearly as much in the center and the south end of Los Angeles?

Why employment not growing in the city Los Angeles?

I haven't done any serious focus groups since I last did an LAEDC study. But, I would assume that, first, some global competitive factors are affecting everyone, such as China, for example. Second, there are state factors. We should not miss the point that many terrible state regulations are coming from the same people that run the city. Mayor Villaraigosa and Speaker Nuñez are two sides of the same coin, so for Villaraigosa's people to point to the state while his buddy is running the Assembly is disingenuous to say the least. Then the city's own regulatory positions tend to make the city weaker.

What is critical now is to get an idea of what the entrepreneurs and the immigrant businesses doing, what are they thinking, and how are we going to get them to expand here? Businesspeople may keep their head office here, because they live here and want to be here, but they are going to expand elsewhere. That is bad news on the job front. And if you look at the numbers-Mike Shires at Pepperdine has done a great job with this-L.A. County is now much more dependent on small business as a driver than Orange County or the Inland Empire.

You have written about the prospects and impacts of a downturn in the housing market and in construction. Whether this downturn is soft or hard has yet to be determined, but there is little doubt that there will be a loss of immigrant entry level jobs if it happens? What must the region do to preserve job opportunities and upward mobility?

The construction boom has been great for immigrants in the sense that although it has been harder for them to buy homes, many of them are employed. I am thinking particularly of the smaller work sites. There is a lot of attention to the stuff going on Downtown, but thousands of apartments are being built in the San Fernando Valley or on the Westside, and they probably represent more work.

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At those sites, you will see predominantly immigrant entrepreneurs and a heavily Latino workforce. If that growth begins to contract, I think some very serious problems may arise. And where are we going to put that work force; how are they going to redeploy when other industries are not growing?

You have written often about biotech, and argued that there are more jobs in that sector in metropolitan L.A. than in Silicon Valley, San Francisco, or San Diego. Whether still accurate or not, how significant is that cluster for L.A.'s economic future?

There is a limit to what I can say as I haven't revisited my research. It's hard for business reporters in Los Angeles to focus on assets other than Hollywood and the media industry and the ports; those are big stories and it is difficult for other economic stories to get any traction in the media, particularly nationally.

But what I do see as a useful role model for L.A. (and people probably don't want to hear this), is a region like Houston, which built the Texas Medical Center into the largest employer in Houston, an enormous export industry, and the largest medical center in the world. Their success was a result of a coherent policy that L.A. should study.

We have the hospitals and great medical schools at UCLA and USC, but there has been no attempt to brand L.A.'s medical industry, whether it's in the biotech area or where a lot of the jobs are going to be: in medical services. With an aging population, if L.A. became known as a place where people came from the Pacific Rim or Mexico for their medical care, it would be a huge plus.

How well does the media cover business and the opportunities you research? Given the Tribune Company's demand for job cuts at the LA Times, is there much hope the region's civic leaders will follow and prioritize economic development?

I can't speak about the local print media very much, because, frankly, except for the L.A. Business Journal I stopped looking for business information from the local media. It just doesn't seem to be there on a consistent basis. The smaller papers are understaffed. Without Jim Flanigan working out of L.A. doesn't seem to be informed voice in the big media on the local scene.

The discussion about the L.A. economy is more about real estate speculation than anything else. It's not about our industries. I've seen relatively little discussion of politics either. Back in the 1990s when were having a crisis, there was some coverage of the L.A. economy. I don't see that emphasis anymore. Even when I worked with Fox TV, we did a lot of stories on the economy. I doubt we do them now.

Part of it may be that the real estate bubble has created a false sense of wealth, particularly among the middle and upper-middle classes: "Hey my house is worth $1.5 million-eh, what do I care?" I think we are going to have a rude awakening when we realize that $1.5 million house is really $1 million and you're leveraged to the hilt.

How should the business community engage political and civic leaders to direct their attention to economic development and the need for investment in our regional economy's infrastructure?

I would look first at what is happening to our industrial and warehousing blue-collar sectors, particularly given the fact that we are going to have a downturn in construction employment. The second thing is that we need to understand is why businesses are not growing as quickly in L.A. County as in surrounding counties, and in the city of L.A. compared to surrounding cities and particularly in South L.A. and Downtown.

The political leaders of the city will need to become aware that they are partially responsible for many of the negative social trends, including growing gaps between classes. They squawk about equity but often work against both. When the real estate bubble bursts, perhaps the media and the political elites will start paying attention to the fundamentals of economic growth again. It's unlikely, but there's always hope, I suppose.

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