San Francisco — California’s economy is not only recovering, it is reinventing itself. That’s a major punchline of a new study by the Center for the New West.
According to the 32-page report, authored by Center senior fellow Joel Kotkin and Steve Levy of the Center for the Continuing Study of the California Economy, the state’s current economic turnaround is being fueled by rapid growth in new, high tech and creative industries that position the state for global leadership in the next century.
The California economy is increasingly characterized by key changes. These include:
- A permanent and dramatic shift away from employment in large companies, especially in the defense and aerospace industries, to increased employment in smaller companies. Companies with fewer than 100 employees now account for more than 50% of the state’s workforce compared to 42% in 1979.
- Rapid growth in New Economy “knowledge industries” like apparel and automobile design, multimedia, computers and software. Examples: California is adding two jobs in entertainment-related industries for each job lost in aerospace. Computer services now employ 160,000 highly skilled workers in California compared to just 20,000 workers in 1975. California leads the U.S. in high-wage job growth. Employment in engineering and management services jobs has nearly doubled in the past 10 years in California. The state accounts for about half of all biotechnology jobs in the U.S.
- Increased growth in exports, especially to Asia and Latin America. Exports of California products to Mexico have jumped by 63.8% and to Hong Kong by 88.2% since 1990. The state’s total exports increased by 19% in 1995 alone. Much of this growth in exports is in “high tech” products.
- California will continue to be transformed by immigrants. California is now home for a full one-third of all immigrants entering the U.S. Result: California reaps enormous benefits from immigrant energy, know-how and connections to foreign markets. Example: in Orange County, six of the largest industrial companies are run by immigrants, o Companies that rely on the state’s deep reservoir of talent and its networks of small, specialized firms and research institutions will continue to be attracted to California as long as California remains the intellectual and scientific center of the U.S.
Restructuring in California is not limited to the economy; it is also evident in the way businesses operate. Following the example of the state’s movie industry, increasing numbers of industries are characterized by networks that mobilize flexible or temporary workers, virtual organizations and freelance professionals brought together for specific projects.
There are some downsides. Real estate markets, although improving, still lag behind other sectors. Tort reform, education reform and other public policy issues need attention.
But California’s cultural diversity and America’s commitment to free trade is bringing major benefits to California and to other states, especially in the Western region. The California comeback story should serve as a warning to the nativist and protectionist views of GOP presidential hopeful Pat Buchanan and to President Clinton’s foot-dragging on the expansion of NAFTA into South America.