Web Salon: Tomorrow’s Jobs

What are the most significant economic trends happening outside of California likely to impact the state’s labor market in the next 10 years?

One would be the continued rapid growth of China and the increasing sophistication of its economy. It will not only impact California, but also other Asian nations that have business relationships with China, so there will be additional impacts on the state.

We also have to watch what happens with the new members of the EU. They could become important markets, but also significant competitors. Already some of these nations are pushing to develop their film industries.

Defense and space initiatives out of Washington DC also could have an impact. We could see a surge in spending, then a decline that could cause unpleasant swings in both overall employment, but also on certain professions.

California’s chances for prosperity will depend more on the direction of national economic policy than on anything going on abroad. The only successful approach for the nation and state is to create the conditions for waves of new innovation and start ups.

Three things need to happen:

1. All states need to stop this stupid and self destructive state against state competition and realize that the major economic threats are between the nation and other nations–not between states.
2. The nation must regain the lead in education and innovation. This will require additional resources devoted to higher education and R&D investments in he private and public sector nationally. we can only win from the front–by perpetually being on the cutting edge.
3. A lot will depend on whether the nation can develop a consensus for reducing the federal deficit while maintaining higher levels of public investment that support economic growth.

A question for Mr. Kyser, also open to Mr. Levy,

You cite China, the EU and the U.S. aerospace/defense industry has each having a potentially large impact on some of California’s best-known and most successful industries.

Yet, we live in a very large state, home to a variety of industries. This is a two-part question: Is California’s economy becoming less diverse and more dependent on certain industries? And, as a result, will some parts of California fare better as global competition increases in certain sectors — or will all be equally affected?

California had the “manufacturer’s investment credit” to help that sector, but it expired at the end of 2003, since it did not meet the job creation requirements. In Los Angeles it was frequently used by apparel and aerospace. The irony now is that DoD prime contract awards in California are increasing. It would probably help aerospace compete if that credit were re-instated.

As to inter-state competition for business, you have to understand the vagaries of economic development. Many of the entities in this activity have to obtain funding annually, either from government or from business (members). So they need quick results — i.e., let’s go raid California. This type of competition won’t go away any time soon. (Side note: if you read the economic development magazines, it’s interesting to see who gets featured versus who advertises).

As to California’s economic base, it has become much more diverse over the last 10 years, but many of the sectors will face international competition. A challenge is getting specific industries to sit down and think strategically about the future. Also, there are still lots of opportunities to “create” new industries, but it takes a lot of work (and who will do it? Government? Probably not. Other groups? Could be but who funds the efforts?)

A question primarily for Mr. Levy but open to Mr. Kyser,

You cite both, if I may, the “distraction” of inter-state competition and the lack of support (from investors, from the government) for research and development.

I would like to you to expand on that in the case of California in particular.

Has the state of California ever been able to provide incentives for R&D — or is this largely a federal level activity?

Will the states neighboring California — e.g. Arizona, New Mexico and Nevada — continue to publicly compete against California for mobile capital and/or firms, or do you expect them to begin to compete alongside California once the international “threats” are better recognized?

The benefits of R&D are widespread and long-term, yet essential. These kind of activities are appropriate for national funding. States, including California have tried a variety of tax incentives to get manufacturing firms to locate in their state. Yet, national manufacturing job levels have fallen by nearly 3 million in the past four years and most states are cutting services because they are short of funds.

Stupidity and narrow self-interest are everywhere. Cities compete for auto malls yet the number of auto malls in a region is fixed by income and population. States compete for the location of existing jobs — yet state to state moves add nothing to overall income and job levels. Business groups in each state advocate for special interest legislation, citing the threat that jobs will move to other states.

We have a national “lack of job growth” dilemma and narrow interest and the egos of governors of all parties and convictions prevents them from coalescing around national policies to boost growth and force them to play the “my state is better than my neighbor’s state” game which adds nothing to net wealth or opportunity.

There is no clear evidence that the California economy is becoming less diverse. In general, activities that depend on constant innovation are easier for the state to maintain a leadership position in. These are usually areas involving either the introduction of new technology or involve creative skills whether in motion pictures or apparel and car design.

I think the coastal regions are still where people prefer to live and are where California’s economic leadership will continue to reside. The Central Valley’s agricultural base will come under increasing pressure from foreign competition, especially if water subsidies are gradually lessened.

We are in an “invest to prosper” world and the state (and nation) are lagging in the public sector component of investing for the future. It is time to get a move on and stop whining that we can’t afford to be an economic leader anymore.

Two questions for Mr. Kyser but open to Mr. Levy,

You describe economic development agencies and groups as having their own dynamic, independent of the overall economy — i.e., “to obtain funding annually” they “need quick results…” on the job front. This dynamic may lead to a propensity to exaggerate inter-state competition over what is often described as an increasingly scarce “commodity:” jobs.

I recently overheard an official from a neighboring state refer to the claim that businesses (and jobs) are fleeing California because of x or y government policy as “a canard;” a useful rhetorical gesture without much basis in reality.

In your estimate, should the voters of California come to the ballot box with the impression that our state is hemorrhaging jobs because of laws and regulations?

Finally, both Mr. Levy and yourself cite the need to “invest in tomorrow,” loosely speaking, as an imperative. Likewise, you both suggest that this kind of investment (whether in R&D, strategic planning on the national or state level) is not forthcoming.

If history is any guide, does long-term planning typically emerge from the public or the private sector? Are you aware of significant players, in either or both sectors, already pressuring to begin that conversation?

Comments on 1.) It will be hard to develop a national economic agenda, as politics will get in the way. Also, California might be disadvantaged due to the ABC syndrome.

2.) This is hard to answer, as all industries are changing rapidly. We should focus on high-content activities, and not industries that has a commodity type of output. One problem in job training that we encounter is that planners don’t adequately engage the actual industry. For example, our local apparel industry got so frustrated that nobody was training “middle managers” that they set up a program themselves.

[ed. note: Sacramento Bee columnist Dan Walters: In the 1980s, “California got far more dollars from Washington than we generated in federal taxes… in what came to be known in the federal capital as the ‘Anywhere But California,’ or ABC, syndrome.”]

The state and nation have lost approximately 2% of total jobs since January 2001.

The Bay Area lost approximately 10% of the region’s jobs. All eight of the other economic regions in California outpaced the nation and seven regions actually added jobs since January 2001.

All nine regions have the same tax and regulatory systems.

Readers can decide for themselves about the charges of massive job flight based on the data.

Long-term planning is done by both the public and private sector. The public sector needs to do its share in both the state and nation re: education and infrastructure.

Two final questions for Mr. Levy,

1) Do you believe a national economic agenda is likely to emerge as a response to both the jobless recovery and increasing recognition of new global competitors?

2) What recommendations would you personally make to policy makers (and the voters who legitimate policy come election time) in terms of specific industries that California should “favor” or, perhaps, “avoid”?

Yes, I believe a national agenda will develop.

California should support broad public investments in education, infrastucture and quality of life, but not pick individual industries.