CALIFORNIA COMMENTARY : Give a Public Hand to Private Jobs : Pure ‘market forces’ aren’t enough today. Government has a role in the economy.

In 1979, manufacturing employment in Los Angeles County stood at an all-time high of 924,900. By 1990, it had dropped to 858,900. Between 1987 and 1990 alone, severe cutbacks in the federal defense budget resulted in a net decline of 54,600 aerospace-electronics jobs in the county. The decline is likely to continue through the ‘90s.

In addition, many jobs in the region are becoming increasingly low-wage and low-skilled as sweatshop factories continue to make strong inroads into the local manufacturing base.

To compound these problems, Southern California’s manufacturers are likely to face a marked stiffening of foreign competition through the ‘90s.

What needs to be done by policy-makers? One option is to do nothing and put our faith in sheer native entrepreneurial talent and the play of market forces. But we must also recognize what the “magic of the market� did to places like Buffalo, Chicago and Detroit in an earlier round of deindustrialization, just as we must acknowledge that the very visible hand of the Defense Department did wonders for the Southern California economy from the 1950s to the ‘80s.

Another response, then, is to consider whether some sort of policy intervention might be appropriate. For instance, in Japan, Germany and Italy, new kinds of capitalism are emerging in which market performance is significantly enhanced by industrial policy initiatives at the national and local levels. The recent export record of these nations is testimony to the success of these initiatives.

One of the reasons for this success is that productivity and innovation in industrial systems depend not only on individual efforts and talents, but also on the synergies that flow from the state of technological knowledge, the quality of the labor force, the availability of information, access to infrastructural services, and so on. They are also created by public agencies (like MITI in Japan) capable of providing informed guidance about long-term strategic options. These synergies are legitimate--indeed inescapable--goals of public policy.

Some attempt to distill and apply the lessons of these exemplary cases to Southern California should be encouraged. We urgently need action to deal with such issues as:

-- The conversion of excess defense industrial capacity to civilian uses.

-- The provision of technology innovation centers to ensure more rapid flow of knowledge from research institutes and universities to the factory floor.

-- The establishment of agencies to provide seed capital for high-risk infant industries (such as the electric car).

-- Education and retraining programs for workers to ensure a continuous supply of appropriate skills for the region’s economy.

-- Private/public industry councils that can review sector-specific problems and suggest remedial action (e.g. how to shift from dependence on low-cost production using unskilled labor to high-quality forms of manufacturing that pay skilled workers decent wages).

The recently enacted Federal Advanced Transportation Systems and Electric Vehicle Consortia Act, which calls for the setting up of three regional centers for the development of advanced transportation technologies, is a step in the right direction. In response to that legislation, a local consortium of manufacturers and public agencies has been formed to develop an electric car production capability in the region. Private/public partnerships like CONNECT serving the San Diego biotechnology industry or the Aerospace Task Force in Los Angeles are also beginning to achieve tangible results. The LACTC, since the Sumitomo affair, is now attempting to reorganize its procurement programs for maximum local industrial growth. Some of these programs might be usefully directed to creation of jobs in South Los Angeles.

In many parts of the world, new kinds of manufacturing systems are being hammered out of private initiative and concerted industrial policies. This private/public interaction has become a main source of competitive advantage in the new global economy. Southern California seems to be making a tentative start in experimenting with similar approaches. In the interest of preserving and enhancing our manufacturing capacity, we need to build resolutely on these beginnings.