The I-Love-to-Hate-L.A. Crowd Embraces the Soviet Model to Boost Local Economy : Aerospace: A report on the potential economic impact of defense cuts plays fast and loose with the data in pursuit of a government bailout.

To a public already worried about a weak local economy, the latest Los Angeles County report on the future of the region’s aerospace industry offers the ultimate in scare fantasies. Backed by a well-rehearsed chorus of corporate functionaries from 10 of the largest aerospace firms and by their government allies, the report’s “action plan” predicts the loss of up to 420,000 jobs by 1995 as a result of cutbacks in defense spending.

This latest in a series of ominous pronouncements from such groups as the county’s Economic Development Corporation depicts the L.A. area as about to become what one local media outlet called “an aerospace desert.” To head off this economic apocalypse, the report calls for a huge public bailout of the largest aerospace companies--many of which have been shifting their operations out of state for the past several years--through new investments (read: subsidies) in public transportation, energy and power technology. The effort would be coordinated by a “Los Angeles Aerospace/High Technology Council” whose membership would presumably include aerospace executives and government bureaucrats. They would direct everything, from the flow of federal assistance to the placement of venture capital in selected new firms.

Dressed up as a plan to save Southern California from de-industrialization, the EDC initiative is reminiscent of something out of the late Soviet Union. Worse, it is one of the most cynical and self-serving programs to come along in years. For one thing, the “action plan” materials released to the media by the Aerospace Task Force, which supposedly summarize the findings of a host of reputable scholars, diverge widely from much of the background research. They virtually ignore, for instance, reasonable proposals from the task force’s own scholars, which focus on smaller firms and argue that any assistance should only go to those companies committed to California.

Indeed, the “action plan” has all the markings of an analysis stretched and bent to fit the special interests of large aerospace manufacturers. In essence, the aerospace giants and their political allies in the county want to recreate the Cold War “command-style” economy to delay their inevitable clash with the more competitive global economy. To do that, the plan plays fast and loose with economic data, regional history and global realities:

-- The task force seems to have manipulated an economic-simulation exercise, performed by David Hensley of UCLA, to unjustifiably generate a “prediction” of the direct and indirect consequences of future defense cuts in Southern California. Based on average aerospace-job declines in 1990-91, Hensley arbitrarily selected the number 70,000 to estimate aerospace job losses in 1992-95. That number was then used to investigate the secondary effects of defense cuts on the local economy by 2001. The report’s authors apparently relied on this base figure to create their widely publicized middle- and high-range “forecasts” of 210,000 or 420,000 total lost jobs in the region by 1995. These “results” are, in fact, much worse than the 184,000 total job losses by 2001 that Hensley’s own research generated.

-- The plan claims the current cutbacks are unprecedented and thus warrant a huge public bailout. It further assumes that the local economy will absorb virtually none of the workers who are idled by defense cuts. Yet comparable or even worse declines occurred after World War II, the Korean War and the Vietnam War. Between 1969 and 1977, when the economy was 40% smaller than it is today, Southern California lost nearly 100,000 aerospace jobs, but the region rebounded strongly with the expansion of such new industries as biomedical devices, computers, medical equipment and textiles.

-- The plan contends that since smaller aircraft firms and suppliers are more flexible and thus already shifting into commercial fields, primary efforts should be directed toward the aerospace giants. But pinning the region’s economic future to the successful conversion of the aerospace companies to commercial enterprises is tantamount to asking an undertaker to serve as a midwife.

-- The proposed “High Technology Council,” to be staffed by the EDC and government bureaucrats, appears to have been created out of thin air by the plan’s authors. Nothing in the background research, which surveys several small-scale programs in other states, suggests that a new bureaucracy should coordinate the regional economy. Indeed, since many credible analysts contend that the industry’s problems largely stem from too much involvement with government, it seems strange to argue for more of the same to help aerospace be more competitive.

In light of these discrepancies, it is not surprising that some of EDC’s researchers are distancing themselves from the “action plan.” Whatever the EDC’s reasons may have been for its use of public money to publicize economic pessimism instead of promoting the region, its plan directly threatens vibrant high-technology sectors with unwarranted government regulation. Furthermore, the plan’s relentlessly negative portrayal of the region’s business climate and economic prospects undermines the interests of long-term stake holders in the area, such as utilities firms, real-estate interests, banks, smaller manufacturers and service providers.

Rather than devise panic-driven strategies to protect some weak-kneed economic giants that would rather be anywhere but here, we should embrace growth industries, global partners and new ethnic forces that will drive this region in the decade ahead. Some possible options, many contained in the background research and largely ignored by the “action plan,” include:

-- Offering incentives, such as eliminating all long-term capital gains from state taxation, to private venture funds to spur high-tech expansion rather than relying on the EDC or another governmental unit to set up a venture fund.

-- Promoting industrial investment by implementing such steps as the elimination of state sales taxes for the purchase of new equipment and leaving investment decisions to the entrepreneurs best capable of making them.

-- Facilitating worker training by providing “vouchers” for unemployed workers that can be used by firms most capable of put their skills to work. Smaller innovative companies and larger ones with a strong track record in non-military sales should be the chief beneficiaries.

-- Promoting the regions’s unmatched technological resources through positive efforts by local government, such as recruiting outside firms, like Airbus and Boeing, which is now looking for a home for production of its new 787 generation of aircraft, to produce locally.

These options, among others, would help stimulate the entrepreneurial forces most likely to carry Los Angeles into the next century. There’s no need to abandon free-market incentives or faith in individual initiative in Southern California, when statist policies are in retreat virtually everywhere else in the world.