The California Puzzle : Hard-pressed by recession, can the state’s economy remake itself to face new realities?

FRESNO —  Jose Gonzalez has done just about every job there is as a Central Valley farm worker--from hoeing cotton to picking peaches, grapes and tomatoes.

“I was raised in the fields,” he says.

But like many of his friends, Gonzalez decided to forsake the fields for the factory floor, and he now makes twice as much keeping electricity and water flowing smoothly at Nisshinbo, a state-of-the-art Japanese yarn-spinning and textile-weaving plant in Fresno.

“Out in the fields, there are too many variables,” says Gonzalez, 27, who is also attending college in hopes of becoming the plant engineer. “Here you can plan for the future.”

In their low-profile ways, Gonzalez and Nisshinbo symbolize the “conversion” mentality sweeping like a wind-whipped wildfire through the California economy.

Faced with unsettled times and layoffs, workers are retraining for new careers. Farmland is giving way to light manufacturing. Corporations are thinking more globally--and leaner. Befuddled defense companies are sizing up commercial alternatives to military contracts.

California has churned with change for decades, often to the benefit of lucky ones like Gonzalez. But this time around, economists say, the recession that has so sapped the state’s resources and optimism has hastened manytransformations and, often, intensified their pain. This time, California is having to remake itself while in a crisis mode.

For a state accustomed to making success look easy, the new order is daunting. If fundamental adjustments are not tackled now, the economy could be in for a rough haul for decades to come.

At stake is nothing less than California’s reputation as the Golden State, a growth engine with boundless opportunities.

Since mid-1990, the state has lost more than 900,000 jobs from a base of 14.4 million. Personal income in California declined in 1991 for the first time since 1938.

Concerns about business climate--especially the troubled workers’ compensation system and burdensome regulation--eat away at confidence in California’s ability to thrive economically and attract new blood. Los Angeles struggles to recover from the calamitous riots of last April.

If, as tennis ace Andre Agassi says, image is everything, the signs point toward California’s being on an inexorable slide.

“When you have structural change simultaneously with recession, the impact is incredible,” says Robert K. Arnold, senior economist at the Center for Continuing Study of the California Economy in Palo Alto. “It’s hard enough when you’re fully employed.”

With Gov. Pete Wilson and lawmakers absorbed by political wrangling and chronic budget problems, an overriding vision for California’s economy is not likely to emerge from Sacramento.

Economists nonetheless predict that hard-hit Southern California will nearly recover by the turn of the century to its pre-recession strength. Despite suffering 85% of the state’s job losses during the recession, it will remain the state’s key region. The Bay Area will probably show a slight decline, with San Diego, the San Joaquin Valley and especially Sacramento picking up the slack.

Change is happening region by region, industry by industry, company by company.

“There are 18 million things going on in isolation,” complained Steve PonTell, president of the Inland Empire Economic Council in Ontario, Calif. “Other states are way ahead of us. Our economy is suffering as a result.”

In some pockets, however, adaptations are well underway.

Nowhere is change more evident than in the fertile Central Valley, where cotton and grapes have for years been yielding to a bumper crop of light manufacturing, biomedical and back-office operations lured by low costs and plentiful land.

With workers and retirees forsaking high-priced, coastal metropolitan areas for the farm belt, auto malls and chain discounters are moving in too. Wal-Mart opened in November at the edge of a working vineyard in Selma, just south of Fresno on state Highway 99. The chain has other outlets planned or already open in Visalia, Porterville, Hanford, Fresno and Madera.

Doug Nelson, owner of a hardware store in Selma’s modest central square, fears that downtown will suffer from the discounter incursion. “But I don’t think there will be anything to stop it,” he adds.

All this “rurbanization” poses big trouble for agriculture.

Increased air pollution--mostly from traffic--has reduced some crop yields by 10% to 20% between Fresno and Bakersfield, says Harold O. Carter, director of the Agricultural Issues Center at UC Davis. With residents more wary of pesticides, farmers are having to reduce their dependence on chemicals. Water is also an issue.

Agrarian die-hards loathe the shifts, but others say change is necessary to keep the Central Valley vibrant.

“The whole San Joaquin Valley . . . really needed diversification,” notes Marilyn Hamilton, senior vice president of marketing for Quickie Designs, a maker of custom, lightweight wheelchairs in Fresno. It is one of five wheelchair manufacturers that have turned Fresno into an industry hub.

A former tennis champion and Olympic skier from nearby Dinuba, Hamilton helped found Quickie in a garage after she lost the use of her legs in a 1979 hang-gliding accident.

Now owned by Sunrise Medical Inc. in Torrance, the company produces more than 1,000 colorful, modular wheelchairs a week in a big plant at the edge of a row of office parks built on former agricultural land. It has 450 employees.

After some early misgivings, Quickie executives who transferred from Southern California have warmed to Fresno as a place to live. They bought bigger houses and dispensed with long commutes.

But the influx of such white-collar workers from the Bay Area and Los Angeles has given Fresno growing pains. The community debates whether to require water meters. Badly needed school bond issues fail. Inadequate roads pack up at peak times.

“Some people, like myself, are concerned that Fresno doesn’t know what it wants to be when it grows up,” says Tom O’Donnell, Quickie president. “The question is whether we can provide all these desirable people with desirable jobs.”

As good as Fresno has been to Quickie, O’Donnell finds the cost of doing business in California troublesome. Expansions, he says, will probably take place elsewhere.

Selma, population 16,000, is also coping with the move away from agriculture. Still labeled “the Raisin Capital” by local boosters, this sun-drenched town is known in Japan for hydraulic-lift work platforms made by UpRight Inc., a factory that got its start in the Central Valley making grape harvesters.

UpRight shed its dwindling harvester business two years ago in favor of its far bigger construction equipment operation. The timing was far from ideal, but, thanks to newfound customers in Japan, UpRight is weathering the U.S. building downturn that has pummeled California.

“I hate to think where we’d be if we didn’t have the Japanese business these last two years,” says Jim Dillon, general manager. “I’m not sure we’d be here.”

UpRight moved its corporate headquarters from Oakland two years ago to save money and has laid off about 80 workers during the recession. The plant’s sales are down by a third from better times--to about $30 million this year.

But Japanese contracts and a growing business in Europe, served by UpRight’s plant in Ireland, are helping the company ride out the downturn. “There have been a lot of adjustments in manufacturing,” Dillon says. “They will make us more competitive.”

The state’s defense and aerospace industry is also struggling to cope with cutbacks and find a new identity. It lost 79,300 jobs in Los Angeles County alone since 1988--a decline of 28%. Counting associated jobs lost when defense jobs disappear, the total drop is more like 238,000, according to the Economic Roundtable, a public policy research organization in Los Angeles.

The industry’s downturn is rippling through the Inland Empire, where defense cutbacks are blamed, directly or indirectly, for 10%-plus unemployment. Riverside and San Bernardino counties had grown rapidly in the 1980s as aerospace workers flocked inland to find affordable housing.

“I am all for the peace dividend,” says Robert Pollin, associate professor of economics at UC Riverside, “but you have to do it in a rational way.”

At UC Riverside’s College of Engineering, the nascent Center for Environmental Research and Technology--a joint effort by the university, industry and regulatory agencies--is looking at ways to convert the defense industry and preserve the region’s highly skilled worker base. The center is focusing on development of mass transit and clean-burning fuels.

As many as a dozen technologies have been earmarked. One is fuel cells, “clean” devices now used to power spaceships. Fifteen years from now, scientists say, fuel cells could find a large commercial market in automobiles.

AiResearch, a Torrance division of Allied-Signal Corp., is deciding whether to pump its own funds into fuel cell research or to join forces with other companies. The payoff from such an investment can seem distressingly distant.

“We’re trying like everyone else to make a rational transition,” says Colin Stancliffe, AiResearch’s chief engineer of space systems.

But Pollin fears that the quick-moving Japanese will wrest such anti-pollution markets away before Southern California gets its act together. “My prediction is . . . in five to six years, we’re going to have discussions like we did about Japanese cars,” he says.

As they try to reconfigure themselves, companies appear to be getting little help from the state’s beleaguered financial institutions.

“Defense companies have had a much harder time getting money than companies in other industries,” says Barbara Bruser, a former banker who advises aerospace companies on corporate financing.

“The fear I have is that we will lose this (manufacturing) capability in just a few years, but to build it up again would take a long time,” she says.

Change has also come to Silicon Valley but for different reasons.

High costs have driven electronics manufacturers--linchpins of the Bay Area’s economy the last 20 years--to expand elsewhere.

“We’re simply no longer competitive with other parts of the world,” says Gary Burke, president of the Santa Clara County Manufacturing Group, a trade organization.

An exception is Intel Corp., which in October began adding a $400-million microchip manufacturing plant and 250 jobs at its Santa Clara headquarters. A key factor, Intel officials say, was the state’s help in carving off about a year from the 18 months normally required to secure permits.

Burke acknowledged that diversification in the pioneering computer region should help even out future economic vagaries. Silicon Valley now has more companies involved in research and development, software, telecommunications, biotechnical fields, electronic instruments and computer data storage.

But the loss of manufacturing eventually will “hollow out” the economy, he says, with wages clustered at the high and low ends.

As painful as the upheaval in California has been, “the economy has become a lot more efficient,” says Ted Gibson, principal economist with the state Department of Finance. By driving down housing prices, the downturn has also succeeded in making California more affordable.

Gibson pointed to a few pluses: California’s fabled strengths in high technology; continued growth of Pacific Rim markets; expected booms in tourism and entertainment; an older, more experienced work force, and the potential benefits, especially for Southern California, from the proposed free trade agreement with Mexico and Canada.

But the go-go days are gone for now.

“One thing becomes crystal clear,” Gibson says. “The ‘90s, when all is said and done, will be a very slow-growth decade.”