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A History Of Boom And Bust

L.A.’S Ups and Downs are Nothing New, and When One Industry Stumbles Another Arises

January 6, 1997

By CHIP JACOBS
Special Correspondent

For years, the joke around Burbank was that when Lockheed Corp. sneezed, the town got a cold. Then the Soviet Union imploded, the defense contractor abandoned its historic digs for Georgia and the only ones laughing were the moving-van owners.

City brass still mourn the departure of the Fortune 500 company and the millions of greenbacks it pumped into the municipal bank accounts. Yet, Burbank is now riding atop the entertainment industry’s global boom – bullish times that have cushioned the aerospace bust there and illustrated again why Southern California’s economy is as resilient as it is confounding.

“Every time there is a vacant building, a media company grabs it,” said Burbank city manager Bud Ovrom, noting that Walt Disney Co., NBC Studios and Warner Bros. all have major expansions planned.

Lockheed’s relocation “was an immense human tragedy,” Ovrom said. “On the other hand it was a golden opportunity.”

After weathering the most brutal downturn in its history, the Los Angeles County economy is on the mend and on track to produce an estimated $242 billion worth of goods and services in 1996, only slightly less than the gravy years of the late-1980s.

The rebound is another sequel for a region that has hosted spectacular growth spurts and industry flameouts over the last 100 years.

“While affected by national trends, Los Angeles has shown itself to be the center of its own regional economy,” said historian Kevin Starr, California’s state librarian and a USC professor of planning and development.

“The means of capital and production are all in L.A. It functions as a city-state with clients all over the world,” he said.

It was in the 1880s that Southern California’s economic promise unfolded with the completion of railroad lines by Southern Pacific and the Atchison, Topeka and Santa Fe into Los Angeles.

On the way, the railroads scooped up thousands of acres of unclaimed land, converting it into citrus farming and housing tracts that attracted East Coast financiers and migrants in search of warm-climate opportunity.

In the subsequent years, the empire-minded Harry Chandler of the Los Angeles Times, railroad magnate Henry Huntington and others developed their own kingdoms around the area’s enduring gold standard: real estate.

Spurred on by the city’s relentless boosters, Los Angeles secured water rights from the Sierra Nevada-fed Owens Valley and then built a $23 million aqueduct to transport the water in 1913. The deal, engineered by city water czar William Mulholland, turned master-stroke seven years later when surrounding areas thirsting for that water were told they had to join the city – and pay part of the aqueduct tab – to get it.

When they consented, it brought the entire San Fernando Valley, the Westside and Hollywood enclaves into Los Angeles proper. Once completed, the city’s land mass swelled fourfold.

The “communities were politically forced to join the city of Los Angeles to get the water because their economies and growth would stagnate if they didn’t get it,” said Gerald Gewe, engineer of water resources at the Department of Water and Power. “Water basically created the political entity we have today.”

With the population expanding, entrepreneurs set their sights downward. Thanks to petroleum-rich geology in Long Beach, Signal Hill and Wilmington, Los Angeles County by the 1920s was pumping 250,000 barrels a day.

In the 1920s and ’30s, airplane manufacturers and movie studios both found that L.A.’s year-round sunshine was money in the bank – although they too suffered in the national Depression following the 1929 stock market crash.

But when the U.S. joined the Allies against the Third Reich and the Japanese in 1941, L.A.’s aircraft industry was positioned for phenomenal growth – turning out the P-38s and other aircraft that helped win the war.

Once the combat ended and the Cold War began, Lockheed (now Lockheed Martin), McDonnell Douglas, Rockwell International, Northrop Corp., Hughes Aircraft, Litton Industries and others would all expand their positions here, winning contract after contract to develop and manufacture a dizzying list of aircraft, missiles, satellites, radar and other Pentagon hardware.

In the 1950s, aerospace companies here routinely had 40 percent of the Defense Department’s missile budget. There was a substantial dip in defense spending after the Vietnam war, but the slide was reversed when Ronald Reagan took the White House. By 1985, aerospace companies here had $29.1 billion in prime military contracts.

What looked like it might last forever didn’t. The Soviet Union, bled dry by excessive military spending and its artificial economy, unraveled. And with the arms race over, Washington responded by lopping its own weapons budget.

The crash was on.

By 1991, the recession hit Southern California hard, affecting retail sales, housing prices and commercial office vacancy rates.

Corporations with longtime ties here relocated across state lines or into leafy nearby suburbs offering tax breaks. Blue-chippers, such as IBM and AT&T, trimmed their staffs and West Coast operations, dumping vast amounts of space.

First Interstate and Security Pacific, banks that used to anchor their own towers were swept up in mergers and the downtown vacancy rate hit 25 percent.

“The developers went way past the demand because so much money was coming in and you had the Japanese buying up buildings. There was gross overbuilding,” said Dave Zoraster, vice president of CB Commercial’s real estate appraisal group.

How dramatic was the change? In 1985, developers countywide won permits to build $50.3 billion worth of new commercial and industrial projects, according to inflation-adjusted statistics compiled by the Construction Industry Research Board.

Last year, that figure was $19.9 billion.

Even so, economists believe L.A. is bouncing back in entertainment, trade and small businesses – especially small technology firms.

Indeed, the Ports of Los Angeles and Long Beach have supplanted New York to lead the nation in imports and exports handled. International trade is responsible for 360,000 jobs, $1 million-a-day in capital improvements and rosy growth predictions.

After some lackluster years, the entertainment business is on a similar roll.

The boom, experts say, is being driven by the major media companies’ recent consolidations and the financial muscle it gave them to deepen their forays into foreign – especially Asian – markets.

There’s also broadening niches in cable television, videocassettes and new digital technologies – lines that have helped Hollywood beef up its workforce 19 percent, to 238,000, over the past eight years.

“The bottom line is that the center of gravity has shifted,” said Dan Garcia, senior vice president of real estate planning and public affairs at Warner Bros.

“Corporate (entertainment) headquarters are increasingly recognizing the importance of being in Southern California,” he said.

Jack Kyser, economist for the Economic Development Corp. of L.A. County, said the boom-bust cycles will keep rolling, even if they are harder to categorize because of the region’s size and complexity.

After all, he asks, who in the 1880s could have predicted the mighty railroads would be unceremoniously replaced by the private automobile.

“We always had something to fall back on,” said Kyser. “That’s the beauty of L.A. You can reinvent yourself.”

Copyright Los Angeles Business Journal