Election Section

Sagging California economy not expected to shake rest of nation

By Gary Gentile, AP Business Writer
Friday October 19, 2001

LOS ANGELES – For much of the 1990s, California’s economy was the envy of the nation. High-tech gold was being mined in the north while tourists flocked to the beaches and resorts in the south. 

California provided the nation with a bounty of agricultural products and fed the culture with movies and television shows. 

Now the state is reeling from major blows to its tech, power and tourism sectors – any one of which might have been enough to send most states and even many countries into a recessionary tailspin. 

But unlike past downturns, California’s problems are not expected to shake the rest of the nation. Instead, economists say its troubles are mostly reflections of existing national trends. 

“Historically, what happened to California would happen to the rest of the country in three, six or nine months,” said Fariborz Ghadar, director of the Center for Global Business Studies at Smeal College of Business at Penn State University. 

That’s not the case this time, he said. 

California’s power woes are fairly unique, the result of failed deregulation. The tech downturn hit many other parts of the country at the same time as California, and the slump in tourism has also been felt strongly in Florida, Washington and New York. 

“At this point, we’re in the same national boat,” said Steven Sheffrin of the University of California Davis Center for State and Local Taxation. “I don’t see (the rest of the country) looking at California and worrying about what is going on.” 

The state’s problems have been brewing for several years. 

The technology meltdown that started in 1999 devastated northern California, home to Silicon Valley. Earlier this year, a power crisis gripped the state, plunging historic San Francisco and posh Beverly Hills into darkness for hours at a time and sending one of the nation’s oldest public utilities into bankruptcy. 

And on Sept. 11, terrorist attacks in New York and Washington sent a ripple across the country that overnight pulled the rug from under California’s tourism industry and threatens to saddle the state with billions of dollars in unanticipated security and other costs. 

“California has been hit disproportionally hard with a one-two-three punch,” said Tappan Monroe, senior vice president and chief economist at Applied Development Economics, a consulting firm in Berkeley. 

Most economists agree the state, like the rest of the country, is in a mild recession that could last well into next year. 

But despite continuing national uncertainty, California could recover relatively quickly if consumers regain confidence and start spending. Lower interest rates and the economic stimulus package being debated in Congress could also aid the recovery. 

Meanwhile, demand for housing remains strong while supply is tight, leading state real estate agents to predict record home prices next year. 

Another factor aiding California is its diversified economy – the fifth largest in the world if measured alone – which essentially is split between the northern and southern halves of the state. 

A decade ago, high-tech companies dominated the San Francisco Bay Area, while defense and aerospace companies fueled the powerful economic engine in Southern California, especially in the Los Angeles area. California-based industry provided jobs and exercised influence across the nation. 

The end of the Cold War and the 1991 economic recession devastated Southern California, which lost more than 400,000 defense-related jobs. And while the rest of the country began its recovery after about a year, Southern California struggled along for more than three years. 

“Northern California got the brunt of the tech upturn in the late 1990s and bore the brunt of the tech downturn,” said Michael Bazdarich, director of the Forecasting Center at the A. Gary Anderson Graduate School of Management at the University of California Riverside. 

Signs of strength are emerging in other parts of the state. 

Tulare County, nestled in the center of the state, is home to some of the richest farmland in the nation, producing more milk than any other area in the country. 

It also produces jobs at a rate good enough to make it No. 1 in job growth in the country, according to the Bureau of Labor Statistics. 

Tulare County still has an unemployment rate of 12 percent compared to the state’s 5.4 percent. But officials there are hopeful. 

“There seems to be a sense of optimism,” said Paul Saldana, president of the Tulare County Economic Development Corp.