California may be the nation's super-state, but Los Angeles ranks as the dominant metropolis of the western United States, and only the second western city among the world's 10 largest. In some senses, its importance on the global stage, and within the context of the United States, surpasses that of the entire state of California.

Yet amid the intense global competition among cities, and within California itself, Los Angeles faces the prospect of a long, continuing decline. As a mega-city, Los Angeles enjoys many critical advantages -- a large and expanding diverse population, infrastructural links with both Mexico and the Pacific, and numerous world-class cultural assets -- but it also suffers from many of the problems associated with all giant urban areas.

More troubling still, the region appears ill-equipped to deal with these urban problems, ranging from an overstressed infrastructure to a growing gap between rich and poor, often dysfunctional educational and political systems and soaring housing costs. The region is increasingly challenged in its competition against other cities -- from fast-rising Phoenix and Houston to the great Asian capitals -- in the battle for investment, jobs and economic resources. The expected addition of another 6 million people over the next 20 years will place new strains on the region's resources and its ability to create sufficient jobs. Yet for the most part, greater Los Angeles -- particularly its core of 10 million people in Los Angeles County -- seems to be shifting away from its historic focus on wealth-creating investments in infrastructure, economic growth and support for an expanding middle class.

These elements were critical to the area's rapid rise in the first 90 years of the 20th century, including the development of the Port of Los Angeles, the red car transportation system, the freeways, the water and power systems and the community colleges, among others. These not only positioned Los Angeles for rapid growth but also enabled it to expand a large and thriving middle class. Such an approach was characteristic not only of the Republican progressives, but also business-minded conservatives and the labor-liberal alliance, which gained increasing influence. Under the administration of Mayor Tom Bradley, the city invested heavily in its downtown core, its port and airport. It also took the first, if often poorly conceived, steps toward redeveloping a mass transit system.

The decade of the 1990s saw a dramatic shift in this perspective. Politicians and community groups successfully challenged the premise of the region's "growth machine" and the growth ethos that had driven the city since the early 1900s. By the 1990s, new regulations and rising home prices made Los Angeles the seventh most-expensive city of 100 communities in America for business.

Following the disastrous economic collapse in the early 1990s, in which L.A. County accounted for some 70 percent of the state's total job losses, there occurred an accelerated shift of business out of the city's core areas. A good part of those losses -- particularly the downsizing of military spending in the area -- grew out of decisions made at the Pentagon, some as a result of the end of the Cold War and some due to the siphoning of business to other states, notably Texas and Georgia, with greater pull in George H.W. Bush's Washington.

But many of the businesses that left the area had little or nothing to do with defense. Those losses were further deepened by a series of devastating social and natural disasters. A riot in 1992 resulted in 59 deaths, destroyed 4,000 businesses, led to 15,000 arrests and caused $370 million worth of damage, mostly in heavily Latino or African-American communities. Subsequently, fires and a major earthquake struck greater Los Angeles. Local confidence fell. Neighboring areas like Phoenix were quick to portray Los Angeles as a "simmering stew of despair," a hopelessly divided city from which most of the middle class was desperately trying to escape.

Reacting to the region's loss of confidence, large public firms relocated to places like Houston, Atlanta, Philadelphia, San Francisco, Minneapolis and even hard-pressed St. Louis. Between 1968 and 1998, the number of Fortune 500 firms in greater Los Angeles fell from 12 to seven. From 1991 to 1996, the number of commercial banks based in Los Angeles County dropped from 130 to 100 and financial-institution employment declined from nearly 100,000 to fewer than 70,000. Such trends prompted the Los Angeles Business Journal to warn that Southern California was becoming "the largest repository of subsidiaries in the world."

The once-powerful business community -- particularly institutions like the L.A. Chamber of Commerce -- lost considerable influence. Equally important, losses in private sector unions, such as aerospace and construction, shifted the balance of power away from growth-oriented, more middle-class workers to increasingly radicalized public sector employees. The old business-labor coalition, so critical in the Bradley years, collapsed.

As a result, despite the eight-year mayoral reign of businessman Richard Riordan, the new political economy in Los Angeles has become increasingly dominated by a new kind of "progressivism," one that stresses remedial and redistribution as opposed to growth-oriented policies. Riordan could mitigate the effects of some of these policies, but he could not stop them, much less redirect the city's policies in a radically new direction.

This new approach to progressivism can be seen in the adoption of such policies as "living wage" ordinances, the push of "inclusionary zoning" and government-centered policies to increase housing. Such policies tend to benefit only small, select groups of people, usually not the critical middle class. They may make the politically correct classes feel better about themselves, but they do not address the fundamental issues that can spur increased private investment and job creation. At worst, they can serve to discourage private investors by further raising the cost of doing business in Los Angeles.

Perhaps even more important, this remedial approach to economic empowerment was not accompanied by a firm commitment to fixing tired infrastructure, whether it is transportation, the heavily burdened port system or the full-scale reform of a largely dysfunctional education system. It also accelerated the already large gap between the cost of government in Los Angeles and that of surrounding cities.

Needed: Policies to Expand the Middle Class

Buffeted by the perception of anti-business policies, the area produced not only less jobs, but also enjoyed a far less robust expansion in higher-paying positions than its immediate competitors in Orange, San Bernardino, Riverside and Ventura counties. Even within Los Angeles County, much of the positive job creation took place in more peripheral areas, such as San Gabriel and San Fernando valleys, regions outside the jurisdiction of the city of Los Angeles.

As a result, Los Angeles -- particularly the core city -- became ever more bifurcated between a large and expanding lower class and a relatively small, but highly affluent, overclass. These conditions were further exacerbated by an increasingly ambivalent attitude among local leadership about economic growth. In many instances, concerns about the environment or social justice gained priority over sustaining job growth and business creation.

Today, many in the regional policy-making community no longer perceive the fundamental connection between fostering economic growth and enhancing the social well-being of the citizenry. They seem utterly indifferent to the notion that in an economic expansion, such as occurred in the late 1990s, it is the poorest workers who enjoy the largest gains.

There is, in fact, a clear relationship between sustained economic growth and widespread upward mobility. In the early 1990s' recession, the gap between the poorest workers and the more affluent grew and the statewide poverty rate rose from 13 to 17 percent. During the subsequent recovery, the gap narrowed and poverty rates fell back to the 13 percent level despite continued, heavy immigration from poorer countries. As blue-collar manufacturing and middletier service jobs expanded, the percentage of workers in the middle-income range surged.

Instead of focusing on ways to accelerate economic growth as a means of creating upward mobility, Los Angeles' "progressive policy makers" opted for a regime emphasizing the use of laws and regulations to mandate social outcomes. To make real social progress, Los Angeles must redefine progressivism away from this remedial approach and towards one that stresses building a stronger, broad-based economy. In a global economy, businesses cannot be expected to expand in a community whose leadership remains fundamentally indifferent, if not actively resistant, to their endeavors.

Looking Backward to Go Forward

Los Angeles must reclaim its historic commitment to economic growth and job creation as the single-most effective way to lift people from poverty and achieve upward mobility. This, in turn, means rededicating Los Angeles to what remains the most important role of any great metropolis: creating and nurturing a middle class.

Some inspiration for a future direction can be drawn from the region's progressive past, particularly in terms of the massive investment in public infrastructure and education. This public agenda was focused on a commitment to help business, particularly small and medium-sized firms. Efficient government -- particularly in contrast to the wildly inefficient and often corrupt government found in eastern cities -- was a major boon to business people coming to the region.

This approach, combining strong public investment with pro-business policies, makes even more sense today. Increasingly, Los Angeles is dominated by smaller, diverse, "no name" companies. Among the nation's 10 largest metropolitan areas, Los Angeles ranked first in the percentage of people working in firms with fewer than 100 employees and annual sales under $5 million. Roughly one-third of these companies were owned and directed by minority, or immigrant, business people.

These firms depend more on public investment, such as schools or transportion, than larger companies that can defray some of these costs internally or ship critical facilities elsewhere. What these firms need is not pure anti-tax conservatism but a political regime that focuses on an expanding economy. In this way, the region can create a "virtuous circle" where greater wealth creation allows for the provision of more government funds to finance infrastructure that promotes further expansion, growth and jobs.

Some of the major directions that Los Angeles needs to follow include:

 

• A focus on infrastructure investment at the ports of Los Angeles and Long Beach. These provide upwards of 15 to 20 percent of regional employment, including jobs in services, manufacturing and warehousing. Under current conditions and workforce rules, the port is hopelessly crowded and shippers seem increasingly likely to look for alternative destinations.
• Following the painful cutbacks of the last decade, increased anti-terrorism and wartime spending are beginning to boost high-wage defense employment in Los Angeles. But the region's lack of trained, younger workers, its traffic congestion, and its largely indifferent government, including within its congressional delegation, are holding back the gains Los Angeles could reap from this development. Local government must do more to attract and train younger workers, and to correct other problems that pose a major competitive disadvantage.
• Many parts of Southern California -- such as the critical, middle-class bastion of the San Fernando Valley -- suffer a declining perception about quality of life. Development of new parks, such as those around the Los Angeles River, and the construction of mixed-use "urban villages" that can serve as local centers of art, business and community life could restore the sense that L.A. is a desirable place to live.
• Lack of housing is driving the upwardly mobile population, particularly young families, out of the region and, in some cases, to other states. New aggressive policies are needed to encourage home building, cut legal and regulatory burdens and foster the creation of dense "in-fill" housing in appropriate places.

Winning the Future

"Every city," Plato wrote in the 4th century B.C., "is in a natural state of war with every other, not indeed proclaimed by heralds, but everlasting." Plato's prescient observation is today more true than ever. All debate about growth and political governance must recognize that there are hundreds of other communities competing for the economic resources Los Angeles so crucially requires.