Getting Back To Business

AMID THE AFTERSHOCKS STILL SHAKING Woodland Hills, chiropractor Mike Spagnoli is counting his losses. The remains of a parking garage occupy the Olympic-size pool, and the X-ray machine lies on the floor. After three years of catering to ailing athletes and actors, Trillium Sports Medicine Associates is closed, its staff of 18 trying to treat patients with house calls. Spagnoli, still on the line for the loan used to outfit the clinic, is setting up temporary quarters in a hotel while he ponders whether to rebuild his business in California or return East. "I don't want to move back there, but economically I may have to," he said after last week's temblors.

Spagnoli is not alone. At a time when the rest of the nation is finally feeling an economic resurgence, the once Golden State is still wallowing in uncertainty. The unemployment rate, 8.7 percent, is 2.3 points above the national average. Employment, which peaked at 13 million at the end of 1990, is a million jobs short of that total today. Gov. Pete Wilson, facing a tough reelection campaign this fall, is trying to convince voters that a "California comeback" is underway, but so far he has won few converts. Yet Wilson isn't far off the mark. For all the gloom, California's economy is on the mend--and the massive job of rebuilding may make it mend all the faster. Says Safi Qureshey, head of Irvine-based computer maker AST Research, "I think California has turned the corner."

That doesn't mean a return of an '80s-style boom. Far from it. Commercial construction is at a standstill statewide after a decade of overbuilding, and the cuts in defense spending that have devastated southern California's airplane and missile industries are far from over. "We've lost 150,000 jobs in aerospace, and we're going to lose another 80,000 jobs over the next six years," predicts UCLA economist Larry Kimbell. But the fact that the post-cold-war build-down lies at the root of their recession hasn't spared Californians considerable soul-searching. After a series of corporate departures to places like Phoenix and Salt Lake City, Wilson and the Democrat-controlled legislature finally rewrote the state's costly Worker Compensation law, which had defied decades of reform efforts. Taxes on business equipment were cut, too, in the hope of inducing manufacturers to stay. "Companies go where they're wanted and they stay where they're appreciated," says James Morgan, CEO of Applied Materials, a Silicon Valley equipment maker. "Governments at all levels are beginning to appreciate that more."

California, without doubt, is an expensive place to do business: Countrywide Mortgage of Pasadena figures it spends $120,000 a year just on an employee vanpool program to comply with clean-air rules. Nonetheless, the state that accounts for one eighth of the nation's total output retains a remarkably dynamic economy. The San Francisco Bay Area, more reliant on finance and high-tech research than the south, left recession behind a year ago. The Central Valley, too, is growing strongly, paced by the food-processing industry.

California is still a fount of infant industries like biotechnology; of the 100 fastest-growing companies in Inc. magazine's annual list, 32 are based there. In Silicon Valley, chip makers like Intel are flourishing as their Japanese competitors retreat, and hot young Valley companies like Cisco Systems and SynOptics Communications dominate the fast-growing business of tying networks of computers together. The incipient multimedia revolution is a boon, too. "Los Angeles, and California in general, are as competitive as they ever have been in film and television production," says Charles Slocum, a consultant to entertainment-industry unions. With cable networks demanding endless hours of programming, employment in TV and motion pictures has soared 25 percent in just three years.

Perhaps the biggest boost has come from foreign trade. The adjoining ports of Los Angeles and Long Beach are all but invisible to the public, but their dozens of container cranes and warehouses for storing everything from newsprint to petroleum coke have made them into the nation's largest center for imports and exports. An estimated 200,000 jobs depend on the ports, many at small companies that broker deals or haul containers. All signs are bullish, save one: so many trucks and trains clog the port area that dockside delays are mounting. The state is pushing a $1.8 billion plan to build new truck and rail links from the ports to the Los Angeles rail yards, breaking the portside bottleneck.

If things are looking up, why are so many people escaping California? That much vaunted out-migration deserves a closer look. Although roughly 250,000 more Americans have left California than have moved there since 1991, "those leaving tend to have less income and lower education levels than those coming in," reports Elizabeth Hoag, a state demographer. In short, California is exporting middle-aged workers who can no longer find jobs in its shrinking manufacturing sector, but it is still a big importer of youth--no mean achievement for a state that has earned its living on innovation.

Wilson has adopted a two-pronged strategy to convince Californians that he deserves another term. He casts himself as the man forced to make "tough" budget choices that will allow the state to "soar" later. And, as often as possible, he talks about other issues, such as immigration and crime. Among the earthquake's casualties was a two-day "crime summit" Wilson had slated for last week.

Wilson's leading Democratic challengers, state Treasurer Kathleen Brown and insurance Commissioner John Garamendi, on the other hand, are talking about the economy at every turn. Both argue that Wilson's cuts in education spending imperil the future growth of an economy dependent on a highly skilled work force. Garamendi pushes schemes to create new industries building high-speed trains and designing electric cars. Brown charges that Wilson has put forward no coherent plans for recovery. "This can be done better," she says. "Let's get on with fixing [the economy]." Will the economy look healthy by November? For Wilson, that may not matter: as George Bush learned at great cost in 1992, there's nothing that annoys voters more than an incumbent chirping about the end of a recession.