Two major California economic sectors face headwinds

This story appeared on Calmatters

A truck drives out of the Long Beach Container Terminal in Long Beach on Nov. 30, 2021. Photo by Damian Dovarganes, AP Photo

In summary

Two of California’s most important economic sectors, Southern California’s logistic industry and the tech industry in Silicon Valley, are facing threats to their futures.

During World War II, California became the staging point for the Pacific Theater and an industrial powerhouse that manufactured ships, planes and other implements of warfare.

Industrialization, which continued after the war, replaced resource industries such as agriculture and mining in economic importance and fueled California’s postwar population boom into the nation’s most populous state.

However, California’s industrial age was relatively short-lived. By the 1970s, factories were beginning to close, sparking uncertainty about the state’s economic future.

Southern California economic and civic leaders opted for what came to be known as “logistics,” making the region the prime entry point for the goods that a resurgent Asian economy was producing for the American market.

The region committed billions of dollars into upgrading the twin ports of Los Angeles and Long Beach and improving transportation facilities to whisk goods from the ports into massive warehouse complexes in Riverside and San Bernardino counties. Logistics created millions of new blue collar jobs, particularly for immigrants pouring into the region from Latin America and Asia.

Meanwhile, the state’s other major metropolitan area – the counties surrounding San Francisco Bay – opted for exploiting the region’s cutting-edge research into the possibilities of silicon chips. As high technology corporations such as Apple, Intel and Facebook exploded, they transformed quiet suburban communities into what came to be known as Silicon Valley.

The Bay Area became California’s most important economic engine, drawing investment capital and ambitious techies from every corner of the globe and creating enormous wealth that, among other things, is the state’s most important source of tax revenue.

Overall, the decisions of the 1970s on post-industrial economy worked out better for the Bay Area than they did for Southern California – especially after the end of the Cold War in the early 1990s nearly wiped out Southern California’s last remaining major industrial sector: aerospace.

That said, the economic mainstays of both regions now face existential threats.

Southern California’s logistics industry is being whipsawed by a decline in ship traffic due to tougher competition from East Coast ports, local transportation bottlenecks, new air quality mandates, such as eliminating diesel-powered trucks, that raise costs, and increasing opposition to inland warehouse expansion.

Last month, a coalition of 60 Inland Empire groups sent a letter to Gov. Gavin Newsom, asking for a moratorium on warehouse construction, citing environmental degradation from heavy truck traffic.

“We have a right to a life not impacted by asthma, heart disease, cognitive, and reproductive problems related to pollution exposure,” the letter states. “We have a right to not be made sick by the air we breathe.”

Four-hundred miles to the north, meanwhile, Silicon Valley is seeing thousands of jobs disappear as major technology firms slash their staffs and a major out-migration of workers who cannot afford to live in the region’s superheated real-estate market. More than 90,000 workers left the region during the first two years of the COVID-19 pandemic, and venture capital has declined sharply.

Last week, a local industry group, Joint Venture Silicon Valley, issued its annual report on the region’s economy, highlighting its transition from a yeasty mixture of start-up companies to reliance on a few giants such as Apple.

“Tech is going through a painful period,” Russell Hancock, president of the organization said as the report was issued, but added, “There is no way to construe what is happening as a crisis” for the tech sector.

Perhaps not, but the fact remains that Southern California’s logistics industry and the Bay Area’s technology industry are facing headwinds they had not experienced previously, and the stakes in their futures are immense for the entire state.

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