Flight from California: Cutbacks at McDonnell Douglas accelerate the decline of an industry that underpins the Golden State

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The Independent Online
THERE might have been more of an outcry had the script not been so familiar. The announcement that McDonnell Douglas, the troubled American aerospace giant, is undertaking a shake-up and closing two big parts plants was yet another episode in the same unhappy plot.

At least that is how it appeared to California's once huge, but fast shrinking, defence and aerospace industry. For its many thousands of employees, the post-Cold War headlines bring nothing but bad news: Lockheed's F-22 Advanced Tactical Fighter is being assembled hundreds of miles away in Georgia, while its plant at Burbank, Los Angeles, is wound down. Hughes Aircraft is to reduce its workforce by 9,000. Northrop is in the process of eliminating 1,500 jobs on the B-2 Stealth bomber programme. McDonnell Douglas's latest cutbacks are expected to cost thousands more jobs.

For California, the United States' most populous and advanced state, these are blows upon a rapidly deepening bruise. A state proud of its position as the world's eighth largest economy, sandwiched between Canada and Britain, is haemorrhaging jobs. Around 750,000 have been lost since the start of the present recession, which is widely billed as the worst slump since the Great Depression.

In the past 12 months alone, an estimated 35,000 jobs have disappeared in the aerospace industry, mostly in the Los Angeles basin, the largest industrial centre in the US and home of the bulk of the state's defence- related jobs. Unemployment has dipped recently, largely because of summer jobs, but it still stands at 8.9 per cent, above the national rate. There are few who expect it to fall in the near future, and many who forecast that it will rise.

According to the Business Forecasting Project, a think- tank at the University of California in Los Angeles, defence and aerospace jobs will continue to evaporate for some time; it forecasts 30,000 more will go before the end of 1994, reducing the number working in the industry in California to around 250,000.

'It is difficult to see how the situation can get worse,' said David Hensley, an economist with the project. 'But it will.'

The damage is already taking effect. Defence spending may only comprise about 7 per cent of the gross state product, but it is one of the main turbines of the economy. Those making missiles, aircraft parts or components for the US space programme are among the highest- paid industrial workers in the state, averaging dollars 42,600 a year ( pounds 22,100). Economists estimate that between 1.5 and 2.5 jobs depend, indirectly or directly, on every Californian defence job.

'The state is very vulnerable,' remarked California's Republican governor, Pete Wilson, in one of his increasingly frequent gloomy moments. 'The economy is driven by aerospace and by real estate, which is flat as a pancake. The weakness of the two pillars has put the state at risk.'

Such pessimism is proving infectious, a condition that serves to further undermine consumer confidence and deepen the slump. Housing sales have plunged, businesses are failing at record rates, and there are millions of square feet of vacant office space - more in Los Angeles than in New York and Seattle put together.

None of this is helped by the state's decision to issue IOUs in lieu of payments, because Mr Wilson and the Democratic legislature are deadlocked over California's budget. Mr Wilson is proposing deep spending cuts, which will result in yet more lay-offs, in an attempt to remedy an dollars 11bn deficit.

These days many Californians are sick of being reminded that they live in what was once universally characterised as the Golden State, a land of boundless opportunity, of entrepreneurs, limitless venture capital and big ideas.

A poll was published this month which found that only three out of 10 Californians believed their state was the best place to live, compared with 75 per cent who believed it in the boom years of 1985. Riots, earthquakes, drought, and an ailing economy have finally disrupted the myth.

Some business executives are so disillusioned that they are simply leaving. Finding a removal company in southern California is increasingly difficult. They are heavily booked, transporting workers for dozens of companies which have decided to try their luck in other states, attracted by lower taxes, less stringent workers' compensation and environmental laws (manufacturers need dozens of permits to set up shop in Los Angeles) and by aggressive promotional campaigns.

For example, Lucas, which bought a number of West Coast aerospace businesses, has moved the bulk of its helicopter gearbox production from Los Angeles to a purpose-built factory at a ski resort in the Utah Rockies.

A recent study by a business consortium found that 668 manufacturing companies had either relocated or expanded outside California in the past five years, with the loss of 92,000 jobs. 'The intellectuals who moved to California because of the defence industry in the late Thirties and Forties are, for the first time in history, having a reverse migration,' said John Simon, a former aerospace worker who is now an industry analyst.

But the critical question is whether California, famous for its economic resilience, can rebound. Fresh Pentagon spending reductions, currently running at about 7 per cent a year, are likely after the presidential election. In past culls, such as the cuts which followed the Vietnam war, redundant defence workers have been absorbed in related industries. This time the options are limited: the natural alternatives - commercial aircraft industry, space, and high technology - are all in the doldrums. Combine that with the rest of the picture - downturns in banking, real estate, start-ups, tourism - and the outlook is grim indeed.

'This year is a write-off,' said Mr Hensley, 'When the turn-around does begin to happen, it will be extremely weak, as we slowly dig ourselves out of the hole we are in.'

(Photograph omitted)