California takes wing again as Clinton opens throttle

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AFTER struggling through a truncated version of seven years of plague, California is ebullient about the dollars 6bn ( pounds 4bn) Saudi Arabian plane deal. Last week in Los Angeles, on a visit that coincided with President Clinton's White House announcement, I witnessed one of the few celebrations Californians have enjoyed in five years.

Their jubilation is over jobs. Suffering from the combined effects of recession, big military spending cutbacks, earthquakes and other natural disasters, California is due a good turn.

The news that Saudi Arabia had chosen Boeing and McDonnell Douglas over rival Airbus was particularly welcome in southern California. The planned purchase of 50 jetliners means that McDonnell's struggling Douglas Aircraft Company in Long Beach will not have to close, saving 11,000 jobs in this area alone. Nationally the purchases will keep up to 100,000 US workers employed for five years.

California is a good place to assess both the impact of similar future deals on US industry and the new realities of competing for business globally. Just as US industries and the job foundations of entire states are undergoing dramatic restructuring, so too are the methods of seeking new markets. To begin, the White House announcement of the Saudi deal was a moment of high drama, signalling a much more aggressive stance by the Clinton government in helping US companies to gain big export markets. The transport industry, which includes aviation, is one of six major categories selected by the US administration on its Big Emerging Sectors (BES) list, where American companies have comparative advantage abroad. Many of these opportunities will be in Big Emerging Markets or BEMS, a list of 12 high- growth-potential countries that the US has singled out for high-level White House attention. This is a big departure from past US policy.

Traditionally, the administration in Washington and Big Business have stayed at arm's length. However, in the name of 'economic security', a policy begun by the Bush administration but greatly enhanced by Mr Clinton, the administration has promised to work hand in glove with US business. This means full service support: help in identifying opportunities, in clinching the deals with or without presidential visits and help in financing the deals.

The Saudi agreement also illustrates the potential negatives of this sort of high- powered deal-making which the US, an economic superpower, has now joined. Saudi officials took the decision to buy American only after intensive lobbying by President Clinton and competing visits by top officials of Britain, France and Germany. Both John Major and President Mitterrand made the trip on behalf of Airbus. The victor, President Clinton, announced triumphantly from the White House: 'This demonstrates that we are serious about working with American business in winning these battles.' Let us hope the skirmishes do not turn into Big Power commercial export wars.

Similarly, the competitive edge domestically has the potential to take a negative turn as local governments intensify their involvement. For example, on this visit to Los Angeles there were charges of foul play against Pete Wilson, the governor of California, by two leading Michigan officials. Mr Wilson was accused of making a secret deal with Detroit's big car companies to relax California's stringent environmental standards in return for a pledge of moving jobs to his beleaguered state.

The 'jobs extortion' charge, flatly denied by the governor's office, was made by Carl Levin, a senator, and John Dingell, a member of the House of Representatives. Because of its smog problem, California is free to set its own clean air standards. The Michigan legislators complained to the White House that this exemption from federal jurisdiction was never intended to give California a bargaining chip with industry. Even though Mr Wilson insists that there are no such deals, the incident points to the potential for state-to-state warfare on jobs.

As a result of the Saudi deal dozens of southern California aircraft component companies have been given a reprieve. These include Northrop, Rohr Inc and Allied- Signal, suppliers to both Boeing and McDonnell, who have suffered through slumping sales and brutal cutbacks in jobs.

An estimated 120,000 California workers have lost their jobs in aerospace and defence- related industries.

The Saudi deal is expected to prevent further job erosion, not to result in new jobs. But for a company such as Douglas Aircraft, merely protecting the status quo is crucial to survival. In four years its employment base has plunged 75 per cent from 42,000 workers. New orders had almost dried up.

Business from the Saudi purchases is a lifeline that may allow it to stay afloat permanently. These are the stakes for which heads of governments and governors of states are now competing.