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By Marc Levinson
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IN THE DEPRESSED SUMMER OF 1992, Rick Devine had one of those Silicon Valley ideas. Parents, he discerned, are uneasy about their children's taste in computer games, but have no simple way to test the products. Devine's inspiration was a company that would sell only the best software for kids, complete with a free tryout. Local entrepreneurs ponied up $5 million to back him. Eighteen months later, Devine's KidSoft boasts a marketing pact with Blockbuster video stores, tight links with local software houses and 34 workers hired from among California's vast army of techno-nerds.
It's a little story about a little company--but it explains a lot about why the Golden State is finally crawling back from a painful four-year recession. Hiring is on the rise, personal income is growing and real estate is staging a modest comeback. The earthquake that devastated Los Angeles in January was a godsend for the construction industry, with billions of dollars of federal aid buoying the state's most depressed region. Only 84 days after the temblor uprooted two bridges on the nation's busiest highway, the Santa Monica Freeway will reopen this week, and the otherwise routine event has come to symbolize the state's resurgence. Says Hoover Institution economist Martin Anderson: "Long range, California is a very good place to be."
At the moment, few Californians share that view; according to a March Los Angeles Times poll, 63 percent think their state is headed in the wrong direction. As the clouds Clear, however, its strengths are much in evidence: agglomerations of highwage, high-growth industries, such as entertainment in Los Angeles and computing in San Jose; a deep pool of venture capital; a large and diverse immigrant population, and a continuing inflow of well-educated young people who think California is where the future lies.
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Many Californians no longer count immigrants among those strengths. Wilson has blamed them for driving up the state's welfare and education costs, and popular belief holds them responsible for the 8.6 percent unemployment rate. Yet the fact that 22 percent of Californians are foreign born-a higher ratio than any other state's-has made California uniquely able to compete internationally. In Culver City, where the 11-year-old IDB Communications Group has come out of nowhere to become America's fourth largest overseas phone carrier, CEO Jeffrey Sudikoff says that a supply of technically adept workers who are at ease in Asia, Europe and South America has been crucial.
Belatedly, California is beginning to recognize the edge that immigrants bring to a state where foreign trade has become the most powerful source of growth. The ports of Los Angeles, Long Beach and Oakland were barely touched by the downturn, generating tens of thousands of new jobs in, among other things, trucking and trade finance.
Meanwhile, leading-edge companies still find California a congenial place to do business, despite complaints about high costs and onerous regulations. Although Silicon Valley is no longer a center for computer-chip making-California has shed 125,000 electronics jobs in four years as production was automated or moved to cheaper locations-the valley has lost none of its importance in the computer world. There's no better location for a 13-year-old company like the Sanmina Corp., a fast-growing "outsourcer" that designs and manufactures small batches of custom circuit boards. Twenty-one of the Fortune 500 are now based in and around San Jose, and the valley is unchallenged as the center for developing hardware, software and the networks that tie systems together.
In the past, the valley's pull stopped short of San Francisco, 50 miles north, where the electronics industry was entirely absent. Since 1991, though, a bevy of small companies has turned the city into a hotbed for multimedia programming, such as interactive television channels and CD-ROM discs. The employment potential is enormous. "I can't overestimate the importance of being close to Silicon Valley," says Robert May, founder of Ikonic Interactive Inc. "It gives us access to technology and gives us access to capital." The same type of networking has fueled another unexpected source of growth in a city many had written off. The University of California, San Francisco, a leading genetic-research center, has spawned dozens of small biotechnology companies. So far, most of these start-ups have few employees and even fewer salable products, but they have the potential to make San Francisco into a major pharmaceutical center.
Some old standbys are also showing new strength. The Central Valley, the state's prime agricultural region, staggered under falling product prices and six years of drought. This year "will be the best year in almost a decade," says James Cothern, an economist at Cal State University at Fresno. Despite its image as a dusty farm town, Fresno has become the state's sixth largest city by luring warehouse and distribution jobs from the coast. To be sure, it takes a lot of warehouses to replace the jobs lost when a McDonnell Douglas shutters an aircraft plant. Although California payrolls are growing for the first time since the summer of 1990, the 30,000 slots that employers have added since the year-end are a bare fraction of the 600,000 that disappeared. And defense manufacturing faces yet more layoffs. Says Tapan Munroe, chief economist at Pacific Gas & Electric Co.: "I hate to see people break open the champagne and start dancing in the streets."
There's not much danger of that. The same trends that are buffeting the rest of the country-the disappearance of routine manufacturing jobs, for instance-are present in California, too. They'll ensure that California's revival doesn't turn into a boom. That's probably just as well. After surviving the breathtaking highs of the 1980s and the devastating lows of the early '90s, most Californians would gladly skip the champagne.
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