LOS ANGELES
Inside
FINANCIAL TIMES SPECIAL REPORT | Tuesday October 28 2008
Diverse city looks beyond challenges
Matthew Garrahan
reports on a city of
contrasts – one of the
richest in the world,
it is also one of the
worst for transport
T
he architect Frank Lloyd
Wright once said that if
the world were tipped on
its side “everything loose
will land in Los Angeles”.
All life can indeed be found in
the city, whether it is the 140
nationalities that live there, the
aspiring actors that flock to its
film studios in search of stardom,
or the entrepreneurs, businesses
and immigrant workers that
drive its economy.
Los Angeles is the creative cap-
ital of America, the centre of the
film and television industries and
the outsize egos that go with
them. It gave the world the work
of Walt Disney and Raymond
Chandler, MySpace, and Barbie
dolls. Satellite technology was
born in Los Angeles, and great
aviators such as Howard Hughes
built companies there.
It has a vibrant and diverse
economy, home to Mattel, the
world’s biggest toymaker, and
the biggest companies in the
video games industry. Yet it is
also an industrial powerhouse.
Despite the 1990s retrenchment
of the aerospace industry, it con-
tinues to be the biggest manufac-
turing centre in the US, with
more than 450,000 people
employed making electronic
goods and clothing. More people
work in manufacturing in Los
Angeles County than in Michi-
gan, for example.
The city has the biggest port
complex in the western hemi-
sphere on its doorstep. Los Ange-
les and nearby Long Beach are
responsible for 45 per cent of sea-
borne goods that enter the US. It
is also the global centre of space
technology and research. And,
nearly 100 years after the fledg-
ling film industry moved to Hol-
lywood, Los Angeles has become
a magnet for new digital media
companies.
Bright lights in the city of the stars: a big push is being made to revive the downtown area of Los Angeles Chad Ehlers/Alamy It has long been an aerospace
The city faces a
fork in the road
on tackling
congestion
Page 4
hub, but when that industry
shrank at the end of the cold
war, the local economy was hit
hard, primarily because it was so
reliant on manufacturing.
“Now, the economy is much
more diversified,” says Jerry
Nickelsburg, an economist with
the UCLA Anderson School of
Management, pointing to
strengths in business services,
accounting and entertainment.
The city’s business mix has
evolved over the decades. “Going
back 20 or 30 years, it used to be
a banking centre,” says Eduardo
Martinez, an economist with the
Los Angeles County Economic
Development Corporation. Con-
solidation in the 1980s saw its
banking sector decline, as famil-
iar local names, such as Security
Pacific, were snapped up by
Inside this issue
Art Los Angeles has carved
out a position as a west coast
centre for culture, says Rachel
Grant Page 2
Green agenda Mayor Antonio
Villaraigosa (below) is setting a
challenge to the whole country
with his push on clean
technology, writes Matthew
Garrahan Page 2
Real estate The home pruce
bust may well spread to the
most affluent areas, reports
Mark Lacter Page 4
Ports Four­tenths of all US
imports come through the
docks of Los Angeles and Long
Beach, says Matthew Garrahan
Page 5
Defence Innovation is keeping
the space sector aloft, writes
Matthew
Garrahan
Page 6
www.ft.com/los­angeles­2008
larger rivals. The recent housing
and construction boom brought
financial services back to Los
Angeles.
“In the past three or four
years, there was an increase in
financial jobs here,” says Mr
Martinez, adding that much of
that growth was housing-related.
But the collapse of the subprime
lending market and the steep fall
in property prices during the
past 18 months brought that
growth to an end. IndyMac, a
large local lender, was recently
taken over by federal regulators,
and Countrywide Financial, one
of the biggest mortgage lenders,
was acquired by Bank of Amer-
ica to avert collapse.
Still, other sectors continue to
grow. Platinum Equity, a Beverly
Hills private equity firm, recently
closed a $2.75bn fund at the
height of the credit crunch. Fash-
ion and textiles are also booming.
American Apparel, the clothing
manufacturer known for its racy
adverts, plans to expand. It is
based in Los Angeles, where it
employs more than 4,000 people.
The city has a significant Lat-
ino workforce that plays a vital
role in supporting economic
growth, particularly in service
industries, landscaping and
building. Latino workers make a
vital contribution but many are
in the US illegally; the Milken
Institute, a research firm, esti-
mates that there are about
625,000 undocumented workers in
Los Angeles.
A common complaint from visi-
tors is that the city lacks a cen-
tre, which is partly true. Efforts
are under way to revive the main
commercial district in downtown
Los Angeles by turning part of it
into an entertainment district.
Yet the soul of Los Angeles can
be found in any of the cities that
make up Los Angeles County,
one of the largest counties in the
US and bigger than the states of
Delaware and Rhode Island com-
bined.
Malibu, Pasadena, Inglewood
and Manhattan Beach are among
the dozens of cities squeezed into
Los Angeles County, each with
their own unique character and
Continued on Page 2
2 ★ FINANCIAL TIMES TUESDAY OCTOBER 28 2008

Los Angeles
LA looks Sun, sea and loyal talent draw online businesses
beyond DIGITAL MEDIA partner in the corporate considerable presence in the southern California. “Look A joint venture between mentality around the media son Avenue [in New York] –

the Matthew Garrahan

looks at the reasons
department of Latham &
Watkins, an international
law firm.
city when it moves to a vast
new headquarters in Playa
Vista in south-west Los
at the weather,” says Mr
Levinsohn. “But it’s also
about the jobs we’re offering.
NBC Universal and News
Corporation, Hulu is an
online video site that earned
industry is certainly deeper
and more robust in Los
Angeles.”
and where content comes
from, which is Hollywood,”
he says. “Hollywood speaks

threats for a sector’s rapid

Continued from Page 1
appeal. More than 10.3m peo-
ple live there, aware that
they could face disruption
and chaos at any time if the
earthquake California has
long been expecting – “the
big one” – rattles across the
San Andreas Fault.
Wildfires are another regu-
lar threat to local communi-
ties when the fierce Santa
Ana winds and dusty
autumn temperatures create
tinderbox conditions.
The climate and relaxed
lifestyle make up for the pit-
falls that come with living in
Los Angeles. But residents
have to grapple with other
frustrations.
It is one of the richest cit-
ies in the world, home to bil-
lionaires, such as Rupert
Murdoch, David Geffen and
expansion
Silicon Valley may be better
known as the centre of the
technology and internet
industries. But Los Angeles
is fast becoming one of the
pre-eminent locations for
new digital media and online
advertising companies.
After all, with the venture
capitalist firms of San Fran-
cisco and the Bay Area only
an hour away by air and
Hollywood’s biggest studios
on its doorstep, the city is
the natural place for digital
entrepreneurs looking to set
up shop.
“There’s been an explosion
of digital media in the
greater Los Angeles area,”
says Richard Wirthlin, a
Hollywood has driven the
city’s appetite for all things
digital, he says. Sony Pic-
tures Entertainment, Walt
Disney and Paramount Pic-
tures are among the studios
with sophisticated digital
distribution businesses: Dis-
ney’s ABC television net-
work was the first to stream
its programming online, for
example.
But there are other new
media businesses in the city
beyond the digital arms of
the studios. MySpace, the
largest online social net-
work, was created in Los
Angeles and has expanded
there since News Corpora-
tion bought it for $580m
three years ago.
The company is part of
Fox Interactive Media, News
Corp’s digital arm, which is
about to increase its already
Angeles next summer.
FIM’s other businesses,
which include Rotten Toma-
toes, the movie review site,
Photobucket, a photo-shar-
ing service, FoxSports.com
and IGN, an online video
game site, will all move into
the new building, together
with MySpace.
“All of our businesses will
come together in a single
campus,” says Peter Levin-
sohn, president of FIM.
“We’ve really built out the
engineering and technical
capability of our workforce.
We’ve been able to hire high-
quality executives and engi-
neers from northern Califor-
nia and bring them to Los
Angeles.”
Year-round sun, beautiful
beaches and a laid-back
approach to life are among
the many appeals of life in
The harder, more compli-
cated, more exciting the
tasks, the easier it is to
attract talent.”
Los Angeles, he adds, “is
the place where technology
‘The talent and the
mentality around
the media industry
is certainly deeper
and more robust’
and entertainment intersect.
Four years ago media com-
panies were very nervous
about moving content on the
internet. But there’s been
lots of experimentation.”
This, he says, has resulted in
the creation of businesses,
such as Hulu.
a provisional valuation of
$1bn last year after a 10 per
cent stake in the business
was sold to Providence
Equity Partners.
Santa Monica-based Hulu
was created to give content
owners a legitimate platform
for their programming.
Other online video operators
are in the city: Crackle, a
Sony-owned site that special-
ises in original, short-form
video content, will shortly
move its operations from the
Bay Area in northern Cali-
fornia to Los Angeles.
Sean Carey, senior execu-
tive vice-president at Sony
Pictures Television, says the
move to southern California
was not driven by a need to
find technical talent. “Argu-
ably there’s more technical
talent in the Bay Area,” he
says. “But the talent and the
The appeal of Los Angeles
extends beyond digital
media. Fandango, the cin-
ema tickets service, EHar-
mony, Lowermybills.com
and PriceGrabber were all
created in the city and con-
tinue to operate there.
More recently, the Rubi-
con Project, an ad-network
optimisation company,
opened offices on Bundy
Boulevard in the west of the
city. Frank Addante, the
company’s founder, says a
community of digital start-
ups has emerged, held
together by regular network-
ing events similar to those
common in Silicon Valley.
Online advertising links
many of the Los Angeles dig-
ital businesses, he says.
“There’s a connection
between where the ad dol-
lars are being spent – Madi-
the same language as Madi-
son Avenue, but that’s not
really true of Silicon Valley.
Mr Addante has founded
several online companies. He
moved one, StrongMail, from
Los Angeles to Silicon Val-
ley partly to tap into talent
in the tech-heavy Bay Area.
“It turned out there was
more talent [in Silicon Val-
ley] but there was also more
competition for it,” he says.
“There’s great talent here in
Los Angeles – and it’s more
loyal. There’s not as much
job-hopping.”
There are also differences
in mentality, he adds. “In
Silicon Valley, entrepreneurs
think about building compa-
nies that venture capitalists
will want to buy into. But in
Los Angeles entrepreneurs
are looking to build profita-
ble companies.”

City carves
Eli Broad. Yet the freeway
system and public infra-
structure are falling apart,
the result of years of chronic
under investment. It has
numerous bus routes and a

out position
limited light rail network
that connects the downtown
area with the San Fernando
Valley, Pasadena and Long
Beach.
But it lacks a comprehen-

as centre
sive subway or mass transit
system to connect Santa
Monica and the Westside
with the rest of the city.
With no alternative to
traveling by car, gridlock is

for culture
common.
Gang crime continues to
be a problem, despite the
best efforts of Bill Bratton,
the chief of the Los Angeles
Police Department. The city
has world-class higher edu-
cation establishments, but ART “This is a golden age for the
its state school system is arts in Los Angeles County,” says
grappling with falling gradu- Rachel Grant assesses Zev Yaroslavsky, member of the
ation rates and a cash-
crunch. With California des-
its emergence from Los Angeles County Board of
Supervisors, the powerful govern-
perately looking for ways to the shadow of New ing body of the largest county in
trim spending amid an eco-
nomic slowdown, schools are
York and London the US.
Los Angeles has also benefited
continually threatened with from the arrival of a number of
cuts in funding. prestigious museum directors.

There are other draw-
backs. Los Angeles is a vast,
sprawling city yet it can at
times be an insular goldfish
bowl, with some residents
seemingly unwilling to con-
sider the world beyond the
Santa Monica Mountains.
There are plenty of interna-
tionally-minded residents,
but a common grumble is
that Los Angeles lacks the
cultural and intellectual
clout of New York.
But there is no denying
the growing international
status of America’s second
largest city. It has forged
important relationships with
the Asian countries that
send consumer goods to the
US through its ports and an
ambitious plan to “green”
the port complex is being
copied by other international
port operators and heavy
polluters.
It is taking the lead in
other areas too. The Holly-
wood studios that control
the entertainment industry
are forging new distribution
systems for their content,
which is consumed the
world over.
The city is also ready to
step out of New York’s artis-
tic shadow. The arts scene is
booming in Los Angeles,
thanks to a string of recent
gallery openings, a world-
class symphony orchestra
N
ot even the oppressive
late-summer heat inside
the airless marquee
could stifle the enthusi-
asm of Los Angeles civic leaders,
art lovers and patrons at the Los
Angeles County Museum of Art
(Lacma) last month.
They had gathered to see plans
for a new exhibition pavilion,
designed by Pritzker Prize-
winning architect Renzo Piano.
Funded by a $45m donation from
local philanthropists Lynda and
Stewart Resnick, the new building
will be Mr Piano’s latest contribu-
tion to an ongoing expansion of
Lacma, which is transforming the
largest art museum in Los Ange-
les into a genuine player on the
global stage.
For decades the cultural life of
Los Angeles has laboured in the
shadow of New York. Artists were
happy to live in the city but had
to go elsewhere to exhibit their
work and make their name.
But over the last decade, Los
Angeles has enjoyed a creative
boom. Together with Lacma, a
host of prominent cultural institu-
tions has opened or undergone
renovation in the last few years,
including the Getty Center and
Getty Villa, as well as the Frank
Gehry-designed Walt Disney Con-
cert Hall and Colburn Conserva-
tory of Music.
Ann Philbin has been credited
with transforming the Hammer
Museum in the city’s Westwood
area since arriving from the
Drawing Center in Manhattan in
1999. Michael Govan, the former
director of the Dia Art Founda-
tion in New York, has similarly
given Lacma a “shot of adrena-
line” since being appointed chief
executive two years ago, accord-
ing to Lynda Resnick.
Private galleries have opened
throughout Los Angeles’ urban
sprawl, from Chinatown to Culver
City, and a young, sophisticated
generation of collectors has
sprung up to sustain the market.
“Los Angeles has always been
the place where artists emerged
to be discovered by other cities
such as New York and London,”
says Samuel Hoi, director of Otis
College of Art and Design, one of
the city’s leading art colleges. “It
has now become a marketing cen-
tre [for artists] in its own right.”
Eli Broad, a billionaire philan-
thropist based in Los Angeles, has
been a long-time champion of its
cultural scene. He says it “is one
of the major cultural centres of
the world, along with New York,
London and Paris”. As well as its
strengths in the visual arts, he
says no other city has a sym-
phony hall or orchestra to rival
the Walt Disney Concert Hall and
Contemporary look: a Julian Schnabel exhibition at the Gagosian Gallery in Los Angeles
Los Angeles Philharmonic. The
local theatre scene is booming
too, he adds. “There are more
theatrical productions [in Los
Angeles] than in New York or
London.”
Mr Broad and his wife Edythe
established the Broad Art Founda-
tion in 1984 to increase public
exposure to contemporary art by
acting as a lending library to
public institutions.
“We have more than 2,100
works of art and we want to get
them to the broadest audience
possible,” he says. While the foun-
dation has lent artworks to more
than 450 public institutions, it
favours those based in Los Ange-
les.
A significant proportion of the
foundation’s artworks are on view
at the Broad Contemporary Art
Museum which opened at Lacma
‘It was a place where
artists emerged to be
discovered by other
cities. It has now
become a marketing
centre in its own right’
in February this year following a
$60m donation from the Broads. It
features works from, among oth-
ers, Damien Hirst, Jeff Koons and
Jasper Johns.
The city’s teaching tradition
has also helped its arts scene
prosper, with artists such as John
Baldessari continuing to teach in
Los Angeles long after establish-
ing themselves with their work.
Unlike New York, which is “a
fiercely competitive market. . .
there is a real sense of collabora-
tion in the artistic community
here”, says Mr Hoi.
Over the years, Los Angeles has
lagged behind other art markets,
such as New York. Freed from
commercial pressure, many artis-
tic voices have emerged that are
influenced by the city’s rich
multicultural heritage. But as the
Los Angeles market matures, the
Alex Berliner/BEI/Rex Features
city risks losing what makes it
special, says Mr Hoi. “Its sensibil-
ity may become more homoge-
nised, with artists pressured by
galleries to make work that is
more saleable.”
There are other challenges. A
recent report from Rand, the non-
profit think tank, said better co-
ordination was needed between
arts and civic leaders to promote
the city’s cultural attractions.
Without a common strategy, there
are concerns that the city’s recent
creative momentum may be lost.
The lack of a mass transit system
is another problem.
But despite these hurdles, there
is a widespread optimism that the
Los Angeles arts scene will con-
tinue to flourish.
“This is the future,” says Mr
Broad. “This is really the arts city
of the 21st century.”

Mayor sets agenda for the nation

and Frank Gehry’s stirring
Walt Disney Concert Hall,
perhaps the most beautiful
building in the city, which
has transformed impressions
of the downtown district.
Los Angeles has plenty of PROFILE protocol within days of and geo-thermal power, at a operators were offered emissions and renewable
challenges to overcome. But ANTONIO VILLARAIGOSA taking office. “We had the cost of about $1bn a year incentives to switch to energy because of an
it is an optimistic, ambitious dirtiest air in America,” he over the next five years. cleaner trucks and almost absence of White House
place, a diverse and exciting Green is the colour told the FT. “It was He is also using the city’s 600 companies signed up. leadership. “We believe
world city that is constantly
looking forward.
of the mayor’s big incumbent on us to take a
lead in greening and
ownership of the port to cut
emission levels. The Los
By 2012, 16,000 diesel
trucks will have been taken
cities have an important
responsibility, particularly
push, writes cleaning the nation.” Angeles port and its off the road as a result of when the federal
Contributors Matthew Garrahan This year, the city will
meet its Kyoto targets and
neighbour in nearby Long
Beach are the worst
the scheme. “It’s the most
far-reaching clean-air action
government has failed in its
responsibilities [to the
Matthew Garrahan will generate 10 per cent of polluters in southern plan in the nation,” says Mr environment],” he says.
Los Angeles Correspondent Los Angeles has always its energy from renewable California, thanks to the Villaraigosa. But his plans extend
been a centre for innovation sources, having started at nearly 17,000 diesel trucks Shipping lines using the beyond meeting Kyoto
Rachel Grant – witness, among other 2 per cent when Mr that regularly ship goods in port will be offered targets. He says renewable Mr Clean: Antonio Villaraigosa Kelly Fajack/WPN
FT Contributor
things, the birth of the Villaraigosa was elected. and out of the facilities. incentives to use low- energy is a big opportunity
Sean Ross global positioning system, It is on track to generate sulphur fuels, while Los that could have lasting programme: the fund is draw on the engineering
FT Contributor the skateboard and the 20 per cent of its energy Angeles is also replacing economic benefits for Los investing $45m in talents of local
Mars rover. from renewable sources by ‘We had the dirtiest diesel locomotives at the Angeles. clean-technology companies. higher-education
Mark Lacter
FT Contributor
Antonio Villaraigosa, Los 2010 and will reach 35 per air in America. It docks with electric ones. As part of the clean However, to become the institutions, such as the
Angeles’ mayor, says he cent by 2020, outstripping Although the ports trucks programme, the city leading global player in the California Institute of
wants to add the Kyoto targets as well as was incumbent scheme is at an early stage, gave a $500,000 grant to development of clean Technology and the
Rohit Jaggi
Commissioning Editor
development of “clean”
technology to the list of the
those set for California by
Arnold Schwarzenegger, the
on us to take it has attracted global
attention: the city has been
Balqon, a small company
that had designed a
technology, it needs to
attract international
University of California at
Los Angeles.
Steven Bird city’s creative state’s governor. a lead in greening approached by international prototype electric truck. The companies. About 20 acres has also
accomplishments. The targets have been port operators wanting to Los Angeles port helped A large parcel of derelict been set aside for a
Designer
He has set his sights on met quickly because Mr and cleaning’ learn how to improve Balqon test the truck and industrial land around the manufacturing centre,
Andy Mears Los Angeles becoming the Villaraigosa controls a environmental conditions at then bought the first 25 Los Angeles River has been which the mayor hopes will
Picture Editor greenest city in America unique set of municipal The California Air their own facilities. vehicles for about $6m. set aside to create what city attract new businesses.
and wants to use its size assets, such as the Los Resources Board says the “We have been Every time Balqon sells a officials are dubbing a It is an ambitious plan
and purchasing clout to Angeles port and the trucks produce emissions hamstrung by community truck to another port Los “clean-technology corridor”. but there is much to be
For advertising details, reduce its greenhouse gas Department of Water and that are more harmful than opposition to expansion,” Angeles will receive a Discussions have started gained, says Mr
contact: emissions and attract Power, which is the largest the area’s 6m cars. says Geraldine Knatz, royalty fee, which will be with international Villaraigosa. “We’re taking
Hope Kaye on: investment from public utility in the US. In conjunction with the executive director of the reinvested in developing companies about relocating our environmental problems
+1 212 641 6548; clean-technology companies. The DWP has significant two ports, Mr Villaraigosa Los Angeles Port. “But new, clean technology. to the corridor and a range and turning them into
fax: +1 212 641 6545; The mayor has pursued electricity needs, so Mr recently launched a “clean going green allows us to The mayor has also of incentives are available economic opportunities. Los
e­mail: hope.kaye@ft.com an environmental agenda Villaraigosa directed it to trucks” scheme that banned move forward.” included the Los Angeles for businesses opting to Angeles is uniquely
or your usual since being elected three buy 20 per cent of its nearly 2,000 diesel vehicles Mr Villaraigosa stresses City Employees Retirement move to the city. positioned to emerge as a
representative years ago and committed energy from renewable built before 1989 from that Los Angeles has taken System (Lacers) pension The site will include a global capital of the green
Los Angeles to the Kyoto sources, such as wind, solar entering the ports. Haulage such wide-ranging action on fund in his green research facility that will economy.”
FINANCIAL TIMES TUESDAY OCTOBER 28 2008
Directors
cut to
different
locations
ENTERTAINMENT INDUSTRY
Other states have
taken business
from LA, says
Matthew Garrahan
T
he film business is
synonymous with
Los Angeles. So
much so, that the
name most associated with
the industry is visible in
bold white letters to anyone
within a few miles of the
hills that separate the city
from the San Fernando
Valley.
Yet Hollywood’s place in
the firmament of the greater
Los Angeles area is slipping.
Although the studios are all
based in the city, the film
productions that drive the
industry and that create last-
ing economic benefits are
increasingly taking place
elsewhere.
This is because of a range
of attractive tax incentives
and credits that are being
offered by other states in the
US. Aware that a crew work-
ing on a film shoot will stim-
ulate a local economy by
spending money in
shops, hotels and
restaurants,
states such as
Louisiana
and New
Mexico
are try-
ing to
lure
pro-
ductions
away from California.
Studios with an eye
on production costs have
followed closely the incen-
tives that are being offered.
For example, the new film
starring Brad Pitt, The Curi-
ous Case of Benjamin Button,
was shot in Louisiana. The
sequel to Transformers –
which, like the Brad Pitt
film, will be distributed by
Paramount Pictures – was
shot in New Mexico.
Competition for film pro-
ductions first began to inten-
sify in the mid-1990s, when
Canada began offering tax
breaks to producers. Since
then, US states have got in
on the act: Louisiana
stepped up its efforts after
Hurricane Katrina. And New
York, under its mayor
Michael Bloomberg, recently
began offering juicy incen-
tives. It recently lured the
Ugly Betty TV programme
from Los Angeles to the city.
For filmmakers looking to
squeeze every last drop out
of money out of their produc-
tion budgets, tax credits can
make a lot of sense. “You
can spend $1.5m on a $2m
production in New Orleans
and that can be very attrac-
tive,” says Darrell Miller, co-
founder of Mason Miller, an
entertainment law firm.
“If all states really begin
to have viable programmes
that give deductions of
25 per cent or more, in the
long run that will take a
big bite out of the local
and state economy in Cali-
fornia.”
But the effect of the
increased competition can be
already seen in the number
of shooting days recorded in
Los Angeles. According to
data from FilmLA, the
organisation that arranges
permits for film and TV
shoots, the number of film
productions hit a peak in
1996, when 13,980 days were
shot in the city.
Since then, the number
has dwindled. Last year,
only 8,247 days of shooting
on film productions were
recorded in Los Angeles.
Down and out: film­making is down in Beverly Hills and LA
despite high­flyers such as the Iron Man (above) sequel
★ 3
Los Angeles
Total production days
Thousands
25
TV
20
15
10
Features
5
1994 95
Source: Film LA
96 97 98 99 2000 01 02 03 04 05 06 07
“Films employ hundreds
of people and can pump seri-
ous cash into the local econ-
omy,” says Todd Lindgren of
FilmLA. TV productions
have replaced film shoots on
the streets of Los Angeles,
although this is not particu-
larly good news for the city.
Most of the growth in TV
productions has come from
reality programmes, which
typically employ fewer peo-
ple than a scripted drama
show. Whereas a TV drama
would cost about $3m an
hour, reality programming
tends to cost about $700,000,
he says. Photo: Getty Images
“We have to fight to pre-
vent further erosion of other
categories, like TV,” he adds.
Authorities in Los Angeles
have not responded as
emphatically to the exodus of
film productions as many in
the city would have liked.
City and state budgets are
under pressure from falling
tax revenues, while economic
growth has stalled – which
means there is little chance
of similarly attractive tax
schemes being launched in
the home of the film indus-
try.
Still,
some-
thing
needs to
be done to
keep produc-
tions in the
city, says Rox-
anne Christ, a
partner in the
corporate depart-
ment of Latham & Wat-
kins, an international law
firm with a large presence in
Los Angeles.
“We’ve taken our status as
the centre of entertainment
slightly for granted. Los
Angeles needs to come up
with a game plan that keeps
business already here in the
city.”
Federal authorities have
taken steps to keep film pro-
duction in the US. The
recent $700bn bailout of the
financial system by the US
government included a tax
incentives scheme but the
package only applied to pro-
ductions that stayed in the
US and was not specific to
California.
Yet, despite the gloom, all
is not lost for Los Angeles.
Some states, such as Louisi-
ana, have over-extended
‘Films employ
hundreds of
people and can
pump serious
cash into the local
economy’
themselves in the attempt to
attract film productions and
have subsequently reined in
their lavish incentive pro-
grammes.
Michigan, a relatively
recent player on the tax
incentive landscape, is also
re-examining its commit-
ment to luring productions.
It is considering a cap on
film-related spending after a
local outcry that its tax
credit for film shoots could
be better used on cutting
business taxes.
And while attractive tax
packages are available else-
where, expensive film shoots
continue to take place in Los
Angeles. Marvel Studios,
which scored one of the
year’s biggest box office hits
with Iron Man, recently said
it would film the sequel in
Manhattan Beach, south of
Los Angeles. The local film
industry, it seems, has life in
it yet.
4 ★ FINANCIAL TIMES TUESDAY OCTOBER 28 2008

Los Angeles

Foreclosures
burn through
the buoyancy
REAL ESTATE
The home price bust
may well spread to the
most affluent areas,
writes Mark Lacter
Real estate in southern Califor-
nia is all about booms and busts.
They happen with regularity
because so many people believe
owning property in the region,
whether near the ocean in Mal-
ibu or further east in the desert,
is part and parcel of the Ameri-
can dream.
But, thanks to the collapse of
the subprime lending market,
that dream has soured. After
house values soared in southern
California in the early part of the
decade, the region now finds
itself at the centre of a financial
crisis that is rippling throughout
the global economy.
It was a different story only
two years ago. The easy availa-
bility of subprime mortgages had
turned Los Angeles County into
a property hotspot, with house
prices more than doubling
between 2001 and 2007. But after
prices ran out of control, the
market buckled.
The region now has some of
the highest rates of mortgage
foreclosure in the US. In the first
eight months of 2008, more than
56,000 notices of default – the
first step in the foreclosure proc-
ess – were filed in Los Angeles
County, a 98.6 per cent jump
from the same period a year ear-
lier, according to DataQuick, a
research group.
Typically, job losses lead to an
Heart of the revival: the Staples Center is home to the Los Angeles Lakers franchise and launched the downtown regeneration when it opened in 1999 increase in foreclosures, which is
what happened in Los Angeles in
bringing down home prices, which
will lead to more foreclosures.
Some of the heaviest-hit com-
munities are littered with for-sale
signs. “This is going to be a slow
burn,” says Christopher Thorn-
berg, a principal at Beacon Eco-
nomics, a research group that
monitors the real estate market.
“Eventually, prices will hit bot-
tom and when they hit bottom
they’ll stay there for years.”
For now, the foreclosure prob-
lems have not spread to the more
affluent parts of Los Angeles. In
Palmdale, in the Antelope Valley,
450 homes were foreclosed in the
second quarter, or 28.4 homes per
1,000. By contrast, the famous
Beverly Hills 90210 zip code had
only five foreclosures during the
same period, or 0.6 homes per
1,000.
One explanation is that home-
owners in places such as Beverly
Hills and Santa Monica have
owned their houses for years and
did not need to indulge in dan-
gerous lending. “You have highly
concentrated supply and difficult
entitlements,” says Paul Habibi,
a Los Angeles real estate devel-
oper and instructor at UCLA’s
Anderson School of Management.
“It was a lot easier to put up a
housing tract and some palm
trees in the Inland Empire.”
But some economists, such as
Mr Thornberg, believe that even
prosperous regions will eventu-
ally succumb to the real estate
bust. The last few months have
‘It’s going to be a
long time before
those places come
back, if they ever do,
because they’re not

Downtown goes upmarket

URBAN RENAISSANCE turn that vision into reality with
the $2.5bn LA Live project.
An ambitious project Mr Leiweke is best known as
aims to make the the man who brought David
Beckham to the US. AEG owns
commercial centre the Los Angeles Galaxy soccer
worthy of the city, says franchise and is betting that the
England star will lift interest in
Matthew Garrahan the sport in the US to new
heights.
yet it doesn’t have a content
campus.”
The Nokia Theatre is a stone’s
throw from the Staples Center,
which AEG also owns. Home of
the illustrious Los Angeles Lak-
ers basketball franchise, the Sta-
ples Center anchors the LA Live
project, having launched the
regeneration of the downtown
change in 2010 when the hotels
open, says Mr Leiweke. “They
make the convention centre a
true convention centre,” he says,
pointing out that an additional 50
conventions have been booked in
advance of the hotels opening.
While Marriott International
will operate the two hotels, AEG
will own the two properties and
Anschutz as our chairman is that
he made sure we secured long-
term financing. The old saying
about Phil is that he can see
around corners.”
The money is being spent on
adding new venues and attrac-
tions to LA Live. An ESPN studio
will soon start operating on the
site, which will be the sports
the 1990s. Layoffs in the aero-
space industry left many middle-
income homeowners unable to
keep up with their mortgage pay-
ments. But rather than job
losses, the latest collapse in
prices was caused by reckless
borrowing and lending.
The foreclosure crisis has been
centred on certain portions of
southern California – mainly
inland regions such as Riverside,
San Bernardino and the Antelope
Valley desert cities of Lancaster
and Palmdale.
Located more than an hour
from downtown Los Angeles,
job centres’
seen a sharp increase in the
area’s unemployment rate, with
jobs being lost across the local
economy.
Companies in the financial
services sector have been hit
especially hard, including Coun-
trywide Financial, which is based
in Calabasas, north of downtown
Los Angeles, and was recently
acquired by Bank of America;
and IndyMac Bank, which is
based in Pasadena and was

D
owntown Los Angeles
used to be a no-go zone
after dark. Crime was
rife in the area, which
by day is home to more than
300,000 office workers who com-
mute every day to buildings such
as City Hall or the skyscrapers
that house law firms and banks.
Yet the commercial centre of
Los Angeles is undergoing a
transformation. The impetus is
coming from Anschutz Entertain-
ment Group, best known in the
UK for turning the barren waste-
land of the Millennium Dome
into the O2, which has become
one of the world’s most popular
music and entertainment venues.
AEG is owned by Philip Ans-
chutz, a Denver-based billionaire,
and is headquartered in Los
Angeles. The company has long
desired to give its home city the
entertainment centre that it
lacks, according to Tim Leiweke,
chief executive. He is trying to
The LA Live scheme is simi-
larly ambitious. The 4m sq ft
redevelopment scheme is not yet
finished but has already trans-
formed the western edge of
downtown with the opening last
year of the 7,100 capacity Nokia
Theatre. The concert venue has
established itself as the most
high-profile arena on the west
coast, having hosted the Emmy’s
and events such as the finale of
American Idol.
AEG is applying a formula it
has already tried and tested in
London with the O2 and in Ber-
lin, and which it will soon try in
Shanghai: turn underused urban
areas into new centres of invest-
ment by building sport and enter-
tainment facilities. “Los Angeles
is the most expensive and the
longest commitment we have,”
Mr Leiweke told the FT. “But it
also has the greatest potential,
simply because Los Angeles is
the content capital of the world
area when it opened in 1999.
LA Live includes a substantial
hotel component. A Ritz-Carlton
‘From a business
standpoint, the
hotels are going
to be the most
important part
of the project’
and a J.W Marriott are included
in the project, with the aim of
boosting business at the nearby
Los Angeles Convention Center.
“From a business standpoint, the
hotels are going to be the most
important part of the project,”
says Mr Leiweke.
The city has failed in the past
to bring big conventions in
because it lacks sufficient nearby
hotel accommodation. That will
is selling 224 condominiums on
the upper floors of the main
tower.
This represents perhaps the
riskiest part of the project. Mr
Leiweke says most of the resi-
dences have already been sold,
although he acknowledges that
the recent slump in the housing
market and the credit freeze has
made the process more problem-
atic.
“Had it not been for the econ-
omy, we would have sold out.
But we have sold more than 60
per cent. There are no other
projects like this in downtown
LA that are anything like this
one. . . we don’t open for another
year and we think more than 90
per cent will be gone when we
do.”
The credit squeeze will not
affect the financing for the $2.5bn
project, which was locked up sev-
eral months ago, he adds. “One
of the advantages of having Mr
cable network’s only west coast
broadcasting centre. The develop-
ment also includes an outdoor
plaza area, several high-end res-
taurants, a music venue with a
capacity for 2,350 people, and the
Grammy Museum, which will
open in time for the 50th anniver-
sary of the music awards show.
Mr Leiweke is relaxed about
the possible effects of a downturn
on trading at LA Live, saying he
has faith in the enduring appeal
of music and entertainment. “I
don’t think anything is recession-
proof . . . but this generation
thrives on entertainment. We’re
bullish about this generation of
consumers and their ability to
keep spending.”
Although record labels are suf-
fering, “music has never been as
popular or as important”, he
adds. “Live music is more
vibrant than ever before and that
is a good thing to build an enter-
tainment district around.”
these areas have attracted huge
property developments over the
past 10 or 15 years, offering more
affordable housing to residents
priced out of more expensive
areas near the coast.
But many of these buyers took
loans that became unmanageable
after being reset by mortgage
companies. As home prices
started to fall last year, borrow-
ers wound up owing more than
their houses were worth. “Some
of them were not willing to face
the reality of their situation,”
says Donna Oehler, an Antelope
Valley real estate broker who
specialises in foreclosed proper-
ties. “Some of them got bad
loans, some of them just made
bad choices.”
Foreclosures made up more
than 45 per cent of all home sales
in southern California in August,
up from just 10 per cent a year
earlier. Economists worry that the
additional inventory will keep
seized by US regulators in the
summer.
Richard Green, director of Uni-
versity of Southern California’s
Lusk Center for Real Estate, says
he is concerned about many of
the region’s inland areas. “It’s
going to be a long time before
those places come back, if they
ever do, because they’re not job
centres,” he says.
It took nearly 10 years for
prices to return to their previous
peak after the aerospace-related
collapse in the early 1990s. Even
so, the $800bn southern Califor-
nia economy remains in good
shape, mainly because it is no
longer reliant on a single indus-
try. It is more diversified than it
was in the 1990s, with strengths
in international trade, aerospace,
entertainment and technology
that should help the region’s
housing market bounce back.
Provided that the looming US
recession does not last too long.

City faces fork in road on tackling congestion

TRANSPORT
Infrastructure
improvements and
road pricing are the
two main options,
reports Sean Ross
When the Los Angeles
County Business Federation
surveyed its 93,000 member
companies recently, the
results stunned David Flem-
ing, its chairman.
Members were asked
about the main issue facing
business in Los Angeles.
“The biggest problem wasn’t
taxes or regulations,” says
Mr Fleming. “It was traffic
congestion.”
The Los Angeles traffic
and smog problems are as
globally recognisable as the
Hollywood sign. Its freeways
are decrepit and increasingly
clogged, rush hours can last
all day and city residents
blame traffic for lateness
and missed appointments.
The city lacks a conven-
ient citywide alternative to
travelling by car, such as a
subway or light rail system,
so gridlock is common.
Despite years of worsening
congestion, city authorities
have had little success in
alleviating the problem.
However, Los Angeles
businesses and politicians
are coming to realise that
the annual distinction of
leading the US in traffic con-
gestion comes at a cost:
490m hours of delays, 384m
gallons of wasted fuel, and
productivity losses worth
$9.3bn – without factoring in
environmental and social
costs – according to the
Texas Transportation Insti-
tute, a leading US authority
on transport.
“There is no one easy solu-
tion,” says Mr Fleming, who
also serves on the board of
the Los Angeles Metropoli-
tan Transportation Author-
ity (Lamta), which manages
a daunting 1,433 sq mile area
with more than 10m resi-
dents. He says congestion is
“crippling” the city.
A “multi-faceted” app-
roach is needed, he adds.
Researchers from the Rand
Corporation, a Los Angeles
based international policy
group, agree – although their
recent study of Los Angeles
traffic found that many of
the “easy” solutions, such as
traffic signal synching, free-
way ramp metering, and car-
pooling, had already been
adopted in the city.
Local policymakers know
that stronger action is
required if they are to
Not so free way: voters will next month be asked to approve higher taxes to fund transport improvements
reduce congestion. A city-
wide metro system would
cost billions of dollars and
take years to construct,
although there is discussion
about building a “Subway to
the Sea” which would con-
nect Beverly Hills and Santa
Monica with downtown Los
Angeles. That is some years
away, though. In the short
term other measures, such
as a congestion pricing sys-
tem and increased parking
charges, may reduce the
gridlock.
However, as Los Angeles
lacks a viable alternative to
travelling by car, raising the
cost of driving and parking
“will be very challenging
politically”, says Dr Martin
Wachs, director of the trans-
portation program at Rand.
Yet recent efforts by city
authorities and Lamta indi-
cate that business and politi-
cal leaders are ready to do
‘We can’t build new
freeways but we
can better use the
freeways we have’
Getty Images
what is necessary to get Los
Angeles moving again.
US voters go to the polls
on November 4 to elect a
new president. In Los Ange-
les, they will also be asked
to approve a special ballot
measure that would increase
the sales tax paid by city res-
idents by 0.5 per cent. The
increase is projected to raise
$40bn over 30 years, with
funds going towards a
“multi-pronged” congestion
relief effort. More than $4bn
has been earmarked for the
Subway to the Sea proposal,
while the rest of the money
will be go to other transit
programmes and improving
crumbling highway infra-
structure – if voters approve
the ballot measure.
The proposal has received
backing from business and
auto associations but it is
unclear whether voters will
follow suit. While polls show
that voters narrowly back
the plans, misgivings about
the economy – combined
with falling petrol prices –
may mean they are reluctant
to support a sales tax
increase come election day.
The vote may depend on
how bad traffic is on the way
to the polls.
Congestion pricing may be
a better short-term fix. “Pric-
ing strategies are the only
sustainable option for reduc-
ing congestion. . . and they
will be immediately effective
upon implementation,” says
Dr Wachs.
According to Lamta, plan-
ning for a Los Angeles con-
gestion charging scheme is
already under way. Lamta
has the New York legisla-
ture to thank. When New
York recently balked at
using $210m of money from
the US government for a
congestion charging scheme,
the funds were redirected to
Los Angeles. Lamta already
has legislative approval to
use the funds and is prepar-
ing to launch trial schemes
as early as 2010.
The projects will convert
existing carpool lanes into
electronic tolling lanes on a
portion of two Los Angeles
freeways, while beefing up
other forms of transport,
such as providing more
buses. “We can’t build new
freeways, but we can better
use the freeways we have,”
says Marc Littman, a spokes-
man for Lamta.
Given how much opposi-
tion congestion charging is
likely to attract, some of the
money will be spent on con-
vincing the Los Angeles pub-
lic that implementing such a
system is a good idea. “The
research shows [congestion]
pricing is less of a burden on
the poor than a sales tax,”
says Brian Taylor, director
of the UCLA Institute of
Transportation Studies.
The people of Los Angeles
should look at the experi-
ence of cities such as Singa-
pore, Oslo, Stockholm, and
London which already have
congestion charging, accord-
ing to Dr Wachs. “It actually
benefits people more than it
costs them,” he says.
FINANCIAL TIMES TUESDAY OCTOBER 28 2008 ★ 5

Los Angeles

Terminal growth: Los Angeles port has seen trade volumes rise by leaps and bounds. It expects to suffer in the current financial crisis but is confident it can ride out the storm

Ports give economic edge to California

TRADE China as the world’s pre-eminent
manufacturing exporter. The San
Four­tenths of all US Pedro ports are ideally placed
imports come through geographically for Asian manu-
facturers looking to export goods
the docks at LA and to the US. Rather than ship
Long Beach, says goods through the Panama Canal
to reach the eastern US, it can be
Matthew Garrahan more efficient for Asian export-
ers to use Los Angeles and Long
Beach. Once there, containers
requiring no public money. Their
importance to the region cannot
be overstated: the Los Angeles
port alone generates $39.1bn in
annual wages and tax revenues,
employing 919,000 people directly
and indirectly, according to city
officials.
The two ports combined are
the biggest in the western hemi-
sphere and the fifth largest in the
were shipped into Los Angeles.
By 1995, the number had risen to
2.5m.
The volume of imports jumped
again after 2001 when China
joined the World Trade Organisa-
tion, says Jerry Nickelsburg, an
‘We are close to Asia
and have a relatively
countries that have become so
dominant in the manufacturing
of consumer goods”, he says. “It’s
China, but it’s also Malaysia,
India and Indonesia.”
However, the ailing global
economy is likely to hinder
growth. Imports and exports in
Los Angeles in 2007 were slightly
down on 2006, while global trade
will almost certainly be hit by
Angeles traffic system is another
obstacle to growth but the
impact of gridlocked freeways
has been minimised by the open-
ing of the Alameda Corridor, a
$2.4bn rail cargo line linking the
two ports to the transcontinental
rail network near downtown Los
Angeles. It had an immediate
impact when it opened in 2002,
cutting congestion and increas-
the prospect of a new port at
Punta Colonet in Mexico.
But rival west coast ports can-
not compete with the size of the
southern California market.
There are 18m people living close
to the San Pedro ports, says Mr
Keenan. “You save time if you
can offload goods in Los Ange-
les.”
With east coast ports seeking

T
hey may not generate as
many headlines as the
city’s entertainment
industry, but the San
Pedro Bay ports of Los Angeles
and nearby Long Beach are the
unsung heroes of the Californian
economy.
With more than 40 per cent of
all US imports coming through
their docks, the ports are of huge
importance to the regional and
national economy.
They have boomed over the
past 30 years, thanks to aggres-
sive expansion and the rise of
carried by ship can be trans-
ferred to rail or road and quickly
moved to other cities.
“We are close to Asia and have
a relatively deep port that was
actually dredged to new levels to
handle the larger ships that were
coming on line,” says Michael
Keenan, harbour planning and
economic analyst with the Port
of Los Angeles. “We are a signifi-
cant economic engine for the
nation.”
The Los Angeles and Long
Beach ports are quasi-public enti-
ties, owned by the two cities but
world.
They rose to prominence in the
1960s with the introduction of
container shipping. But it was
not until Asian economies began
their domination of global manu-
facturing in the 1980s that the
volume of imports into Los Ange-
les and Long Beach began to take
off.
The industry measures con-
tainer shipping in 20ft-equivalent
units (TEUs), with large ships
capable of carrying more than
8,000 TEUs – roughly 4,500 con-
tainers. In 1980, 600,000 TEUs
deep port that was
actually dredged to
new levels to handle
larger ships’
economist with the UCLA Ander-
son School of Management. By
2007, 8.4m TEUs were shipped in
and out of Los Angeles with
another 8m or so arriving in
Long Beach. The two ports are
“the closest major port and dis-
tribution system to the Asian
the financial crisis. “Last month
we were up 6 per cent although
overall we’re down on last year,”
says Geraldine Knatz, executive
director of the Los Angeles port.
“But we will ride this out like
everyone else.”
Growth has also been threat-
ened by potential industrial
action by dockworkers. The ports
were last hit by a strike in 2002
although a walk-out by the Inter-
national Longshore and Ware-
house Union was averted this
summer with a pay deal.
The notoriously congested Los
ing the speed of distribution.
The corridor has had other pos-
itive effects. “The area east of
Los Angeles has become a major
logistics centre,” says Mr Nick-
elsburg. Distribution businesses
have sprung up to unload and
move goods that have arrived at
the ports, creating more jobs in
the Inland Empire region east of
Los Angeles.
The San Pedro ports face
increased competition in the
north, with the rival Prince
Rupert development in British
Columbia, and in the south, with
federal money for expansion, the
port authorities at Los Angeles
and Long Beach are not standing
still. For example, the Los Ange-
les port plans to construct more
on-dock rail yards, which allow
goods to be put on to trains as
soon as they are brought ashore.
“The challenge the ports face is
being able to provide cost-effec-
tive shipping into the US,” says
Mr Nickelsburg. “There’s a lot of
work being done on infrastruc-
ture and that’s important
because it means the ports can
continue to stay competitive.”

Efforts grow to legalise a

vital section of workforce
IMMIGRATION
The contribution
of new arrivals is
acknowledged –
up to a point, says
Matthew Garrahan
Los Angeles, a city that was
ruled by Spain and then
Mexico until 1848, has an
uneasy relationship with
immigration.
Workers from Latin Amer-
ica play a vital role in driv-
ing the city’s economy, tak-
ing hard, manual jobs that
are often low-paid and lack-
ing in benefits. Yet thou-
sands of those workers are
in Los Angeles illegally, liv-
ing with the constant threat
of deportation.
The city has come to rely
on this underground work-
force. The Milken Institute, a
research group, estimates
that there are about 625,000
undocumented workers in
Los Angeles who are respon-
sible for about $32bn of the
city’s gross metropolitan
product – roughly equivalent
to 7.5 per cent of its eco-
nomic output.
Undocumented workers
have been demonised in
other parts of the US,
blamed for putting pressure
on public services, such as
health and education. But in
Los Angeles their contribu-
tion is widely acknowledged.
“You don’t have that fear
of the unfamiliar here that
you sometimes get in other
places,” says Linton
Joaquin, general counsel for
the National Immigration
Law Centre, which promotes
the rights of low-income
immigrants. “There are
established [immigrant]
communities here.”
The city is in the forefront
of the push for reform of
immigration laws, partly
because its leaders recognise
the key role undocumented
workers play in the econ-
omy. Whole sectors such as
construction, textiles, land-
scaping, restaurants and
other service industries
depend on their labour.
But with no legal guest
worker programme for ille-
gal immigrants, many of
these workers have to
Californian demographic trends
Population
Million (as at Jul 1)
38
36
34
32
30
2000 02 04
Population movements (’000)
250
250
200
150
100
50
0 next administration.
-50
-100
2000 01
Source: California Department of Finance
remain in the shadows. This
has become a point of frus-
tration for many in Los
Angeles, including Antonio
Villaraigosa, its mayor.
Mr Villaraigosa is a strong
supporter of a programme
that would creat a path to
US citizenship for undocu-
mented workers. One of
America’s most prominent
Latino politicans, he has
become one of the champi-
‘Everyone knows
that undocumented
workers aren’t just
a sideshow. They’re
the centrepiece of
the economy’
ons of the immigration
reform movement and
recently called for a review
of enforcement policies car-
ried out by the US Immigra-
tion and Customs Enforce-
ment body.
The group conducted a
string of raids on businesses
in Los Angeles this year to
find undocumented workers.
In a letter to Michael Chert-
Annual change(’000)
700
600
500
400
300
200
100
0 fits to bringing illegal work-
06 07 2000 02 04 06 07
Net foreign immigration
Net domestic migration
02 03 04 05 06 07
off, the head of the depart-
ment of Homeland Security,
Mr Villaraigosa expressed
concern that “non-exploita-
tive employers” had been
targeted, with the Immigra-
tion and Customs Enforce-
ment focus likely to have
“severe and lasting effects”
on the city’s economy.
The mayor also played a
key role in the latest push to
overhaul immigration laws.
Two years ago, more than
500,000 people took to the
city’s streets, joining march-
ers across the US in a call
for federal reform. But
despite the support of the
Bush Administration, the
effort eventually ran into the
legislative sand.
“Los Angeles civic leaders
have played a leading role in
trying to reform immigra-
tion across the country,”
says Ross DeVol, director of
regional economics at the
Milken Institute. “They rec-
ognise that reform is only
fair to undocumented work-
ers and their families. But
they also recognise that
these workers are an embed-
ded part of the Los Angeles
economy and we simply
can’t survive without them.”
The large undocumented
workforce – which tends to
be relatively poorly paid –
has benefited the city
because it keeps the cost of
labour down in areas such
as construction. “Los Ange-
les is a high-cost place to do
business but you could make
a compelling case that the
undocumented economy
allows the city to compete,”
says Mr DeVol.
Yet there are clear bene-
ers into the system. “A lot of
these workers aren’t paying
taxes to the city, so potential
revenue is being lost.”
Immigration reform has
lost its political momentum
in the current presidential
campaign. Neither Barack
Obama nor John McCain
have focused on the topic,
yet, whichever of them wins,
it is likely that the push for
reform will return in the
That will not happen
unless there is a ground-
swell of public support. Dow-
ell Myers, a professor of pol-
icy planning and develop-
ment at the University of
Southern California, says
Americans need to realise
that new workers are essen-
tial to the US economy.
“The public doesn’t seem
to know that we need immi-
grants,” he says, pointing
out that incomers will take
an increasing share of work
as baby-boomers retire. “If
we think we don’t need them
then we won’t legalise
them.”
But despite various legisla-
tive setbacks, supporters of
immigration reform have not
lost hope. American Apparel,
a Los Angeles-based clothing
company, is one of the most
prominent supporters of
reform and employs thou-
sands of Latino workers in
the city. The company
started a pressure group –
Legalize LA – to help undoc-
umented workers become
legal citizens.
Dov Charney, American
Apparel’s chief executive,
says Los Angeles would fall
apart without its immigrant
workforce. “Everyone knows
and understands that undoc-
umented workers aren’t just
a sideshow here,” he says.
“They’re the centrepiece of
the economy.”
6 ★
Los Angeles
Innovation keeps
space sector aloft
DEFENCE
Sector consolidation
prompted
manufacturing to leave
the region – but design
and development have
grown stronger, says
Matthew Garrahan
S
outhern California used to
be the undisputed king of
the defence and aerospace
centres – the biggest com-
panies were based in the area –
but then the Cold War ended and
they left. Or so many people out-
side California seem to believe.
But it is a popular misconcep-
tion that Los Angeles’s once
thriving defence sector has
ceased to exist. The industry has
certainly contracted, following
the waves of consolidation in the
1990s as the US came to grips
with being the world’s only
superpower, but the region
around Los Angeles and south-
ern California continues to be the
acknowledged world leader in
defence, thanks to an expertise in
space technology design and
development.
“California lost aircraft manu-
facturing but the space industry
has become very strong,” says
Michael Gruntman, a professor of
astronautics at the University of
Southern California.
He adds that about half of all
US satellites are designed, devel-
oped and manufactured in the
region.
The consolidation of the indus-
try when the Cold War ended
meant thousands of aerospace
manufacturing jobs were lost.
The industry now employs about
38,000 people locally, according to
Los Angeles County Economic
Development Corporation, com-
pared with about 130,000 in 1990.
In spite of the industry’s
smaller size, Los Angeles and
southern California continue “to
be the main aerospace centre in
the US”, according to Jerry Nick-
elsburg, an economist at the
UCLA Anderson School of
Management.
“Manufacturers realised that
metal-bending and riveting could
be done elsewhere,” he adds.
“The design, development and
innovation stayed here but a lot
of the assembly work went to
other places.”
Space technology is driving
much of the innovation in the
industry, whether it is the Nasa
scientists at the Jet Propulsion
Laboratory in Pasadena or the
defence engineers at Raytheon’s
space and airborne business,
which designs electronic warfare
and next-generation radar sys-
tems.
All of the biggest defence
companies continue to have sub-
stantial operations in or around
Los Angeles: Boeing, Raytheon
and Northrop Grumman are all
based there, as is the Aerospace
‘The challenge we
face is similar to the
telecoms industry in
terms of complexity’
Corporation, a federally funded
research and development centre
that supports US national secu-
rity, civil and commercial space
programs.
Aerospace Corp has been based
in El Segundo close to Los Ange-
les International Airport (LAX)
for 50 years and provides tech-
nical support to the US Air Force
Space and Missile Systems Cen-
tre, which is close by.
The group pioneered the first
global positioning system (GPS)
for satellite navigation, which
came to public prominence in the
first Gulf War and has become
widely used in mobile phones
and car navigation systems.
“It was developed for the
military,” says David Gorey,
senior vice-president of Aero-
space Corp’s space systems
group. “And 10 or 15 years later,
there probably isn’t an individual
who is unfamiliar with that sys-
tem.”
Aerospace has a long and glit-
FINANCIAL TIMES TUESDAY OCTOBER 28 2008
tering history in California. The
first space missions were planned
in the state, inspiring a genera-
tion of engineers and techni-
cians. “They were testing rocket
engines [for the first space mis-
sions] near my home when I was
a child,” says Jon Jones, presi-
dent of Raytheon’s space and air-
borne systems business.
California has “always been a
place that spawned and sup-
ported innovation”, he adds.
“There have been a lot of innova-
tors. People like Howard Hughes,
[Donald] Douglas and Jack North-
rop all started companies here.”
Military contracts continue to
be the primary source of revenue
for the city’s defence companies.
“Thirty or 40 years ago this
industry was primarily about
building aircraft,” says Frank
Flores, vice-president of engineer-
ing at Northrop Grumman.
“The products that we are
developing today are very differ-
ent. They’re not just air-vehi-
cles . . . they’re much more inte-
grated and have more functions.”
The entrepreneurial spirit
embodied by aerospace industry
pioneers such as Hughes and
Douglas continues in Los Ange-
les where new companies, such
as Space X, are challenging
established business models.
Based in Hawthorne, near
LAX, the company was created
by Elon Musk, the founder of
PayPal. It is developing cheaper
launch vehicles with the aim of
reducing the cost of firing com-
mercial satellites into orbit.
Recent international develop-
ments, such as the Russia-
Georgia conflict and the recent
downing by China of a weather
satellite, are new challenges for
companies that rely on US
defence contracts.
“Space [technology] will play a
big role in responding to these
changes in the geo-political envi-
ronment,” says Prof Gruntman of
USC. More real than Star Wars: space technology is a key ingredient for Raytheon and many other companies operating in the area
But the industry faces a
looming challenge. During the tries, such as telecoms or IT. Northrop Grumman, one of the eration of aerospace profession- difference is our products have to
consolidation era of the 1990s, Although that trend has since largest aerospace employers in als,” says Mr Flores. work first time.
many graduates chose to avoid been reversed, the industry con- Los Angeles, is currently looking “The challenge we face is simi- “There’s no beta test for
the sector in favour of other tech- tinues to suffer from a skills to fill more than 1,000 positions. lar to the telecoms industry in us . . . with our products, lives are
nologically sophisticated indus- shortage. “We have to develop a new gen- terms of complexity. But the big at stake.”