1993, 248pp.

By: MARK DRAYSE, ODESSA DUBINSKY, DANIEL FLAMING, AND ELIZABETH REID, ECONOMIC ROUNDTABLE

Well-designed economic development programs build on local strengths, the most important of these being existing manufacturing capacity and expertise. Because of defense cutbacks, the large, environmentally desirable industrial base which has been built in Southern California to manufacture aerospace products is being severely eroded. To preserve this economic resource, the competitive strengths of this industrial network and skilled workforce must be linked with a new growth path. This report examines the potential for using regional investments in advanced surface transportation systems to open new industrial development opportunities for aerospace manufacturers and workers.

The compelling reason for examining ways in which regional resources, such as transportation investments, can be used to stimulate job creation is large, permanent job losses in aerospace being caused by defense cutbacks. The region must rely on itself to formulate and implement an industrial development strategy that connects extraordinary high technology capabilities with growth paths into commercial markets. Even with the prospect of a federal industrial policy, neither federal nor state government will assist one region in planning how to compete against other regions. Once a regional strategy is formulated, however, there are many ways in which federal and state assistance to offset the impacts of defense reductions can support a regional industrial development strategy.

The region is challenged to manage a host of uncertainties about the economy, growth potential of specific industries, methods for supporting industry growth, and the integration of public and private sector goals in order to retain and create productive, lasting jobs for its workforce. This report offers a partial road map for policy makers being called upon to cooperate in unfamiliar ways and make new kinds of decisions. Five questions are addressed:

Which value-added industries in the region might have competitive strengths for manufacturing advanced transportation systems?

The region's manufacturing strength lies in its precision machine shops, electrical and electronics firms and related systems houses, which produce sophisticated aerospace, aircraft and communications products. These firms offer a wide range of expertise in design, engineering, manufacturing and testing, and typically work on multiple contracts, producing products in small or large batches to customer specifications. The core group of machine fabrication, electrical and electronic firms is supplemented by a diverse array of firms capable of producing vehicle products ranging from bullet-proof glass to seats to fabrication materials and industrial machinery.

Which aerospace/high technology firms are seeking to diversify into new markets?

A survey of the core manufacturing base of the county in aircraft, aerospace, electronics and related industries provided information about production capabilities of firms interested in moving into surface transportation markets. Nearly one-fourth of the establishments indicating interest in diversifying out of the defense market were owned by a member of a minority group and/or a woman. Most of these establishments were also small businesses.

Establishments indicating interest in making surface transportation components were typically small to medium sized machine shops which performed contract work for aircraft and aerospace manufacturers. These firms have strong capabilities in precision machine work, including the ability to work to demanding military specifications and produce small batches to-order. In general, the stronger the ties between an industry and aircraft and aerospace production, the greater the level of interest in diversifying. The ten industries demonstrating the greatest interest in diversifying into surface transportation were: Industrial Machinery; Wire Springs, Speed Changers, Drives, and Gears; Aluminum Die Castings; Aluminum Foundries; Guided Missiles and Space Vehicle Parts; Bolts, Nuts, Rivets, and Washers; and Aircraft Parts.

How good is the match between the products made by these firms and the requirements of surface transportation industries?

There is a mismatch between the product requirements for rail car manufacture and the production capabilities of Los Angeles firms responding to the survey. The products which make up the majority of production costs in the rail car tend to be (a) "low technology" products and materials, and (b) generic electrical and electronic products. In general, these products do not require the high-precision capabilities of the aircraft and aerospace subcontractors.

Aerospace products differ from currently used surface transportation products in the following four ways:

• Fabrication processes utilize lighter, more expensive materials.
• Components are more frequently custom made and machined to finer tolerances.
• Products are frequently manufactured in relatively small quantities.
• Completed systems have a higher share of electronic and electrical subsystems to enhance performance, controls, information feedback and safety.

The relatively small size of the bus and rail transit markets in comparison to aerospace is another important factor to consider in planning a regional industrial diversification strategy. Not only are these markets small, but they are dominated by centers of manufacturing strength in other regions. Industrial diversification plans for using regional investments in surface transportation to create jobs for laid-off aerospace workers need to have a strategy for reaching beyond surface transportation to larger markets.

How good is the match between aerospace workers and the skills required by surface transportation industries?

Unemployed workers from aerospace and related industries bring relatively high skills into the labor market which, unfortunately, are not being sought by most manufacturing industries. The short-term problem of job matching between different industries merges into a long-term problem of retraining workers and fostering the development of industries which can use their skills and provide secure, well-paying jobs. Many firms in the non-defense manufacturing sector in Los Angeles, buffeted by recession and global competition, are currently relying on short-term labor flexibility strategies involving reductions in labor costs, outsourcing to non-union firms, increasing employment of part-time and temporary workers, and decreased job security. These strategies do not bode well for workers seeking secure, well-paying jobs which use their talents in machine work, engineering, and other skilled occupations affiliated with aerospace work.

Summary of labor market findings:

• Available data indicate that there is not a good or immediate match between the supply of unemployed aircraft workers and the demand for the same types of workers either in volume of jobs available or in skills used in surface transportation industries.
• Highly skilled workers make up an unusually high proportion of aerospace layoffs, especially in Long Beach, where 19% are industrial engineers.
• "Target" industries in surface transportation were found to hire workers for two to twelve of the twenty-six aerospace occupations analyzed, but most of these industries are relatively small and do not offer good near-term prospects for job absorption.
• Even if Los Angeles County were the site of significant industry expansion to produce cars for the region's new rail transit system, this would have only a minor effect in absorbing laid-off aircraft workers, given the current size and skill requirements of this industry.
• Rail car equipment employment classifications show poor correlation with those used by aircraft and missile plants.
• Intensive and extensive training programs may be needed to assist laid-off aerospace workers in finding new jobs in the immediate future in different industrial activities and different fields of work. Unfortunately, this may frequently entail leaving skilled manufacturing and experiencing a loss in productivity and standard of living.

These findings indicate that efforts to develop and expand surface transportation industries will not result in near-term absorption of large numbers of workers being laid-off from aircraft firms, unless they are retrained. But if effective strategies for creating future jobs do not take root in the near future, the opportunities for building on existing but declining industrial strengths may narrow.

How can the region respond to the matches and mismatches between aerospace and surface transportation so as to stimulate industrial growth and job creation?

Because currently designed surface transportation systems utilize very little aerospace technology and represent relatively small markets, any effective regional strategy for using transportation investments to create jobs for aerospace workers must:

• Target regional investments in transportation technology on components that are also needed in markets outside of transportation. In this way, transportation can be used as the first critical stepping stone in reaching markets large enough to absorb the production capabilities of Southern California's aerospace industrial network.
• Dramatically upgrade technologies utilized in Southern California's surface transportation systems to increase the opportunities for using aerospace design and manufacturing capabilities.
• Provide highly focused, coordinated, early support for regional industries as they struggle to overcome barriers related to product development, market entry and start-up costs.
• Build on a demonstrated linkage between a high technology product and the skills of Southern California's aerospace work force.
• Build on near term opportunities for commercialization.
• Ensure that the product is responsive to specifications provided by committed users.
• Provide a gateway to other markets through development of carefully targeted, multiple-use surface transportation components.
• Align business interests with diverse and powerful public interests.
• Enlist broad support for public sector underwriting to reduce the level of risk in early stages of commercialization.
• Accommodate multiple interests by building a high level of communication and cooperation among participants.