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Analysts Say California Economy Will Recover - 2001-11-10

Like elsewhere in the United States, the state of California has been hard hit by the recent decline in the U.S. economy. Analysts at the Milken Institute near Los Angeles say the terrorist attacks of September 11 will probably cost California 260,000 jobs. They also say the state is well situated for a strong recovery.

The analysts say the economic slowdown, which was accelerated by the terror attacks, is likely to cost California $67 billion over the next year. The most seriously affected sector is tourism and related industries, such as airlines and hotels.

But the report from the Milken Institute says long-term prospects are good for the West Coast state. Economist Glenn Yago, one of the report's authors, has said California ranks second to Massachusetts among states best poised to prosper in the future and that the outlook is also bright in Colorado.

"These are all states that have a very diversified population and have made strong investments in education and human capital," he said.

The analyst says all three states are strong in what he calls "knowledge capital," the expertise that supports high-tech industries. The analysts ranked the U.S. states by several measures, including their number of scientists and engineers, the number of patents issued for new industrial processes, and the amount of venture capital to start new businesses.

Mr. Yago has said the high-tech sector is now in a slump, but he views it as temporary. "If you look at investment or take a prospective view of the economy five to ten years hence, the digital revolution will not be delayed. It has been delayed slightly, but over the next five to 10 years we'll see a continued rollout of the types of technologies that drove the economy over the last nine years," he said.

The economist and his colleagues believe biotechnology will be a key driver of growth in the U.S. economy over the next few decades.

An ongoing electricity crisis threatens California's recovery from the current downturn. However, the widespread power failures that were predicted for last summer failed to materialize. The state averted the "blackouts" as more power plants came online and Californians started conserving electricity.

Loretta Lynch heads the state's Public Utilities Commission, which oversees the California power industry. She has warned that the state's consumers still face billions of dollars in debt incurred for emergency power purchases, which must be repaid.

"The costs are very high, and we need to fold those costs in and pay them in a way that doesn't tank [sink] the California economy. And that's what we're grappling with as a state and as energy policy makers in California," she said.

California officials are also coping with increased costs for security in the face of the terrorist threat. Jerry Brown is mayor of the city of Oakland, and a former California governor. "Oakland's faring like everywhere else. We're seeing an economic downturn. We are concerned about terrorist threats, and yet because we have a good mix of old and new economy, we're doing pretty well," he said.

Economists at the Milken Institute say despite the current downturn, the new high-tech economy will be important to California's recovery and that Mr. Brown and other officials have reason for optimism in the long term.