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Report: Los Angeles Losing Its Competitive Edge


A report prepared for Los Angeles city leaders warns that urban sprawl and excessive regulation are making the city less and less attractive to investors. The economic review says the city's future depends on how its growth is handled.

The report was prepared by the Los Angeles Economic Development Corporation, which promotes business investment in the city. The study notes Los Angeles has been transformed from a small Mexican pueblo into one of the world's major urban centers. Today, it is the hub of a network of communities that together form the world's 10th largest economy.

The report's authors warn, however, that unchecked population growth, which brought prosperity, could also hurt Los Angeles.

Lee Harrington, who heads the development organization, says the region will add five million residents over the next 20 years.

"That five million people is comparable to two cities of Chicago, all of the people, 2.7 million more cars," Mr. Harrington noted. "All of the infrastructure and education needs are coming with it."

Report co-author Joel Kotkin says the city's slide has already started, as some businesses leave Los Angeles for other cities.

"Southern California, Los Angeles in particular, is falling behind other parts of the country, particularly other parts of the West, in the battle for good jobs, for investment capital, and I think of it has to do with self-inflicted wounds," Mr. Kotkin added.

He says local residents and leaders have ambivalent attitudes toward growth. They know it is inevitable, but are reluctant to accept the changes that growth brings. The spacious suburbs of Los Angeles may have to give way to denser high-rise neighborhoods, and new industries will be needed to provide more jobs.

The report says Los Angeles does not have an effective regional planning agency to coordinate policy, and that residents suffer from parochial thinking.

But the authors say the city has surmounted earlier challenges, including cutbacks in defense spending that led to massive layoffs in the aerospace industry in the 1990s. New industries emerged, such as digital entertainment, and manufacturing and trading businesses started by immigrants.

Economist Jack Kyser says Los Angeles continues to benefit from international investment, especially from Asia.

"The first wave was Japan, and they have a huge position in southern California," said Mr. Kyser. "We jokingly say we have the West Coast auto industry, and it's very successful because it's Honda, Nissan and Toyota. Then you saw investment come in from Hong Kong, from Taiwan. That has sort of eased off, and now you're seeing investment come in from China."

Lee Harrington says the report identifies the strengths and weaknesses of the Los Angeles region, and one of its strengths is trade.

"We have more export industries than any other region in the U.S. We've got incredible entrepreneurship, which is creating new businesses," he explained. "We've got a transportation system, while it's starting to deal with its limits, nevertheless is a great logistics platform. We've got a great marketplace. But at the end of the day, we're not going to be able to compete with the fast-growth areas of the world, like China and India and Asia, unless we have public policy working at its optimum."

He says that means better coordination, more support for education, and construction of affordable housing.

Some proposed solutions are controversial, however. Residents demand strong environmental protection, but the report's authors complain that excessive regulation raises costs and drives businesses away. The same tension is seen in demands by workers for higher wages. The authors argue that a higher minimum wage has the unintended consequence of driving away jobs and making Los Angeles less attractive as a place to invest in.