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Mayor's Study Shows Start-Up Firms Fueling a Robust Recovery : Economy: Small companies can offset job losses in aerospace, the report says, but it warns of deep resentment of red tape.


Los Angeles County has enjoyed a surprisingly high rate of new company start-ups during the 1990s, highlighting a robust, almost hidden economy that may indeed shake off the devastation of aerospace layoffs and rediscover rapid growth, according to a study to be released by Mayor Richard Riordan's office Monday.

However, the New Economy Project, as the report is called, concludes that the continuation of the region's economic vitality is anything but a sure thing if the area's political institutions don't commit to supporting the private sector.

"Economically, these firms are very positive," said David Friedman, an attorney and urban economist who headed the project, which was funded by public and private sources. "In terms of . . . the gestalt of doing business in Los Angeles, they were very negative, and that's the problem."

The $150,000 study, touted as the most detailed assessment ever of several overlooked industries in Los Angeles County, surveyed companies in metalworking, environmental consulting, biomedicine, textiles, computers and entertainment crafts, and collected detailed information from thousands of small firms that are usually overlooked by official state and county data collectors.

The report also came up with four "action steps" for regional policy-makers to consider as they try to address the problems of the business community.

It says that, despite the recession, the creation of companies has been a crucial force for economic growth in this decade, actually matching the rate achieved in the heady days of the 1980s. But the study also found that the city of Los Angeles has not performed as well as the county in attracting new firms, because of perceptions of deterioration and a poor business climate. Feelings ran so deep that the project's staff members, in conducting follow-up interviews, were frequently subjected to several minutes of verbal abuse by company owners, who then apologized and calmly answered questions.

"Some of the interviews were very vituperative because people had a lot of pent-up economic rage," Friedman said. Many of these companies, although they were selling products and making money, "felt like they were on a balloon about to pop" and so were refraining from necessary expansions and investments.

"The constant drumbeat of negativity has led to arrested development. Companies are actually quite healthy, but their growth is restrained beyond what it should be because they don't want to invest another nickel" in an area they are afraid is deteriorating, he said. "They don't want to be the last one on the boat."

The study appears at a time when Riordan is attempting to focus more intently on economic development.

In a major speech two weeks ago, pledged to consolidate the city's economic development efforts to help boost the economy out of recession. He vowed to improve the atmosphere for doing business and to reduce regulation at City Hall, but he offered no new tax reductions or other economic incentives.

"It was pretty clear what the first year was about: public safety," said Mary Leslie, deputy mayor for economic development. "This is the year of jobs, the economy."

The New Economy study "is not our economic development program. But it fits in nicely," Leslie said. "The reason this study is so important is that it gives us some very basic data. . . . It tells us how much we don't know."

The New Economy Project targeted 18,500 firms with 376,000 employees and $41 billion in revenues, providing a detailed snapshot of nearly 10% of the Los Angeles-area work force. About 350 firms returned comprehensive surveys and more than half agreed to follow-up interviews.

"There is an economy after aerospace," the report says, noting that from 1980 to 1993 there were 3,644 jobs lost in the aerospace and computer hardware companies that were surveyed. These were offset by 3,636 jobs created by the textiles, software, biomedical, entertainment, environmental and mechanical engineering firms in the survey.

In addition, close to two-thirds of all companies in the studied sectors were founded since 1980, and 20% were founded since 1990. Jobs created by newer firms in the survey almost completely offset job losses recorded by the older firms.

"The overall rate of new company growth in the county since 1990 has been almost identical to the 1980s, which was a period of record expansion," according to the study, which was launched two years ago with funding from AT&T and the city's Community Redevelopment Agency, Community Development Department and Department of Water and Power.

But the report criticizes the city and county for failing to make "an explicit commitment to economic development in the manner of many smaller jurisdictions in the region or neighboring counties."

It calls on the city and county to make private-sector development a top political priority, develop basic data on economic and social conditions that can be used to promote Los Angeles, review state and federal taxes and regulations that affect business activity, and talk to the business community to see what it really needs.

"It is possible to imagine that, come what may, the regional economy will recover and grow largely on its own while political institutions pursue the agendas of the past," the report concludes. "The project data and survey responses strongly suggest, however, that the continued vitality of Los Angeles' industrial legacy is far from assured.

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