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For High Tech, L.A.'s the Place

Study: County ranks third in contribution to U.S. output, says Milken Institute. Entertainment is the leading force in local tech industry.


Los Angeles County's broad range of software, telecommunications, aerospace and other high-tech firms produced nearly one out of every eight dollars generated in the local economy, making it the third-ranked community in a new study of the country's technology hotbeds.

In the study, "America's High-Tech Economy," released Tuesday by the Milken Institute in Santa Monica, San Jose easily captured the top spot, thanks to its location in the heart of Silicon Valley. Dallas, home to six of the nation's 20 largest telecommunications services companies, edged Los Angeles for No. 2 ranking.

California communities dominated the list of 50 high-tech centers: Orange County ranked No. 13, followed by Oakland at No. 14, San Diego at No. 17 and San Francisco at No. 22.

That bodes well for the Golden State. Technology is not only driving the current U.S. economic expansion but is expected to continue doing so for the next decade. Since 1991, the high-tech sector has grown four times as fast as the national economy as a whole, and cities with strong high-tech economies have benefited the most, according to the report.

"High-tech industries are critical in gauging the health of the U.S. economy," the report states. "They are determining which metropolitan areas are succeeding or failing. Without growth in high-tech sectors, metros will be left behind."

Nevertheless, an economy based on technology has its drawbacks, the report notes. Technology manufacturing sectors are vulnerable to downturns in the business cycle, a lesson Southern California learned from the aerospace industry contraction a decade ago.

Moreover, since high-tech employees earn more than most other workers, communities that rely on the industry must deal with the social consequences of income inequality, said Ross DeVol, director of regional studies at the Milken Institute and lead author of the study.

The study was based on government data from the Bureau of Labor Statistics and the Bureau of Economic Analysis that measured employment and output of high-tech firms in more than 300 U.S. cities. Its rankings are based on a combination of the regions' contributions to the nation's high-tech output and the degree to which each region has embraced technology industries.


The study shows that high tech's role is bigger than previously thought, said Tom Lieser, executive director of the UCLA Anderson Forecast, which tracks the state economy.

"It underscores the importance of maintaining . . . a favorable climate" for high-tech businesses in Southern California, said Lieser, who was not involved in the study.

Technology companies in Los Angeles account for 12.3% of the county's economy, and produce 5.1% of the nation's total high-tech output, according to the study. By comparison, San Jose relies on technology for 37.2% of its economy, and the region accounts for 5.8% of the country's technology production.

Orange County relies on high-tech firms for 12.8% of its output and contributes 1.9% to total U.S. technology output. Overall, technology contributed about $1.5 trillion of the nation's $12.5-trillion gross domestic product in 1998, DeVol said.

Nationwide, the fastest-growing technology sectors have been telecommunications services and data processing and computer services, including Internet companies, DeVol said. In Los Angeles, those sectors are two of the biggest contributors to the local economy, with computer and data processing businesses accounting for 1.8% of the county's output and telecom kicking in 1.4%. Companies that produce aircraft and related parts are responsible for 1% of the total.

But the biggest element in L.A.'s technology mix is Hollywood, which is responsible for 4.8% of the county's economy. Without the contribution of the entertainment industry, Los Angeles would have ranked seventh in the survey.

DeVol said it would have been a mistake to ignore Hollywood.

"Anybody who knows anything about the entertainment industry understands it's very technologically intensive, with multimedia, animation, special effects and [computer and video] games."

Although the collapse of defense-related companies crippled Los Angeles' economy earlier this decade, commercial aerospace firms, like satellite maker Hughes Electronics in El Segundo, have contributed to a rebound, DeVol said. Many downsized workers redirected their talents into software and multimedia companies, he said.

Southern California's tech centers are maturing independently of their celebrated northern neighbor, DeVol said. Silicon Valley grew up around semiconductor technology, but the Southland's growth was spurred by the aerospace and entertainment industries. Orange County and San Diego share strengths in biotechnology, biomedical devices and telecommunications, he said.

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