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State Needs Federal Investment, Not Cuts

by Luke Reidenbach (MPP Candidate '13)

The aerospace industry is worried. Its most important customer, the Department of Defense, might have to cut more than $40 billion from its budget this year because of automatic spending cuts, otherwise known as the sequester, which - without congressional action - will begin Friday.

Such cuts would be “catastrophic for our industry and our nation,” Lockheed Martin CEO Robert Stevens said last year. Lawmakers agree. “I implore you, no, I beg you, to stop this from happening,” Rep. Buck McKeon, R-Santa Clarita (Los Angeles County) told employees of defense contractor Northrop Grumman at its Palmdale plant last year in an effort to rally public support to save California's aerospace industry from the forced spending cuts.

Lawmakers like McKeon, who chairs the House Armed Services Committee, are right to worry about the employees of California's aerospace industry. After all, the cuts in defense spending probably will result in fewer contracts and less revenue for companies like Northrop Grumman. But the laser-like focus on the effect of the sequester on our defense contractors misses an important point: California's aerospace industry as we know it already was on the decline. And without further investments in our infrastructure, our workforce and our research institutions, the aerospace industry will disappear, along with our other innovative industries.

The history of aerospace in California is a lesson on what can be accomplished when the government and the private sector complement each other. The government didn't merely buy the planes and missiles manufactured by the aerospace industry; it supported the creation of technologies by funding expensive multiyear research projects. Throughout the 1960s, funding on overall research and development made up an average 10 percent of total federal government spending, compared with less than 4 percent today. And California enabled these industries by educating its workforce and expanding its infrastructure of roads and highways. 

These investments paid off. Even just 20 years ago, California's aerospace industry was huge. In 1990, more than 300,000 Californians worked in aerospace, and 1 of 3 people working in that field nationally lived and worked in California. And around the same period, there were nearly 1,000 aerospace businesses and establishments around the state. 

The end of the Cold War brought significant changes to our military. Defense spending was cut, military bases were closed and company mergers resulted in many contractors shutting down operations. The number of aerospace businesses has declined, falling by nearly 25 percent between 1993 and 2011, and more than 150,000 jobs were lost in the same period.

The industry is still feeling the pinch of changing military priorities, with major factories desperate for federal scraps. Factories like Boeing's C-17 plant in Long Beach, which laid off 900 workers two years ago, are under perpetual threat of closure. The Department of Defense says it no longer needs the C-17s but that it still needs the Long Beach plant to upgrade them. Once that work is complete, the future of the plant is unknown.

All of this would be terrible news for California's larger economy if aerospace were our only high-tech industry. But while aerospace has waned, other innovation-heavy industries less reliant on government as a customer have risen. Everyone knows the story of Silicon Valley and the Internet technology boom, but there also has been a surge of biotech, chemical-engineering and renewable-energy technology firms throughout the state. Then there are the other types of high-tech manufacturing industries, such as medical device and pharmaceutical manufacturing, in which employment has grown even during the recession.

One reason these industries have thrived in California: government investment. Just like aerospace, the federal government's investments in research and infrastructure, as well as loans and targeted subsidies that encourage new businesses, have been instrumental in maintaining California as an innovation hub. Regardless of the sequester's potential cuts to the defense sector, California can continue to be competitive by doing what always has done: investing in people and the research that become the foundation of new industries.

Luke Reidenbach is a master's candidate at the Goldman School of Public Policy at UC Berkeley. This op-ed was originally published in the SF Chronicle