The Real Economy of Orange County

Justin Adams, Ph.D.
President and Chief Economist of Encina Advisors

Thursday marked the much anticipated IPO of San Francisco-based Twitter, the social media phenomenon.  The buzz surrounding Twitter’s IPO, similar to that seen for Bay Area giants LinkedIn (2011) and Facebook (2012), shines yet another spotlight on the innovation and entrepreneurialism of Silicon Valley.

Twitter certainly deserves congratulations for reaching this milestone.  For the company’s founders to turn an idea into a multi-billion dollar enterprise in only a handful of years – while at the same time embedding “tweets” firmly in our collective consciousness – is nothing short of amazing.

But there are downsides to Silicon Valley’s ongoing love affair with social media.  All the attention placed on LinkedIn, Facebook, and Twitter has tended to obscure one important fact about our economy:

California still makes stuff.

Despite economic headwinds and numerous regulatory restraints, Californians continue to design and manufacture products ranging from the innovative to the mundane.  From autos to electronics.  From specialty chemicals to cat food.

This really hit home for me recently when I spent two weeks on a project in Irvine.  I found myself driving daily through blocks and blocks of low-slung, nondescript industrial buildings – not far from where I grew up.  I had expected them to be shuttered or razed as aftereffects of the Great Recession.  Instead they were beehives of manufacturing activity.

(I’m quite sure that I ignored all these buildings as a kid.  But now as an adult, knowing that statewide unemployment is hovering around 9 percent, I tend to pay a little more attention.)

The latest statistics on GDP from the U.S. Bureau of Economic Analysis show that in 2012, manufacturing made up about 10 percent of California’s $2 trillion economy.  Manufacturing was actually the third largest sector behind real estate and, well, government.  (You can’t make this stuff up.)

For the Los Angeles-Long Beach-Anaheim Metropolitan Statistical Area (MSA) alone (containing both Los Angeles and Orange Counties), the manufacturing sector contributed over $72 billion to the state’s economy.  That means more than one-third of the state’s manufacturing takes place in Los Angeles and Orange Counties.

By comparison, the manufacturing sector in the Los Angeles-Long Beach-Anaheim MSA produced 80 percent more in economic output than that in the San Jose-Sunnyvale-Santa Clara MSA (i.e., Silicon Valley).  It also employed more than three times the people.

To paraphrase Michael Dukakis from his days as a presidential candidate, Orange County’s manufacturing is producing “good jobs, with good wages.”  And that’s not a bad thing these days.

Manufacturing companies obviously face a different set of challenges than social media companies.  So for California to keep “making stuff,” we as a state are going to have to keep making investments in the basics: transportation infrastructure such as roads, highways and ports; cheap, reliable energy sources; and vocational training.  And we will have to reduce the onerous nature of environmental and other regulations that increase the cost of doing business in the state.

In other words, it’s more about derricks than data centers.

Now this is not intended as a knock on Silicon Valley.  The transformative power of the high tech economy has been undeniable.  (I went to college and grad school in the Valley, so I’ve been fortunate to see these changes first-hand.

In fact, I think Joel Kotkin summed it up best when he suggested that the tech sector and the “real” economy ultimately need each other: “[I]nnovation can help make Detroit competitive, but society really benefits if that car is designed and made in the United States.”

I couldn’t agree more.  And so, while all eyes are on Silicon Valley and Twitter’s IPO, let’s take a quick moment to remember the other half of the equation – California’s real economy.

Dr. Justin L. Adams is the President and Chief Economist of Encina Advisors, LLC, a Davis-based research and analysis firm.

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