Sunday, March 1, 2009

Stanford University Press, $27.95, 216 pages

Those who have read financial journalist James Flanigan over his 40-year career recognize his hallmark. It is an intense curiosity not just about what is happening, but why it happens that way, and what is likely to occur next.

As the title of “Smile, Southern California, You’re the Center of the Universe” suggests, Mr. Flanigan would have us believe that Southern California is what America is likely to become — perhaps even must become — as it evolves into a more interdependent yet still pre-eminent position in the global marketplace. This is not local boosterism gone wild. Mr. Flanigan’s career as a financial journalist and columnist for Forbes, the Los Angeles Times and the New York Times has taken him into executive suites all over the world.

A first reaction might be that this is a book that has been overtaken by events. Between the time the author did his interviews and research and Stanford University got around to printing the book, California has been stricken by the same economic catastrophe that has swamped the world and its most visible giants in the high-tech, entertainment and finance sectors have been badly wounded. At the moment, the state itself now has the lowest credit rating among the 50 states because its governor and legislature are deadlocked in a struggle over impending budget deficits. If Standard and Poor’s ranks California no better than Louisiana as a credit prospect, then why bother with the place at all?

The value of this book is that it is not just a story of how the southern counties of California rose to wealth and pre-eminence and then fell into the current crater along with the rest of us. Rather it is a forward blueprint for what the rest of us must do in the future, not only to get out of the immediate paralysis but to make the broader changes in the American way of prosperity that the new world reality demands.

Mr. Flanigan opens his chapters with some home truths about Southern California that, in his words, “make it a model for the United States and of the world.” These truths should be tattooed on the foreheads of those who pander to the prejudices of the narrow political special pleaders whether they are cable chat show hosts or speaker of the U.S. House of Representatives. One of the disturbing parts of the debate now going on in Washington over the shape and direction of the Obama stimulus package is the echo of an America that no longer exists being touted as the America we must become again.

The central truth that Southern California exemplifies is that you cannot turn back the clock; Old Detroit will never return to dominate global motor car manufacturing any more than Old Akron will make our rubber tires or Old Pittsburgh our steel. The Old California of orange groves, tinseled Hollywood and bronzed beachgoers all were erased long ago by a number of major forces that the author bills as harbingers of what we all can expect.

“First, there is international trade, which is now a leading contributor to the U.S. gross national product in a world economy swelled by billions of new participants — principally the enormous populations of Asia, Latin America and Eastern Europe. In today’s trade, however, industries and countries do not merely exchange goods and services but collaborate in producing them. This is a new paradigm and a richer exchange. The ideas behind products and services are the most valuable factors in the process: concept and design count for more than simple manufacture. This is hardly revolutionary. The engineers who designed the automobiles have always been more highly compensated than the assembly line workers who put them together,” Mr. Flanigan states.

By design or luck, the region has become our paradigm for the future because many of the other trends that will dominate our lives wherever we live have become more visible there sooner. Trade that once was a nickel of our gross domestic product now accounts for nearly 40 cents of GDP and more than 50 cents of each profit dollar nationally; on our West Coast, trade overwhelmingly dominates both its gross and its net. But there is more.

That trade trend, in turn, is linked to the region’s location on the frontier of the Internet, which was first developed there and then adapted from a government research tool into a worldwide agora.

While alarmists like Lou Dobbs may still decry it, there are new faces and colors pouring into the American scene everywhere, but first and most visibly in the market stalls of the Pacific Coast. With the arrival of Latinos, mostly from Mexico, and Asians from Korea, China, India and elsewhere, as Mr. Flanigan notes, “Southern California became the new Ellis Island and reaped economic energy as immigrants started businesses. ‘These people did not come all the way from Asia to work for a salary,’ observed one banker. ‘They came to build businesses. They were not thinking of retirement plans but of new adventures.’” One needs only to drive out to Wilson Boulevard in Virginia to see the validity of that forecast for our own locale.

One of the facets of Old California was its base of government-dominated scientific and technology research facilities such as Bell Laboratories. But now the knowledge-driven economy of the future is being financed and directed by universities, and Southern California has more of them than any other region of the nation. World-class research at the five University of California campuses, plus independents such as USC, Caltech, and Claremont all point the way for President Obama if he is serious about creating the new occupations that will put the economy back into gear.

Not that Southern California is the paradise that the campy postcard cover of Mr. Flanigan’s book suggests. Environmental perils, ethnic conflicts, criminal gangs, strained infrastructure and a political culture that routinely lapses into the silly are some of the reasons those in the Boston-to-Washington corridor tend to discount what happens on the Left Coast. But Mr. Flanigan makes a lucidly written case that the public-private partnerships that Californians increasingly use to address these issues offer a direction that Mr. Obama and his planners would do well to consider — and promptly.

James Srodes is a veteran Washington financial journalist and author.

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