Strategies to Expand L.A.’s International Role

Can a city have a foreign policy? This question surfaced strongly in the 1980s, when anti-apartheid activists pressed municipal governments to deny contracts to firms doing business with South Africa. As with foreign affairs in general, the challenge now is less political and more economic: Given the globalization of trade and finance, what should cities do to better position themselves and their citizenry for international competition?

In a provocative new book from the Council on Foreign Relations, “The City and the World,” Hunter College professor Margaret Crahan and her colleagues consider the role of cities in the international economy, focusing specifically on what they call “New York’s global future.” The volume’s core premise is that internationalization has in fact made certain urban areas more important: Globalization may have decentralized production, but the “command and control” operations of international financial and business services are still centered in several key cities, including New York.

Although the strengthening of the New York economy, particularly after a long and painful period of fiscal decline and manufacturing losses, should be welcome, the book’s authors are surprisingly cautious. They note that the city’s victory in finance has had an unequal impact: The share of income accruing to those in the securities industry is nearly five times their share of employment. Meanwhile, incoming immigrants, another reflection of global integration, have sometimes undercut local wages and employment prospects. Both phenomena raise concerns that New York’s global future may bear more resemblance to the sharp contrasts of Mexico City than to the less-polarized environs of Tokyo.

What does this mean for Los Angeles? L.A., after all, tops New York on the list of immigrant meccas. Although it cannot make the same financial claims, international business services are significant and the local customs district handles a full 12% of the nation’s total imports and exports. Moreover, key sectors such as entertainment are directly dependent on foreign markets, and tourist spending helps drive the service industry. Los Angeles is deeply enmeshed in the world economy, and it needs an international strategy that both accepts its global role and improves the local consequences.

The first task of such a strategy is straightforward: Embrace globalism. Although the recent downturn in Asian markets reveals the vulnerability of enhanced linkages--with the South Korean meltdown, economists are now predicting that California’s export growth will be flat--trade remains an important generator of both manufacturing and service employment. Critics are rightly concerned about environmental and social impacts of the “big three”--enhancement of the ports, development of the Alameda Corridor train link from the port facilities to downtown warehousing, and expansion of airport capacity at LAX or elsewhere--but improvement of the region’s infrastructure is essential to L.A.’s future.

Yet embracing internationalism must go beyond physical infrastructure. Having a significant number of foreign-born residents benefits a city’s export performance, probably because these new arrivals help local firms understand the markets back home. For this and other reasons, Los Angeles should celebrate, not reject, its immigrant presence.

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Equally important is high-level local awareness of foreign affairs. The Pacific Council on International Policy, a West Coast counterpart to New York’s Council on Foreign Relations, is a relatively new institution, but it has already brought together key civic leaders to better understand how the region and the state are affected by--and can affect--global developments.

The second task of a global strategy is to integrate local production. That a huge trade volume moves through the ports in Southern California does not necessarily mean local manufacturers are contributing to it. Export production is important to the region. Commerce Department figures rank Los Angeles as the fourth-largest metropolitan area in terms of 1996 export sales. But the rapid growth in transshipment or “pass-through” has far outpaced L.A.’s own production of export goods. Of the 20 largest exporting metro areas, L.A. ranked only 17th in the growth of merchandise exports for 1996, and 16th for the 1993-96 period. Critics of the Alameda Corridor project therefore worry that the 700,000 permanent trade-related jobs it promises to create are likely to be elsewhere in the country.

Fortifying the connections between trade expansion and local production could improve the city’s economic prospects as well as enhance political support for infrastructure development. Recognizing that export performance alone can be misleading, Rutgers University economist Anne Markussen has used a sophisticated technique called shift-share analysis to classify more than 300 U.S. cities into four categories: trade winners, trade losers, domestic-oriented and import-resistant.

For the 1980s period for which she has detailed data, Los Angeles manufacturing was more driven by domestic demand. Although the city has become better linked to the world in recent years--trade promotion programs such as the L.A. Chamber of Commerce’s LA Trade project have helped--more can and should be done.

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The final task of a global city is to spread the benefits. Employing Markussen’s breakdown of trade winners and losers, my own research associates a city’s international success with a higher percentage of foreign residents, higher levels of education and a more equal distribution of income. High per-capita income has a negative effect, mostly because it is associated with high wage costs, and city population has a positive effect, mostly because it allows producers to obtain lower costs by choosing from a range of suppliers. Since a city’s population doesn’t change quickly, and one hardly wants to purposely diminish local wages to improve competitiveness, improvements in education, equity and diversity remain as key components of a pro-trade strategy.

Progress is being made on these fronts. The mayor’s recent International Trade Forum focused on how minority-owned and small businesses could take advantage of new global opportunities. The Alameda Corridor project has established a Business Outreach Committee, although it is mostly focused on the temporary jobs that will be created during construction. More could and should be done to both connect local communities to trade flows and shore up the city’s educational resources.

Being a global city can be frightening because the city can be swept up--and sometimes away--by international trends. But ready or not, L.A.’s own global future is here--and providing leadership, integrating production and spreading the benefits will help position the region to take full advantage of its international role.