L.A. Hanging on as a Top Global City

For more than a century, Southern Californians have dreamed of their region becoming host to a great global city. At the turn of the 20th century Henry Huntington, who built much of the area’s first mass-transit system, proclaimed that “Los Angeles is destined to become the most important city in the world.”

Of course, builders of other cities – St. Louis, New Orleans, Chicago and even Cincinnati, Ohio – have made similar predictions. But L.A.’s claim, unlike the others, had a significant resonance. Not only was the region growing rapidly throughout the previous century, and now stands as North America’s second-largest population center, but it dominated a host of fields, notably entertainment and aerospace, and was highly influential in energy, fashion and manufacturing.

But it was a connection to the Pacific Rim that made L.A.’s ascendency so global. This is something that Midwest rivals, such as Chicago, never enjoyed. By the 1980s, when I was writing my first book, “California Inc.,” faith in Southern California’s global ascendency was commonplace among its business leadership, who almost universally saw the city as rising above New York, London and Tokyo to become the new center of a Pacific-centered world economy.

This notion, and the region’s huge economy, has sustained its status among global cities. The 2014 A.T. Kearney global cities index ranked Los Angeles sixth, behind New York, London, Paris, Tokyo and Hong Kong.

However, a new study of global cities, just released by the Singapore Civil Service College and Chapman University, shifted ranking criteria away from the size of economies or number of business producer service firms and concentrated, instead, on unique factors such as industry domination, diversity and global connectivity.

Hooray for Hollywood

The good news: Los Angeles ranks 10th among global cities, using our new measurement. But L.A.’s also clearly not gaining ground on the top two global cities, New York and London, and now ranks below such rising competitors as Beijing and Dubai. L.A. also only shares 10th place, with its primary rival, the San Francisco Bay Area, as well as Toronto.

What is keeping Los Angeles in the top 10? For the most part, the Hollywood connection makes Southern California a “necessary” place for global business. Hollywood is nearly synonymous with the American entertainment industry and is by far the world’s largest in terms of revenue and influence. Last year, the industry enjoyed exports of almost $15 billion. Every major global movie studio is located in Los Angeles.

Yet this industry – growing both nationally and internationally – is also increasinglydispersing. Indeed, this region’s share of film and television production has been plummeting in recent years, according to the California Film Commission, largely the result of films and TV moving to Canada, Louisiana and other less-expensive locales.

This is troubling. Before 1980, Southern California’s global emergence rested on more than merely being “Tinsel Town.” It was once the hub of the global aerospace industry, but this former linchpin has declined as both industry headquarters and production have moved away. More than 90,000 aerospace jobs have left Southern California since the end of the Cold War, about 25 years ago.

The region also retains a foothold as the U.S. base in the global auto sector, particularly for design and marketing, for some Asian carmakers. However, Nissan, a few years back, relocated its U.S. headquarters to Nashville, Tenn., and Honda moved some of its top executives to Ohio in order to be nearer to its manufacturing plants.

More devastating is the departure this year from Torrance of the U.S. headquarters for Toyota, the world’s largest automobile firm and a consistent technological innovator.

Still, the picture is not totally bleak: Southern California remains the base for North American operations of the two fast-rising Korean firms, Hyundai and Kia, both in Orange County.

One bright spot is technology. Somewhat surprisingly, the Startup Genome project ranked Los Angeles as having the second strongest startup ecosystem in the United States, ahead of Seattle, Boston and New York. The entrepreneurial spirit is still here, although there’s a lack of capital and support from government or nonprofits, elements seen in other regions.

Overall, Southern California has been losing ground to other regions on employment. This was acknowledged even by a recent commission made up of many of the region’s top business and political leaders, which concluded that the region “is barely treading water while the rest of the world is moving forward.”

And some of these competitors are thriving on what used to be key Southern California industries. Los Angeles was once a center of the energy industry, with several major oil companies – Arco, Union Oil, Getty Oil and Occidental – anchored here. Today, all these firms have either disappeared or moved away. The big winner: Houston, No. 14 on our list, which now dominates energy in the same way L.A. once dominated aerospace and entertainment. Altogether, more than 5,000 energy-related companies call Houston home.

A more profound challenge comes from the Bay Area, which shares with Southern California both a Pacific Rim location and a pleasant climate. If Hollywood is synonymous with the global entertainment industry, Silicon Valley connotes the same for technology. It is home to companies that overwhelmingly dominate the list of technology leaders, including Intel, Apple, Oracle, Google and Facebook. Many firms, including some from Asia, come with an idea and, as one Malaysian entrepreneur put it, “source in Asia, incubate in the U.S.”

The Bay Area hosts the North American headquarters of such global tech firms as Samsung and Nokia. Top technology firms in other cities often have their key R&D functions in the Bay Area. Even a penny-pinching firm like Wal-Mart is growing its Silicon Valley presence.

Though Silicon Valley firms are growing their employment base in places like Salt Lake City and Austin, Texas, the Bay Area retains its dominance and control over the industry. This is similar to how the financial industry remains heavily centralized in New York despite the migration of many jobs elsewhere.

As it shifts emphasis more to media, the Bay Area’s tech sector increasingly threatens L.A.-oriented industries such as advertising and entertainment. Google and Yahoo already are ranked among the world’s largest media companies. (Yahoo refers to itself as a digital media company, rather than a technology company.) With the ubiquity of its iTunes platform, Apple exercises ever-greater control over consumer distribution of entertainment products like music and video; Netflix, Hulu and YouTube could become the movie and television studios of the future. This could shift global media decision-making from its familiar New York-Los Angeles axis to one centered on the Bay Area.

In the future, our region may face powerful competition from Washington, D.C., which has all but stolen the aerospace crown from Southern California. Further down the road, we may also face a challenge from Washington state. Never before a serious competitor, Seattle, with a strong technology sector and name-brand retailers such as Costco, Starbucks and Nordstrom, is growing its global footprint as Southern California’s appears to be shrinking. Its twin ports, Tacoma and Seattle, could present a long-term challenge to the still-dominant ports of Long Beach and Los Angeles.

What should be done to retain and improve Southern California’s global status? Does anyone still care? The entrepreneurs and promotors who built this region would probably support new infrastructure and regulatory reforms that might bolster the industrial, entertainment and trade sectors.

Sadly, it is dubious that the city’s current leadership – focused on trying to build a faux New York or an Ecotopia amid economic decline – even understands the nature of the challenge.

But adopting solutions from the 20th century will not be enough. Los Angeles’ greatest resource – its diverse, motivated population – has to be allowed to flourish as part of our globalization strategy. Our entrepreneurial ties to Vietnam, China, Mexico, the former Soviet Union and other places could prove critical to restoring our international status.

Great global cities, we need to remember, are created by the people who live there. What we need to do, more than anything, is show that Southern Californians can play a part in reigniting the momentum that once made this region the emerging superstar on the global stage.

This piece originally appeared at The Orange County Register.

Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.