L.A. Panelists sound a general note of optImism in assessing attack’s impact

How much did the world change on Sept. 11? And is that change both economic and political likely to take root in the months and weeks ahead? Last Tuesday, the Business Journal invited several prominent Angelenos to discuss the direct and indirect fallout from the Sept. 11 assault. The panel was made up of Jon Goodman, executive director of the Annenberg Incubator Project at USC; Robert Poole, founder of the Reason Foundation; Raphael Sonenshein, professor of political science at California State University, Fullerton; and Steve Soboroff, managing partner of Soboroff Partners and a former mayoral candidate. It was moderated by Business Journal Editor Mark Lacter.

David Greenberg

Question: We’re having this session on Tuesday the 25th and the stock market has begun to climb, people are back at work, and they’re starting to spend money. Are things getting back to normal?

Soboroff: This is a mourning process and a grieving process that we’re all concerned could start again. We’re starting to move through what happened on (Sept.) 11. If something else happens, it will be compounded.

Sonenshein: The problem is that the abnormal is now going to become the normal and we haven’t yet really accepted this. There is no return to a sort of predictable atmosphere either for economy or politics or anything anymore. So we are in the eye of the storm, but there’s no going backwards. We’re going to have to come to a place where we accept the abnormal as normal and then we’ll be able to function. I’m no economist, but stability and predictability are very important in that realm. Can we live with indeterminacy? I think we can. But we’re going to have to let go of a lot.

Poole: I think unfortunately we may be in for something like a new version of the Cold War that we just have to get used to. There’s a degree of militarization and security that we are not used to, that we thought maybe was all behind us.

Goodman: Societies tend to obey in most general terms the laws of physics. The immediate shock (and) mourning eventually goes through a process of entropy and we get back to that state that many of us were accustomed to, which is ambiguity. It’s the nature of the American economy. The one thing the question of ‘back to normal’ doesn’t address is the fact that there is no normal. Discontinuity is a given. Sometimes the discontinuities are tragic. And sometimes they’re meltdowns like October ’87. And sometimes they’re complete economic surprises to three-quarters of the world.

Poole: The U.K. over the past 20 years has learned to live with the IRA terrorist threat. It’s not as dramatic as the World Trade Center bombings, per se. But for 10, 30, 50 people that can die at any one time in some of those kinds of attacks, it’s just as real. It’s just as big of a loss to those families. Yet, they have somehow figured out a way to cope with that level of indeterminacy. If you go and do business in the U.K. today, things don’t appear to be that different in terms of people’s everyday lives. That at least offers some hope that we may be able to develop coping mechanisms that enable us to get on with reasonably normal lives.

Soboroff: We’re going to have to get comfortable again and then start building our economy. It may not be as comfortable as it was on the 10th. But it’s a whole lot more comfortable than it is in any other country in this world. In Los Angeles, citizens’ confidence in the police was almost insulting. Half of (the police) wanted to quit. Overnight, this changed. People look at police officers and appreciate what they’re doing. They appreciate that they have families.

Sonenshein: Suddenly, people realize that government is not such a terrible thing. Bush’s approval rating will not stay where it is. But the most important point is when you listen to a government official, he is providing information that is useful, that you need to know about, as opposed to what a consultant has suggested a good line to use for that particular (moment). I think it’s a good development.

Question: Do you think that’s a fundamental shift or temporary?

Sonenshein: I think it’s temporary but at the same time, we should learn from it. What if we, at the new level, said government really matters? They’ve got to do a job. They’re probably reasonably honest people. If they screw up really badly, you toss them out. It’s a hope we can hold onto. The (1994 Northridge) earthquake had a big impact on how people thought about government. Certainly people in New York know that government is the people who risk their lives all the way from the president to the firefighters. The shock of it was that those (firefighters) didn’t hesitate. They just ran right into the building.

Goodman: The role of government has fundamentally changed. So instead of paying attention to consumer spending and how the Internet businesses aren’t there, you’re going to have an enormous investment in infrastructure and (defense-aerospace) technological infrastructure. It’s going to save this town. L.A. is an extraordinarily powerful technology engine, whether it’s the companies that produce satellites or inscription software or developing biotech. There are more Ph.D.s and engineers per capita involved in electrical engineering, aeronautical engineering, software and computer science here than anywhere in the world. Where do you think all of that military money is going?

Question: What’s going to happen with travel in the coming weeks and months?

Poole: Air travel will be more or less back to normal in about a year. I’m on a daily Internet discussion group with aviation professionals. There’s a whole range of views but the consensus that’s emerging is that air travel is so vital to the economy that people in government, the (Federal Aviation Administration and Department of Transportation) are going to take steps as quickly as possible to (protect) planes.

Question: Do you think it’s likely the federal government will take over security of planes?

Poole: I just co-authored a position paper opposed to it but saying that (security) definitely needs to be beefed up. The situation is so airport specific that it would be better to focus responsibility to each airport under a strengthened regime of federal oversight and inspection: much more rigorous threat inspections by FAA inspectors; much stiffer for failures in the security systems. To create in a single federal entity a large new civil service workforce is a daunting task and it would take years to bring that about.

Clearly, you’ve got to get rid of the contract-to-the-lowest-bidder and minimum wage. Everybody agrees with that. In London, where they have the IRA threat at Heathrow (Airport), they have full responsibility for security and hire their own people as career staff. The turnover is about a fifth or a tenth as much as it is in the United States and the pay levels are much higher. They are more professional people. There is a model there.

Goodman: I’m tired of watching these people (at LAX) practice their dance steps instead of looking at the screen. It has been a tragedy waiting to happen. Even the things they are considering today wouldn’t have stopped this horrible thing from happening because the fundamental flaws are embedded in the systems of coordination, data basing and information.

Poole: I think a lot of what’s been going on the last two weeks with airport security are a bunch of feel-good measures that hugely inconvenience travelers that would have made no difference in the bombings of Sept. 11 and will continue to depress the state of the airline industry. For example, not parking cars in close-in lots at LAX. Banning curbside checks there’s no good reason for that.

Sonenshein: Whenever there is a crisis, there are opportunities to rethink the way the world operates. I would question the assumption that our economy is so dependent on air travel. The opportunity to fly in an unlimited manner creates conferences that aren’t necessary.

Soboroff: They boost the economy.

Sonenshein: Let me give you an alternative. I decided this summer that I was going to take a driving trip in the west. There is money but it flows into a different place. Instead of going to a hotel in San Francisco, it’s going to go to a bunch of motels on the way. We have subsidized unlimited air travel for both business and personal reasons completely built around the convenience of the consumer. I would question whether our goal should be to go back to that system or treat air travel as something special that you do because there is an actual need for it.

Soboroff: I just come from the other side of it. I’d like to see a return to the time when I could get to the airport 10 minutes before the flight.

Poole: This is one of the great benefits of the last 20 years. Since airline deregulation, air traffic has become something that’s affordable for ordinary people.

Question: With just-in-time inventory and off-shore manufacturing, are we going to see higher inventory levels in warehouses here and more manufacturing moving back into the United States and maybe back into the L.A. area?

Goodman: No, but I think you’re going to see different inventory schemes. That’s going to be radically changed. It has a big effect on the logistics, warehouse and plant floor workforces. One of the things we’re going to see over the next month or so is the financial trauma of not having any parts and components and the plants that had to shut down. We haven’t started adding up those numbers yet.

What’s going to be happening over the next couple of years, as the economy goes through this inevitable hangover of which this tragedy is only a part is a disproportionately fast rate of new formations. Many of those are going to be in infrastructure and technology.

Soboroff: I think it’s back to square one for every politician and every business. This big mirror is up in front of your face now. Look at yourself. There’s a new reality in the world now. Now reinvent yourself. If you are the Gap, how are you going to sell your clothing? If you are a city council person, how are you going to deal with your constituency? I think the end result of that will probably be healthy.

Goodman: When the L.A. economy shifted in the early 90s, it shifted disproportionately to secondary employment as opposed to primary employment. That’s extremely dangerous for the economy. There’s a secondary employment overhang in the city. Primary employment is that employment created by organizations that produces goods and services shipped out of the trade region, so it’s goods and services out and money in. That primary employment job, on average, creates three secondary employment jobs: dentists, restaurants, dry cleaners. They can be high-wage jobs, they can be low-wage jobs. L.A. has a more than 3-to-1 ratio. Those were all primary employment jobs we lost in the 1990s. This time it’s different because where the employment is going to grow is primary employment, so it’s actually good.

Question: Will the terrorist attacks represent fundamental change?

Poole: I don’t think it’s going to be that fundamental a change. We now realize we live in a more dangerous world. It’s up close and personal and not just something that happens to other people. But civilized western productive societies and economies have been coping with this kind of thing for a long time without giving away most of their liberties. We’ll be giving away a little bit and without a huge cost to the economy.

Goodman: I agree whole-heartedly. I think there will be fundamental change at an emotional, psychological and cultural level cultural to the extent that like so many other inflection points in a society, this one puts an end to a period. It was a period of better nouveau than no riche at all. It was a period of excess and a sort of an economic arrogance that was embodied by our lionizing of people whose only distinction in life was a big checkbook. (The crisis had) given us a new kind of hero. But it’s not fundamental for the economy. This is another inflection point (that) happens all the time. The impact for us of Sept. 11 will be an acceleration of something that was on the rails anyhow the inevitable roller coaster of the American economy. You hit the downslide and people are screaming all the way down and then they’re giggling all the way up. And there is always an upside.

Soboroff: One thing is very clear. You’re going to see a hold-back in spending in a number of areas. Retail is one. In travel and hotels Las Vegas had a 14 percent occupancy (in a recent) week. People will be laid off.

Sonenshein: I think it’s a fundamental historical change in our lives. We’re the same people we were before, but different. We have never had this illness within us of terrorism. We’ve always seen it elsewhere. It’s not just that we will become more like Europe. We’re going to have to live with this uncertainty and this fear and that’s going to have to be something we transform into something positive. It’s going to be the biggest challenge any of us have ever faced. But I think we’re going to be better.

Question:

Might this revert us back to an appetite for more wholesome heroes?

Sonenshein: People like leadership more than politics as long as it’s democratic with the small “d.” In other words, as long as you have the option to remove the leadership. People want leaders to do the right thing.

Soboroff: It’s the first time in my life that I’ve ever felt like taking my wife and girls shopping was a good thing to do. I’ve got family time and I’m helping the economy at the same time.

Goodman: With the ubiquity of media in all of its forms, the populace numbs out. This is an artifact for the moment. The upwelling of enthusiasm and support and gratitude to the firefighters, the police, the people who do their jobs extraordinarily is unfortunately something that inevitably becomes diluted.