This month I am going to discuss what the San Diego economy is all about. I know — it’s a Navy town — but it is far more than that.
First, let me impart Nevinomics 101: Jobs fall into two categories: basic and support. Through the years, a formula has evolved that says for every basic job that is created, two support jobs are created. A basic job is one whose primary source of revenue is from outside the metropolitan area. Thus, in San Diego, the military, tourism and import/exports are examples of basic industries.
Support jobs are generally segmented into two types: one relates to goods and services provided to the basic industries; the other takes care of the consumer economy (for example, jobs at Vons and Nordstrom).
The key to the success of any metropolitan area economy is, therefore, to grow basic industries. It should be noted, however, that the formula works in reverse as well. When a metropolitan area loses basic jobs, it also loses support jobs and inevitably begins a downhill spiral.
Detroit is the poster child for a failed economy. It and the several vehicle-manufacturing metros that surround it, have taken massive hits in their one basic industry. As a result, the young and the bright abandon the area soon after graduation, leaving the metro with overwhelming burdens of pension funds, health and welfare services and rising cost of local government. And they go bust.
Then there are the metropolitan areas where basic jobs are abounding, such as Seattle, the Bay Area, Austin, Atlanta and, of course, Southern California.
Here in San Diego, we are particularly blessed because we have multiple basic industries and they are all holding their own or expanding.
Let’s start with the federal government: Our county has a uniformed complement of 110,000 Navy and Marine personnel. In addition, there are more than 20,000 civilian employees attached to the military.
As a bonus, there are another 20,000-plus federal workers in the county, including the border patrol (ICE), FBI, research laboratories and courts.
San Diego County has, in total, almost 1.5 million jobs. The basic formula states that of those jobs, about one-third are basic employment and two-thirds support. Thus, of the 500,000 basic jobs in the county, 150,000 are federal; that is a very important 30 percent of all basic jobs.
In addition, there are several hundred million dollars annually in federal contracts for such military-related institutions as SPAWAR and myriad other private firms.
One of the major basic industries in the county is retirees. They are the ultimate basic industry: they bring most of their funds and income from outside the county and they require few government services. Most of the retirement component in this county is retired military, now numbering 58,000 (plus dependents). And let us not forget the more than 100,000 checks going out to Social Security recipients.
Close behind the feds is the tourism industry, with more than 170,000 jobs, including hotels, cruise ship suppliers, restaurants and recreational activities such as the zoo, Legoland and SeaWorld. And that doesn’t include jobs generated in retail outlets that service the tourists.
In third place is manufacturing, with about 100,000 jobs. The biggest part of that category includes transportation, aerospace, computers and electronics — all high-paying industries. As is much heralded, 75 percent of the drones manufactured in the United States are produced in this county. And that industry has just begun.
Our university system is another wonderful basic industry. Our five major universities have more than 100,000 students; most of their funds come from outside the county, including out-of-county parents.
Rounding out our basic industries are import/export services, and scientific research and technical services.
Where does construction fit in this picture? It is a support industry and the weakest link in the economic recovery. More on that in next month’s commentary.
Meanwhile, our basic industries have allowed us to power through the recent recession and to be on the cutting edge of tomorrow. With more than one-third of our adults with a bachelor degree or higher, we have a lot of brainpower to spread around in the future.
Next month: The San Diego economy in 2015.