Seeing Beyond an Old Standby : Greater focus on non-defense business is needed

Banking on the notion that bigger is better in surviving the nation’s defense downsizing, the second- and third-largest U.S. contractors are combining to create a defense colossus, double the size of its nearest competitor. Thus two companies that once vied intensely are becoming one in an era of limitations.

Surely, added job uncertainty will be created by the proposed merger of Lockheed and Martin Marietta and by the likely consolidation among other defense companies that will result. But whatever job losses may occur, they will come as California appears to have weathered the worst of the defense cutbacks that have rocked the industry over the last few years. The challenge now is to grow new industry to replace defense jobs, many of which are permanently gone.

If the Lockheed-Martin Marietta merger goes through, Lockheed Chairman and Chief Executive Officer Daniel M. Tellep will head the new company, to be known as Lockheed Martin and to be headquartered in Bethesda, Md. Lockheed would dismantle its Calabasas headquarters, where 250 work.

The company has 20,000 employees in California, mostly in the Silicon Valley, Palmdale and Ontario. Although the consequences of the merger to these operations and employees are yet unclear, many economists believe that the biggest defense cuts triggered by the end of the Cold War already have occurred. The number of Californians in defense and aerospace plummeted from 363,000 in 1988 to 197,000 today. Further downsizing industrywide is expected because of continued cutbacks in federal defense expenditures and industry consolidations. California employment in defense and aerospace is forecast to drop to 161,000 by 1996 as companies reshape themselves to cope with the new realities.

Despite these ongoing changes, the state’s economy has managed to stabilize and begin a slow recovery from its worst downturn since the Great Depression. But although the business environment has improved, the many onerous and costly state and local regulations are continuing to make California less attractive than many other states. There must be changes to make it easier and cheaper do business hewe.

Private efforts to revitalize the state’s economy need a second look. Last March, Project California, headed by former Lockheed Chairman Roy Anderson and Hughes Aircraft Chairman Malcolm Currie, outlined a blueprint for energizing an economic recovery.

Their report targeted six new technologies--such as advanced telecommunications--on which a new economy might be built for the state. Only through a coordinated and passionate effort by public and private interests can such a vision be realized.