California Plugs Economy Into Internet

When the end of the cold war and a sharp cut in defense spending sent California spiraling into recession, many were quick to write the state's epitaph. When the downturn lingered here longer than the rest of the country, it seemed evidence that the state was hopelessly dependent on military hardware.

Now California is booming again. In 1996 the state became a trillion-dollar economy, its output of goods and services equal to all of Latin America.

And this time there is a new engine driving the upturn, one that may prove as powerful and even more enduring - the Internet. The global computer network is the leading edge of an information economy that includes everything from computer software to multimedia products.

Many economists believe that these industries will dominate the next century and that California has already positioned itself on the leading edge of this transformation. A third of all the venture-capital investment in the country is now pouring into Silicon Valley, much of it related to the growth of the Internet. The state boasts a quarter of all the Internet connections in the country.

"California, sooner than anyone else, has gotten itself into this information age," says Ted Gibson, chief economist of the California Department of Finance.

Two recent economic reports bear this out. California is creating jobs faster than the rest of the country, according to a study prepared by Mr. Gibson's office. Most striking, the state is adding jobs in manufacturing while factories nationwide are declining.

The job gains are strongest in the high-technology and entertainment industries. Computer-software firms now employ 190,000 Californians, making them by far the largest high-tech employer. About 250,000 people work in the entertainment industry in Los Angeles. Silicon Valley in northern California, hub of the computer industry, is the most dynamic area in the state. According to an annual index, the region created 50,000 jobs in 1996, the largest one-year gain ever. Most were in computers, semiconductors, software, and other high-tech industries.

Along with the growth in jobs has come growth in wages. Statewide, real income increased more than 5 percent in 1996, compared with less than 1 percent nationally. In Silicon Valley, "we're starting to see real significant wage gains for people," says Kimberly Walesh of Collaborative Economics, which prepared the annual index. Average individual wages in the Valley were $43,510 in 1996, compared with $28,040 nationally. The average wage in the software industry: an astounding $78,400.

Problems of poverty in Silicon Valley remain, particularly affecting children under 5 who are concentrated in low-income areas. But a recent study by the San Jose Mercury News shows that the income gap between rich and poor has not grown in 20 years, in contrast to the rest of the country.

This growth of high-wage jobs is largely responsible for larger-than- expected tax revenues, yielding an estimated state budget surplus of about $1 billion. For the first time in years, the debate is focused on where to put money, not cut it. Much of the added funding is targeted for reviving the state's educational system as well as for investing in infrastructure.