How San Diego Swapped One Government Moneymaker for Another
San Diego’s moves to shed its sleepy Navy town image and its reliance on government money to drive the economy helped it become a premier innovation hub. But the push to de-emphasize the Navy as an economic anchor ultimately just shifted the ways in which San Diego rakes in government money.
San Diego’s been on a decades-long mission to shed its sleepy Navy town reputation and reliance on government money to drive the economy.
The plan worked – in part, anyway: San Diego has become one of the nation’s premier innovation hubs, particularly for life sciences, wireless technologies and defense tools. But the push to de-emphasize the Navy as an economic anchor ultimately just shifted the ways in which San Diego rakes in government money. The government is still San Diego’s biggest moneymaker.
San Diego takes in more government dollars than all but four other large metros in the U.S. – and that money’s now going to both defense and research and development.
Nearly 21 percent of San Diego’s gross regional product – the annual value of goods and services produced by a region – is directly tied to federal, state and local government, almost double the 12 percent average for all metro areas nationwide, according to a recent analysis by the National University System Institute for Policy Research.
But even that doesn’t capture all the government cash flowing to San Diego. Economist Kelly Cunningham, who ran those numbers, estimates at least another 10 percent of the region’s output is tied to federal contracts and grants.
That reliance was always part of economic developers’ game plan.
“San Diego at the end of World War II figured out a new strategy for continuing to get the amount of federal funding it got during the war years,” said Mary Walshok, a UC San Diego dean who co-wrote a book about the region’s economic history.
The region is less reliant on federal defense dollars than it once was.
Former UC San Diego professor Abraham Shragge, who co-wrote that book and spent years studying San Diego’s military history, estimates defense-tied dollars alone once made up more than 60 percent of the county’s gross regional product. That was in the immediate aftermath of World War II.
The San Diego Military Advisory Council, which produces an annual economic impact report, estimates that specific proportion is now about 20 percent, thought the region continues to pull in increasing dollar amounts.
That shift is more a reflection of younger industries that have thrived in San Diego than decreased spending by the Department of Defense.
“Military is still big but it isn’t as dominant as it used to be largely because other industries have grown up around it,” Cunningham said. “It used to be the only driver of the economy.”
San Diego leaders once worked hard to make San Diego a major military town.
A local contingent even chartered a fishing boat to travel hundreds of miles to southern Baja California in the early 1900s to get face time with naval commanders amid fears a Navy fleet might go to Los Angeles instead of San Diego, according to Shragge and Walshok’s book.
San Diego staked much of its economic success on the military, offering up desirable land and other incentives to draw it here.
Things fell apart after World War II. San Diego was hit with a recession that continued until the Korean War began in 1950 and economic developers concluded drawing various other industries would make the local economy more stable.
Since that time, the region’s shed tens of thousands of military jobs.
Data from the federal Bureau of Economic Analysis shows the number of military workers in San Diego has dropped by nearly 68,000 since 1969.
San Diego’s also added tens of thousands of high-tech jobs in everything from wireless communications to biotechnology.
The federal government helps drive those industries too.
In fact, local leaders aimed to make San Diego a major research and development center for the feds.
That’s resulted in lots of money for the region.
Last year, San Diego County companies and institutions received $960 million from the National Institutes of Health, money that fuels research and new jobs. Area universities also received lucrative National Science Foundation grants.
Meanwhile, the Department of Defense sunk billions of dollars into defense contracts with San Diego-based drone producers, scientific researchers and wireless gurus.
Many entrepreneurs were in on the economic shift. In 1968, Qualcomm founder Irwin Jacobs and a couple UCLA colleagues started Linkabit after a flurry of requests for communications consulting help at a NASA conference. The company moved to Sorrento Valley two years later and helped spur dozens more telecommunications companies in the region, including Qualcomm, which has become a giant in the telecom industry.
Linkabit ultimately enjoyed commercial success but companies and jobs created to specifically serve government needs or reliant on government funds can struggle if that money dries up.
And in San Diego, lots of companies and workers depend on the government to pay the bills.
This is part of our quest digging into the difficulties – real or perceived – of doing business in San Diego. Check out the previous story in our series, How San Diego’s Manufacturing Sector Has Changed, in Three Charts, and the next, For City Subsidies, it Takes Money to Get Money.