Although it was just one company, one might expect Convair’s demise to have had a devastating ripple effect, given its signal importance to the San Diego economy over the years. It didn’t. Likewise, the other Pentagon cuts of the early 1990s (holding constant for inflation, DoD outlays fell by 29 percent from the peak in 1987 to the trough in 1999) did not do irreparably harm. For example, San Diego’s unemployment rate was the same as the national average in 1996 (5.4 percent), and well below that of the rest of California (7.3 percent) at the time. By 1999, San Diego’s unemployment rate had fallen to just 3.1 percent, more than a full point below the national average (4.2 percent), and more than two points below California state-wide (5.3 percent).
Why did San Diego fare so well? As one study of the region observed in May 2001:
the defense engineers and managers diverted, by the loss of their jobs, into entrepreneurial pursuits . . . helped the region emerge from the severe economic challenge posed by defense cutbacks at the beginning of the 1990s. Today, San Diego’s economy is growing and contains a more diverse set of industries.
Of course, we will never know if San Diego might have experienced even stronger economic growth in the absence of defense cutbacks in the early 1990s. Nor can we be certain that it will respond to the looming defense drawdown under sequestration as well as it did to the far deeper cuts of the late 1980s and early 1990s. But this one case study shows that even defense-heavy localities can adapt to lower levels of defense spending. At a minimum, the story serves as an important counterpoint to the AIA’s claims of impending doom.