The world watches as California attempts to fill a nearly $10 billion budget gap, address an unemployment rate of 12 percent, and otherwise correct its economic course; when the Golden State economy weakens, the entire U.S. economy suffers. California’s current economic collapse is far worse than the downturn the state endured from 1990-1991 in terms of duration and job loss. Nevertheless, early 1990s economic shifts, especially in southern California’s defense industry, established important trends for today’s economic forecasters and political analysts eager to map the state’s future.

Until the 1990-1991 recession, California hosted the largest military-industrial complex in the country and Los Angeles was its epicenter; since 1958, the state’s share of the nation’s top defense contracts averaged about 22 percent. The recession roughly coincided with the Cold War’s end, when the George H.W. Bush administration slashed Pentagon spending, leading to mass layoffs. Three hundred thousand California manufacturing jobs, many in the aerospace industry, vanished. The entertainment industry, embracing film production, film tourism, and supporting services, had grown rapidly during the 1980s; so did Silicon Valley. Many skilled workers dislocated from the defense sector moved to these booming industries.

Federal defense spending as a share of the California economy, a figure which once stood at almost 14 percent during the late 1960s, reached an all-time low in 1999. Los Angeles County was a microcosm of these larger trends.

In 1983, aerospace firms employed nearly twice as many LA County workers as the film industry. By 2000, the motion picture industry employed almost three times as many as aerospace.

The 1993 Joel Schumacher film Falling Down captured the social tensions accompanying this economic transformation. Protagonist Bill Foster, a laid off defense industry worker, goes berserk on the streets of Los Angeles. He bashes a grocery store with a baseball bat, holds up a fast-food joint at gunpoint, and fires a bazooka at a construction site. He wants to wreck all that’s strange to him about the “new California,” and visit his young daughter to make the world feel normal again. To Foster, the crimes he commits across his state are excused by the ultimate crime against him: the contraction of the military-industrial sector.

“I helped build missiles,” Foster tells a cop during the film’s finale, “I helped protect this country. You should be rewarded for that. But instead they give it to the plastic surgeons, you know they lied to me.” He decries the decline of defense jobs and the rise of Hollywood as California’s new economic driver.

The defense industry may be on the rise again in California, as new residents in the state’s fastest-growing region—the Central Valley and the rest of the interior—demand high-skill, high-tech jobs. From 1990 to 2000, the Valley’s population increased by nearly 784,000, a 20 percent increase. This growth has continued despite the 2008 recession. Fresno, the largest city in the Central Valley, grew 15.7 percent from 2000 to 2010. Riverside County grew by 41.7 percent, while San Bernardino County grew by 19.1 percent.

Brookings Institution demographer William H. Frey calls the interior region, stretching from suburban Sacramento to the south to Riverside-San Bernardino, the “Third California.” The interior region represents the last frontier. The San Francisco Bay area, the first region of the state settled, is First California, while the next area settled, Los Angeles, is Second California. Third California is expected to be home to over 38 percent of state residents by 2050. Each of the three regions could then vie for a roughly equal share in state political debate.

Many new inland California residents are young families that have moved from the San Francisco Bay or Los Angeles areas due to high housing prices along the coast. The tech-savvy newcomers from these areas boast advanced degrees, unlike most Central Valley natives. The Valley is known best for its prolific agriculture, including oranges, tomatoes, cotton, and raisins. Generally, unskilled labor works the fields to produce these crops for low wages. If this out-migration of skilled workers from the coast continues, however, the Third California could shift toward the postindustrial economy enjoyed by the rest of the state. There is a good chance a reconstituted defense sector will play a lead role in achieving economic diversification in this region beyond agriculture.

Foremost, political patronage determines the geographic allocation of defense dollars. California, a solid Democratic state, stands a much better chance of earning a top spot in the Obama administration’s future defense budgets than does the rest of the Gunbelt. Texas, Florida, and Arizona, Georgia, and other military production centers, are currently GOP strongholds. Second, California’s Senate delegation commands the seniority to divert defense priorities to their home state. Liberal Sen. Barbara Boxer lobbied alongside conservative Republicans in favor of maximizing F-22 Raptor spending in the 2009 defense budget. Her concern for Lockeed Martin jobs in her state outweighed pressure from progressive lobbies who castigated the project as wasteful and ineffectual.

Why would future defense contracts go to inland California rather than Los Angeles, the traditional site of this work? As Ann Markusen and others note in The Rise of the Gunbelt (1991), frontier property along the Sunbelt has always been the favorite destination for new defense construction—especially aerospace. Undeveloped land like the Central Valley is cheap. The territory is vast for secret, large-scale weapons testing and the climate is warm for year-round flight. Inland California looks much like Los Angeles did when it first experienced a major defense buildup at the outbreak of the Cold War.

The next decade will likely see the cost of water rise significantly across California, making irrigation of many lands currently under agriculture in the Central Valley economically impossible, thereby opening up more acres for defense manufacturing. The proliferation of real-time communication technology, moreover, makes it possible to locate satellite offices and factories far from defense contractor corporate headquarters in Los Angeles. Also, the proximity of Edwards Air Force Base to inland California could aid defense industry development.

California redistricting makes perhaps the most persuasive case for defense contractors to expand inland. Since the interior region is growing fastest, it is likely to gain most of the three to five new congressional seats projected for the state based on the 2010 census. Defense industry lobbyists will want to do enough business in these new districts to sway their House members. The return of the gunbelt in California’s interior need not come at the expense of defense installations entrenched in Los Angeles. The vibrant creative spirit of the city has inspired aerospace since the days of Howard Hughes.

21st century Hollywood is a new catalyst for military hardware sales, as film producers more and more team up with computer graphic artists and Department of Defense advisors to score box office blockbusters. The new F-22 Raptor, for example, has never seen combat, except at the movies. Its manufacturer Lockheed Martin calls the Raptor “the world’s only operational 5th Generation fighter.” Filmgoers know the aircraft better as Starscream in the popular Transformers film series directed by Michael Bay.