Monday, June 11, 2007; D03

Today we are justly proud of the vitality of greater Washington's private sector -- in information technology, the life sciences, media, higher education, tourism and other fields.

We take umbrage at the suggestion that our economy is still at the mercy of the federal government. Well, I have news for you: It still is, almost as much as it ever was.

The growth of the federal government today is reflected not so much in direct employment by government agencies as it is in the money Uncle Sam shovels out the door to local companies.

The feds today employ only one-tenth of all workers in greater Washington -- about the same percentage as state and local government combined. It is projected that, over the next few years, the federal portion of regional employment will dip into single digits, for the first time in Washington history.

Okay, so federal employment is just 10 percent. But federal spending accounts for over one-third of the gross regional product of greater Washington. And half of that spending is procurement from local private companies.

So is our "private sector" true private enterprise in the normal sense? Well, it is privately owned, and it has created a stunning number of new multimillionaires. But many of our biggest local companies have essentially one customer: the federal government.

Of the 20 largest employers in greater Washington -- in number of employees -- 10 of them are predominantly federal contractors, either in defense and aerospace or information technology. Those 10 companies employ a total of 104,000 local employees -- almost one-third the number of direct federal employees based here.

We're proud of our private-enterprise, high-tech sector. An estimated 60 percent of all tech workers in this region work for government contractors.

It's not just defense, aerospace, IT and telecom that are so dependent on federal spending. Take the life sciences, one of our most vibrant industries.

It's no mystery why the biotech firms are here. Sure, we've got great local universities with superb science and engineering departments, but so do many other regions. The biotech companies are here because this is the home of the National Institutes of Health, the FDA, USDA, Fort Detrick, and the National Center for Biodefense at George Mason University. The NIH alone pumps $1 billion a year into university and private-sector research labs in this region.

We're very proud of the growing international flavor of business in the Washington area. Greater Washington now has branch offices of 700 foreign-based companies from 39 different nations. And why are they here in Washington, instead of -- or in addition to -- other U.S. cities? Because, pure and simple, this is the seat of the American government.

Uncle Sam's 35 percent share of our annual regional output is a pretty big number. But it doesn't even come close to stating the true impact of government on our economy. Why? Because many local firms that receive little or no direct payments from the federal government are nonetheless completely dependent on government for their prosperity. I include in this group the vast Washington empire of law firms, trade associations, consultants, specialty publishers, commercial and residential real estate industries and business services -- accountants, banks and others -- that support all those other companies.

Washington always booms in times of national crisis, and that is why it's booming today, more than any other region in our nation.

During the 2004 presidential campaign, much was made of the fact that total employment in the United States barely grew from early 2001 to late 2004. First there was the technology stock meltdown of 2000 and the ensuing bear market in all stocks.

The nation suffered its first economic recession in a decade. Business profits plunged, and many companies cut back their employment or ceased hiring. Then came the economic and psychological trauma of Sept. 11, 2001, followed by wars in Afghanistan and Iraq.

Most large metro areas saw their total employment stagnate or decline in the early 2000s. New York, Boston, Chicago and San Francisco suffered net job losses.

It was the rare million-plus metro area that gained any jobs at all. But for job growth among top 10 metro areas, Washington was No. 1 by a mile. We left the rest of America in the dust of our torrid job creation over the past seven years -- more than 350,000 net new jobs. Washington prospered economically from national crisis and the attendant growth in government -- the war on terrorism and two foreign wars.

The surge in federal spending on homeland security and defense will gradually taper off, and our annual number of net new jobs will taper off, too -- from the incredible 70,000 to 80,000 of some recent years to a still-pretty-amazing 50,000 a year.

Washington will keep growing for one simple reason: Complex national and international challenges always lead to an expansion of federal power.

The next major expansions of federal power will be in environmental and energy regulation, as global warming becomes the hot new crisis of this century. And it will occur in national health-care regulation. Washington will benefit from the growing complexity of international trade, with more trade disputes, and from litigation over technology patent law. These will keep Washington's lawyers and trade associations in clover for years to come.

Knight Kiplinger, a lifelong Washington area resident, is editor in chief and president of Kiplinger Washington Editors Inc., publisher of the Kiplinger Letter and Kiplinger's Personal Finance magazine. His commentary is adapted from a speech Wednesday to the Greater Washington Initiative, a marketing group that gets support from several area firms, including The Washington Post Co.