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KAI RYSSDAL: There's a big law enforcement summit meeting happening out here in Los Angeles today. Unfortunately, this is the logical place.

The FBI and big-city police chiefs will gather with their counterparts from Mexico and some Central American countries. They're trying to stop transnational gang violence. By most official estimates Los Angeles has more than 700 gangs with about 40,000 active members. The violence they bring is tragic.

Marketplace's Jeff Tyler reports there are economic costs as well.

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JEFF TYLER: Gang violence alone costs California taxpayers about $2 billion a year. That's according to a new study by civil rights attorney Connie Rice. She says the problem is no longer isolated to the inner city.

CONNIE RICE: It has metastasized from the areas where we used to think we could contain it. It has now spread.

For example, she notes that while gang crime increased about 14 percent in Los Angeles last year, the stats were twice as bad in the suburbs.

RICE: This is coming to a neighborhood near you. Twenty years ago, there was no gang crime in parts of the San Fernando Valley in Los Angeles. They had a 39 percent spike in gang crime.

As you might imagine, gang activity can scare away prospective businesses from opening shop. Gary Toebben is the CEO of the Los Angeles Area Chamber of Commerce:

GARY TOEBBEN: There are a number of neighborhoods that have a very difficult time attracting new businesses because the businesses say, "We're just fearful for the security of our products and the security of our employees."

Gang tags and graffiti on the outside of a shop definitely drive off customers, says business owner Flip Smith.

FLIP SMITH: Nobody wants to go into a store that's got tagging all over it. You just don't feel safe. I don't even do it.

Smith owns Flip's Tires in the San Fernando Valley, where he's been for 35 years. But even though the recent statistics look bad, he says:

SMITH: Things are way better now.

Ten, 20 years ago, the neighborhood was sketchy. Pimps and drug dealers loitered on the corners.

SMITH: I've seen some bad times here, where there was lots of activity. And I think it got real good over the last few years. And I think it's creeping back, which makes it look worse than it actually is.

That's the thing about gang activity — from one block to the next can be a world apart. Connie Rice and her study recommend a targeted approach for each specific problem neighborhood.

RICE: Gangs don't exist in a vacuum. They have conditions in each neighborhood that keep them powerful and, in some neighborhoods, in absolute control of what goes on on the ground. There are neighborhoods in Los Angeles where you cannot enter a rec center without the permission of the gang, and you cannot enter a housing project without the permission of the gang.

It hasn't always been this way. The gang problem in Los Angeles can be traced, in part, to the decline in manufacturing and low-skilled jobs in the 70s and 80s — jobs that would have kept guys off the streets.

In a fascinating new HBO documentary about gang history, "Bastards of the Party," director Cle "Bone" Sloan says money to fight gang activity has not always been well-spent.

CLE 'BONE' SLOAN: People would write up proposals to get grants from the government, saying "I'm working with these gangs. I'm trying to get guys off the streets. I need money." A lot of preachers were doing it. A lot of so-called grass-root programs were doing it. But, you know, most of the money was going into their pockets, and not into the community. They coined the phrase called "poverty pimps."

Of course, city and county bureaucracies also use gangs to scare up funding. Sloan says the current gang hysteria is designed to attract federal dollars. But before it throws more money at the problem, civil-rights attorney Connie Rice says the city needs to improve coordination between agencies, and consider the effectiveness of all the money currently being spent to fix the problem.

RICE: If you count all of those other monies, which total almost a billion dollars, the reason we're getting no bang for those bucks is because of the way the city, the county, and the rest of the entities don't coordinate, plan and strategically execute joint strategies neighborhood by neighborhood — which is what this report calls for.

Rice's study says the problem can't be fixed with law enforcement alone. Though that seems to be the favored approach.

Earlier this week Attorney General Alberto Gonzales announced new partnerships with law enforcement in El Salvador aimed at curbing gang crime.

Tomorrow, Los Angeles Mayor Antonio Villaraigosa will reveal his new gang policy.

In Los Angeles, I'm Jeff Tyler for Marketplace.