THE RIOT’S AFTERMATH : A Phoenix in L.A.? : Entrepreneurial Spirit May Rise From Ashes of Unrest
At the end of the 1960s--a decade of assassinations, demonstrations, war and disorder--government and business invested big money in grand rebuilding projects. Most of them, such as Detroit’s $375-million Renaissance Center, didn’t work out.
But this time it’s different. In the wake of Los Angeles’ troubles, there is little federal or state money to be spent on rebuilding. So the process, like so much of U.S. business in the years since the ‘60s, will go entrepreneurial.
As Los Angeles calmed down after three nights of looting and burning, something beyond routine small-business recovery loans was being envisioned. Equity investments were being planned and implemented, and new ideas were cropping up for organizing investors, including one in which customers of looted stores would buy shares in the reopened business.
Admittedly it is an enthusiastic moment. The need is so great and the hurt so real that ideas to make the city better are percolating among business people. One is to turn large shipping containers from the port of Los Angeles into impromptu stores for the riot-torn area.
The main thrust is to get capital into business in ways that, if successful, would make entrepreneurial rebuilding a model for cities everywhere. Los Angeles is not the only city with a blighted core of high unemployment--and its experience in these weeks is being watched by others.
So early availability of capital was encouraging. Economic Resources Corp., a venture capital fund in the Watts area, became fully subscribed at $25 million after the trouble started. The fund will invest $100,000 to $300,000 in individual businesses.
The USC graduate business school was organizing a pool of credit for small businesses, which would have the benefit of counseling from the school’s MBA students.
Bank of America announced a $25-million program of three-year loans that amount to equity backing. The bank will collect only nominal interest for three years in hopes that the small-company borrower can then qualify for normal credit.
Larger programs could be possible. From Washington, Secretary of Housing and Urban Development Jack Kemp was resurrecting his proposal for enterprise zones, in which investors in small business in needy areas would get tax deferrals or tax forgiveness.
Kemp’s enterprise zones ideas, which have failed to become law in previous sessions of Congress, are now getting a boost from concern about Los Angeles.
The promised incentives are impressive to business people--income tax deductions of up to $50,000 a year on investments in zone businesses; zero capital gains taxes on property investments; income tax credits to employers on wages paid in zone businesses.
To be sure, state-run enterprise zones exist in 37 states and have no magic formula for success. As in all business, some small companies thrive, many more fail to do so.
But then the record these days, say venture capitalists, is that two start-up companies succeed out of every 15. Of the rest, perhaps eight companies get acquired and five fail outright.
So if the question is: Can entrepreneurial rebuilding efforts work? The answer is: Of course they can work.
Small-business finance is a highly developed art in America, a country with roughly 15 million small businesses. Most finance is in the family--you mortgage your house and borrow $25,000 from relatives, who need to be paid back in such a short period that their loan amounts to high-cost capital.
Asian communities in Los Angeles have a tradition of loan clubs--called kye in Korean, hui in Chinese, tanomoshi in Japanese--in which a dozen members or more contribute, say, $1,000 a month. Each month one member takes the kitty, agreeing to pay interest to the others. The system supports many merchants, who in effect are supporting themselves as they earn high interest as investors.
The success of the Asian clubs is inspiring others. In the black community, residents of the Crenshaw District were reported to be organizing an investment club.
And Joseph Jacobs, the 75-year-old entrepreneur who founded and built Jacobs Engineering Group, suggested Tuesday that burned-out businesses not only take the Small Business Administration’s low-cost loans but also sell 20% of the store or company to their own customers--in shares of $500 apiece. The new owners then become in effect protectors and consultants to the business.
The concept underlying all these ideas is empowerment--that individuals should own businesses and property and so control and improve their lives and their community.
It’s a noble sentiment. But even amid Los Angeles’ current enthusiasm, questions are being asked. What kind of business--other than retail stores--can be created in South-Central Los Angeles, from which manufacturing industry departed years ago?
For the answer, think imaginatively. If getting metals fabrication business back is too much to hope for, think software. Poor countries do. Little Ireland for years has put young people to work processing address changes for American magazines through computer link-ups with Boulder, Colo. Jamaica is in that business too, and India.
Closer to home, Citicorp has turned hundreds of South Dakota farm families into software processors for its credit card accounts.
Good education is needed for such work. In Los Angeles, big business foundations--the Ahmanson, the Weingart and others--are working with high schools to improve education.
Sure, more needs to be done. But more needed to be done before the troubles. Maybe the real message of these days is that now the work will begin.
