The Los Angeles region (including both Los Angeles County and Orange County) bubbled with businesses development in 2011, in part as a reaction to steep job losses among corporate managers. That finding was reported on Wednesday by the Kauffman Foundation, a national nonprofit that tracks (and advocates) entrepreneurship.
Using the metric of business creation by population, 58 out of every 10,000 residents in the statistical area that includes Los Angeles and Orange counties became new business operators in 2011, significantly more than California overall (44/10,000) and far better than the national average (32/10,000).
The news isn't all good. Nationally, the rate of new business formation was somewhat less than 2010, and most of these were "sole proprietorships" rather than businesses with a payroll. (Non-employer businesses are far more common than businesses with a payroll, nationally and in the L.A.-O.C. statistical area.)
New, non-payroll businesses also don't improve the unemployment rate. In fact, they are a measure of how deep into corporate org charts the Great Recession has burrowed.
Still, there are interesting signs of change in the data. For example, Southern California has a much larger than average number of women-owned businesses (and California overall leads the nation), according Census Bureau data. That reflects, I think, the state's leadership in affirmative action toward women who own a business.
It's also encouraging that Californians today are far more likely to venture into business on their own. Immigrants, not unexpectedly, are twice as likely as non-immigrants to start up a new business. Latinos, as a category including both immigrants and non-immigrants, are more likely to form a business today than they did in 1999.
The lingering credit crunch is hitting the new entrepreneurship hard, however, with few "sole proprietorships" able to get the bank funding they need to expand and hire staff members.
As Mark Lacter at LA Observed notes:
The basic problem, even in decent economic times, is that smaller loans are not cost-effective for banks. They require a pricier operational structure - loan officers, collection departments, etc. - than simply lending large amounts to a small number of reliable customers. Compounding the reluctance to lend is the precarious climate for major banks, which has loan executives being pushed more often to say no than yes. That's one reason why applications under $20,000 are routinely turned down.
Credit is the brake on business development that is holding back job creation.
D. J. Waldie, author, historian, and as the New York Times said in 2007, "a gorgeous distiller of architectural and social history," writes about Los Angeles on KCET's SoCal Focus and 1st and Spring blogs.
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