According to the U.S. Small Business Administration’s Office of Advocacy, firms with fewer than 500 employees represent 99.9 percent of total businesses in the United States and employ about half of U.S. workers. Small businesses are the backbone of the California economy and the speed in which we emerge from the current recession hinges on their success.
Mayor Antonio Villaraigosa on Sept. 22 introduced an initiative aimed at eliminating obstacles for small business while identifying resources to spur growth and job creation. He was wise to focus on supporting small businesses and entrepreneurs because small business is a critical cog in L.A.’s job-creation machine. However, he must also keep in mind the challenges and regulatory burdens that big businesses face.
Elected officials cannot forget about large companies; the other half of workers are employed by the 0.1 percent of businesses that are considered “big.” While public policy has recently been focused on strengthening smaller companies we would argue that large companies should not be forgotten.
When big businesses prosper, our entire economy stands to benefit. Economic growth spurred on by big business has a multiplier effect that supports job creation and economic activity in countless industry sectors and regions. Likewise, when big business stagnates or outright fails, it impacts the entire economy. When a big business closes, the vendors or suppliers in its supply chain become financially starved. When a big business hurts, its entire network of vendors hurts.
Recently, Boeing announced that it would keep its Long Beach facility open through 2013. The decision was largely due to a recent order from the Indian government for 10 C-17s. This is good news in the short term. However, unless L.A.-area officials can miraculously revive Boeing’s desire to retrench in the region, the long winding down of Boeing in Long Beach will have grim consequences for the local economy.
Already, Boeing is relocating two defense programs from Long Beach, where it employs 800 people, to Oklahoma City. Company spokespeople said they are seeking ways to save money, including moving to low-cost cities. The negative impact of the closure of Boeing’s operations in Long Beach does not stop at its door. Hundreds of small businesses help support its operation in California and they also will suffer from the plant’s closure.
Thankfully the industrial base in Los Angeles is diverse, and that helps in a downturn. The area has numerous manufacturing plants, a large health care industry, and is the entertainment and media capital of the world. However, with a population of 10 million people, L.A. County has 15 Fortune 500 companies. In contrast, Dallas-Fort Worth metropolitan area with nearly 7 million people has 24 Fortune 500 companies. Over the last 10 years, Dallas-Fort Worth has been successful in retaining and growing its big business economic base.
Lone Star shine
In July, CNBC ranked Texas as the most business-friendly state. Its favorable business policies have resulted in big businesses opening their doors and creating jobs for residents of the Lone Star State.
By forming the Office of Economic Analysis, the L.A. City Council has taken a momentous step in creating a more business-friendly Los Angeles. This office will look at the impact of new city legislation on private-sector job creation, business climate and the overall city economy.
In addition, the strategic plan for economic development developed by the Los Angeles Economic Development Corp. in collaboration with 1,000 stakeholders is a realistic and well-planned road map for ensuring a healthy economy and long-term regional prosperity. This strategic plan lays the groundwork for the county to capitalize on new business investment and expansion.
Ensuring the new Office of Economic Analysis is fully utilized and that the LAEDC strategic plan for economic development is implemented are now the next steps.
In the near term, the city would greatly benefit from streamlining permitting processes and consolidating the process to one department rather than multiple agencies that have different standards and timelines. Cutting the regulatory morass in Los Angeles will make it a much more attractive place to do business. Likewise, over the longer term, the Southern California Association of Governments would do Southern California and Los Angeles a great justice if it was to dedicate resources to audit permitting and regulations to understand what works and what frustrates economic development. Making Los Angeles more business friendly to job creators will ensure that we have jobs now and in the future.
Stronger businesses – including big businesses – mean more jobs, tax revenue and economic activity. A growing economy will ensure that we have a stable source of funds to pay for essential government services. So amid all the talk of stimulus for small businesses, let’s not forget that America’s largest companies serve a critical foundational element in our economy. Los Angeles would be wise to enact policies that position them for success.
David M. Smith is associate dean of academic affairs and associate professor of economics at Pepperdine’s Graziadio School of Business and Management in Malibu. Steven D. Todd is principal of sales & marketing training and development and vice president of sales at Logos Health Systems in Thousand Oaks.
