Paying to Jump Start Los Angeles

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Los Angeles needs a new jobcentric innovation and economic development strategy. Unemployment is abysmal, ideas to improve the economy are in short supply, and incentives to keep and attract job-creating businesses in the region haven’t sufficiently worked.

What we need to do is press the “refresh” button, and design a robust employment plan that goes beyond the ideas, approaches and tactics of the past that have, until now, produced mixed results. Instead, we need to think through low-cost, high-impact solutions that will inject new opportunities into L.A.’s economy and create a 21st century of shared prosperity for all Angelenos.

Recent efforts the city has taken to encourage company formation and job creation – such as a “business tax holiday” and the mayor’s 30/10 initiative – are a step in the right direction, but much more needs to be done. Strategically lowering tax rates and creating public works projects to produce jobs are very good things, but we need to be bolder and more creative. If we want to profoundly improve our economy, we need to be specifically focused on the primary engine of job creation and economic development: high-growth startup companies.

According to the Kauffman Foundation, 75 percent of all jobs between 1980 and 2005 were created by startup companies less than five years old. This means that we need to incentivize would-be startup entrepreneurs to set up shop here in Los Angeles for the purpose of both creating private-sector jobs and increasing public-sector revenue. And this goes far beyond giving them a tax break. The motivation of an entrepreneur to start a venture involves a complex mixture of personal, psychological and social factors that usually transcend municipal tax codes.

What this means is that the city needs to create an “innovation framework” that taps into the motivations of would-be startup entrepreneurs and incentivizes them with tangible rewards. The best way to do this is to begin recruiting our top students at places like Caltech, UCLA’s Anderson School, and USC’s Marshall School to launch businesses. Oftentimes, many students at these – and surrounding – institutions have designed innovative business plans and developed teams to implement them. Sadly, though, most of these teams can’t get started because of the outrageous amount of college loan debt they are faced with upon graduation. So instead of launching the next Facebook or Groupon, these students abandon their dreams – and L.A.’s job-creating potential – to take a safe job in order to pay bills.

This needs to change.

Los Angeles can begin by saying to any student that if they create a company that raises $1 million in venture capital, produces $1 million or more in sales, or has at least seven people on full-time payroll within five years of his or her graduation date, we will forgive the college loans of the founders up to $100,000. We can also apply the same concept to any Angeleno who wants to start a company – if they can meet the above criteria, we should forgive their mortgage, credit card or car payments up to $100,000. Our new temporary social contract would be that any person bringing jobs to Los Angeles would be eligible for debt forgiveness until the economy recovers. Period.

We can pay for it through an innovative public-private partnership. We can recruit private-sector investors to contribute to a special fund, say a pilot reserve of $50 million, and in return we can give them a tax write-off for their generosity and a warrant to purchase equity of any company participating in this fund. There would be no downside risk for either the government or investors: The city would not financially contribute to the fund and private investors, at worst, would get a tax break (and at best could purchase stock from these high-growth companies).

But we shouldn’t stop there.

Los Angeles should also invest in leasing 1 million square feet of office space in downtown (the vacancy rate is a dangerously high 20 percent) so that these startups can work for a nominal rent fee for 18 to 24 months. We should also launch free business incubator programs for the unemployed to train them in the principles and techniques of creating a successful company so that they can create jobs for themselves and others. Then we should create a pipeline for these companies to barter goods and services with each other, collaborate with large businesses and be immediately eligible for government contracts.

If we adopt these unique ideas and others, not only can we dramatically increase job creation, but we can also launch the dreams of tens of thousands of would-be entrepreneurs and business owners who will be investing in the shared prosperity of Los Angeles for generations to come. Put simply, this is a jobcentric innovation and economic development strategy we should all get behind.

Rob Carpenter is an entrepreneur, writer and commissioner on the Board of Transportation for the city of Los Angeles.

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