In the most derelict stretches of South Los Angeles, enterprising Latinos are forming businesses in a hidden yet robust economy. Blacks, who could benefit, should pay attention

Immortalized in the N.W.A. rap tune "Straight Outta Compton," the city of Compton, Calif., has earned a national reputation for the worst political corruption, urban gangs, and drug culture. But where others see only devastation, Jose de Jesus Legaspi sees a new entrepreneurial frontier. "These areas have been underserved for years," Mexican-born Legaspi says as he walks by a decrepit strip mall along a desolate stretch of Long Beach Boulevard. "When there's a shopping center like this one, that's very old, and it can still be successful, imagine what you could do if you fixed it up."

In fact, Legaspi is more than simply imagining. He, along with the shopping center's owner, is already laying out plans to modernize a series of strip malls throughout the heart of South Los Angeles. And he's not the only one eyeing development opportunities in the area: a series of companies ranging from major national fast-food chains to local Latino-owned businesses, such as La Ritmo Latino, are also expanding operations there.

The Latin wave now rising in South Los Angeles and cities across the country is part of a nationwide surge of immigrant-led economic growth. At a time when many Americans have written off urban areas as economically dead, Latinos, as well as Asians and other newcomers, are giving birth to a renewed, highly entrepreneurial economy that could help turn around even the most distressed neighborhoods.

According to Latino venture capitalist Danny Villanueva, entrepreneurial Mexicans, Salvadorans, and other immigrants are implicitly rejecting the essentially politics-based strategy African American communities in many inner-city areas have adopted to improve their economic status. Villanueva believes the politically oriented "civil-rights model" holds more attraction for Latino politicians than for the rank and file. "Our people," observes Villanueva, who heads up Los Angeles-based Bastion Capital, a $125-million fund targeting Latino-owned businesses, "are still of that work-ethic viewpoint. It's like my father used to say: 'Don't give me fish -- just teach me how to fish and put me where there are some.' "

To some African Americans, this turnabout brings back bittersweet memories of earlier times, when African Americans forged their own independent entrepreneurial economy under the most difficult of circumstances. In the Jim Crow Louisiana of his youth, Barry Baszile remembers, there was a thriving black business community with its own hotels and restaurants. Entrepreneurship also flourished in the nominally desegregated Los Angeles Baszile moved to in 1956. "When I got here," he recalls, "Central Avenue was alive, Avalon was alive, and there were strongholds of black entertainment, restaurants, and hotels. Now that's all gone."

Although blacks have made much progress in terms of upward mobility, South Los Angeles's once-bustling business corridors are either derelict or controlled by nonblack entrepreneurs. Whites once came to the ghetto for entertainment, putting cash into blacks' wallets. Today it's largely blacks who are spending their money at white-, Asian-, or Latino-owned businesses. "I'm distressed to see there are not more black businesses," says Baszile, who employs both Latinos and blacks at his South Central metal-finishing plant. "I would like to see more blacks get into the laundromat business, corner stores, and restaurants, but all those businesses, as far as I can see, are controlled by Latinos or people from the Pacific Rim."

Critically, note Baszile and other minority entrepreneurs, much of black economic progress has become dependent not on private initiatives but on securing positions in governmental or corporate bureaucracies. Some 27% of California's African Americans are employed by the government. In comparison, only 10% of Latinos work for a public paycheck.

That strategy worked relatively well when large companies in industries such as banking and aerospace were hiring. But government cutbacks, corporate downsizing, a backlash against hiring quotas, and the shift to a more small-business-oriented, private-sector economy suggest that the old approach may be losing its utility. In contrast, the private-sector strategy followed by Latinos and other immigrants may ultimately prove more effective.

Today the Los Angeles economy depends heavily on Latino labor, retail buying power, and, increasingly, entrepreneurial energy. In Los Angeles County, Latino workers now constitute nearly two-thirds of all the production workers in such key manufacturing industries as textiles, metalworking, and medical instruments. The now predominantly Latino "neglected areas" of the county contain a manufacturing economy that has a total net worth of more than $54 billion and some 360,000 employees, more than the industrial economies of 30 states.

Because these newcomers are participating in such large numbers, urban economies with widespread poverty and high crime rates possess far more economic potential than many investors, pundits, or politicians imagine. Indeed, a 1993 survey issued by Cognetics, in Cambridge, Mass., ranked Compton and Southgate, a predominantly Latino community near downtown L.A., in the top 20 of nearly 800 urban communities for dynamic entrepreneurial growth. "People think that because these neighborhoods are low income, there's nothing there," observes Linda Griego, president and chief executive of RLA, the nonprofit agency dedicated to rebuilding the area after the 1992 riots. "There are enormous strengths and opportunities for those who bother looking."

Latinos aren't merely employed in this new economy; they're beginning to lead it. Over the past two decades, Los Angeles County has experienced a 700% increase in the number of Latino-owned businesses, which has grown at three times the rate the overall Latino population has.

Whereas black-owned businesses tend to be concentrated in service sectors, venture capitalist Villanueva has found many Latinos moving aggressively into a wide range of manufacturing fields, particularly the food-processing industry, long a strength in Southern California. Just in the areas served by RLA, the food-processing industry comprises 700 companies with sales of roughly $5 billion and more than 30,000 employees.

Many Latino-owned businesses in the field, such as La Tapatia, a Compton-based tortilla maker, and Casa Herrera, a South Los Angeles maker of food-processing equipment, have thrived despite a generally weak economy. Much of their success, notes Casa Herrera's Al Herrera, who runs the business with the rest of his family, lies in the growing popularity of Mexican-food products not just in the United States but also in the United Kingdom, China, and even the Middle East. "Los Angeles," boasts Herrera, "is the world capital of Mexican food."

These entrepreneurs, their companies, and their workers, notes sociologist David Hayes-Bautista, are helping rebuild hard-hit regions such as South Los Angeles. His studies have found that Latinos in South Central are not primarily a transient population of newcomers; most of them have been in the country for at least 10 years and have strong family and economic ties to the region. These longer-term immigrants, according to a recent University of Southern California study, have made much progress in terms of income, professional development, and English proficiency.

Because of that, they are proving very attractive to retailers, both Latinos and others, particularly ones that cater to the needs of growing families and small businesses. "The Latino consumer is a very family-oriented, extended-family-based consumer," developer Legaspi suggests. "Because a lot of businesses feel comfortable with the Latino community, they will feel comfortable investing in South Central L.A." For a model of successful Latinization, Legaspi points to Pacific Boulevard in nearby Huntington Park. Just 15 years ago the street was largely deserted, with vacancy rates ranging from about 40% to 50%. Today Pacific is one of Southern California's liveliest shopping streets, with weekly sales volumes that rival those on Rodeo Drive.

The turnaround on Pacific Boulevard and the promise of one in Compton suggest new hope for America's cities. But there remains one critical issue: whether the new economic power of Latinos can also help turn around conditions for African American communities. To some extent, that will entail blacks' adjusting to becoming a "minority" even among minorities. Once predominantly African American, Compton's population now is mostly Latino, and as many as two-thirds of the citizens of neighboring Watts are Latino, too. Latino immigrants, according to real estate agents, also represent the vast majority of new home buyers in the region.

Given that new reality, Barry Baszile believes African Americans must begin participating more fully in the private-sector economy being developed by the newcomers. "One of my missions," he says, "is to preach economic development and entrepreneurship to young black Americans who might be experiencing layoffs and all of the other things that can be attributed to defense cutbacks."

RLA's Griego and others see an enormous opportunity for African Americans in the Latinization of urban America. Because as a group they have higher rates of education and better English-language skills than Latinos do, African Americans can also hope to find managerial and other higher-paying roles in an expanding Latino-based economy. "It's something that can work well together," says Griego. "African Americans who live in these communities can take advantage of the transformation of these neighborhoods."

Joel Kotkin is a senior fellow with the Pepperdine Institute for Public Policy, in Malibu, Calif. He is also a fellow in urban studies at the Pacific Research Institute, in San Francisco.

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Published on: Mar 1, 1996