Coronavirus: Why California’s Small Businesses May Not Survive

Whatever the medical benefits achieved from the prolonged coronavirus lockdown, California’s small business community will be suffering severe symptoms, likely for decades to come. The state’s small entrepreneurs, particularly in poorer areas, face major readjustments and perhaps obliteration, a situation further complicated for some by damage stemming from the protests over the killing of George Floyd.

These small firms were already in parlous shape before COVID-19. Despite the immense wealth generated in Silicon Valley and among real estate speculators and the entertainment elite, most of the state’s growth in recent years was in low-end service businesses. As a result, 80% of all jobs created in the state over the past decade paid less than the state median income and half of those well under $40,000, according to Marshall Toplansky, a researcher at Chapman University.

California COVID-19 death rates are far lower than states in the Northeast, but our bifurcated economy is deeply vulnerable to declines in service businesses, and particularly in hospitality, retail and restaurant sectors. Roughly 90% of businesses surveyed this month by BizFed, a Los Angeles County organization of business groups, have been severely affected and nearly half have seen their revenue drop over 50%.

Before the pandemic, California’s boosters and leaders could convince themselves that the state had developed a new progressive and sustainable economic model. COVID-19 and the economic downturn have stripped away the glitzy facade, as our unemployment rates now surpass the national average, worse even than New York, the epicenter of the U.S. coronavirus outbreak. It’s particularly bad in Los Angeles, where less than half of residents now hold jobs. L.A. County has lost over 1 million jobs to the pandemic and suffers an unemployment rate higher than any of the major California urban counties.

Southern California’s greater economic vulnerability reflects, in part, its unusual exposure to some of the hardest-hit industries, notably tourism and hospitality as well as international trade. But the economic damage caused by more than two months of lockdown is spreading to industries that depend on selling goods outside the region — such as apparel and medical equipment — and the entertainment industry, which according to recent estimates may have already lost over 100,000 jobs.

If consumers are slow to resume their pre-coronavirus activities, many small firms already struggling with the state’s business regulations and high taxes may be tempted to head elsewhere. Joseph Vranich, a relocation expert who recently moved his own business from Irvine to Pittsburgh, has identified 2,183 publicly reported California disinvestment events between 2008 and 2016. However, experts in site selection generally agree that at least five relocations take place without public knowledge for every one that does.

The places with the biggest gains from California are in Texas, Nevada and Arizona. Between 2000 and 2013, California was the source of about one-fifth of all jobs that moved to Texas — 51,000 jobs.

Perhaps most immediately threatened, however, will be small businesses that focused largely on serving local residents. Take restaurants. The vast majority of the state’s more than 90,000 restaurants are owned and operated by independent proprietors, employing 1.4 million food service workers, according to the California Restaurant Assn. It generates more sales tax ($7 billion annually) than any other industry and some 60% are owned by people of color. Unless the state finds ways to help, 20% to 30% of these restaurants will never open again, the association has predicted.

Like small businesses across the country, many of these firms have not been able to access federal funds to withstand the downturn. Washington’s bailout program, even some Republican economists admit, has been tilted in favor of Wall Street and larger firms. Particularly excluded, note local advocates, have been smaller, often immigrant-run businesses which lack strong bank relations. They also often lack savings and much of their business is cash-based. Still others are owned and operated by noncitizens, some of them undocumented people.

In many neighborhoods, there is widespread concern that local owners of small shops, apartment buildings and commercial properties won’t be able to hang on and will be taken over by outside investors with no tie to the area. The need for social distancing protocols has worked against small stores that rely heavily on personal contact with customers and can’t make up all of their revenues through online sales. Some already see this trend as accelerating gentrification that was happening before the coronavirus.

“The business owners are scared,” suggests Mirabel Garcia, who works on micro-loans for the East L.A.-based Inclusive Action for the City. “They are worried they will not be able to hold on against Wall Street and the big investors.”

California will emerge from this crisis, but what kind of state will it be? The power of the tech oligarchy — the biggest winners during the coronavirus crisis — will likely further their hegemony. But the reality for most in the business sector will be far less grand: empty stores, broken dreams, defaulted mortgages and less opportunity for the kinds of entrepreneurs who created California’s century of economic dynamism.

In this economic crisis, state government needs to look out for the interests of grassroots entrepreneurs. This includes helping smaller firms adjust to new social distancing requirements and providing technical assistance so they can better compete with megastores or Amazon. It also means protecting small business owners against nuisance lawsuits related to coronavirus claims. Measures like California’s Assembly Bill 5, which seeks to greatly limit contract work, should at least be suspended at a time of record unemployment.

Given California’s deepening budget problems, rooted in huge state costs and pensions, the state cannot afford to prop up deserted business and millions of unemployed workers. There’s only so much that can be done to curb the inevitable “creative destruction” caused by the pandemic.

But entrepreneurs are, if nothing else, resilient. If they are given enough help to survive, they will eventually adjust to the new realities, and find new ways to thrive to the benefit of all Californians.

“It breaks my heart to see all the empty stores,” said Vivian Bowers, who runs her family’s dry-cleaning business, which has been in South Los Angeles for 63 years. “But entrepreneurs are tough. At this business we have survived numerous recessions and two riots. Give people a chance and they can come back.”

This piece first appeared at Los Angeles Times.

Joel Kotkin is the author of the just-released book The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute — formerly the Center for Opportunity Urbanism. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin

Photo credit: Nick Papakyriazis via Flickr under CC 2.0 License.

Pandemics and Pandemonium

Minneapolis and urban centers across America are burning, most directly in response to the brutal killing of a black man by a white Minnesota police officer. But the rage ignited by the death of George Floyd is symptomatic of a profound sense of alienation that has been building for years among millions of poor, working class urbanites. The already diminished prospects facing such people have only been worsened by the unforeseen onslaught of the COVID-19 pandemic and the policies devised to combat it. Read more

How Coronavirus Pandemic is Bringing a Return to Feudalism

The COVID-19 pandemic has disrupted many things, but also accelerated America’s descent into a new form of feudalism. The preexisting conditions of extreme economic concentration, inequality and reduced social mobility already were painfully evident before, but the pandemic has made them considerably worse. Read more

The Coronavirus is Also Spreading a Dark New Era of Neo-Feudalism

Adapted from The Coming of Neo-Feudalism (Encounter Books). 

The COVID-19 pandemic is accelerating the global shift already underway towards a neo-feudal society. With the middle-class economy largely shut down and, in the best-case scenario, in for a long and painful recovery, the population that is barely hanging on is expanding rapidly in America and around the world. In the U.S. alone, the ranks of the poor are projected to increase by as much as 50 percent, to levels not seen in at least a half century. Read more

The Future of Residential and Commercial Real Estate

What is the future of real estate after Covid-19? Please join Richard Florida, Joel Kotkin, Marshall Toplansky and other leading experts to see where the real estate market is going. We will be discussing issues including the future of office space, retail, affordable housing, inner cities, suburbs and small towns. Read more

The New Geography of America, Post-Coronavirus

When there is a general change in conditions, it is as if the entire creation had changed, and the whole world altered
Ibn Khaldun, 14th Century Arab historian

For a generation, a procession of pundits, public relations aces and speculators have promoted the notion that our future lay in dense — and politically deep-blue — urban centers, largely on the coasts. Just a decade ago, in the midst of the financial crisis,  suburbia’s future seemed perilous Read more

The Coronavirus Means Millennials Are More Screwed Than Ever

In the nearly eight years since I first described millennials as “the screwed generation,” things have only worsened for those born between 1982 and 2000—and the coronavirus is now accelerating that slide.

In the midst of a pandemic, millennials are twice as likely to be uninsured as Boomers (PDF). Despite their superior educational credentials, millennials on average earn wages that are 20 percent less than what Baby Boomers made at the same age. Millennials are far less likely to own homes than Boomers were, and those millennials with homes are far more likely to have rich parents.

Seniors may suffer a much higher risk from the virus, but, from an economic point of view, it’s the millennials getting screwed the most. In a new report, Data for Progress found that a staggering 52 percent of people under the age of 45 have lost a job, been put on leave, or had their hours reduced due to the pandemic, compared with 26 percent of people over the age of 45.

Some recent research suggests that the pandemic may impact this generation in terms of such things as mental and physical health, leading to shortened lifespans. Before the pandemic, about 8 percent of American teens (members of Generation Z) reported trying to kill themselves each year and about 70 percent suffered from loneliness. In 2020, these numbers will likely be higher, suggests an excellent analysis in The Atlantic. The young generations are already more likely to report poor mental health, per the American Psychological Association, and suicides among people ages 10-24 soared 56 percent from 2007 to 2017.

This reflects the pessimism felt by millennials, both here and globally, about their futures, with most not expecting to do better than their parents. Their dismal prospects are reflected in the lowest marriage rates in history and loathness to start families. Battered now by pestilence and its aftermath, they could well become what one conservative writer referred to as a “resentful generation.”

Particularly vulnerable are the two-thirds of Americans between 25 and 32 who lack a four-year college degree. In the past, these workers would have been employed in factories or worked in a small businesses, or even started one. You do not need a PhD to operate a donut shop, a gym or a hair salon.

But now factory work has declined as companies have shifted their production to China and other parts of the developing world. The Main Street option was fading even before the COVID lockdown, as evidenced in falling rates of business formation, particularly among the young. The share of GDP represented by small firms has dropped from 50 to 45 percent since the 1990s. The share of young firms in all industries has fallen in the last 40 years. Increasingly more industries have become dominated by large, superstar firms  with access to Wall Street capital.

But even educated youth now suffer consistently lower wages, notes Pew, than their counterparts from previous generations. Many young people, including some college graduates, are employed in low-wage industries such as hospitality, retail and restaurants, fields now suffering the largest share of the job losses. Even those still working often have little ability to control working conditions, terms of employment, or gain guarantees for health coverage.

Read the rest of this piece at Daily Beast.


Joel Kotkin is the author of the just-released book The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute — formerly the Center for Opportunity Urbanism. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin

Towards a Better Urbanism

The pandemic has brought panic to the once-confident ranks of urbanists promoting city density. At a time when even the New York Times is noticing that density and transit pose serious health risks for any potential re-opening, such people attack their critics as “anti-urbanist” or “sprawl lovers” or “urban gadflies.” Preferring theology over data, some advocate ever-greater density and crowding in cities and mass transit.

But wishful thinking cannot alter the fact that the pandemic has hit core cities with particular force. The concentration of the worst outbreaks in major urban areas—the New York region alone accounts for more than 40 percent of all US fatalities—is a global phenomenon also seen in Japan, Korea, the United Kingdom, France, Belgium, Italy, and Spain. This has cast a pall on traditional downtown-centric employment, dependent on massive subway systems, crowded apartments, and packed workspaces.

Such places promote what demographer Wendell Cox calls “exposure density.” This is particularly lethal for low-wage workers forced to take packed transit lines from crowded apartments to packed workplaces. It is not surprising that, in the shadow of the pandemic, a recent Harris poll found that almost two-in-five urban residents are considering a move to a less crowded area. The latest consumer survey from the National Association of Realtors also found that households are “looking for larger homes, bigger yards, access to the outdoors and more separation from neighbors.” Even many diehard city residents, suggests the New York Times, are now putting bids on suburban houses further from the city.

The demise of the high-rise office tower

Economic necessity has long defined how cities are organized. In the pre-industrial past, they grew up near coastal ports, rivers, or along trade routes such as the Silk Road. They housed those needed to run the state and maintain trade as well as servicing the luxury needs of the rich. Later, the industrial revolution forced cities to grow radically, as manufacturers depended on easy access to vast numbers of workers, who often suffered from severe social and health effects as documented by Friedrich Engels in his influential book, The Condition of the Working Class in England.

The past 50 years has seen the demise of the industrial city as production has shifted to developing countries or more remote locations, and the rise of an urban economy based on elite “producer services.” These industries, including finance, media, software, accounting, and law, depend on the migration of talent from elsewhere, both domestically and abroad. In modern times, the most prominent physical expression of urban greatness—once cathedrals or great public works—has been the office building. This same pattern has extended outside the West, notably in the Middle East and East Asia, which now boast most of the world’s tallest buildings.

But this configuration is now faced with the challenge of “social distancing.” Before the pandemic, companies coped with high urban rents by using far less space per new job—down from 175 square feet of space per new employee in the 1990s to 125 in the late 2000s and barely 50 square feet today. Social distancing requirements will force employers to offer more space per employee, which will in turn see their costs rise. Elevator traffic will slow, and private offices, once considered passé, may soon be in demand, as executives seek greater isolation from their employees.

Read the rest of this piece at Quillette.

Joel Kotkin is the author of the just-released book The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute — formerly the Center for Opportunity Urbanism. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin

Marshall Toplansky is a clinical assistant professor of management science at Chapman University’s Argyros School of Business and Economics. He is a research fellow in the school’s Hoag Center for Real Estate and Finance and is formerly managing director of KPMG’s Lighthouse Center for Advanced Data and Analytics.

Photo credit: Sean Pollock via Unsplash.

Hygienic Fascism: Turning the World Into a ‘Safe Space’ — But at What Cost?

Author Aldous Huxley once said, “A thoroughly scientific dictatorship will never be overthrown.”

Even as we try to battle the COVID-19 pestilence, we may be contracting a more dangerous virus — hygienic fascism. This involves a process when our political leaders defer to a handful of “experts,” amid what Dr. Joseph Ladopo, an associate professor at the UCLA School of Medicine, describes as an atmosphere of “COVID-19-induced terror.”

Ideologically, hygienic fascism is neither right nor left, nor is it simply a matter of taking necessary precautions. It is about imposing, over a long period of time, highly draconian regulations based on certain assumptions about public health. In large part, it regards science not so much as a search for knowledge but as revealed “truth” with definitive “answers.” Anyone opposed to the conventional stratagem, including recognized professionals, are largely banished as mindless Trumpistas, ignoramuses, or worse. Experience may show that debate and diversity of choices serve the public’s health and general well-being better than unchallenged rule by a few, largely unaccountable individuals.

Even some non-Trumpians — like Elon Musk — see this as less an adherence to scientific standards than a “fascist” attempt to impose often impossible conditions on society and the economy, and without popular recourse. That these orders are often issued by the executive, and in the vast majority of states without legislative recourse, certainly follows an authoritarian pattern.

Big Brother, the ‘Great Helmsman’ and us

The degree of social control being proposed often reveals staggering tunnel vision. Former Vice President Joe Biden’s adviser, Dr. Ezekiel Emmanuel, suggests that eradication of the virus will require a year or even 18 months of lockdown policies. This likely would catapult an already steep recession into something approaching a depression. Scientists and academics, it appears, may be less vulnerable to such a policy than, say, hotel workers, retail clerks or small business owners.

Read the rest of this piece at The Hill.

Joel Kotkin is the author of the just-released book The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute — formerly the Center for Opportunity Urbanism. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin

Homepage photo credit: Christopher Michel via Flickr under CC 2.0 License.

One Nation, Under Lockdown, Divided by Pandemic

The last thing this polarized Republic needs is, well, more polarization, but that is what we are contracting from the pandemic. Americans, irrespective of region, broadly want the same things, such as safety, a return to normalcy, and an end to dependence on China for medical supplies, but they differ in the depth of their experiences with the pandemic.

Rather than rallying the nation, COVID-19 has amplified every fissure in this society from class to race, but perhaps most of all regarding geography. This reflects, in large part, the different experiences felt in various localities and the differences in how economies function from region to region.

On one hand there is the New York City urban area, which has suffered roughly 40 percent of fatalities, and bore the brunt of the crisis. Places outside New York with the most deaths have been central cities such as New Orleans and Detroit, where the vast majority of deaths have been endured by African Americans living in crowded, low income districts.

In past circumstances (after 9/11 or Hurricane Katrina), Americans responded with their customary generosity. New Yorkers, in particular, were seen as heroic, and for a short while Rudy Giuliani, hard as it is to believe now, was “America’s Mayor.” Not this time. Only a person just arrived from Mars would see New York Mayor Bill De Blasio as an inspiring figure, although his nemesis, Andrew Cuomo, has gained some national street cred.

The polarized reaction to the pandemic reflects already established patterns of partisan group-think, particularly in the dominant mainstream media. In early times a pandemic would inspire a surge of unity akin to 9/11 among Americans — even journalists. But the never-ending battle between bombastic narcissist Donald Trump and the equally self-indulgent media seemingly allows for no such genuflection to national interest.

Viral Geography

To the political divide, add a major geographic one. Huge parts of the country have been barely impacted by the virus but almost everywhere has been hit by the lockdowns and social distancing policies. Not surprisingly, extending lockdown orders seems far less compelling in places where the pandemic’s impact has, so far, been minimal.

This pattern of infection and fatalities almost completely parallels that of our political divides, with the generally GOP dominated countryside least impacted, the suburbs only somewhat so, and the big blue cities bearing the bulk of pain. By one estimate, states with Republican governors, mostly in the South, Intermountain West, and the Great Plains have suffered one-third the rate of fatalities seen in Democratic controlled states, which tend to be denser in their settlement patterns.

Read the rest of this piece at Daily Caller.

Joel Kotkin is the author of the just-released book The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute — formerly the Center for Opportunity Urbanism. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin

Photo credit: screenshot from COVID-19 CSSE Dashboard Johns Hopkins.