America’s 21st-Century Business Model

Joel Kotkin
Editor of NewGeography.com and Presidential fellow in urban futures at Chapman University

Cross-posted with NewGeography.com

Current attitudes aren’t too kind to the old American way of doing
business. In our globalized economy, the most enthusiastically touted
approaches are those adopted by centralized, state-dominated economies
such as China, Brazil and Russia as well as–somewhat less
oppressively–those of the major E.U. states.

Yet the U.S. may well be constructing the best sustainable business
model for the 21st Century. It is an approach built on the country’s
greatest enduring strength–an innovative business culture driven
increasingly by a diverse pool of immigrants.

This model, of course, lacks the kind of centralized control beloved
by many pundits. Yet its virtues are also missing from statist-oriented
European or East Asian capitalism. These other regions’ systems may be
more disciplined in their thinking, but they do not draw as well on the
diversity of human experience and connections that drive America’s
post-racial economy.

This is not to suggest that state-based, national capitalism is
inferior, but that it may not apply so well to this vast, highly
diversified economy–just look at the stimulus. If the U.S. wants to
retain pre-eminence, it needs to go with what makes it a great country:
its protean national and increasingly post-racial business culture.

This evolution is increasingly evident at the very top of our
economy. Between 1990 and 2005 immigrants started one quarter of all
venture-backed public companies. Large American firms are also
increasingly led by people with roots in foreign countries, including
14 of the CEOs of the 2007 Fortune 100. Even the top tier of corporate
America–once the almost-exclusive reserve of native-born
Anglo-Saxon–increasingly reflects the diversification of the larger
society.

Already, for example, eight Indian American CEOs run U.S. corporations with over $2 billion in sales, including companies like Citicorp, Adobe Systems and Pepsico. Pepsi’s historic rival, Coca Cola, is now run by Muhtar Kent, a native of Turkey. Foreign CEOs also include Kellogg’s Australian-born David Mackay and Ethan Allen’s M. Farooq Kathwari, yet another native of India.

This process will intensify in the coming decades. Take for instance
the case of Li Lu, a former Tiananmen Square activist now widely
expected to take the helm of Warren Buffett’s Berkshire-Hathaway when
the old billionaire retires. Imagine if a former American radical was
placed in charge of one of China’s huge state-supported enterprises.
Not likely.

One critical harbinger can be seen in the current crop of students
at top U.S. business schools. Between one-third and one-half all
students at Stanford, MIT, University of Pennsylvania, University of
Chicago and UC Berkeley come from abroad. These schools are training
camps for immigrants transitioning into careers as American
entrepreneurs.

Equally important, immigrant commerce also thrives at the grassroots
level. It manifests most visibly in the proliferation of small stores,
restaurants, food-processing businesses, garment factories and trucking
lines. Overall, immigrants are 60% more likely to start a new business than native-born Americans.
The number of self-employed immigrants has grown even in New York City,
where the number of self-employed among the native-born has dropped.

Immigrant businesses have thrived by providing basic services, such
as banks, insurance agents, funeral homes and grocery stores. Some of
these businesses arose because the mainstream community had failed to
identify opportunities in these markets or had consciously decided to
exclude them.

This follows a historical pattern. In the past many immigrants
succeeded by focusing on an economic specialty–Jews in the garment
industry, Chinese in laundries, Greeks in diners, and Italians in green
groceries, barbershops and fish stores. Ultimately, some moved beyond
these niches and began to develop whole new business models. One clear
example is A. P. Giannini’s Bank of Italy in San Francisco, which
eventually became Bank of America,
a pioneer in mass market branch banking. Other ethnic businesses, often
drawing on ways of doing business brought from abroad, have propelled
the growth of whole industries, such as the garment industry in New
York and later Los Angeles.

There is clearly something in the immigrant experience that
encourages innovation–one can call it the advantage of non-acceptance.
Take the founding generation of the film industry–Samuel Goldwyn,
Louis B. Mayer, Harry Cohn, Jesse Lasky, Adolph Zukor. They had their
roots in the Jewish enclave economy in the eastern cities. The great
historian Irving Howe notes that the immigrant need to find an
unoccupied or underserved niche shaped these often "vulgar, crude and
overbearing" men. That they became founders of the nation’s premier
cultural industry, Howe noted, "was something of a miracle and
something of a joke."

We are now witnessing a continuation of this process, and on a scale
simply not seen in other countries. In 2005 the U.S. swore in more new
citizens than the next nine countries put together. The
national immigration debate may focus largely on low-skilled newcomers,
but more than half of all skilled immigrants in the world also come to
the U.S. Even with the continent’s slow-growing population, Europe
continues to be a major source of American immigrants, particularly
skilled workers, with some 400,000 E.U. science and technology
graduates residing in the U.S.

These newcomers are a prime source of entrepreneurial vitality. In
the 21st century Asians, like the Jews and Italians before them, have
concentrated in specific niches and expanded outside the boundaries of
historic ghettos. Indians from the subcontinent, who arrived in large
numbers starting in the 1970s, specialized in hotels and motels across
the country. Koreans opened up green groceries in New York and Los
Angeles. Vietnamese became well-known for nail parlors, and Cambodians
for owning doughnut stores. Overall Asian enterprises expanded roughly
twice the national average through the first several years of the new
century.

This pattern can be seen particularly in food-related businesses. In
Houston, once dominated by Southern cooking, nearly one in three
restaurants serves Mexican or Asian cuisine. Together they account for
more establishments than hamburger, BBQ and Italian restaurants put
together. Nationwide, as pizza, hamburger and "traditional" fast-food
restaurants have stagnated, new chains that sell quick, inexpensive
Mexican or Asian food have flourished. Immigrant-founded firms such as
El Pollo Loco, Wolfgang Puck and Panda Express, are emerging as the McDonalds of 21st-century America.

The emerging post-racial economy provides two distinct opportunities
for American business. First the newcomers offer a new domestic
"emerging" market. Taken together, purchases by African-Americans,
Asians and Native Americans, according to the Selig Center for Economic
Growth at the University of Georgia, have exploded, growing far more
rapidly than the national average. Combined with Latinos, these
minorities could account for over $2.5 trillion by 2010, close to $1 in
every $4 in total U.S. consumer spending.

But perhaps even more important may be the uniquely international
cast of American business. Heads of corporations and senior executives
of many leading American firms will not have to go to graduate school
in international training; they will have received theirs at home,
talking to parents or grandparents who migrated from Mexico, Cuba,
Russia, Iran, China, India, Israel or a host of other countries.

This diversity will allow Americans to tap the global market, and
culture, in ways other countries and their state-based enterprises just
can’t match. It is in this model, not in imitating foreign ones, that
American business can find the path to greater success in the
globalized, dispersed economy of the 21st century.

This article originally appeared at Forbes.com.

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