In Ethnic Enclaves, The U.S. Economy Thrives (surviving socialism)

New Geography ^ | 11-21-08 | Joel Kotkin

[RKBA Democrat]

Dr. Alethea Hsu has a strange-seeming prescription for terrible times: She is opening a new shopping center on Saturday. In addition, more amazingly, the 114,000 square foot Irvine, Calif., retail complex, the third for the Taiwan native's Diamond Development Group, is just about fully leased.

How can this be in the midst of a consumer crack-up, with credit card defaults and big players like General Growth struggling for their existence? The answer is simple: Hsu's mostly Asian customers – Korean, Chinese, Taiwanese, Japanese – still have cash. "These are people who have savings and money to spend," she explains. "Asians in Orange County are mostly professionals and don't have the subprime business."

To Hsu, culture explains the growing divergence between ethnic markets and that of the general population. Asians, she notes, whether in their native lands or here in California, tend to be big savers. In tough times, they still have the cash to buy goods, while others stay home or go way down-market.

Nor is the Diamond Development Group's experience an isolated case. Throughout the country, ethnic-based businesses continue to expand, even as mainstream centers suffer or go out of business. The key difference, notes Houston real estate investor Andrew Segal, lies in the immigrants' greater reliance on cash. "When cash is king," observers Segal, president of Boxer Properties, "immigrants rule."

This is true not just of well-heeled Asians or Middle Easterners, but also for Hispanics, who generally have lower incomes, notes Segal's partner, Latino retail specialist Jose de Jesus Legaspi. For example, the recession has barely taken hold at La Gran Plaza, the recently opened 1.1 million square foot retail center in Ft. Worth, Texas, where Legaspi serves as part owner and operating partner.

The center, reconstructed from a failing old mainstream mall purchased in 2005, is now roughly 90% occupied. "We are doing so well that we are expanding the mercado," Legaspi says, referring to the thriving centers dominated by very small businesses run from attached stalls that are a popular feature of many Latino-themed centers. "It's all cash economy. They pay their bills with cash. The banks and credit card companies are not involved. It's true capitalism, and it works."

Latino shoppers, he suggests, also have been less impacted by the stock market collapse than other consumers. After all, relatively few, particularly immigrants, have large investments on Wall Street. In addition, even if they have lost their jobs, particularly in construction, Legaspi adds, they tend to pick up other employment, even at lower wages, often in the underground economy. "They get paid in cash, and they pay in cash."

Another key advantage lies in close connections many ethnic merchants have to economies such as Korea, China, Taiwan and India, where enormous amounts of cash have accumulated in recent years. "Many of these merchants have family and other ties to the international economy," observes Thomas Tseng, a principal at New American Dimensions, a multicultural marketing group in Los Angeles.

The media focuses on huge surpluses spent by major corporations or sovereign wealth funds, but a substantial amount of the money being made in places like China or India also accumulates into family networks. They often funnel this cash to relatives' enterprises in North America, where many also retain second homes and often educate their children.

This combination of cash-spending customers and well-endowed investors explains why in many places, the immigrant market remains one of the few still aggressively expanding. Even in thriving Houston, notes architect Tim Cisneros, the credit crunch has stopped many projects by clients from the mainstream real estate development community. In contrast, Cisneros' Chinese, Indian and other Asian clients continue to build and expand.

"I am doing an Asian-Mexican sushi chain that isn't hurt by the credit crunch since they are doing this out of the checkbook," Cisneros told me. "And the Indian reception hall I am building is doing well. The action is from these developing companies much more than the old Anglo groups."

If the immigrant markets helping Cisneros through the credit crush represent one of the few bright spots in the present, they also will likely become even more important in the future – even if immigration slows down dramatically. By 2000, one in five American children already were the progeny of immigrants, mostly Asian or Latino; by 2015, they will make up as much as one-third of American kids.

Given these underlying trends, look for developers like Dr. Hsu to keep prescribing more of what she calls "multicultural shopping centers," focused both on immigrants and their children. As long as these newcomers, both affluent and working class, continue to save, covet cash and work hard, they are likely to continue thriving through the recession and beyond.

"We are leased up, and we think the supply [of shopping] is not enough," Hsu says. "We are ready to go Saturday and feel great trust in the future." At a time when most mainstream American retailers are hiding under their desks, such sentiments are not only welcome; they may also indicate who might be leading the retail recovery when it finally comes.

[RKBA Democrat]

Note how often cash is mentioned in this article.

[RKBA Democrat]

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[econjack]

I think I remember an article stating that, in Japan, earnings (i.e., interest) from savings accounts, bonds, and CD’s is tax exempt, which encourages people to save. This also encourages a larger pool of capital for investment purposes. This seems to make sense, which is probably why we do exactly the opposite in this country.

[monkeycard]

Note how often cash is mentioned in this article.

Cash is king.

[blam]

How are the Black ethnic centers doing?

[padre35]

1. A Asian/Mexican sushi chain?

I’d like to visit that restaurant!

2. Not only cash, but gold, these are unconventional investors and business people, old school Indians are known to buy Gold every week as a form of savings that cannot be inflated out of existence.

And of course, cash economy means little to no tax economy, which of course means Obamao’s minions will be trying to find a way to tax the wallets off of them.

[NaughtiusMaximus]

A friend of mine who was in the restaurant supply business told me that up until a short time ago when the IRS made minimum bookkeeping mandatory for all businesses, Chinese restaurant owners kept all records in their heads. Millenia of experience with taxation by despotic governments had taught them that lesson.

[Shigarian]

This isn’t true — my bank (Mitsui Sumitomo) takes 20% from my interest earnings before it even reaches my account.

Not that that’s such a big loss when a savings account only pays 0.01% per year!

[econjack]

Are you in Japan and subject to Japanese tax law?

[Red6]

Cash is nice and most personal debt is to pay for consumption of services and products unrelated to anything that amounts to a real investment. However, in business, it is the various forms of debt that allows new ventures, massive growth, inspiring ideas to become reality, the real inventments that bring a return..........

Nice story, and the lessons people will try to deduce from this are irrelevant as it pertains to our economy at the macro. When lending gets tight, growth slows down. I don't care about La Toya and her $400,000 home. Let her go under, she should have never had that loan to begin with. But, it's the investments in capital machinery, R&D, new factories, the ability to have a great idea become a multi billion dollar industry in this nation which I'm worried about. Tight lending = economic slowdown.

[Altura Ct.]

So ethnicities support their own. Imagine that? Wonder what white people will do?

[Red6]

Many numbers thrown around in the media and by politicians are meaningless. Take for example the so call uninsured. Most have availability of insurance but choose not to have insurance, many are illegals, some are veterans who have access to the VA system which does not count as an insurance, many in that number are defined as under-insured (They have insurance but according to some standard, they fall into a catagory that counts them in as well.), even active duty military personnel are counted into the figure of the so called uninsured because near free and near unlimited health care via the military apparently does not count as having access to health care, according to the politicians and media that try to inflate the number as large as possible. Then they round a figure that's based largely on estimates up to the nearest million and wallah, you have 45 million uninsured. So what does it really mean when someone like Obama runs around talking about 45 million uninsured? Little.

Why do I mention this? It's the same in savings. Many people have 401Ks, that wasn't counted in one of those bogus reports on this theme I've seen before....... and so it goes on and on, and on. The idea is that when someone debates any subject they will minimize all counter arguments and maximize their own. Ideally they will exclude counter themes all together. Likewise, when it comes to personal savings in America the goal by many in the media and those talking about this is to show the “low amount” that is saved. Why are personal saving so low in the US? Because only a fool puts their money in a bank where it accrues practically no interest. Because many invest in other areas not counted. If I take my money and invest it in a business, or property, does that count in their savings statistic? Nope, almost guarantee you that. Take me as an example. I have very little tied up in a bank, but I have money invested, and unlike the "dead capital" in a bank, my money is earning something. So what do a lot of those stories mean? About as much as the so called 45 million uninsured. But it makes for a great news story and political theme. IMHO

[econjack]

I agree. I have very little savings, but a considerable amount invested in the market (ouch!) and other real assets (e.g., property). My point was, if Congress is worried that people aren't saving, make interest income tax free.

As to health insurance, I also believe the numbers are grossly overstated with respect to the uninsured. Further, I do not believe health insurance is a right. If you want it, buy it. Otherwise, shut up and least of all don't expect me to buy it for you. I did some work for a health care firm who that attached to the local hospital that supplied health care to the indigent in the city. At lunch time when I walked over to the cafeteria, I'd see these people outside smoking...with portable oxygen tanks and the tubes stuck into their throats. Sorry, but if you can't stop smoking to help your emphysema, you deserve the consequences and I shouldn't be wasting my tax dollars on you.

If you're super healthy and don't need it, don't buy it. If you're super unhealthy, not my problem and don't expect me to pay for it.

[RKBA Democrat]

“However, in business, it is the various forms of debt that allows new ventures, massive growth, inspiring ideas to become reality, the real investments that bring a return..........”

It is also those various forms of debt that allow otherwise profitable companies to go bankrupt due to liquidity shortfalls, and are ultimately responsible for the economic problems we’re seeing right now.

Debt is not necessary for business expansion. It’s often better to start small and expand out of retained earnings, and if necessary, raise capital through sale of ownership interests. While that’s definitely the road less traveled, particularly amongst the overpaid MBA’s that have run so many companies in the U.S. into the ground in recent days, running a business without debt is not only possible, it is in many cases highly desirable.

[Lorianne]

One important point not mentioned in the article is that Asian families tend to pool their resources and help each other out. Extended family members loan money to each other to start new ventures, most of the money stays within the family group. They all help each other out, and are good business people. This is the secret to their success over other groups ... family.

[AmericanInTokyo]

One thing is for sure.

You would have to be blind as a bat not to notice this and see this coming over the last 10, 20, 30, 40 years in America.

I have witnessed case after case of (particuarly Asian) immigrants, even dirt-poor, scared refugees fleeing chaos, courageously coming into the USA with very little, and moving up the ladder at astonishing speed.

ON the other hand, I saw Americans who came from five or six generations of Americans already here, on their fat asses, only putting in 9-5 M-F, couch potatoes, dumbed down and seduced by credit-cards and "Dancing With The Stars", and then complaining when life (and more industrious people) passed them by.

It's the turtle and the hare isnt it?

I just guess some people are destined to watch "Who Wants To Be A Millionaire". And then are are others who are just destined to work hard, not complain, and BECOME one.

[RKBA Democrat]

“It’s the turtle and the hare isnt it?”

Yup. Always has been. Or the grasshopper and the ant. Take your pick.

FWIW, it tickles me pink. I see folks who a generation ago had little other than the clothes on their back, and the brains and drive to succeed. And now they have Ph.d’s, successful businesses, and they’re living the American dream to it’s fullest.

[Shigarian]

Are you in Japan and subject to Japanese tax law?

Yes; I work full-time in Tokyo and all my income is here. If only I made enough ($82,400 is the threshold now) for the IRS to get interested in me!

I think most banks tax interest on savings before you receive it. On securities trades you can choose to report it yourself. Also, for national tax your employer will figure out what you owe and make year-end adjustments before paying you your December salary. And there are very few opportunities for deductions for the average person, so many people don't have to do tax returns at all.

Company-matched 401(k)-like investments are also very rare, so the average person just stashes their savings in the bank every month. I'd love to see them stop taxing those meager returns.

[econjack]

And there are very few opportunities for deductions for the average person, so many people don't have to do tax returns at all.

I would love to see that kind of tax code here. If you had a flat tax, every income source (i.e., employers, banks, security firms, etc.) could just withhold that fixed amount of income (Friedman suggested 17%) from your check and you wouldn't even have to file a return at the end of the year. Of course, it will never happen since that where Congress gets a huge share of its power--the ability to redirect resources.

[Red6]

There are many with great ideas which could start whole new industries, but lack the financial resources to make anything happen. Growth would be cut far short of potential if it were not for the ability to raise money also because internally a growing business simply does not have the financial reserves to expand at its potential......... Debt like money itself has no morals, feelings, etc. It's neither bad as you think; nor good as you seem me to think. It can be used to do good, or bad.

The problem is that there is a difference between dumb consumer debt and an investment. Most credit cards are filled up with frivolous TV’s, stereos, cloths, jewelry, watches, etc. Most businesses look at debt differently and they use it differently, and making debt out as something evil or bad makes as much sense as demonizing guns or knives. Yes debt is necessary in the macro and micro. Without taking on debt to grow, many businesses will fail because they can't stay competitive. You're thinking works for a “mom and pop” shop.

Much of what we face today economically is “fear itself,” a sort of self fulfilling prophesy created by a media and political process that emphasized all the negatives and harped on them for months. We had a candidate of “hope” essentially telling everyone an economic apocalypse had arrived and that we need his “change” to cure all the worlds’ ills. 50% of what you consider being hard cold economics with facts and figures in reality boils down to psychology and perceptions. Some of the structural issues we do have are constructs of a “do good” policy of giving out bad loans to people who really shouldn't have gotten them in the first place. But that’s not because debt is bad, but because a government applying typical redistributive concepts creates these structures for its own internal reasons, politics. Much of what we see today in our economy is a running together of various problems which has created this overall malaise.

High interest and tight lending is bad economically. It’s not the banks that caused the problems, but rather the same people that point their finger at these CEOs and banks today. A government that through Community Reinvestment Acts, the application of equal opportunity principals to lending and forcing financial institutions to more or less suspend building risk into cost structures set the stage for failure years ago. Why do credit cards charge so much? Largely because many people go default, and they simply build into the interest rate this risk. The problem arises when a government “by law” forces financial institutions to give out loans to folks that don’t really qualify, and when they then turn around and call it “reverse redlining” and discriminatory when these high risk people are charged higher interest rates. Surprise, surprise, many people can’t pay. And the answer is what? That debt is bad? That makes as much sense as what our government will and fail to do; bail everyone out and not address the laws/policy that help drive much of the sub-prime mortgage lending. (IMHO)