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SMALL BUSINESS | HEARD ON THE BEAT

Start-Ups and GDP

July 28, 1999|MARLA DICKERSON and LEE ROMNEY | TIMES STAFF WRITERS

Alan Greenspan. The stock market. High technology. Steroids.

Everyone has a theory about why the U.S. economy continues its healthy expansion. But a new study says America's entrepreneurial spirit has a lot to do with the booming economy.

A new report to be released today shows the United States leads the pack among 10 developed countries when it comes to the pace of new business start-ups, and that entrepreneurial activity may account for as much as one-third of the difference in national economic growth.

The Global Enterprise Monitor study, a joint research initiative by Babson College and the London Business School, reports that 8.4% of Americans surveyed said they were engaged in some form of start-up activity. That rate is the highest among all countries surveyed. The others are Canada, Israel, Italy, Britain, Germany, Denmark, France, Japan and Finland.

The research shows a strong correlation between company start-up rates and growth in gross domestic product. Thus countries such as the United States, Canada and Israel, which boasted the highest rates of start-up creation, also posted higher rates of GDP growth than did countries such as France and Japan, which showed much lower levels of entrepreneurial activity.

The report estimates that each year Americans start 600,000 to 800,000 companies that hire employees. That's a birth rate of 14 to 16 start-ups for every 100 existing businesses. Two million Americans beyond that become self-employed each year. In March, an estimated 16 million Americans were in some stage of launching their own businesses.

"Entrepreneurship is critically important to economic growth," said Andrew Zacharakis, a professor of entrepreneurship at Babson College and one of the study's authors.

The researchers credit America's entrepreneurial frenzy to a variety of factors, including highly developed financial markets; a culture that approves of risk-taking; and the heavy participation of female entrepreneurs, which Global Enterprise Monitor estimates form 44% of all new businesses.

But the researchers note trouble spots as well. They conclude that start-up financing for the nation's smallest businesses is still tough to obtain. The government has no reliable means to measure entrepreneurial activity, and many publicly funded programs to assist entrepreneurs are cumbersome and poorly publicized. An executive summary of the GEM study is available from the study's sponsor, the Kauffman Center for Entrepreneurial Research, at http://www.entreworld.org.

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The Los Angeles Business Development Corp. Consortium--the lending arm of the Valley Economic Development Center--has received an award from Housing and Urban Development Secretary Andrew Cuomo for micro-lending efforts in minority communities.

The "Best Practices" award was granted in part for the organization's role finding and underwriting loans for the federally funded Los Angeles Community Development Bank, which has faced criticism on some of its other programs.

The consortium closed 32 loans in its first two years of existence, said Roberto Barragan, the center's vice president of lending.

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