Bryan Caplan  

Mmm... Immigration Doughnuts

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Before blogging, there were listservs. I ran one for Armchair Economists. (Technically, it's still up, but competition from blogging has all but killed it. That's Creative Destruction for you...) One of our liveliest debates revolved around the doughnut industry. In D.C. and New Jersey, big chains and stale doughnuts predominate. In L.A., independent shops with fresh doughnuts are the rule. What gives?

After learning a bit about the industry, I advanced a simple explanation: Los Angeles has Cambodian immigrants to thank for its happy situation. There are lots of Cambodians in L.A., and they've developed an amazing and self-sustaining network of doughnut entrepreneurship. In D.C. and New Jersey, there aren't many Cambodians, and for whatever reason, no other group of immigrants has what it takes to fill their shoes. That was my story, anyway.

Years later, the Los Angeles Daily News has vindicated my hypothesis:

Independent doughnut sellers in the Valley are so good at streamlining that they have kept the chains from invading.

Krispy Kreme shuttered half its stores in Southern California after the buzz about its hot doughnuts cooled off. Dunkin' Donuts doesn't have a single shop in the Valley and isn't looking to expand in the Golden State, according to its Web site.

Winchell's, the largest West Coast chain, has just 17 of the roughly 400 doughnut shops in the Valley.

"The small independent doughnut shop operators are able to run a lower overhead," said Lincoln Watase, president of Yum Yum Donut Shops, which owns Winchell's. The mom and pop stores don't have to pay managers, administrators and other support staffers like the chains do.

The article then reveals the Cambodian roots of this distinctive market structure:

Cambodians created a niche business out of doughnuts beginning with a La Habra store in 1977, according to James Allen and Eugene Turner in "The Ethnic Quilt."

"The business was successful, relatives trained with the owner and opened their own shops, and word of these opportunities spread widely within the community," the authors write.

But nobody eats doughnuts in Cambodia. The shops are just about economic survival, according to Allen and Turner. Not much English is required to run one, and loans through the Cambodian community made it possible for immigrants to open their own shops.

It's easy to give immigrants the credit for the explosion of ethnic dining. But it takes more insight to notice the role of immigrants in less exotic industries. In fact, I doubt I'd have to linger in an L.A. doughnut shop for long to overhear an elderly customer denounce the unmitigated evils of immigration while devouring a delicious Cambodian-made cruller.


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TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/618
The author at Cold Spring Shops in a related article titled GRIPING ABOUT UNFAIR COMPETITION? writes:
    At Econ Log, Bryan Caplan notes a Pareto-improvement from illegal immigration. [Tracked on December 22, 2006 11:44 PM]
COMMENTS (17 to date)
Jody writes:

I, too, enjoy fresh donuts, particularly the glaze-still-melting Krispy Kreme donuts that are all over the south.

Adam writes:
In fact, I doubt I'd have to linger in an L.A. doughnut shop for long to overhear an elderly customer denounce the unmitigated evils of immigration while devouring a delicious Cambodian-made cruller.

While some people may have this type of view point for all immigration; I fear general statements like these hide from the true issue with immigration. Most of the immigration discussion these days is about illegal immigration. These appears to be the classic "give me your huddled masses" legal immigration.

It is interesting though that seemingly only Cambodians enter this industry.

spencer writes:

in the Boston area the donut industry is dominated by the Dunkin Donut franchise business.

In turn, the majority of franchise owners are Portugese immigrants.

Buzzcut writes:

In Chicago, Dunkin Donuts are run by Indians. What's up with that?

What is interesting is when "ethnic" resteraunts are run by the "wrong" ethnicity. Mexicans running pizza joints come to mind. Actually, the kitchens of most restaraunts are staffed by Mexicans, no matter what the ethnicity. They have gotten themselves quite a nitch.

Matt writes:

Out east lots of Greeks run Italian restaurants. In high school we sent the Japanese exchange student to the Little Tokyo in the food court and he came back a bit perturbed and said, "They're Korean!".
What about the mini-explosion in Thai food? How many Thais are running the places.

superdestoyer writes:

I wonder how many of the "immigrate" run stores also keep the overhead lover by massively cheating on their taxes? I wonder if their sales taxes match their financial success or their wholesale purchases? I wonder how many of them claim to have no employees other than the owner to avoid payroll taxes? I wonder how many of the operators do not have bank accounts in order to avoid embarassing financial records? I wonder how many of them actual have the appropriate business permits? I wonder how many of them find the health codes too expensive to comply with?

Doug writes:

I guess this helps explain the strange and unbreakable link that connects donuts to Chinese food in Los Angeles.

Mark Seecof writes:

Superdestroyer, a family-run (e.g., Cambodian) doughnut store does have a regulatory advantage: it needn't pay minimum wage (or any wage, actually) to family members working in the store. No wages means no payroll taxes (or unemployment, or SDI), either. But such stores do have to collect and remit sales taxes, pay income taxes on profits, pay property tax through their landlords, get business licenses and health-department permits, and pass health inspections. All of those things are enforced by nosy and brutal local and state tax collectors with statutory powers to pry into everything. To my certain knowlege, some health inspectors demand bribes, and will overlook some minor violations after collecting their unlawful exactions. However, doughnut shops are rarely profitable enough to pay any kind of tax collector or health inspector a bribe big enough to blind him to serious tax evasion or code violations.

superdestroyer writes:

Mark,

Thanks for the response. In my neighborhood the only houses that have burglar alarms are those Asian-American families that own private business. I have always assumed it is due to working with large sums of cash. I have always believed that if your business involves cash there is probably some skimming/cheating going on.

While working at a mom and pop store, I learned many ways that they cheat on taxes to include writing off personal expenses as business deductions (like automobie expenses), underreporting sales involving cash, and skimping on regulatory compliance issues.

I would also believe that it is easier to cheat when everything is inside the family.

Mr. Econotarian writes:

That great Burmese place, The Mandalay Restaurant, which is now in Silver Spring, MD, was a part-time doughnut shop when it first started in College Park, MD. Evidently Burmese food was more profitable than doughnuts.

Steve Sailer writes:

I'm sorry, but this is actually a pretty sad story of immigrant failure. Due to Cambodian immigration, health, dieting, and fad crazy LA has a huge oversupply of generic donut shops purveying fattening and non-innovative products. The way to get rich in LA, in contrast, is to come up with a novelty product, like Pinkberry yogurt, that appeals to Westside hipsters in the entertainment industry. This, the Cambodians have failed to do in three decades, so they are barely scraping by, living 8 or 10 to a house, and surviving financially by cheating on their taxes.

Mr. Caplan:

In keeping with the theme of your enjoyable post, I'd like to tell you about a new group I'm forming to advocate for immigrants rights. In order to help Cambodia, we're going to encourage the importation of as many 8 to 12 year-old Cambodian workers to help the L.A. garment industry. It will be a win-win! These young workers will receive much more (almost twice!) they would receive in their home countries, plus our own U.S. apparel industry will profit, profit, profit! No longer will we be forced to export items to be sewed in youth labor centers in Central America, but those jobs will stay right here in America.

Now, of course, some nativists and xenophobes will object to the massive importation of such labor. But, I urge them to look within their hearts, think of the children, and help these poor Cambodians.

Bonus: an earlier group I created along the same lines at the link.

asg writes:

And Winchell's sells better donuts than any donut chain on the east coast. It must be the competition.

editor writes:

very paithfull problem. I think now discussions goes about illegal immigrants. Other immigrants takes benefit to country- they commonly have good education, so they can be useful for country.

Snark writes:
But nobody eats doughnuts in Cambodia.

I didn't realize Cambodia was a non-police state.

Liberty Lover writes:

I first read about this phenomenon The Future and its Enemies.

Katie writes:

Trying DC's newest doughnut shop might change your mind about East Coast doughnuts.

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