Dean Barber

O Ye of Little Faith

In Uncategorized on December 9, 2012 at 6:59 am

We all have our moments of doubt. That is not necessarily a bad thing, certainly not for the profession of economic development.

Questioning your beliefs, deliberating on your doubts, may actually strengthen your faith that you might be doing something good. Then again, you may come to the conclusion: “Who the heck am I fooling,” and go off and do something productive like selling insurance. (Hey, some of my best friends are insurance agents.)

But speaking as a former ED practitioner (as I am now an infidel consultant), I think we could all use a good bath of introspection on occasion. It does the soul good to question what you do and the outcomes that may follow.

So often, economic developers will don the mantle of outrage if an outsider dares suggest that what we do may not really matter in the big picture or that some of our fundamental beliefs might actually be flawed.  Usually, but not always, it is the press asking these disturbing questions about what we do and why we did it.

But in our quiet moments, when the door is closed and we are all alone at our desk, I think most of us have at least on one occasion wondered about the value of a deal that we may have played a key role in. I know I have. And sometimes those questions will never be fully answered to your liking.

This past week the New York Times published a series of stories about economic development and the practice of awarding incentives. This is an old story that will never go away and it probably shouldn’t.

If the point of the Times’ stories was to suggest that some economic developers will too often award incentives without doing proper due diligence, such as an in-depth cost-benefit analysis, well then, there’s probably some truth to that. But you, as practitioners, can always fix that.

You can do the dang cost benefit analyses or have a third party do it for you (probably the better idea for reasons of credibility) and hush any possible critics of your deal if the numbers show that is indeed worthy. And maybe you can then put your head on your pillow and sleep, knowing that you did right.

On the other hand, if your cost-benefit analysis shows the numbers don’t work, you need to know that dog won’t hunt and act accordingly.

In conversations this past week with my friend Adam Bruns, managing editor of Site Selection magazine, he called to my attention that nowhere in the Times stories did he see the word “clawback.”  Not to be found at Red Lobster, these are provisions that should be included in a contract between a community and a company, serving as an incentives/investment tradeoff.

It’s really not a very complicated idea, although some consultants will try to make it so, citing all sorts of vague and nefarious terminology. Company A says it is going to invest  X amount of dollars in your community, creating Y amount of jobs over the Z years, but only if you give them free land, tax abatements and credits, a cash grant, free worker training, cookies and ice cream.

You write up a contact, after doing your due diligence to determine the economic impact, saying essentially this: Ok, Company A, we will give you this, this and this, but in return, you have got to give us this, this and this, including creating Y amount of jobs over the next Z years. Now if you do not or cannot fulfill your end of the bargain, please understand that we may have to come back for our cookies and ice cream as a fiduciary responsibility to the taxpayer.

If a company is offended by such clawback provisions, well, they shouldn’t be. And I would advise them as such as their site selection consultant. Assuming that your cost-benefit analysis shows the incentives being offered is worth the investment being dangled in front of the community (that the math indeed works for both sides), then we should be able to sit down and negotiate an arrangement in an amicable way.

Neither side will get all they want, but both sides can leave the table believing that they got enough of what they needed. Now if only the Democrats and Republicans in Washington could find such an adult middle ground and prevent us from hurling over the fiscal cliff.

Manufacturing Matters

Not long ago, some writer at Forbes magazine opined that anyone who longs for a resurgence of manufacturing is conjuring up romantic notions on the way things used to be. Manufacturing, she said, was no longer of great importance to our nation’s future economic destiny, but a thing of the past.

Well, I will admit to having some romantic notions in reference to my father, a metallurgical engineer and a foundry man of some repute. But I am also a realist. The good old days are dead and gone. By the very nature of what  manufacturing is today and is becoming, we know that it is highly unlikely that manufacturing jobs will be returning in a huge impactful way.

But manufacturing will continue to play an incredibly important role in our country, and there may be some continued job growth as there has been in the past two years. But this is true only if our policy makers allow it. The indications are that the politicians on both sides of the aisle finally get it and will do no further harm, although they will unlikely take the needed tax policy measures to put manufacturing on a better footing.

This past week, I co-authored an article on manufacturing for Site Selection magazine, entitled The Return. Now if you don’t read it, that can only mean that you do not love your country, apple pie or puppies.  To which I must ask: What’s wrong with you?

Huge News Out of Michigan

Previously, it was the solid South that was comprised of right to work states, and it was the Midwest that was the traditional if not eroding bastion for organized labor. Well, that historical model is falling apart.

In February, Indiana broke the mold by becoming a right to work state in a clear bid by the Gov. Mitch Daniels to improve the perceived business climate of his state, where manufacturing continues to play a huge role.

And now, Michigan is about to follow suit, which I think is rather extraordinary. I had heard rumblings of a right-to-work movement in the western part of the state several years ago, but I never thought it would carry the day. I thought (wrongly) that the emaciated power and influence of the United Auto Workers upon legislators from southeastern Michigan would still be strong enough to effectively block any right to work movement coming to fruition.

For the uninitiated, in a right to work state, workers can opt out of joining a union (and paying dues) even if their workplace votes in favor of a union.  As you can imagine, that threatens the purse strings and the power of unions, and they are dead set against the concept of giving a worker the option of opting out. Never mind that workers in right to work states are still free to organize and create a union if they so choose.

My father, who was always in management in a manufacturing environment, said the only company that gets a union is one that deserves it. I think he was right then and right now.  I believe that if a company pays a decent, competitive wage, communicates and treats its people with respect, the chances of that company getting a union is pretty remote. That holds true in Alabama, a right to work state, and Ohio, which is not.

Still, I have had more than a few companies tell me during the site selection process that they want their future plant to operate in right-to-work states. Undoubtedly, they believe that they are at risk of getting an unwanted union. I think that is more perception than reality, but I don’t make a habit of arguing with clients on such matters. If it is right to work they want, it is right to work they will get.

About five years ago, I was in a meeting with Indiana Gov. Mitch Daniels and about a dozen economic developers. At some point, he opened the floor for questions.  As a former newspaper guy, I tend to ask some tough questions, particularly when I want to know the answers.

So I asked the governor about the prospect of Indiana becoming a right to work state. Well, folks, you would have thought that I rolled a hand grenade in the middle of the room. He did not want to go there. He did not want to touch it. He certainly didn’t come close to answering the question.

For what it’s worth, I think Daniels is a really smart guy and an exceptional governor. And I think the news coming out of Michigan is pretty exceptional, too.

Interesting how time changes things.

Dean Barber is the principal of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at dbarber@barberadvisors.com Please visit our website at www.barberadvisors.com

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