Dean Barber

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Trump’s “National Rebuilding”: How Do We Pay for It?

In Corporate Site Selection and Economic Development on March 12, 2017 at 10:45 am

Infrastructure underpins our everyday lives and the economy of the United States.

It goes well beyond roads and bridges, which we commonly think of, but includes drinking water and sewer service, the delivery of electricity, as well as railroads, transit systems, ports and broadband.

Since 1998, the American Society of Civil Engineers has been chronicling the decline of infrastructure category by category. Every four years it publishes a report card to the nation, and the latest assessment, which came out last week, assigned a grade of “D+” to U.S. infrastructure.

This should come as no great surprise as crumbling infrastructure has been making headlines for decades now. And since 1998, the U.S. has yet to score better than a D-plus.

This year’s score matches the country’s 2013 performance, whereas the cost of getting the country’s infrastructure up to speed have only gone up.

A Timely Report

What may make this latest report significant is its timeliness. It comes at the early stages of a new administration in which a president is using his bully pulpit to advocate in favor of a “national rebuilding.”

In his victory speech on election night, President-elect Donald Trump pledged to rebuild “highways, bridges, tunnels, airports, schools, hospitals” to make U.S. infrastructure “second to none.”

In his first address to Congress last month, President Trump invoked Dwight D. Eisenhower in his call for $1 trillion infrastructure spending.

“Another Republican President, Dwight D. Eisenhower, initiated the last truly great national infrastructure program — the building of the interstate highway system. The time has come for a new program of national rebuilding,” he said.

We have few details as of yet on the current administration’s initiative to steer as much as $1 trillion in public and private funds to U.S. infrastructure over the coming years. If it actually happens, it would likely mean a huge sustaining jumpstart to the economy, which last year grew by only by a tepid 1.6 percent.

As many economic developers and business professionals know, infrastructure spending not only creates direct and indirect jobs, but it also amplifies a community’s (and thereby our nation’s) ability to compete in a global economy. In short, we would be in a race with a newer and faster car.

The Bugaboo

But will Trump’s infrastructure plan actually happen? I’m no Washington insider, so I cannot predict with great confidence. The good news is that virtually everyone agrees the nation’s aging infrastructure is in need of fixing.

“President Trump is on to something when he calls for a national rebuilding,” ASCE President Norma Jean Mattei said in presenting the study. “But Congress and the American people have to pay for it.”

And therein lies the bugaboo. There is no agreement within Congress as of yet on how to pay for it, either by raising taxes, turning to private investment, or simply borrowing more money.

ASCE is advocating that the federal gas tax be raised by 25 cents and indexed to inflation. The ASCE notes that the current tax of 18.4 cents per gallon hasn’t been raised since 1993 and so hasn’t kept up with inflation and growing needs.

A Once-In-A-Generation Opportunity

Larry Summers, former Treasury Secretary under Bill Clinton, says the money to pay for an increase in infrastructure spending should be borrowed.

“A moment of unprecedentedly low interest rates should be a moment of unprecedentedly high investment,” Summers told CBS News. “And it’s a tragic irony that it’s a moment of unprecedentedly low investment.”

During the presidential campaign, then candidate Trump floated the idea of issuing billions of dollars in tax credits to private companies to take on these projects themselves. But in his speech before a joint session of Congress, he appeared to back off of that plan, calling for a $1 trillion infrastructure package financed through “both public and private capital.”

Officials with the U.S. Chamber of Commerce and the American Association of State Highway and Transportation Officials testified before the Senate Subcommittee on Transportation last week that there must be more public investment and that existing funding mechanisms to get dollars to states should be used.

“The needs are great, and the resources are limited,’’ said Ed Mortimer, the chamber’s executive director for transportation infrastructure. “This is a once-in-a-generation opportunity to modernize America’s infrastructure.’’

Speed the Process

The administration convened a meeting on March 2 with 15 cabinet members and agency leaders to discuss funding, projects, and possible changes in policy, regulations and statutes to speed the process.

President Trump met last week in the White House with business leaders, including billionaire Elon Musk, to discuss ways to encourage public-private partnerships. From that meeting, The Wall Street Journal reported that Trump is considering a plan that would require states to begin infrastructure projects within 90 days of receiving federal funding.

The president’s plan would pressure states to streamline their local permitting process, emphasize renovation of roads and highways over the construction of new ones and prioritize projects that are ready to quickly begin construction, according to the Journalreport.

“We’re not going to give the money to states unless they can prove that they can be ready, willing and able to start the project,” Trump said during a private meeting with aides and business executives, according to the newspaper.

“We don’t want to give them money if they’re all tied up for seven years with state bureaucracy,” he added.

The National Governors Association provided the White House with a list of 428 priority projects from 49 states and territories on Feb. 8 that it had solicited from the states.

Slow Going for Our Northern Neighbor

Assuming the administration will push forward with an infrastructure plan, there’s probably some things that Trump can learn from our northern neighbor.

Prime Minister Justin Trudeau’s plan to stimulate the Canadian economy and boost long-term growth with an infrastructure spending program has been slow to say the least. Some 17 months after his election win, Trudeau’s government has completed only eight of the 1,274 roads, bridges, and other projects it has approved.

“The hardest lesson to learn from Canada’s experience with infrastructure spending so far is just how long it takes for ‘shovel-ready’ projects to actually break ground,” Frances Donald, senior economist at Manulife Asset Management in Toronto told Bloomberg.

Also during last week’s meeting, Trump asked for more details about Musk’s Hyperloop project that would use small vehicles to transport people and goods through low-pressure tubes at high speeds, the White House said. The president also expressed interest in both new high-speed railroads and auctioning the broadcast spectrum to wireless carriers.

Despite the Tweets

Despite the president’s loose-cannon tweets, often factually wrong and revealing an unflattering side, measures of business and consumer confidence are soaring.

The Consumer Confidence Index is at a 15-year high and in early March, while Gallup’s U.S. Economic Confidence Index, a measure of how Americans rate current economic conditions, rose to the highest level in its nine-year history.  Jobless claims just hit the lowest level in 44 years.

Clearly, a Trump bump is happening, due in part to expectations of a more business-friendly environment under the current administration, which has proposed or endorsed the cutting of corporate taxes, a lessoning of regulations, and infrastructure spending.

Of course, expectations are one thing. Getting things done are another. I’ll be waiting just like you to see if words becomes actions.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com.

Did Trade Kill U.S. Manufacturing Jobs?

In Corporate Site Selection and Economic Development on March 6, 2017 at 12:03 am

Economists have long asserted that free trade with other countries helps everybody, and for decades, politicians in both the Democratic and Republican parties have pretty much toed that line.

But Donald Trump and Bernie Sanders did not. Both predicated much of their presidential campaign rhetoric on the belief that “free trade” was in fact a raw deal for most working-class Americans.

It was a message that resonated with millions and seemed to have caught both parties off guard.

The basic precept for trade, ongoing well before this country became a country, is not that complicated. There are things made in other countries that we want to buy, and there are things made here in the United States that people in other countries want to buy.

But the facts and figures concerning trade and the state of U.S. manufacturing is where it becomes thorny. Divergent views are often based on the ideological predispositions of those interpreting the facts, which should come as no surprise.

I got a kick out of those who were predicting a few years ago a manufacturing “renaissance” for the U.S. powered by technological advances and lower production costs relative to our trading partners. Yes, there have been instances of reshoring, but just as much offshoring has also been occurring.

This much we do know — trade touches everyone’s lives, whether they know it or not. Consumers benefit with lower prices, and a greater variety of goods. Certain companies benefit by realizing greater profits, while highly-educated workers in this country benefit by being more in demand.

A Disruptive Force

Much of the debate over U.S. manufacturing concerns whether the massive and historic manufacturing job losses in the 2000s were because of trade or automation. Most defenders of free trade put the onus of job loss on automation.

But more and more, economists are now starting to realize, albeit slower than many production workers in factories, that trade can be disruptive force to an economy. That aspect was addressed on Friday by Commerce Secretary Wilbur Ross soon after being confirmed.

“We’ll be aggressive on trade because we know that deals that have been made historically have resulted in the great loss of manufacturing jobs, a great amount of closed manufacturing businesses,” the billionaire venture capitalist told CNBC. “We don’t want that to continue.”

A report  last month from the Information Technology and Innovation Foundation (ITIF) found that despite the prevailing narrative that automation was the main culprit behind the loss of more than 5 million manufacturing jobs from 2000 to 2010, trade pressure and faltering U.S. competitiveness were in fact responsible for more than half of those job losses.

The China Effect

Will Kimball and Robert Scott with the Economic Policy Institute estimated in a 2014 report that 55 percent of manufacturing job losses between 2001 and 2013, 2.4 million, were due to the rising trade deficit with China.  ITIF has estimated that 67 percent of the manufacturing jobs that disappeared in the 2000s have been due to trade, which includes the China effect.

That coincides closely with the findings of a 2013 paper by David H. Autor, an economist with the Massachusetts Institute of Technology (MIT), who found that Chinese import competition accounted for 55 percent of the loss of U.S. manufacturing jobs between 2000 and 2007.

To be sure, the automation of manufacturing processes contributed to the job losses, but with China displacing the U.S. as the largest manufacturing nation in 2010 and becoming the world’s dominant export power, U.S. manufacturing workers were hit more quickly.

Winners and Losers

“Trade almost necessarily grows the size of the economic pie, but it also changes the size of different slices. It’s quite possible for trade to increase the size of the pie by a few percent, and yet shrink some slices by 20 to 30 percent,” Autor said in an interview with The Washington Post last month.

“Because we’re a high-skill nation, when we trade with the rest of the world, we increase our production of skill-intensive products. So trade tends to increase the earnings of highly educated and skilled workers, and decrease the earnings and employment opportunities for less educated and less skilled workers.”

The fact that there are winners and losers from trade may make imminent sense, although U.S. policymakers have historically seemed to turn a blind eye.

Like a Bomb

In reality, we have seen in most visible and gut-wrenching terms that trade can dramatically reduce the livelihoods of a subset of people.

“One reason is that manufacturing is geographically concentrated, so when a sector starts to go into decline, everyone in a region loses their job simultaneously, just like what happened with coal mining,” said Autor. “It’s like a small bomb going off in your downtown.”

And while we know that the digitization of manufacturing is now underway, requiring a higher level of skills from workers, we also know that manufacturing historically has been a sort of refuge, offering high-paid work for millions of relatively less-educated workers. They earn more per hour and are generally not going to find equally good jobs.

The Missing Men

During this current disruptive period as the labor market has become more skill intensive, women have been more adaptive than men.

“No one spends a lot of time shedding tears about the loss of all those great clerical jobs, but it is the case that clerical jobs have dramatically contracted. Women have moved on and up,” Autor said.

“Whereas for men in manufacturing, there has not been nearly as strong of an educational response. When men are displaced from manufacturing, they tend to move into lower paid jobs, or just move out of the labor market. So they really are losing something they’re not going to replace in any short-term way.”

I touched on this phenomenon in a past blog entitled The Missing Men.  Consider that more than a fifth of American men — about 20 million — between 20 and 65 had no paid work last year.

Autor and a growing number of economists are now concluding that the shock of China’s entry into global manufacturing was unprecedented in the disruption it created for U.S. communities. It created much more hardship than anyone could have predicted.

Things We Can Do

So what is the answer? Putting the genie back in the bottle and expecting to get back a lot of labor-intensive manufacturing is highly unlikely, because relative to the much of the world, the U.S. remains a high-wage country.

Still, U.S. manufacturing costs are lower than in Germany, Japan, and the United Kingdom, and are almost on par with Korea. That said, U.S. companies pay among the highest effective corporate taxes in the industrialized world. That can be fixed as I advocated in my past blog, The Big Business Story to Come.

And the U.S. can aggressively enforce existing trade agreements and negotiate new ones. We can and should turn to the World Trade Organization when other countries engage in dumping, flooding the market with their products and bankrupting their competitors.

The ITIF recommends the Trump administration needs to expand, not eliminate, funding for programs like the Manufacturing Extension Partnership program at the National Institute of Standards and Technology, the Manufacturing USA program, the newly enacted Manufacturing Universities program, the Ex-Im Bank, and skills-training programs for manufacturing workers.

While manufacturing may never be the mass employer it once was, it remains incredibly important to our country because so many of our great ideas come from making new products. As such, much of our wealth is drawn from innovation rooted in manufacturing. May it remain so.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

A Promise Worth Keeping

In Corporate Site Selection and Economic Development on February 19, 2017 at 12:46 am

It was mid-May 2014 when the Texans came calling. Being the good host, David Tran, founder of Huy Fong Foods, the maker of the famous red hot sauce Sriracha, had the Lone Star State flag flying outside his plant in Irwindale, Calif.

The Texas state officials were upbeat. Only two weeks earlier, Toyota had announced that it was moving its North American headquarters from Torrance, Calif., to the Dallas suburb of Plano.

But a deal with Tran to move operations to Texas never happened, chiefly because Texas is not so good for growing the chili peppers needed for making Sriracha.

But what I found most interesting about this story was David Tran.

A former major in the army of South Vietnam, Tran fled Vietnam with the communist takeover. He was one of the “boat people,” arriving in the United States in 1980 following the Vietnam War. The same year, he began his hot sauce business on Spring Street in Los Angeles.

Rightly Named

Tran named his company after the Taiwanese freighter, the “Huey Fong”, that carried him and and 3,317 other refugees out of Vietnam. “Huey Fong” literally means “gathering prosperity.”

That is so right. When I think of immigrants coming to America, the Pilgrims on the Mayflower and later the 12 million souls who came through Ellis Island, I think of this gathering prosperity. It is foundational to why we exist as a country and who we are as a people. It’s what makes America exceptional.

It’s hard to overstate the contribution immigrants like Tran have made to the U.S. The Kauffman Foundation’s 2016 Index of Startup Activity finds that immigrant entrepreneurs account for 27.5 percent of all new entrepreneurs in America, and that is despite the fact that immigrants account for less than 15 percent of the U.S. population.

If you think about it, the act of migration, leaving your home country for another, is fraught with all sorts of risk, as is the act of starting a business. To do both, well, that takes real courage.

Iconic American Companies

And yet many studies show that immigrants are nearly twice as likely as native-born Americans to launch new businesses. Some of those businesses have become very, very big. Google, Intel, Yahoo, AT&T, and Goldman Sachs, iconic American companies that employ millions, were all founded by foreign entrepreneurs.

Indeed, immigrants have started more than half of America’s startup companies valued at $1 billion dollars or more and are key members of management or product development teams in over 70 percent of these companies, according to National Foundation for American Policy. The NFAP research finds that among the billion dollar startup companies, immigrant founders have created an average of 760 jobs per company in the U.S.

With that in mind, it is not surprising that the U.S. has awarded more patents to immigrants in the last decade than any other country.

A 2016 report from the Partnership for a New American Economy found more than 40 percent of Fortune 500 companies were founded by immigrants or their children. (Apple Founder Steve Job’s father came to this country from Syria.) Those firms generated more than $4.8 trillion in revenue in 2014 and employed 18.9 million people globally. Other Partnership findings:

  • The U.S. is currently home to more than 2.9 million foreign-born entrepreneurs, a group whose companies generated $65.5 billion in business income in 2014 alone.
  • Businesses owned by immigrants employed more than 5.9 million workers in 2007.
  • In 2014, 19.1 percent of immigrants from the Middle East and North Africa were entrepreneurs. Similarly, 11.1 percent of foreign-born Hispanics were self-employed, as were 10.6 percent of Asian immigrants. The rate of entrepreneurship among working Americans was 9.5 percent that year.

Not Just in Big Cities

If you think immigrants are making their mark only in the big cities of America, you would be wrong.

New American Economy, EngageNWA, and the Winthrop Rockefeller Foundation released a study in November 2016 showing that the foreign-born population has been a huge economic boon for Northwest Arkansas.

Among the findings, immigrants contributed $3.1 billion to the region’s GDP in 2014, and held $1 billion in spending power. They also accounted for 42 percent of the region’s population growth between 2009 and 2014.

I first learned of the contributions of immigrants in Northwest Arkansas during a visit to the region last year. My friend Mike Harvey, Chief Operating Officer/Executive Director of the Northwest Arkansas Council, told me as much. Being that I consider Mike one of the best economic developers in the country, I believe what he tells me, more so than any study.

But I’ve also seen it firsthand. I have met immigrants in small towns and in rural places throughout America. Some are store merchants, while others are doing low-skilled, often strenuous “dirty” jobs that many Americans don’t want, such as working on farms and in meatpacking plants.

In Them, I Trust

Whether they are motivated entrepreneurs, high-skilled technicians or low-skilled field workers, I have found most immigrants to be good, hardworking folks seeking the American Dream. Generally speaking, they try harder.

To some degree, I trust my well being to them. My family doctor is of Chinese extraction, my dentist is from South Korea, and my optometrist is from Iran. (He says “Persia,” which is fine by me.) The woman who cuts my hair is from Mexico, demonstrating great patience as I practice (inflict) my poor Spanish upon her.

Overall, immigrants have a higher employment rate than people born in America. Those who have been in the U.S. for 20 or more years also have higher median household incomes than people born in America.

As you can probably tell, I am quite bullish on immigrants. I believe the benefits they offer to our country far outweigh the costs. Indeed, a study of greater Cleveland would affirm this. It found that while $4.8 million was spent on refugee services in 2012, spending by refugees, refugee-owned businesses, and refugee service organizations boosted the local economy by $48 million, creating 650 jobs and providing $2.7 million in tax revenues to local and state governments.

Let’s Not Overreact

Having said all that, I absolutely recognize the need for enforced borders and screening. But we don’t want to cut off our nose to spite our face. We don’t need to overreact and send a message to world that immigrants are not welcomed here. That’s the last thing we need to do.

I believe we must preserve our historical immigration policy to invite the world’s smartest and most innovative minds to come, learn, and do business in the country. My fear is that we are revoking that invitation.

It would appear that the Trump administration not only seeks a travel ban from seven Muslim-majority countries, but also to suspend our country’s entire refugee program. Whatever form a rewritten executive order takes to pass judicial muster, the intent and result will be to tighten quotas, impose heavy limitations on foreign students, and enact measures that will certainly impact our tech industry’s ability to attract and keep talent.

Tech Companies Considering Options

Already, some tech companies are now considering whether to move jobs out of the U.S. to places with more relaxed immigration policies, such as Canada, which have made clear they would welcome an influx of U.S.-based immigrant technology workers.

“One of the sad ironies of this is that an administration that purports to understand business is threatening one of the core pillars of what has made Silicon Valley so successful and an engine of economic growth,” Matt Mahan, chief executive of the social networking start-up Brigade, told The Washington Post.

There are some policy areas where I think the Trump administration is on the right track in improving the business climate of this country. Reducing burdensome regulations is one (See my earlier blog Business Regulation and the Cost of Regulation) and reducing corporate taxes is another. (See my blog The Big Business Story to Come.)

These are policy changes that would have huge ramifications for the private sector, spurring growth and the creation of jobs.

But I cannot support measures that would have a chilling effect on legal immigration. It not only reinforces wrongheaded nativist ideas and bigotry, but it would cost our country economically.

A Promise Worth Keeping

We have studied the immigration question for decades and have rightly concluded that immigrants are a net win for the U.S. economy, jobs, and wages. They have proven themselves as workers, entrepreneurs, innovators, taxpayers, consumers, and investors.

Back in 2005, 500 economists (including five Nobel laureates) wrote a letter to President George W. Bush and Congress, stating this to be true.

The letter begins with these words: “People from around the world have been drawn to America for its promise of freedom and opportunity.”

Let us keep our promise. It makes all Americans better off.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

The Jobs Will Change and So Will We

In Corporate Site Selection and Economic Development on February 12, 2017 at 8:09 am

In this blog and in my talks around the country, I frequently harp on my belief that we are only in the early stages of a new digital machine age that will transform our lives and our entire notion of work.

To communities, to which I provide economic development consulting, I would advise that you embrace and, indeed, become the future. It is the safest bet to relevancy.

To companies, to which I provide site selection/location analysis consulting, I would advise that you look to those communities that are becoming the future. They are the safest bets from which to operate.

And what is this future? To some degree, it is already here — robots and computers performing a range of routine physical work activities better and more cheaply than humans.

But it will not stop there. The machines will become increasingly capable of accomplishing activities once considered too difficult to automate, such as making tacit judgments, sensing emotion, or even driving.

In short, this new digital machine age of robotics, artificial intelligence, and machine learning will change the daily lives of everyone.

Already Here

We know it to be big because it already has been.  Automation has enabled manufacturers to make more than ever before, at a much lower cost. U.S. factories now manufacture twice as much as they did in 1984, with one-third fewer workers, according to the Federal Reserve.

I was somewhat amused this past week when I read a professor’s remarks on LinkedIn, apparently lamenting that automation was being employed by companies to “save a few dollars.”

No doubt, the concept of efficiently competing in a world marketplace escapes him. A human welder may earn $25 an hour, a robot welder costs around $8 an hour over a five-year period, according to estimates from the Boston Consulting Group. BCG says the cost could fall to $2 an hour in the next 15 years.

Does that make it morally wrong for a company to use welding robots? Apparently so, according to this professor, who believes it is a primary duty for industry to employ as many people as it can. But that is not reality.

Fewer Jobs Required

The decades-long decline of U.S. manufacturing employment (plunging from 18.9 million jobs in 1980 to 12.3 million today) and the highly automated nature of the manufacturing sector would indicate that the “job intensity” of U.S. manufacturing will continue to decline over the long term as digital technologies advance.

“In 1980 it took 25 jobs to generate $1 million in manufacturing output in the U.S. Today it takes five jobs,” wrote Mark Muro, a senior fellow at the Brookings Institution.

Automation improves productivity, reduces errors, and improves quality and speed, all of which is very good if you own the factory. If you are a worker in that plant, well, your job could be at risk.

Jobs Will Change

The good news is that only 5 percent of all occupations are at risk of being entirely automated, according to a new report from the McKinsey Global Institute.

Rather than disappearing, the report’s authors say, jobs will change dramatically, forcing workers to adapt. (I would add companies and communities, too.) McKinsey’s analysis of 800 occupations and 2,000 job tasks predicts that half of workers’ current tasks could be automated by the year 2055 using technology that currently exists.

Those changes won’t lead to mass unemployment—instead, the authors say, automation could increase global productivity by 0.8% to 1.4% annually over the next 50 years.

“As processes are transformed by the automation of individual activities, people will perform activities that complement the work that machines do, and vice versa,” researchers from the McKinsey Global Institute wrote in their report, titled” A future that works: Automation, employment, and productivity.”

Tasks, Not Occupations

The McKinsey analysts take a somewhat optimistic, half-glass-full,   approach. They contend that any forecast regarding automation, robotics or artificial intelligence should look not at individual occupations but rather at the tasks that comprise those jobs.

“Given currently demonstrated technologies, very few occupations—less than 5 percent—are candidates for full automation. However, almost every occupation has partial automation potential, as a proportion of its activities could be automated,” the McKinsey analysts wrote.

“We estimate that about half of all the activities people are paid to do in the world’s workforce could potentially be automated by adapting currently demonstrated technologies. That amounts to almost $16 trillion in wages.”

Not surprisingly, the tasks most susceptible to automation are physical ones in highly structured and predictable environments, as well as data collection and processing. They make up 51 percent of activities in the economy, accounting for almost $2.7 trillion in wages, according the McKinsey, and are most prevalent in manufacturing, accommodation and food service, and retail trade.

“And it’s not just low-skill, low-wage work that could be automated; middle-skill and high-paying, high-skill occupations, too, have a degree of automation potential. As processes are transformed by the automation of individual activities, people will perform activities that complement the work that machines do, and vice versa,” the analysts wrote.

The Rise of Trump

The McKinsey report states that most workers displaced by automation will find alternative employment. But what will that alternative employment look like?

Millions of people lost their manufacturing jobs that paid $25 per hour plus health and retirement benefits, only to find service-sector jobs paying $12 an hour without benefits. I believe that battering of the middle class led to the rise of Donald Trump and his brand of populism.

Prior to the election, I was talking at length to Trump supporters in our country’s interior and sensed an upset in the making. Most were working-class white people who felt abandoned, irrelevant, and, yes, angry. I reported as much in two blogs, one before the election, and one written four days after, “Confessions from Red Country.”

Candidate and now President Trump speaks of the “carnage” done to the working class, but it will be highly unlikely that he will be able to change the dynamic of digitization in manufacturing and the resulting need for less people. I’m afraid that train has left the station.

McKinsey reports that companies on average are less than 40 percent digitized, including everything from deployments of digital tools in their supply chains to customer-facing products and services. And with that will come opportunities, despite the hysterical articles out there that robots are coming for your jobs and will eat you, too.

I’ve Changed My Tune a Bit

When I first started talking about the digitization of manufacturing five years ago, some people looked at me askance. I probably overreached, suggesting the robots were going to eat us.

Today, I’ve changed my tune a bit. I still believe the advance of digital technologies will be transformative, and the efficiencies created by those technologies will mean fewer people will be needed in certain sectors, including manufacturing.

But now I am coming around to the belief that automation and artificial intelligence can and will be a boon to those who adapt and embrace it. And that includes people, companies and communities. The jobs will change, and so will we.

Many of the jobs that we will be doing in 10 and 20 years from now do not currently exist. We can only imagine what they will be. But they will be. And that is what gives me solace.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

Business Climate and the Cost of Regulation

In Corporate Site Selection and Economic Development on February 5, 2017 at 6:35 am

It is a treacherous thing, this ranking of states by business climate. By and large, I put little stock into it, although I recently congratulated some economic developers from Utah for a No. 1 ranking by a magazine.

Heck, I am not above trying to be nice on occasion.

If you haven’t noticed, business climate rankings have become somewhat of a cottage industry. I don’t know how many there are any more. The truth is they are inherently flawed and even misleading, because they use different approaches and thereby come up with widely different results.

George Mason’s Mercatus Center ranked Alaska’s business climate No. 1, while both CNBC and the Tax Foundation put it 47th. CNBC ranked Minnesota first, but the Tax Foundation ranked it 47th. George Mason ranked Ohio seventh, while the Tax Foundation listed it at 44th.

In an attempt to make some sense of all this, Dick Heupel, director at the Center for Community Economic Development at Ball State University, a smart fellow despite being an academic, developed an average index of state business climate rankings. Helping him was an undergraduate student, Rosemary Kaiser.

Now I have not studied the report at great length, but he nailed it when he wrote this:

“What is clear is that little sense can be made of state business climate rankings from any single source, except to cite one when it supports a state’s good image and ignore it when it does not.”

Good job, professor.

Why Business Climate Matters

Business climate is important to companies because it affects their bottom line. For that reason, it is a key consideration to the corporate site selection process (finding a new location from which to operate) and should be of prime interest to economic developers who are charged with growing businesses in their communities.

Business climate can best be thought of as the general economic environment of a place. Much of it boils down to the attitude of government officials have toward business activity and the tax and regulatory policies they put in place. Leave it to say, not all places are created equal in that regard.

There’s an old saying, “God made man and Samuel Colt made them equal.” My consultant spin: “People made government and lawyers  made a killing.”

Way to Go, Joe

We know that government can and often does foul the business climate of a place by enacting burdensome taxes and regulations. Thankfully, government can also reverse policies and undo the damage done. We have elections for that, but some places just seem to stay stuck.

My friend, Joe Vranich, a fellow site selection consultant based in Irvine, California, has made it his calling of documenting and reporting the size and scope of companies leaving California for other states.

Vranich, the principal of Spectrum Location Solutions, concluded in a study that 9,000 companies left the Golden State — either completely or in part — between 2008 and 2015 – due in large part to the tax and regulatory climate there.

I even got in on the act and wrote two back-to-back blogs (probably overreach on my part) back in 2014 on the subject, Escape from California and This Ain’t Rocket Surgery.

In a guest editorial in a California business publication last week, Vranich wrote, “As a consultant who helps companies find business-friendly locations in which to locate, I encourage clients to keep a low profile. Otherwise, they will be hammered without mercy from an uninformed public and sometimes from public officials who know little about what it takes to run a business.”

Joe has been roundly criticized for his work and ignored by state lawmakers, too. Still, I think he deserves great credit. Way to go, Joe.

Trump’s Executive Orders   

Also last week, in keeping with what has been a fast and furious pace, President Trump signed executive orders consistent with his long-stated beliefs that overregulation is hampering America’s economic growth and plans for decreasing regulation.

On Friday, the president ordered a review of the laws and regulations that govern the 2010 financial overhaul law, known as Dodd-Frank. The complicated legislation touches nearly every aspect of the way banks operate and includes hundreds of rules, some of which have yet to be implemented.

Trump has described Dodd-Frank as “a disaster,” asserting that it was “almost impossible now to start a small business and it’s virtually impossible to expand your existing business because of regulations.”

On Monday, the president signed a separate executive order requiring federal agencies to cut two existing regulations for every new regulation they implement.

“If there’s a new regulation, they have to knock out two. But it goes far beyond that, we’re cutting regulations massively for small business and for large business,” Trump said during the signing of the order, while surrounded by small-business leaders.

Might There Be Middle Ground?

Not surprisingly, consumer groups and environmentalists have criticized the push to roll back regulations, arguing that it would remove important protections for the public.

I believe many of those protections are important and should remain in place, particularly when it comes to the health and safety. (I want to get on a commercial aircraft that is regularly inspected; I want that doctor poking, prodding and cutting on me to be accredited.)

But I also believe that our business community is hamstrung by overregulation. And I think even some consumer groups and environmentalists might privately even concede that. (I’m always looking for middle ground.)

The U.S. Business Administration implicitly acknowledges the problem with its Office of Advocacy, designed to help “relieve small business of regulatory burdens.” In 2015, the pages of the Federal Register grew by 81,611 pages covering 3,378 final rules and regulations, nearly 600 of which directly impact small businesses.

The Harm and the Cost

So how does too much regulation do harm? There is a cost to compliance, although most of these costs are “hidden.” They will not show up on a company’s books as a regulatory expense. They are the costs of new and misallocated labor, materials purchased, paperwork, and legal costs.

Those costs are disproportionately higher for the 26 million small business owners in this country.

Economists W. Mark Crain and Nicole V. Crain of Lafayette College contend that government regulations create “inefficiencies in the structure of American enterprises;” adversely affecting “the international competitiveness of domestically produced American products and services;” and leading to “the relocation of production facilities to less regulated countries.”

Manufacturers Hit Harder

The National Association of Manufacturers (NAM) in 2014 estimated an annual regulatory cost of $2 trillion. A more recent study, Bentley Coffey, Patrick A. McLaughlin, and Pietro Peretto of the Mercatus Center places the total cost of regulation at $4 trillion each year.

The NAM report that showed the extent to which manufacturers bear a disproportionate share of the regulatory burden, and that burden is heaviest on small manufacturers because their compliance costs are often not affected by economies of scale.

The analysis found that the average U.S. company pays $9,991 per employee per year to comply with federal regulations. The average U.S. manufacturer pays nearly double that amount—$19,564 per employee per year. Small manufacturers, or those with fewer than 50 employees, incur regulatory costs of $34,671 per employee per year.

Government Created Problems

In its Small Business Problems and Priorities Survey and 2016 report, the National Federation of Independent Business (NFIB) found that nine of the top 10 business challenges faced by small businesses are directly associated with government. They are:

“Cost of Health Insurance,” “Unreasonable Government Regulations,” “Federal Taxes on Business Income,” “Uncertainty over Economic Conditions,” “Tax Complexity,” “Uncertainty over Government Actions,” “Frequent Changes in Federal Tax Laws and Rules,” “Property Taxes (real, inventory or personal property),” “State Taxes on Business Income,” and “Locating Qualified Employees.”

“Many Americans are frustrated by the federal government’s failure to solve problems. Small business owners are frustrated by the problems that the federal government creates,” said NFIB President and CEO Juanita Duggan, who met with President Trump in the White House last week.

“All of the top problems for small businesses relate directly to excessive federal regulation and taxation.” (Actually, the 10th, locating qualified employees, did not.)

Not Just the Feds

It should be noted that excessive regulation and taxation is not a problem solely relegated to the federal government, but extends to government on the state and local level. Hence, the business climate rankings of states.

Said NFIB California State Executive Director Tom Scott in a prepared statement, “Compared to the national trend, California paints an even uglier picture for small businesses. Three problems California small business owners rank much higher than those in other areas of the United States are family/sick leave mandates; minimum wage laws; and hiring/firing employment regulations.”

NFIB’s survey might be a bit slanted. The respondents tend to be disproportionately Republican. I get that. Still, this group represents a large constituency that creates jobs. (Small businesses account for 64 percent of the net new private sector jobs.)

Business climate is not only not only a top concern for resident businesses in any given place, but of primary interest to companies when considering new locations. As a site selection consultant, I want to steer companies to those places with better business environments. Read last week’s blog People, Infrastructure and Cost.

Uncertainty Curbs Investment

Taxes, permitting, and regulation all speak to a community’s business climate. And with a U.S. economy that remains sluggish (2 percent GDP growth for how many years now?), companies are naturally cautious, as well they should be.

Adding more regulations only creates more uncertainty. Companies will delay buying capital equipment or adding workers in certain places often because of the onerous regulatory environment of those places. And again, in a corporate site selection search, we want to bypass those places.

My advice to elected officials and economic developers: Don’t be one of those places.

Rather, foster a stable and friendly business climate, with reasonable regulations that are well thought out, one-stop-shop permitting, and lower taxes. Do all that and your community will rank high with me.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

People, Infrastructure and Cost: Key to Community Competitiveness

In Corporate Site Selection and Economic Development on January 29, 2017 at 12:27 pm

Years ago, I knew this man in Alabama who described himself as a “simple cotton farmer.” He was far more than that.

He was successful businessman and the chairman to the local economic development organization. In fact, he was a far better negotiator and salesman that the economic developer of that community.

His town became a finalist for a large manufacturing project, and I will always remember what he told the company executives during our meetings.

“What is important to you is important to us.”

It is a statement that has stuck with me over the years. He said, in effect, we’re listening to you and will do our best to address your concerns.

That is customer service, which should the hallmark and mission of all economic development organizations and really all businesses. Do more than just sell. Listen to your customers. Help them when you can. Be an ally, and apply the Golden Rule.

It seems the idea of customer service is eroding during this time of digital disruption, being viewed in some quarters as “quaint” but not practical. As I mentioned in last week’s blog, I have run across some IT companies that do not publish telephone numbers as they don’t want to be bothered.

Big mistake in my book. But then again, I am not driving a Ferrari in Silicon Valley, so what do I know.

Listen and Ask

What I do know something about is corporate site selection. It is not, nor should it be, a core strength for most companies, which is all the more reason why they should not attempt it on their own. Indeed, it can be a real minefield, with the wrong decision being very costly.

Thankfully, I have surrounded myself and learned from experienced mine detectors. We have come to know, through experience, the different wants and needs of companies. We also know they can differ from company to company.

What is important and required by a manufacturer will differ from that of a data center or a corporate headquarters/back office operation.

The key for me is listening. It also means probing, asking questions, and drilling down to gain a better understanding a company’s operations. As a site selection consultant, I also need to know why a company wants to expand to a new location and the intended ramifications.

A Weighted Ranking

At some point, after extensive discussions with senior management, I must come up with a weighted ranking for site selection criteria based on what I have learned. I will share this with the company, asking for feedback so that we are on the same page.

What is important to them is important to me, so I better dang well get this right.

So what are these site selection criteria? Again, they will differ in their order of importance from project to project, but they will generally fall into three broad categories — people, infrastructure and cost.

Now I am not including quality of life, which often is very important. But I would suggest that quality of life is largely derived from people, infrastructure and cost. I will write about quality of life, which means different things to different people, in a future blog.

Let’s take a very abbreviated look at people, infrastructure and cost and see how we factor in the site selection process.

People

In a nutshell, we are looking for both quality and quantity of the labor market. We’re focusing on the talent pool and the extent of it.

Ultimately, I want to know if a community has the sufficient human resources to staff a prospective operation. I want to see the numbers pertaining to the different skill sets. I also want to see a pipeline for talent for the future.

If there are local high schools and/or community colleges turning out students with vocational skills, I certainly want to know about it, and even go over the curriculum. Frankly, I would be suspect of any community that is not addressing vocational training in a big way.

I also want to see evidence of a close working relationship between the community college, existing industry, and the local economic development groups. In so many places, that partnership simply does not exist.

It should be no surprise that we want to have a good handle on the cost of hiring the talent that we would need, so the prevailing wage rates, based on recent surveys, in a community are important.

Infrastructure & Real Estate

When referring to infrastructure, I’m using a very broad brush. It can include (and typically does) transportation, utilities, and telecommunications. But I will deviate a bit and throw in real estate product (available of buildings and sites).

It’s all the physical stuff that would or could be needed to make a particular business operation a go or no go in a particular place.

For most manufacturers, a good highway system is needed in order to get product efficiently on the road and moving. Some need rail. For a data center, a robust dual system for electrical and broadband is needed. For food processors, we’re looking for excess capacity in water and wastewater treatment.

Finally, a community has to have real estate product. It means available buildings and sites. A company has to go into some physical space. If a community doesn’t have that space, be it a building or a site, it loses out.

Even when a community has real estate product, it may not be the right fit. I know of an industrial park in the Southeast, where the nearest natural gas line is 30 miles away. Leave it to say, that park hasn’t done so well.

One last thing on real estate, we have little or no interest in unimproved raw land. That is not a real site in our book. It could be made into one with the proper investment.

Generally, in terms of infrastructure and real estate, a community either has what we are looking for or it doesn’t. And again, that can change from project to project. Certainly, if there are concrete plans for infrastructure expansion, we want to know about it because that could be game changing.

Cost

On cost, well, the bottom line is that cost affects the bottom line. We want to know the total cost, including the elements of labor, taxes, permitting and regulation.

We want to know utility costs and the cost of real estate. In short, we want to determine the cost of entry what the total continuing costs will be.

Generally speaking, smaller communities, especially those outside of metropolitan areas, are less expensive in terms of the cost of real estate, labor and taxes, but often they may fall short of the needed talent pool or be geographically isolated.

The cost of energy may be very important to a manufacturer or a data center, but not so much for a corporate headquarters or back office operation.

The tax bite is a tangible cost that must be considered. Eighteen states have adopted individual income tax cuts since 2008, and 15 states have reduced corporate income taxes over the same span, but a number of states have raised sales tax rates.

Forty-four states levy a corporate income tax. Rates range from 4 percent in North Carolina to 12 percent in Iowa. The good news is that states have been eliminating or reducing reliance on tangible personal property taxes (generally levied on business property like equipment and fixtures) and that trend will likely continue.

The high property tax burdens in New Jersey, New York, Texas, and Illinois are largely due to the metropolitan centers of New York City, Chicago, and Dallas, where I happen to live.

The cost of construction is something for a company to factor if it intends to build a new facility. It is safe to say that building an office building in Manhattan, Kansas, will be less expensive than Manhattan in New York. Same goes for Philadelphia, Miss., and Philadelphia, Pa. The same goes for leases.

Permitting and the regulatory climate in some places can be a royal pain the petute. (Forgive me for the technical language.) It can appreciably slow down construction in some venues and impact the company speed to market goals.

We all know that time is money. Expedited, one-stop-shop, permitting is always viewed favorably.

Important to Existing Industry, Too.

And it’s not just companies engaged in a site search that are concerned with people, infrastructure and costs. It matters big to existing companies that would consider an expansion or even remaining in a community.

If an existing company is having problems – whether it is finding workers (people), getting faster broadband or a turning lane installed (infrastructure), or is asking for tax or permitting relief (cost), the local economic developer should darn well be aware and doing all he or she can to find solutions.

That is the essence of BR&E. It’s listening to your customers. Helping when you can. And this ties back to business attraction. Believe it or not, I want to see evidence of a serious BR&E program during a site search.

Why? I will answer with a question. Do you think I would advise a company to go to a place where it will be taken for granted and where its future concerns will be largely ignored?

Website Advisor

Last week, I helped two economic development organizations with their websites. I am not in the website building business and never will be. But I can help in terms of what information should be included and how it should be should be presented.

I come across good and bad economic development websites all the time. Where I may differ from many site selection consultants is that I will not eliminate a community for a project simply because it has, and this is another very technical term, a “shitty” website.

I explain my reasoning in a past blog, if you are so interested.

Ideally, an ED website should address the old-three legged stool model of building wealth in any given place – entrepreneurial or business startups; business retention and expansion, and business attraction.

But most websites are slanted more toward business attraction. With that in mind, I think it is smart to emphasize people, infrastructure and costs in a community. They are their own legs of a stool, and economic developers should know them like the back of their hand.

Remember the cotton farmer’s motto, and you’ll do just fine.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber can be reached at dbarber@barberadvisors.com or at 972-890-3733. He is available as a keynote speaker.

Seek and Ye Shall Find: Connecting in a Connected World

In Corporate Site Selection and Economic Development on January 22, 2017 at 7:50 am

Economic development, really all business development, is an exercise in outreach. Making contact is the very foundation of the purpose. With no yin, there’s no yang.

In last week’s blog, I made reference to a three-legged stool approach, which I advocate to all communities, big, small, urban and rural. To recap, I’m talking about business retention and expansion (BR&E), entrepreneurial growth, and business attraction.

All three strategies necessitate business outreach in some form or fashion.  Again, I believe economic development organizations should be doing all three.

One important tool in the toolbox is LinkedIn. Now I am not a happy camper of late with LinkedIn, which I will touch on later, but I nonetheless recognize its value. And apparently so does Microsoft, which bought it last month for $26.4 billion.

Big, Very Big

Consider that as of 2016, 46 percent of the world’s population (3.4 billion people) have been on the internet within the past year. That is over 100 times more people than were using it in 1995.

Now consider LinkedIn, which allows business people to create profiles and “connections” to each other in an online social network designed for real-world professional relationships.

LinkedIn calls itself the “World’s Largest Professional Network,” a lofty claim, but it has more than 467 million accounts, out of which about 106 million are active. That’s big, very big.

I have more than 5,200 contacts and more than 6,100 followers on LinkedIn. It means that virtually every day I am in contact with business people on my network concerning something, most of the time on how I can be of help.

By leveraging LinkedIn, I have had face-to-face meetings with CEOs and senior business executives from across the nation on matters of site selection. I have met with economic developers and elected officials, largely because of this digital connection.

If you are reading this blog now, it is because that you, too, have seen the light and have made the connection.

And yet, I continue to run across economic developers and business people who are either not on LinkedIn or have demonstrated that they have little interest or understanding of it by having few contacts.

It begs the question: If the very essence of your job is business outreach, how can you ignore a tool that more than 100 million business people use?

I’ll be frank, it is hard for me to take an economic developer seriously if he or she is not on LinkedIn in a big way. When I say big, I mean at least 500 contacts.

I recently came across the president of chamber of commerce in a major city in Texas, the principal ED entity, who had one contact.

I saw a vice president, the person in charge of economic development for a prominent electric utility company in the Southeast, with only 54 contacts. His boss, a senior vice president for marketing and business development, is nowhere to be found on LinkedIn. I guess those job titles don’t mean much in that company.

Just this past week, I was exchanging messages on LinkedIn with an economic developer who had more than 500 contacts, but her boss, the president of the ED group, had four contacts. Really?

When They Come

Groups of economic developers periodically come to Dallas to call on site selection consultants, and I am always happy to meet with them if I am in town. I am scheduled to meet with some from Georgia and North Carolina very soon.

Recently, I met with one from California who contacted me through, you guessed it, LinkedIn.

Last year, Tim Feemster, principal of Foremost Quality Logistics, and I met with a group from North Carolina. I noticed beforehand that one group member was not on LinkedIn. When I asked him about it during our breakfast meeting, he said, “I thought I was on it.” He wasn’t, but his answer certainly revealed a lack of interest or understanding.

And you want me to bring you a project? Hmmm.

Last year, an economic developer from Alabama wanted to meet with Tim and I in Dallas. When I saw that he was not on LinkedIn (I always check), I asked Tim if he would cover for me, as I really wasn’t interested. Tim did, because he is nicer than me. Honest.

(During SWOT analyses for communities, we forgo public town hall meetings in favor of behind-closed-doors, not-for-attribution interviews with stakeholders. Sometimes, that entails a good-cop, bad-cop strategy to elicit answers. Now guess which cop you think I am?)

Go to the Light

If a person has fewer than 100 connections on LinkedIn, I have little desire to connect with them, because they have not seen the light. My advice: Go to the light, brothers and sisters. Seek and ye shall find. And I may will connect with thee. (Well, most of the time.)

The light emanates from digital technologies that are constantly changing business models. A Digital Darwinism is at work, to which I frequently write and speak about. As I have said many times, we are in the early stages of a new digital machine age, that will make the Industrial Revolution look like child’s play.

People, organizations and places that adapt, will stay relevant. Those that don’t, well, that’s not so hard to figure out.

Am I Being Unreasonable?

Still, I wonder if I might be judging economic developers and so-called business development people too harshly who do not use LinkedIn. So I reached out to a couple of my colleagues who are site selection consultants to get their take. Oh, by the way, I contacted them via LinkedIn messaging and got their responses with 15 minutes.

One site selector friend, based in the Southeast, wrote back, “LinkedIn is kind of like table stakes. Right now, at least, you need it to be in the game.”

Another, based in the Northeast, said, “I would be very suspect” of an economic developer with little or no presence on LinkedIn.

“One of the key roles of an economic developer – Economic Development 101 -is outreach to businesses, whether that’s to attract new ones or help to retain and grow existing ones. I would think that LinkedIn would be a primary tool used for that outreach and would expect to see hundreds, if not thousands, of connections …”

I should also mention that both of these site selection consultants have more than 500 contacts each, according to their LinkedIn profiles.

The “New and Improved” LinkedIn

Rest assured that I am no shill for LinkedIn. As a matter of fact, I am angry with them right now. The Sunnyvale, Calif.-based company has announced that it will be eliminating tags and notes features associated with contacts come March.

That will hurt me, because I have tagged, that is categorized, my more than 5,000 contacts into specific industry groups, such as aerospace, automotive, IT and the like. I also made reference notes – often including a business email address, a telephone conversation or on having met someone — pertaining to my contacts.

Soon, the so-called new and improved LinkedIn, won’t allow for that. But if you ever tried to actually speak to someone at LinkedIn, don’t bother. This is a company, like so many in Silicon Valley, that doesn’t want to talk to people, even its customers.

Despite all that, I don’t see a better digital alternative right now to LinkedIn for what it does. And again, I (and some fellow site selection consultants) don’t see how an economic developer, whose primary mission is business outreach, can ignore it.

When I pointed that out to the ED project manager who had more than 500 contacts but whose boss had four, she defended him in an admirable manner. She said he was “old school and what he lacks on the technology end he more than makes up for in knowledge and networking/relationship building in person.”

Maybe, Just Maybe

I had to think about that. Being that I am approaching geezerhood (I’m 62), I could relate to a degree. After all, I have my own technological shortcomings. I have not learned GIS mapping but depend on another team member to do that on our projects.

Maybe, just maybe, I am the one who has lost sight, that the old school approach of ignoring digital technologies is the right way after all, that forming face-to-face, honest-to-God relationships with people in order to forge the growth of a community, which in turn becomes a center for commerce, learning, healing, culture and the arts, where everyone enjoys the fruits of having a high household income, and where recreational opportunities abound, and where the natural environment is protected and cherished, and cultural diversity is deemed good, righteous and celebrated, and people love and respect each other and hold that all men and women are created equal and are able to pursue their unalienable rights of life, liberty and the pursuit of happiness.

… Naaaah.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber can be reached at dbarber@barberadvisors.com or at 972-890-3733. He is available as a keynote speaker.

Where There is Hope: Our Plan for a Rural Town

In Corporate Site Selection and Economic Development on January 15, 2017 at 7:30 am

We do not know with certainty how this story will end. Most towns in rural America do not end so much as linger. Some grow. Some shrink. Some die.

Their skeletons are typically found in remote areas, ghost towns, where hope died and the people left. But I believe where there is hope, there are possibilities – that good things can and do happen if concerted action is taken.

We, a team of consultants, were hired by a small rural western town that was facing the prospect of losing its single largest and very dominant employer. In an earlier blog, I called it “A Small Town with a Company on the Hill.”

We knew what we were getting into – that economic development in rural America is and probably always will be a tough row to hoe.

But the more we learned about the community, the more we realized just how important our work would be for its future. That is not to say that we don’t take all such economic development missions as serious undertakings, but this one was of vital importance because of the potential loss of this large dominant employer.

City Slickers Who Listen

After many conversations with city officials, our thinking morphed from “strategic plan” to what we called a “Target Market Strategy Study.” I realize that these are just labels, but it became clear to us what our client wanted and we responded. But with some provisos, which I will touch on.

In short, our charge was to provide hope and direction, and I believe to a large degree that we did that.  And while I was confident in our ultimate findings and recommendations, I was bit apprehensive about what kind of reception we would get during a public meeting of the city council.

We assembled an excellent team for this project. Tim Feemster, principal of Foremost Quality Logistics, served as the project manager and spokesman. The other members were John Hoover and Valerie Battle, of the Modalgistics consulting group within Norfolk-Southern Corporation, and myself.

In comparison to our client, we were big city slickers — John and Valerie from Atlanta, Tim and me from Dallas. And while we frequently work in rural America – both on corporate site search and economic development projects – I felt somewhat self-conscious.

During our presentation at City Hall, I noticed that Tim, John and I were the only people in the room with ties.

Talking SWOT

Tim spoke for hour, with occasional interjections from John and me. Using a PowerPoint to highlight our 140-page report, he explained how we conducted our many behind-closed-doors, not-for-attribution interviews with stakeholders and came to our SWOT findings.

For the uninitiated, SWOT stands for strengths, weaknesses, opportunities and threats. All places, big, small, urban and rural, have them. Even in Heaven there is no beer.

Tim got through the SWOT phase of the presentation, with no jeers or fruit or vegetables being hurled his way from the audience. One city councilman asked a good question, but it was far from hostile. I’m thinking, so far, so good.

Tim then spoke about our freight-flow analysis, which identified and classified physicals products coming in and out of the community, and the demographic profile of the community. Together those elements, in combination with our SWOT, gave us insight in identifying the target industry groups.

Giving Lagniappe

Tim explained how and why we got there with our five identified target industry groups. Thankfully, no crank from the audience jumped up and yelled, “How come you don’t say nothing about ostrich farming and chinchilla furs?” to which Tim would have answered, “Well, sir, that would come under agribusiness, which we have listed.”

After explaining the target industry groups, Tim informed the council that we would be providing what we considered a bonus in our report — the descriptive profiles of more than 200 companies, including addresses, telephone numbers and email addresses of senior executives (about 300 names) within those target industry groups.

We thought of this as lagniappe, that 13th donut. It wasn’t asked for, but we thought it would be helpful to their future business attraction efforts once they hired a new economic development director. The previous one left, seeing the writing on the wall with the big dominant employer and following a significant other to another state, while a prospective candidate reneged on taking the job.

Dance with the One

It was at this point in the presentation, repeated in our report, that we gave an important cautionary note. It is a caveat that is often given scant attention by economic development organizations and elected officials, partially because it does not draw headlines.

And it is this: that existing employers typically create far more jobs than by recruiting new companies to any given place.

In short, it means you dance with the one that brung ya. Never, ever forget your existing industry base, for that is the lifeblood of a community. You can and should do business attraction, but keep in mind that there are 15,000 economic development organizations in this country potentially vying for several hundred new corporate site projects every year.

Those are not great odds. It is far more efficient to concentrate on your existing employers, and try to help solve their problems whenever  possible. Also, it makes imminent sense to create a favorable environment for entrepreneurial growth and business startups.

Growing your own is the best way to achieve job growth in the vast majority of places nationwide. It is a message that I cannot hammer home enough, despite the fact that I am often involved in business attraction on the corporate side by providing site selection services to companies. My teammates feel the same way.

Do All Three

In our PowerPoint, I gave Tim an image of a three-legged stool, which represents separate strategies for successful local economic development – business retention and expansion (BR&E), entrepreneurial growth, and business attraction.

Our recommendation to any community anywhere: Do all three.

Tim ended the presentation at City Hall with our recommendations on going forward. It was obvious to us that the council members and audience respected our findings and recommendations.

After the meeting outside the council chambers, representatives from the local community college officials said they thought we were too tough on them concerning vocational training. Our response, respectful in tone: We are willing to modify our report if you show us case studies, proof that you have done what you say you can do.

Proof in the Pudding

Earlier in the day, when we were out and about in the community (we arrived in the morning and our presentation was at night), we learned that a metal fabricating company had agreed to buy a vacant manufacturing facility, and would begin production there. It would start off small, with 15 employees, but with the plan to ramp up to 100 or more.

Being the sleuths that we are, we learned this from a source when we stopped at the empty building and went inside. We weren’t invited. We just went there.

Of course, we were very happy for the town, but it also vindicated one of our target industry groups. We said metal fabrication made sense for a variety of reasons and this was proof in the pudding.

Love Conquers All

We also learned that the owner/CEO of the fabricating company was standing in line at Starbucks and started asking people what they thought of their town. The answers he received, essentially sealed the deal for him. They loved their town, and he decided that he would, too.

Naturally we would have preferred that this CEO had hired us to be his site selection consultant, and we could have analyzed multiple communities on a whole host of business factors to arrive at recommendations for an optimal location.

But he did it his way, and his way may very well turn out to be a good way. Until the day comes when artificial intelligence supplants CEOs, COOs and CFOs, there always will be an emotional aspect to decision making because we are human. We feel.

We want the very best for this small town in the West where we did our work. Because we feel for them, we will periodically be checking in with them to see how they are doing. Certainly, we want to help that new economic developer when he or she is hired, because we are now emotionally attached to this small rural town in the West.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber can be reached at dbarber@barberadvisors.com or at 972-890-3733. He is available as a keynote speaker.

Digital Darwinism at Work

In Corporate Site Selection and Economic Development on January 9, 2017 at 10:06 am

Admittedly, they are not in not the same industries, but they are both old names in the annals of exceptional American companies.

Sears, Roebuck & Company, founded in 1886, might be in a slow death spiral, while conglomerate General Electric, with roots dating back to 1889, continues to invest in digital transformation in order to adapt and outperform peers.

If this smacks of Digital Darwinism, well, welcome to today, an era where technology and society are evolving faster than some businesses can naturally adapt. This will mean new business models to come, which some companies can pull off and others cannot.

When I speak at conferences, I harp on this to both companies and economic development organizations. You have to embrace digital transformation, not fight it, if you want to remain relevant.

That entails looking beyond the world as you know it, observing how things are changing on the outside, and then changing your own philosophies, models, and systems on the inside in response.

GE has been successful at doing this. Sears not so much.

At GE’s recent 2017 outlook event a few weeks ago, CEO Jeff Immelt was asked how he can get investors to appreciate the company’s new digital transformation and 3-D printing investments. His response: It “makes a shitload more sense than Six Sigma did.”

Indeed.

The Trip

A few months ago, I was an old port city on the Ohio River. The reminders of the old industrial revolution were evident, but surprisingly, it was here where I encountered a small digital company, a defense contractor, doing some seemingly out-of-this world stuff.

And when I say out of this world, I mean it. Because when I put on a virtual reality headset, I took a trip and didn’t leave the farm.

Besides being safer than psychedelic drugs, which I do not advocate, what would be the practical use for virtual reality? Certainly, I do not have all the answers, and it is safe to say that virtual reality (VR) technologies are still lagging behind the visions that people have for their use.

The Possibilities

But I can foresee the day when it will be commonplace in real estate, construction, economic development and site selection.

Donning headsets in a client company’s office in Chicago or New York, a senior executive and I can tour spec buildings in the Southeast or the Southwest. Nice high ceilings, don’t you think? Let’s go outside and look at the surrounding area. Hmmm, curb and gutter, sidewalks and landscaping, too. Not bad.

How about we go downtown and then look at some residential neighborhoods and then pop over to the local community college?

If it sounds a bit far-fetched, then slip on a VR headset for a few minutes and ponder the possibilities. From what I can tell, most VR companies are working to come up with better displays, wireless, and less bulky designs. They are not quite there yet, but they are getting there, along with a whole onslaught of other things related to the digital revolution.

The Promise of 3-D

On the digital side, GE announced in September that it would buy two 3-D printing companies for a combined $1.3 billion.

The move “adds to our strategy to become the premier digital industrial company,” Immelt said on a conference call with analysts. “These two companies bring, in addition to just equipment, a number of ideas in terms of what we can do in the future.”

If that sounds like a company leaning forward, well, you’re right.

GE believes it can sell $1 billion worth of additive metal manufacturing technology by 2020, while using the 3-D printers to drive its own costs down by as much as $5 billion. That beats Six Sigma hands down.

3-D printers build objects by fusing together thin layers of materials such as plastic powder, metal or liquid resin. The parts, built from computer-drawn blueprints, can be used to make products ranging from car parts to surgical implants.

The global market for 3-D printing is growing as companies increasingly use the technology for production of commercial parts. The aviation industry has been an early adopter because it enables more complex designs and lighter parts, cutting waste of expensive materials on factory floors. GE said it expects to print 40,000 fuel nozzles for jet engines by 2020.

Sears was The Disruptor

The news is not so positive for Sears, which announced last week that it will shutter another 150 unprofitable stores, including 108 Kmart and 42 Sears stores in order to curtail losses. How many years now has Sears been closing stores?

But at one time, Sears was the big disruptor, and changed the landscape of retail. In the late 1800s, people began moving to the suburbs and out of the inner cities. Richard Sears believed local supplies were too costly because de-urbanization had caused consumers to disperse; perhaps people would be comfortable with ordering, by mail, products they’d bought in the past at retail stores.

Sears used the railroads and post office in ways no one had, disrupting the status quo, with distribution tactics that resembled the ecommerce experience we know today.

Sears used to charge a fee for access to its mail-order catalog. If that subscription model sounds a lot like Amazon Prime, well, it was.

Now It’s Amazon

But times change. Today, Amazon is worth more than Sears, Macy’s, Kohl’s , JCPenney, Nordstrom, Best Buy, Barnes & Noble, Dillard’s, Gap and Target combined.

Overall, Amazon’s share of the 2016 holiday online market share was 38 percent. Best Buy was a distant second, at 3.9 percent, Target at 2.9 percent and Walmart at 2.6 percent.

Amazon’s largest share of online retail hit 47.8 percent on Dec. 18, 49.2 percent on Dec. 19 and and 48.2 percent on Dec. 20, according to data from Slice Intelligence. On Christmas day, Amazon’s total share of online sales shot to 46.1 percent.

Department stores up and down the price spectrum are under growing pressure to show they can still be relevant, and 2017 will be pivotal in which retailers plow ahead in the internet era and which get left behind. Digital Darwinism at work.

You, Too, Can Be a Futurist

Last month, after giving a speech to a group of stakeholders to an economic development organization, the local ED guy said I sounded like a futurist. I took that as a compliment (and I think he meant it as such.)

That’s what I have to be, and I submit that is what economic developers and company executives have to be. You don’t have to be a computer whiz. You do have to have an imagination.

I believe we are in the early stages of a digital revolution that will both destroy and create jobs. That requires us to lean forward and imagine what could be or what should be if our companies and our communities are to remain competitive and ultimately relevant.

Yes, you, too, can be a futurist. If you want, I will send you a secret decoder ring to make it official.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733. Mr. Barber is available as a keynote speaker.