A Promise Worth Keeping

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 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

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.