Dean Barber

Archive for the ‘Corporate Site Selection and Economic Development’ Category

Our Big Fat Retail Meltdown

In Corporate Site Selection and Economic Development on April 23, 2017 at 9:08 am

About four miles from my home, demolition has begun on the very big Valley View Mall in North Dallas. And I think my wife and I are partly responsible in that we never went there.

But not a week goes by that we don’t receive multiple packages delivered to our doorstep via Amazon. Indeed, I think of my wife as the Amazon Queen, and I am her vassal.

Speick Natural Soap Bar 3.5 Ounces (Pack of 3) arrived on Friday. This German product “LEAVES YOU FEELING INVIGORATED AND REFRESHED, making it an ideal addition to your morning shower routine.” Boy howdy, I can’t wait.

Also on Friday, Bebe Stores, which models itself as a purveyor of “unique, sophisticated and timelessly sexy” clothing for women, said it plans to close its remaining 168 stores in the United States and Canada by the end of May, according to a regulatory filing.

The Latest Casualties

Bebe is the latest brick-and-mortar casualty in what some observers are starting to call a “retail apocalypse.”

Payless ShoeSource, hhgregg, The Limited, RadioShack, BCBG, Wet Seal, Gormans, Eastern Outfitters, and Gander Mountain are among the retailers that have filed for bankruptcy so far this year, and most are closing hundreds of stores as a result.

Retailers that once ruled the shopping mall roost, like Macy’s, JCPenney and Sears, while staying in business for now, are closing hundreds of stores and cutting thousands of jobs.

More than 3,500 stores are expected to close over the next several months.

The Great Disrupter

Amazon, the behemoth of online retail, is the big winner of this retail meltdown. It has been systematically dismantling retail and thereby reinventing it. In doing so, Amazon is becoming a primary shopping search engine for consumers, with 55 percent of searches beginning on the site.

That in turn could lead to continued growth in the company’s ad business, which NYU Stern School of Business professor Scott Galloway told CNBC would “put them in the league of Facebook and Google.”

“Amazon is becoming all of retail,” said Galloway, making it “the most disruptive company in the largest economy in the world.” Eventually, people will only shop at Amazon, he said.

Something’s Happening Here

Now that might be an overstatement by the good professor. I happen to believe there will always be a place for stores. But what is clear is that something very big and structural is happening to retail.

Overall retail spending is not appreciably down, so why the demise of storefronts? There are multiple trends happening, all of which are changing the face of American shopping.

The rise of e-commerce is certainly one reason, but so, too, is the oversaturation of retail space in the U.S. (there’s just way too much built out retail space), and a restaurant renaissance, which is where young people want to spend their money. I will briefly touch on all three.

Online Buying

Easy return policies have made online shopping cheap, easy, and risk-free for the Amazon Queen in my home. And this is particularly true when it comes to her purchases of apparel, which is now the largest e-commerce category.

What’s more, mobile shopping is getting easier because of apps and mobile wallets. Since 2010, mobile commerce has grown from 2 percent of digital spending to 20 percent.

People used to make several trips to a store before buying an expensive item like a couch. Now they sit on the couch to make their purchases.

Too Much Retail Space

In a conference call with analysts last month, Urban Outfitters Chief Executive Officer Richard Hayne said there are simply too many stores.

“The U.S. market is oversaturated with retail space and far too much of that space is occupied by stores selling apparel,” he said. “Retail square feet per capita in the United States is more than six times that of Europe or Japan. And this doesn’t count digital commerce.”

Too much square footage was added in the 1990s and early 2000s, with thousands of stores opening, he said.

“This created a bubble, and like housing, that bubble has now burst,” he said. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”

There are about 1,200 malls in U.S. today. Some analysts say that number will shrink to 900 a decade from now. Mall visits declined 50 percent between 2010 and 2013, according to Cushman and Wakefield, and the numbers keep falling.

Less Stuff, More Meals Out

In our zeal to downsize and simplify, my wife and I recently gave a local auction house a lot of furniture and 48 boxes of books to be sold. Even if she is the Amazon Queen, we don’t buy nearly as much stuff as we used to. Materialism is not high on our agenda.

But we do like to eat out, and we do enjoy travel.

We are not so unique in that regard. Consumers have shifted their spending away from clothes (it has declined 20 percent since 2000) toward travel and dining out.

Travel is booming. Despite treating its customers like livestock, U.S. airlines last year set a record, with 823 million passengers. But the rise of restaurants has been even more dramatic.

Since 2005, sales at “food services and drinking places” have grown twice as fast as all other retail spending. With more options, shoppers are eating out at restaurants and bars, ordering in on their phones or snagging groceries at convenience stores.

In 2016, for the first time ever, Americans spent more money in restaurants and bars than at grocery stores.

In essence, what these all these trends show is that our behavior as shoppers is fundamentally changing. Some retailers, particularly those with large fleets of brick-and-mortar stores, will not be able to adapt and survive in the new retail environment.

A Slow-Rolling Crisis

Since October, about 89,000 workers in general merchandise stores have lost their jobs, which is more than the number of people employed in the entire US coal industry, The New York Times reported.

The effects of these job losses will hit some local economies hard, according to Mark Cohen, the director of retail studies at Columbia Business School.

“This is creating a slow-rolling crisis,” Cohen told Business Insider. “The people that work in retail stores will lose their jobs, then spend less money in retail stores because they are no longer employed. That creates a cascade of economic challenges.”

Like coal miners, retail workers don’t typically have a set of skills that’s easily transferable to another industry, according to Cohen.

The retail industry typically pays low wages and employs about one out of every 10 American workers. It provides employment to people in every age bracket, as well as those who are relatively low-skilled.

The Economic Development Angle

I have run across many communities that have an economic development retail strategy. I don’t necessarily fault that, especially when it comes to creating a vibrancy on Main Street downtown. You want that. You don’t want a boarded up Main Street.

But when you place too much emphasis on retail, and this is particularly true in the suburban areas, you might be setting yourself up for a fall. Better to think mixed use.

I know of suburban communities here in the Dallas-Fort Worth Metroplex that see retail to the exclusion of everything else as The Golden Goose to funding local government via sales tax dollars. With the structural changes now taking place, they may want to rethink that.

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.

For Business Development, Think Customer and Process

In Corporate Site Selection and Economic Development on April 16, 2017 at 12:06 pm

The well-known phrase “first, do no harm” is actually not in the Hippocratic Oath historically taken by physicians, but the purpose and the meaning certainly is.

Based on the fiasco created by United Airlines this past week with the literal beating of a passenger that it wanted to “re-accommodate,” I think most businesses, big and small, should consider taking an oath to putting their customers first.

Jeff Bezos, CEO and founder of Amazon, credits his company’s focus on customer service for its success. The e-commerce giant’s shares hit an all-time high this month and are up nearly 50 percent over the past year alone.

In his latest annual shareholder letter released last week, Bezos wrote:

“There are many ways to center a business. You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality.

“Why? There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.”

A company’s desire to delight customers can truly differentiate it from the competition.

First, Do Not Annoy (Or Offend)

Economic development organizations, those entities charged with  sparking economic change and vitality in communities via capital investment and job creation, should be obsessed with customer service. And that goes for serving existing businesses, entrepreneurial startups, or in the recruitment of new companies to their respective communities.

It is in that latter category that I have been the recipient of some ham-fisted attempts at business development by economic development organizations. To put it bluntly, they have annoyed me with nonsensical emails that they should never have been sent to me.

Email, while incredibly important, is already an annoying necessity by virtue of the fact that every day I must wade through it to delete those messages that have absolute zero bearing on my business or what I do. And that is after employing spam filters.

Mind you, most emails that I get from economic development organizations are good and informative and worth keeping. And for that, I am appreciative.

But I continue to get emails from EDOs inviting me to one-day events that should have only been sent to community stakeholders and not to a consultant (me) 1,000 miles away. (The exception is if you are paying me to speak at your event, to which I may spend several days in your community.)

Inappropriate Emails

Last week alone, I got at least a half dozen of wholly inappropriate emails from EDOs. One was a survey for business owners in a town in Minnesota. Being that I’m in Dallas, there was no reason to junk up my email with that.

Then I got another one for a one-day event in Michigan, in which it was obvious that it was not directed to me per se, but sent en masse to virtually anyone with a pulse. Delete.

I got three emails, two from ED groups in Florida and another from one in Louisiana, all of which addressed me as if I were some muckety muck in an aerospace company. They asked to meet with me at the upcoming MRO Americas trade show in Orlando about moving my company to their respective communities.

And the crazy part is that I actually know two of the economic developers who sent me this nonsense. I responded to their off-the-mark emails with, “Really?”

Crazier still, I am not even registered to attend this particular trade show.

Talk About Crazy

True story. When I was an economic developer some years back, I attended a big manufacturing trade show in Chicago. I recall that it was a pretty productive event, and that I had some good meetings with companies.

A couple of weeks later, I got a phone call from a sales rep with a company that manufactures conveyer belts. I kid you not, the sales rep asked about my interest in buying industrial conveyer belts from his company.

My response was something like this: “Do you have any idea who you are calling? Had you simply looked up my organization’s name on the internet, you would immediately see that I work for an economic development organization. We don’t buy industrial belts.”

Having been in their shoes, I try to cut most sales people a break and be respectful, but that particular phone call was beyond stupid.

Business Development 101

Before you make that call or send that email, it’s always best to know who you are communicating with. Have at least a basic knowledge of who that person is, what they do, who they work for, and what that company or organization does.

In short, a little due diligence can go a long way. Folks, this is basic blocking and tackling, which I see too many companies and economic development organizations failing to do.

It has me wondering, “What were they thinking?” More often than not, they weren’t.

For business development to be effective, and I am talking essentially about sales, it should be process-driven. But here is the key — the process needs to be smart and right. It cannot be unthinking.

As Bezos wrote to shareholders last week, “It’s not that rare to hear a junior leader defend a bad outcome with something like, ‘Well, we followed the process. A more experienced leader will use it as an opportunity to investigate and improve the process.”

To my economic development friends who send me junk emails, I would say this is opportunity to learn and improve your process. If you even have one.

A Teaching Moment

My purpose is not to pick on or embarrass anyone. For that reason, I have named no names. My purpose is simply to impart some things that I have learned, often through making my own embarrassing errors.

Of the three economic developers who sent me recruiting emails last week, one blamed it on his IT department, while another didn’t respond at all to my “Really?” comeback. The third apologized, saying he would remove me from all future outgoing emails, which is NOT the right solution.

The fact is that I DO want to stay apprised of what is happening in communities when it is relevant to me as a site selection/economic development consultant. But his response is actually a common one, to which I wrote two years ago in a blog entitled Sort That Database and Everything Will Be Gravy.

In a series of back and forth emails, which prompted that particular blog, I was trying to explain to an economic developer in Kansas that it should not be too hard to differentiate email communications between internal and external stakeholders.

Soon thereafter, I got an email from her boss, as she must have shared our conversation with him: “Thank you for your constructive feedback. Thanks to you, we have now started a ‘site selection consultant’ list which we will target for when we have project announcements.”

Bingo. They got it. They understood that the right solution was to sort their database of contacts in order to ensure that the right messages were going out to the right people.

Executing on the Right Process

The nuts and bolts of business development, which I can teach to economic development organizations, is an exercise in effective outreach. It entails putting in the time and hard work.

It means a never-ending mining of sources, ideally decision-makers and those who can influence decisions. (See Seek and Ye Shall Find: Connecting in a Connected World)

It means crafting an effective message aimed at a specific customer group. It more often than not means adding humanity, developing relationships and trust. In short, it means being smart, diligent and executing on the right process. (See A Rocky Road to Travel: Making Business Development Work)

The process should never be one-size-fits all. Mistakes invariably will happen, but if you recognize and correct your bad decisions and keep your customers’ needs foremost in your mind, good things will happen. The process becomes the solution.

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.

Get Off My Lawn is Not the Best Message

In Corporate Site Selection and Economic Development on April 2, 2017 at 10:21 am

My friend, Andy Levine, president of Development Counsellors International, got me thinking when I read an article that he wrote for Forbes entitled, “Is Brand America Tanking?”

Levine points to U.S. News and World Report’s 2017 “Best Countries Ranking,” showing that the United States slipped from #4 in the previous ranking to #7 in the current report. The report is based on a survey of 21,362 people from 36 countries, who rank countries on 65 attributes ranging from “most business friendly” to “best to visit” to “richest traditions.”

My first thought was to hell with this. I don’t care what these people say or think. Keep in mind that I am an older guy.

Human Resources Manager during a job interview: What is your biggest weakness?

Old Man: Honesty.

Human Resources Manager: I don’t think honesty is a weakness.

Old Man: I don’t give a s**t what you think.

And that’s why a lot of old men don’t get hired.

But being that I want to get hired as an open-minded (if not honest) consultant, I grudgingly posed the question to myself, sort of: Should we care what the rest of the world thinks of us, meaning the U.S.?

Almost regretfully, I came to the conclusion that, yes, we should care, especially if we want to lead and influence events in the world to our benefit.

The Top Choice

To that end, it is very much in our interest that the U.S. remains the No. 1 recipient of foreign direct investment, which has a big economic impact on many communities, large and small, in this country.

European and Asian countries, as well as our two neighbors to the north and south, have demonstrated for a long time now their faith in the U.S. economy through high levels of FDI.

And while the U.S. remains the top choice for international investment, its share of worldwide investment has dropped to 21 percent in 2014 from 39 percent in 2000 because of increased competition from other countries, according to a 2016 report by the Organization for International Investment.

World’s Largest Consumer Market

Whether the U.S. retains its status as the world’s most attractive investment location depends largely on world macroeconomics and how we behave. When I say “we,” I’m referring to policies of the federal government. More on that later.

Most countries want to attract foreign investment, but the U.S. has a distinct advantage by having the world’s largest consumer market with a GDP of $18 trillion and 325 million people.

FDI into the U.S. in 2015 totaled a record $348 billion, led by the United Kingdom, Japan, and Germany, according to the U.S. Commerce Department. Some more factoids:

  • Majority-owned U.S. affiliates of foreign entities produced $360 billion in goods exports in 2013.
  • Majority-owned U.S. affiliates of foreign entities employed 6.1 million U.S. workers in 2013, up from 5.8 million in 2011. These firms generally provide compensation at higher levels than the U.S. average, at nearly $80,000 per U.S. employee in 2013, as compared to average earnings of $60,000 for workers in the economy as a whole.
  •  “Greenfield” investment expenditures by foreigners totaled $16.6 billion in 2014, with expenditures on establishing new businesses totaling $13.8 billion and expenditures on expanding existing businesses totaling $2.8 billion.
  • In 2014, foreign investors spent $224.7 billion acquiring U.S. companies; therefore, total first-year expenditures by foreign entities (acquisitions plus expansions plus establishment of new businesses) were $241.3 billion.

China Watch

According to the consulting firm Baker McKenzie, Chinese investments in the U.S. rose by almost 200 percent from 2015 to 2016 to $45.6 billion.

The main recipients of Chinese investment in 2016 were real estate and hospitality ($17.4 billion); transport, utilities and infrastructure ($6.0 billion); consumer products and services ($5.7 billion); and entertainment ($4.8 billion).

Together these accounted for nearly 70 percent of Chinese investment in the region. California received the most Chinese capital, with more than $16 billion in 2016.

But a slowdown in Chinese investment in the U.S. in 2017 could be in the works, according to Baker McKenzie, largely because of the political uncertainties posed by the Trump administration regarding trade.

A Great Revival?

President Donald Trump on Friday directed his administration to review U.S. trade deficits and clamp down on countries that abuse trade rules in two executive orders he said would start a new chapter for U.S. workers and businesses.

“Today I’m signing two executive orders that send this message loud and clear, and that set the stage for a great revival of American manufacturing,” Trump said in the Oval Office. “We’re going to get these bad trade deals straightened out.”

My guess is the president’s remarks, while they will play just fine in Akron and Birmingham, creates distinct nervousness in capital cities around the world. Will that necessarily come back to bite us?

Heck, I don’t know. (Take note this is the second week in a row that you have seen a consultant, this consultant, say he doesn’t know. That should be a record.)

Not Open for Business?

But it is clear the president has much of the world wondering about the U.S. role in the world, as he is parting greatly from past administrations on matters of trade, immigration, and defense.

These policy changes and America first rhetoric has created a growing perception that the U.S. is less welcoming to foreigners, according to the World Travel and Tourism Council. Some of this is based on President Trump’s revised executive order banning citizens from six Muslim-majority nations from traveling to the United States.

“The travel ban is not having a material impact yet. But we are seeing the unintended consequences of this now because the message has gone around the world that the U.S. is not open for business,” the WTTC’s President David Scowsill told Reuters.

Precipitous declines in airline bookings followed the Jan. 27 and March 6 travel ban announcements, and hotels reported less traffic in February.

An Unwelcome Mat?

Tourism Economics of Wayne, Pa., estimates that about 4.3 million fewer international travelers will visit the U.S. this year because of the bans, creating a revenue loss of $7.4 billion. Another 6.3 million visitors and $10.8 billion that they would have spent will be lost in 2018, it said.

“The U.S. has put an unwelcome mat at our front door,” Henry Harteveldt, president of Atmosphere Research Group, told USA Today.

Enhanced vetting procedures for all foreign visitors could further discourage not only foreign tourists but people coming to the U.S. for business and school.

Discouraging Students?

Nearly 600 colleges and universities wrote Feb. 3 to Homeland Security Secretary John Kelly to express concerns about discouraging international students, a major revenue source for universities.

About 1 million international students spend $32 billion a year in the U.S., according to the American Council on Education. And while only about 15,000 students are affected by the travel ban, critics contend that the Trump administration policies are having a chilling effect on foreign students coming to the U.S.

“Anecdotal evidence shows that many schools are seeing declines in international applications for the coming year, and other countries are seeing increases,” Terry Hartle, a senior vice president for the American Council on Education, told USA Today.

Many Silicon Valley companies, including Apple, Microsoft, Google, Facebook, Twitter, Yelp and Netflix, contend in lawsuits against the government that Trump’s travel ban would make it more difficult to “attract talent, business and investment to the United States.”

No Hard Evidence But …

I have really offered no evidence that Trump administration policies will in fact discourage FDI in this country, or will discourage foreign tourists from coming here, or from foreign students studying here.

But there are a litany of voices, industry voices, saying that these things might actually happen. If their warnings are correct, this could have meaningful economic impact on companies, institutions of higher learning, and communities as a whole and not in a good way.

Let’s Keep the Mat Out and the Light On

I have never liked or cared for this notion of “brand.” Maybe for corn flakes and deodorant. Rather, what matters to me, is reputation, sometimes deserved, sometimes not, of a place, of a person, of a company and its products or services.

I truly hope that our reputation as a country does not suffer because of poorly thought out, “Get Off My Lawn” policies that are perceived to be unwelcoming to foreign people. That’s not what America is or has been about.

Security and trade are important to the American people, as they should be. Indeed, there is convincing evidence, which I wrote about in an earlier blog, that enacted trade policies with China did in fact destroy U.S. manufacturing jobs, more so than even automation (although that train is clearly out of the station.)

But that doesn’t mean we shut ourselves off and snub the rest of the world. That’s not who we are. The welcome mat needs to stay on the front porch and the light needs to stay on.

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.

The Next Big Blue Collar Job

In Corporate Site Selection and Economic Development on March 26, 2017 at 12:13 am

Economic developers are people whose jobs are to essentially stir things up and make things happen. Those “things” pertain to economic activity and growth, either on a state, regional or local level.

They are all too often obsessed with job creation as that is how they are typically judged, hired and fired. And while that is not a completely fair and accurate barometer, most of them realize that’s just the way it is.

I used to be an economic developer before becoming a consultant. Today, my clients fall into two camps – companies and communities. I help companies find optimal locations from which to operate (an art and a science to itself called site selection). I also help communities essentially find themselves, in order to create a better environment for job and wealth creation.

Economic developers tend to look at consultants like me, not only as sources for corporate investment projects that could land in their communities, which makes some sense, but also as all-knowing gurus concerning everything about the economy.

And we (the consultants) often opine as if we are these all-knowing gurus, and I am as guilty of that as the next person.  But the truth is we are the canaries in the coal mine. Some of us may having a somewhat better sense on how the economy is faring, but few of us are trained economists.

A Worthwhile Traveling Road Show

I tell you all this because Consultant Connect, a worthwhile traveling road show that connects economic developers to site selection consultants, rolled into Dallas last week, and being that I was in town, I attended.

These are almost always good events. I get to make new acquaintances and reaffirm old ones. I get to hear other consultants give their views, which more-often-than not, are pretty accurate and informative.

During the initial round-table discussion, (which was actually a square-table discussion), I offered that business confidence and consumer confidence are at multi-year highs, in part because of  President Trump’s pro-business agenda in lowering corporate taxes, deregulating industry, and enacting a big infrastructure spending program.

But will these things actually happen? Well, I really don’t know, and I said as much. Now how often do you hear a consultant say that?

The way I see it, when a Republican House, which had previously voted to repeal the Affordable Care Act more than 60 times, cannot agree on a repeal and replacement plan backed by the White House and House Speaker Paul Ryan, R-Wis., then you have to wonder.

Trump and Ryan say they will now turn their attention to the first major re-write of the tax code in more than 30 years. But they will have to do it without the momentum of victory on health care.

Just as important, the loss on health care will deprive Republicans of $1 trillion in tax cuts.

The stock market’s spurt of 10 percent since Election Day is due partly to the Trump agenda and an expanding global economy. That underlying pro-growth optimism remains for now, but if tax reform fails, that could change in a hurry.

I know what I don’t know. Predicting how the Trump Agenda will fare is something that I will let others do. It’s important to the economy and the fruits that may or may not come as a result. I just don’t know how this worm is going to turn.

But Here’s What I Do Know (Or At Least Suspect)

As anyone who follows this blog knows, I have written quite a bit about the digitization of manufacturing. It is happening, albeit I think we are still in the early stages of a new digital machine age that will both destroy jobs and create jobs.

In my blog of Feb. 12 entitled The Jobs Will Change and So Will We, I mentioned that McKinsey Global Institute stated in a recent report 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, meaning there’s a long ways to go.

Code.org, a non-profit that promotes computer science,  reports there are currently more than 500,000 open computing jobs, in every industry sector in the United States, from manufacturing to banking, from agriculture to healthcare, but only about 50,000 computer science graduates are becoming available every year.

Coding is Key

I suggested at Consultant Connect that the next big blue-collar job very well might be coding. In simple terms, coders write the instructions that tell computers what to do in programming languages that include SQL, Java, JavaScript, C# and Python.

The good news is that you don’t have to go to a four-year college to learn coding. Not only are more employers making code learning more accessible, but more and more schools are now introducing coding, even down the elementary school level.

An entire “coding bootcamp” industry has emerged out of a need for a more efficient and effective way of preparing people for the huge number of unfilled jobs in tech, which traditional higher education programs haven’t been able to address.

This level of education and exposure to coding won’t necessarily give these future coders all the knowledge to create complex AI algorithms, but it will be enough to qualify them for well-paying, reliable jobs in most IT departments.

A Shop Class for Coding

In short, coding has and will become more of a vocational skill, and as such it can and should be taught in vocational classes in high schools and community colleges.

When I was a kid, I took shop class in middle school, where I learned some basic wood-working and carpentry skills. (I think it was mandatory.) To the same end, why not a shop class for computer programming, a skill that will only grow in demand.

The national average salary for IT jobs is double the national average for all jobs: $81,000 annually.

Roughly half of the jobs in the top income quartile — those paying $57,000 or more per year — are in occupations that commonly require applicants to have at least some computer coding knowledge, according to an analysis of 26 million U.S. online job postings released in 2016 by job market analytics firm Burning Glass and Oracle Academy.

Demystifying Coding

It’s now a matter of demystifying coding as a profession that only gifted kids who go to a four-year university are capable of learning. Once people see that coding is a vocational skill that they, too, can learn, well, that will open doors to employment in a digital machine age.

Bit Source, a software development company in Eastern Kentucky,  has been hiring former coal miners, yes, you read that right, to do coding.

“We didn’t think that was that big of a jump,” Co-owner Rusty Justice said of the miners in the interview with the Lexington Herald Leader. “Daggone, these are high-tech workers that just get dirty.”

Justice describes himself on the Bit Source website as an  “unapologetic hillbilly,” who “loves Jesus, his family, baseball, and all things Appalachia.” Daggone, I would love the meet this man.

About four months ago, IBM Chief Executive Officer Ginni Rometty said her company plans to hire about 25,000 people in the U.S. and invest $1 billion over the next four years. Ms. Rometty said many technology jobs don’t require an advanced degree and she encouraged government investment in vocational education and training.

“We are hiring because the nature of work is evolving,” Rometty wrote in an Op-Ed in USA Today. “What matters most is that these employees – with jobs such as cloud computing technicians and services delivery specialists – have relevant skills, often obtained through vocational training.”

Coding and IT jobs can be, really should be the next big blue-collar jobs. But that will only happen if we as a nation get off our duff and offer the vocational training.

Keep On Pushing

As you can probably tell, I am not always so shy about giving my opinion. And while sometimes I may get it wrong or only half-right, I don’t believe I am wrong in stating that there is not enough emphasis today on vocational education. This is an area where we have just fallen down as a country.

I frequently come across community colleges that offer few vocational courses in any given place. I have especially seen this in rural communities where I have done economic development consulting. The vocational offerings are often slim to none, which puts a community at a huge disadvantage.

And I continue to meet local economic developers who confide in me that they do not have the kind of deep professional working relationships they would like to have with the presidents of their community colleges. (Plant managers have told me the same.)

To them I say, “You got to bridge that gap. You got to keep on pushing. Don’t give up. Workforce development is key.”

A Safe Bet

Of course, there is always the tendency in vocational education and planning of any sort of “fighting the last war” — pursuing a strategy that has been successful in the past but is no longer as relevant in the present or the future.

Knowing all the jobs in the future will be impossible, but it’s probably a safe bet that most will be based on digital technologies, which means coding is a good foundation.

One day, computer programming as we know it may become a vocation that is not in demand, one of peripheral importance. But until then, the demands of the job marketplace should be faithfully followed by educators, economic developers, policymakers, parents, and students, really everyone.

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.

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.