Dean Barber

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

No Other Sure Foundation

In Corporate Site Selection and Economic Development on May 2, 2018 at 5:09 pm

The most consequential words in American history is a simple if not astounding phrase that “all men are created equal.” In our Declaration of Independence, it strikes to the very heart of our nation’s identity.

Ratified the Second Continental Congress on July 4, 1776, the Declaration of Independence immediately set America apart from the rest of the world. It further held that all men “are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

And while it was a beacon of hope, there is no mention of a right to education. This may have troubled Thomas Jefferson, the document’s principal author. Three years later, in 1779, Jefferson introduced Bill 79 to Virginia General Assembly, proposing a system of public education to be tax-funded for “all the free children, male and female.”

Jefferson’s “Bill for the More General Diffusion of Knowledge” was far-reaching and radical for its time, but was restrictive.  Jefferson was a slave owner, and slaves were not treated as people but as property. Women were not given the same rights as men.

Still, Jefferson was a proponent of public education, at least for some. In a letter to fellow Virginian George Wythe in 1786, he wrote, “No other sure foundation can be devised for the preservation of freedom and happiness.”

A Foundation Eroded

Fast forward to today. Reading and watching the news, one could easily construe that this foundation for freedom and happiness has been eroded.

Jefferson believed that the purpose of education is to make a better us. Not only should our schools teach the fundamentals reading, writing, science and mathematics, but prepare our children for a life beyond the classroom.

And yet we learn of public school districts that have not given school teachers, the very people whom we place the responsibility of educating our youth and transforming them into future citizens, a raise in 10 years.

We read of classrooms where children must wear coats in the winter for the lack of heating, where they page through aged textbooks that fall apart in their hands, and where teachers, many of whom have to resort to second jobs to make ends meet, buy classroom supplies for their pupils.

Wages Have Fallen

We know that teacher’s wages and compensation continue to fall relative to comparable workers. When adjusted for education, experience, and demographic factors, teachers earned 4.3 percent less than other workers in 1996, while in 2015 the teacher wage gap had grown to 17 percent, according to a 2016 study by the Economic Policy Institute.

The Great Recession was particularly punishing to public schools. Most states cut funding, yet in 2015, the latest year for which comprehensive spending data are available from the U.S. Census Bureau, 29 states were still providing less total school funding per student than they were in 2008, according to the Center on Budget and Policy Priorities.

As of the current 2017-18 school year, at least 12 states have cut “general” or “formula” funding for elementary and secondary schools by 7 percent or more per student over the last decade, according to the CBPP.

What Would I Tell a Company?

The question begs itself. When we see teachers (and parents) demonstrating for better pay and better school funding in West Virginia, Oklahoma, Kentucky, Colorado and Arizona, what should we take from that?

I was recently asked a variation of that question by a newspaper reporter from Tulsa, Oklahoma. He wanted to know how I viewed the issue of school funding as a site selection consultant. Was Oklahoma getting a black eye because of the teacher demonstrations?

And what would I tell a company that had engaged my consultancy, Barber Business Advisors, for purposes of location advisory about this issue of funding for public education? Well, I would probably say something like this:

“Well, money matters. Poor kids who go to better-funded schools are more likely to graduate from high school and gain skills and make better wages, whether they learn a trade at a community college or go on to a four-year university. Common sense tells you that, but the research also shows it.

“So if you truly believe that people are your greatest assets, then let’s look to those places that support public education. Mind you, they don’t have to be “rich” communities, but places that have a tradition of providing good education to kids. We know that grades k-12 are the integral ‘learning years,’ which will prove vital in developing your future workforce, your future pipeline of talent. Let’s never forget that.”

Unfortunately, I’m not so great with sound bites. I didn’t tell the reporter anything like this. I think what I said was that if we were looking at a state during a site search project where teachers were demonstrating for better pay and increased school funding, “we would take note of that. It may very well be of primary concern.”

An Honorable Profession

I should have also told that reporter that school teachers don’t become school teachers to make a lot of money. They want to change lives for the better. They want to help young people grow and become improved versions of themsevles.

Now some teachers are quite effective at this. They’re really good at imparting knowledge and prompting us to want to learn. We tend to remember those teachers well into our adulthood as they made a difference, even if a small one.

And invariably there are those teachers who are not cut out for the work. They probably should have chosen other professions even if their intentions were good and honorable. They usually figure this out for themselves and leave the profession.

(I’m quite certain that I could never control a classroom of second graders, unless I had a sufficient supply rope. And that ultimately wouldn’t work so well.)

A Loss of Trust and Respect

It’s also apparent to me that some legislators and policymakers must hold teachers to a degree of contempt. How else can we explain such an erosion of funding and respect? I have to believe that in some places, public education truly is under assault.

The Center for Michigan reports that enrollment in schools of education in that state have dropped by more than 50 percent in the last few years. The upshot, fewer people want to be teachers. It’s not the vaunted profession that it once was.

This follows a general trend, shown in polls, that Americans have lost trust in their institutions, which have served as the pillars of government and capitalism. We now have a jaundiced view of our public schools, courts, banks, businesses, political parties and the media. The exception is the military. From an NPR/PBS NewsHour/Marist poll in January, 87 percent say they have a great deal of confidence in our military.

Parting Thoughts

In the last few weeks, I have met with economic developers from Kentucky and Oklahoma. Some have told me privately that they very much sympathize with the teachers’ plight over pay and school funding.

These same economic developers understand the connection between education and workforce preparedness. Many companies, particularly manufacturers, complain that they cannot find enough people with the job skills needed to fill certain openings.

This should concern us all. It is our duty as a society to prepare future generations for what may come.  Jefferson understood then what apparently too many elected officials do not comprehend now — that public education is the answer.

No other sure foundation can be devised.

Dean Barber is the principal of Barber Business Advisors, LLC, an economic development and corporate location consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com. Visit us at www.barberadvisors.com to learn more.

Advertisements

A Story to Remember

In Corporate Site Selection and Economic Development on April 9, 2018 at 8:50 am

The founding fathers of this country were of the belief that history, above all other subjects, was the most important for people to study. History gives us insight as to who we are, where we have been and where we are going.

I love to read history and believe that it can be a gauge to the future. That said, I realize that even those who know historical facts are still liable to repeat the mistakes of that past.

Indeed, we often view history much as we do current events, through a very subjective lens. Those things that support our beliefs, we latch onto. Those things that don’t, we conveniently ignore. In short, we tend to cherry pick.

In telling this story, I’ll do my best to be objective and keep to the facts. Now is an especially good time to remember what actually happened.

A Wealthy Businessman

Our story begins with a wealthy businessman, a man with no elected office experience, running for president. Despite that, he easily won the Republican Party nomination. During his campaign for the presidency, he was known to frequently insult African-Americans and scapegoat Mexican-Americans.

But Herbert Hoover, the former mining engineer once quoted as saying, “If a man has not made a million dollars by the time he is forty, he is not worth much,” won the presidency in 1928. Hoover defeated Democrat Al Smith, with the Republicans maintaining comfortable majorities in both the House and Senate.

Less than a year later, the Wall Street Crash of 1929, also known as Black Tuesday (October 29), happened, signaling the beginning of the Great Depression.

The Farm Crisis of the 1920s

In some respects, the Great Depression came a decade earlier for American farmers. While most people were enjoying relative prosperity in the 1920s, farmers were finding it a tough going.

Horses and mules had been replaced by expensive trucks and tractors. With up to one-quarter of farmland previously devoted to feeding horses and mules freed up for production, supply soon outstripped demand, and commodity prices dropped by as much as 60 percent.

In his bid for the presidency, Hoover promised to help farmers by increasing tariffs of agricultural products. At that time, about one-third of American families were living on farms.

True to his word, soon after taking office in March 1929, Hoover called a special session of Congress to ask for an increase of tariff rates for agricultural goods and a decrease of tariff rates for industrial goods.He said he wanted to keep the overall tariff burden even.

Lobbyists immediately got to work, and it soon turned into a special interest feeding frenzy with every industry seeking protection. The result was increased tariffs on both agricultural and industrial goods. Even tombstone makers got an increase in tariff protection with the bill that passed the House in May 1929. The Senate refused to act on the issue of tariffs before adjourning in November.

A Congressman from Oregon, A Senator from Utah

1930 was a pivotal year. The worm had started to turn with the economy worsening. On a lighter note, 3M began selling Scotch Tape in January, and Mickey Mouse was born in a comic strip. In February, Elm Farm Ollie became the first cow to fly in an airplane. (She also became the first cow milked in flight.) And in April, Hostess Twinkies were invented.

Also in April, the Senate, feeling pressure because of the deteriorating economy, passed a bill that increased tariffs, albeit less than the House version. A conference committee then reconciled the two bills, mostly favoring the House version.

The result was the Hawley-Smoot Tariff – named after its sponsors, Willis Hawley, a congressman from Oregon, and Reed Smoot, a senator from Utah. The legislation, calling for the highest set of tariffs in American history, became a testament to economic isolationism of that era.

Vicious, Extortionate, and Obnoxious

To be sure, many people were opposed to the bill. No fewer than 1,028 prominent economists signed a petition in May 1930 asking Hoover to veto the bill. Henry Ford spent an evening in the White House trying to convince Hoover to veto Smoot-Hawley, which Ford called “an economic stupidity.”

Wall Street banker Thomas Lamont, a partner at J.P. Morgan, said he came very close to groveling. “I almost went down on my knees to beg Herbert Hoover to veto the asinine Hawley-Smoot Tariff,” he recalled. “That Act intensified nationalism all over the world.”

Hoover actually didn’t like the bill, calling it “vicious, extortionate, and obnoxious,” noting that it would undermine his commitment to international cooperation. Despite that, he yielded to the pressure from his own party and signed the bill into law on June 17. The Tariff Act of 1930 as it was formally known raised U.S. tariffs on over 20,000 imported goods.

Hoover’s reservations were well founded. Countries that began warning of retaliation in 1929 followed through with their threats in 1930. In May, Canada, the U.S.’s most loyal trading partner, imposed new tariffs on 16 products that accounted for about 30 percent of U.S. exports to Canada.

(When Hoover was elected president, Canadian Prime Minister, Mackenzie King wrote in his diary that it might lead to “border warfare.”)

Disastrous Effects

While most economists don’t believe Smoot-Hawley caused the Great Depression, it certainly did not alleviate it and may have made it worse. Certainly, Smoot-Hawley failed to lower unemployment. In 1930, the unemployment rate was 8 percent. It would jump to 16 percent in 1931 and peak at 25 percent in 1932-33.

The Tariff Act also poisoned the well in terms of international relations with other countries. The League of Nations, of which America was not a member, had talked of a “tariff truce,” but Smoot-Hawley killed that idea.

In the aftermath, world trade collapsed. American exports, which had been $5.24 billion in 1929, were worth $1.16 billion three years later, a 78 percent decline.

And Hoover, Smoot, and Hawley paid the price. They were taken to the woodshed by the voters, all three being decisively defeated for re-election in 1932.

Today there is a broad consensus among historians and economists that the Smoot-Hawley Tariff only made a bad situation worse. As a result, most economists today view protectionism as a blunting force to economic growth and that it often harms the very people it was meant to help.

It Could Get Very, Very Bad

In the fall of 2016, I was saw the Trump signs posted in farm fields throughout rural America. They were the size of school buses in western Nebraska and eastern Colorado.

And now farmers are waking up to the realization that a president who they helped put in office is instigating a trade war with China, the second largest economy in the world, and that it is they, the farmers, who will pay the price.

Trump last week instructed the U.S. Trade Representative’s Office to consider tariffs on an additional $100 billion in Chinese imports, bringing to $150 billion the range of Chinese goods under consideration.

China, which had proposed duties on $50 billion in American goods including aircraft, soybeans, corn and other row crops after the first U.S. move, has said it will respond proportionately.

“This could get very, very bad,” an economic developer from Iowa told me last week. Iowa is the No. 2 U.S. agriculture state in terms of farm cash receipts.

A wide swath of the U.S. farm economy could be impacted if China goes ahead with tariffs on soybeans, cotton, corn, wheat and beef. China buys roughly half of the U.S. soybean exports, or about $14 billion annually, and is the second-largest buyer of American cotton. In all, U.S. agricultural exports to China represent almost $20 billion annually for American farmers.

History can be a great teacher, but only if we allow it so. History tells us that no one wins in a trade war, and that working people on the ground get hurt. Like Hoover, President Trump is ignoring the warnings from the experts. He is certainly ignoring the warnings from the past.

I’ll see you down the road.

Dean Barber is the principal of Barber Business Advisors, LLC, an economic development and corporate location consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com. Visit us at www.barberadvisors.com to learn more.

In an AI Future, Watch the Machines … Carefully

In Corporate Site Selection and Economic Development on April 3, 2018 at 9:13 am

We will always be curious about the future. People wonder, which is generally a good thing, until they go and ruin it by making predictions.

I could provide you with a litany of quotes from people viewed as thought leaders who said things that are laughably wrong.

One of my favorites: “Two years from now, spam will be solved.” — Bill Gates, World Economic Forum, 2004

That alone should have me resist pontificating about the future, at least in public. And yet, when I have an audience, I cannot resist.

No doubt, when the Southern Economic Development Council meets in Dallas in about two weeks, and I will be on a consultants’ panel discussing manufacturing, I will point my index finger skyward and say, “I believe …”

Which reminds me of an old Steve Martin standup routine (abbreviated):

“I believe in rainbows and puppy dogs and fairy tales.
“And I believe 8 of the 10 Commandments.
“And I believe in going to church every Sunday, unless there’s a game on.
“And I believe in equality, equality for everyone … no matter how stupid they are, or how much better I am than they are.
“And … I believe that robots are stealing my luggage.”

It’s that last point where I think he might be onto something.

AI Will Change Us

My “I believe” statement, which I may make at the upcoming SEDC conference, is that artificial intelligence (AI) will not only transform manufacturing, but it will change all of lives for the better or for the worse, depending on we how control it. And we best control it.

AI is the ability of machines to be “smart,” to learn, imitate, and dramatically accelerate or replace human decision making and behavior. Machine learning refers to teaching computers how to analyze data for solving particular tasks through algorithms.

Data is the lifeblood of AI. Almost every enterprise generates data in one way or another: think market research, social media, school surveys, automated systems. Machine learning applications find hidden patterns and correlations in the chaos of large data sets to develop models that can predict behavior.

But the machines in themselves cannot distinguish between good and evil, and there are bound to be some people who are feeding them with data and instructing them with tasks that have unsavory motives.

It’s precisely for that reason that more than 100 leaders of AI companies, including Elon Musk, have signed an open letter to the United Nations, voicing concerns that companies building AI systems could convert the technology into, I am not making this up, autonomous killer robots.

This goes well beyond stealing your luggage.

Is There a God?

The fact that there could be malicious use of AI, probably would be, was the warning from the late Stephen Hawking. In a 2014 interview with comedian John Oliver, the world-renowned theoretical physicist displayed a wonderful sense of humor.

“There’s a story that scientists built an intelligent computer. The first question they asked it was: “Is there a God?” The computer replies: “There is now.” And a bolt of lightning struck the plug so it couldn’t be turned off.”

Still, there are “experts” (people who point their fingers in the air and say, “I believe ….”) who contend that the threat of AI is not real and that an AI Terminator is perhaps hundreds of years away, if at all.

We know that AI is not a matter of just installing software. It requires certain levels of expertise, vision, and information that few of us possess.

And certainly, very good things can come from AI, from self-driving vehicles, drones overhead, traffic management, preparing tax returns, identifying and treating rare cancers, setting up meetings. The list goes on and on and will invariably grow.

But bad things, mischievous things can also result. We know of videos generated by machines that have President Barack Obama saying things that he never said. We know that machines can learn from news, social feeds and just from listening to us around the house, (Alexa, I am unplugging you) and thereby deliver targeted ads aimed directly at us, based on our likes and dislikes.

Determining what is true and what is not may become only become more difficult as “fake news” will proliferate beyond the realm of our traditional news media gatekeepers.

Industry 4.0

Some “experts” (finger pointers all) say we are currently in our fourth industrial revolution. The first, beginning in the 1760s, was characterized by mechanization, water power and steam power; the second, started in the 1870s was characterized by mass production, assembly lines and electricity.

The third industrial revolution got its start in the 1950s with computers and automation; and now we’re in the fourth, aka Industry 4.0, characterized by artificial intelligence and deep machine learning.

In every one of these industrial revolutions we have had the loss of jobs and the creation of new ones. In that regard, disruption is not new. Somehow, we have always been able to figure it out, to adapt.

But this latest industry revolution may be different in that the technology we unleash may be somewhat mysterious even to its creators. And there is a chance, and I know this sounds outlandish, that we could lose control of the machines. More on that in a moment.

Dramatic Improvement

Will AI change your job? Yes, probably so. Will it be slow and gradual? Well, I’m not so sure. Most AI experts agree that they would never have thought any of the major achievements in AI would have happened so quickly.

“The rate of improvement is really dramatic, but we have to figure out some way to ensure that the advent of digital super intelligence is one which is symbiotic with humanity. I think that’s the single biggest existential crisis that we face, and the most pressing one,” warns Musk.

Which begs the question, should we not be imparting to the machines a certain level of human ethics? Algorithms may not be free of the biases of their programmers, but should we teach, guide, and provide socially acceptable boundaries for the AI systems that we use? In short, can we, should we, input some basic goodness into the machines so that they will not, well, turn on us?

Those might sound like ridiculous questions on their face, except for the fact that no one really knows how the most advanced algorithms work. Now here is where it gets spooky.

Alien Behavior

Will Knight, a senior editor for AI at MIT Technology Review, tells the story of a self-driving car developed by the chip maker Nvidia that didn’t follow a single instruction provided by an engineer or programmer.

Instead, the car relied entirely on an algorithm that it taught itself by watching a human drive. The researchers working on the project found that a bit, well, unsettling.

The CEO of DeepMind Technologies Limited, a British AI company owned by Google, reported in December that his company had developed an algorithm, called AlphaZero, that achieved within 24 hours a superhuman level of play in the games of chess and shogi (Japanese chess) as well as Go, and convincingly defeated a world-champion program in each case.

AlphaZero made moves unthinkable to a human chess player, said Demis Hassabis, the founder and CEO of DeepMind and an expert chess player himself.

“It doesn’t play like a human, and it doesn’t play like a program,” Hassabis said at an AI conference in Long Beach, Calif. “It plays in a third, almost alien, way.”

Last year, Facebook shut down an experiment after two AI programs appeared to be chatting to each other in a strange language that only they understood. The two chatbots created their own changes to English that made it easier for them to work – but which remained mysterious to the humans who were there to oversee them.

This raises the spectrum and poses a question: Could we actually lose control? Could something akin to Hawking’s lightning bolt happen in which we could not unplug?

As AI becomes more commonplace, “I believe” (I am pointing my index finger skyward) that machines will learn to talk to each other, drive cars, beat, dream, filter applicants for a job, paint pictures, tell stories and help make scientific discoveries. They may also do corporate site selection, an area of focus for me. These are all things the machines have already started to do.

And in the process, they may also confound us, their human creators, with mysterious “alien” behavior. We should watch for that very carefully. I know I do not want to lose my luggage to some larcenous robot.

Dean Barber is the principal of Barber Business Advisors, LLC, an economic development and corporate location consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com. Visit us at www.barberadvisors.com to learn more.

 

 

A Trade War Would Be A Bridge Too Far

In Corporate Site Selection and Economic Development on March 13, 2018 at 7:05 pm

We live in a world at risk. That should be obvious to anyone who pays even a modicum of attention to the news.

Last week, Vladimir Putin was boasting that Russia had developed a new batch of “invincible” nuclear weapons that could foil any defensive system employed by the United States, cold war rhetoric to be sure.

There are a slew of other big risks that could, by extension, threaten the world economy. They include territorial disputes in the South China Sea, major cyber-attacks, war on the Korean Peninsula, an escalation of proxy conflicts in the Middle East, a big drop in oil prices, and the withdrawal of countries from the Eurozone.

Another threat emerged last week, which I hate to say, could be precipitated by the U.S. — a full-blown trade war, the costs of which could be very, very bad.

Mind you, we’re not there yet. But we could be if things escalate, which is the nature of these conflicts.

A Simplistic View

It is obvious that President Donald Trump views trade in very simplistic terms as a win or lose proposition, disregarding the nuances that come with it. Most concerning was his statement on Twitter, one day after announcing tariffs of 25 percent on steel imports and 10 percent on aluminum imports, that “trade wars are good and easy to win.” History would show that is far from the case.

It should be noted that the tariffs in themselves are not signs of a trade war but could be a catalyst to spur one on if other countries choose to retaliate. Already, the tit-for-tat threats have emerged.

Electrolux, Europe’s largest home appliance maker, said on Friday it would delay a planned $250 million investment in Tennessee in reaction to Trump’s announced tariffs. The European Union is now considering duties on U.S. imports worth about $3.5 billion if the White House pursues its plans.

“We will put tariffs on Harley-Davidson, on bourbon and on blue jeans — Levi’s,” European Commission President Jean-Claude Juncker said, according to Reuters news service. “We would like a reasonable relationship with the United States, but we cannot simply put our head in the sand.”

Trump naturally could not let that go unanswered and lashed out on Twitter Saturday, saying the U.S. may levy a 25 percent tax on cars exported from Europe.

My point is that trade skirmishes can snowball into an all-out trade war. And contrary to what the president may believe, there are no winners in that scenario.

A Consistent Message

Trump’s abruptly announced statement that he would go through with tariffs caught Washington and Wall Street off guard, with markets reeling as a result. But it is consistent with what the man has been saying since the 1980s — that America is being “ripped off” by other countries, hurting U.S. jobs and factories.

In his bid for the presidency, Trump made the renegotiation of the North American Free Trade Agreement (NAFTA) a hallmark of his campaign, calling it “the single worst trade deal ever approved in this country.”

Signed into law by Democrat President Bill Clinton in 1993 with Republican support, NAFTA created a managed trade zone among Canada, Mexico, and the United States. In his third presidential debate with Democratic nominee Hillary Clinton, Trump said what he had been saying on the campaign trail:

“We’re going to renegotiate trade deals. We’re going to have free trade . . . But we have horrible deals. Our jobs are being taken out by the deal that her husband signed, NAFTA, one of the worst deals ever. Our jobs are being sucked out of our economy. You look at all of the places that I just left, you go to Pennsylvania, you go to Ohio

“. . . Our jobs have fled to Mexico and other places. We’re bringing our jobs back. I am going to renegotiate NAFTA. And if I can’t make a great deal—then we’re going to terminate NAFTA and we’re going to create new deals.”

Trump’s message resonated with American workers, which catapulted him, to the shock of many, into the White House. And now as president, he is acting on his perpetual belief to the consternation of most economists, who contend that such protectionist measures could damage economic growth worldwide.

Some NAFTA Progress

Believe it or not, some progress actually has been made in negotiations between the U.S., Canada and Mexico to rework NAFTA, a 24-year-old, $1.2 trillion treaty which Trump has threatened to walk away from unless major changes are made to benefit American interest.

In the latest (and seventh) round of negotiations which began last week in Mexico City, the three countries have agreed on regulatory best practices. With that done, on top of work on anti-corruption measures, rules for small- and medium-size businesses and for competition now done, it’s taken six months to complete four of the roughly 30 chapters likely to form the updated deal.

Rules of Origin Stumbling Block

And while nobody thinks these negotiations will end anytime soon (An eighth round of talks is being planned for Washington later this month), as long as the parties are at the table, well, progress is progress.

But there remain big hurdles ahead. Agreeing on new rules of origin for autos is just the latest. Under the current treaty, 62.5 percent of the net cost of a passenger car or light truck must originate in the NAFTA region to avoid tariffs.

Trump wants that threshold raised to 85 percent, and add a U.S.-specific requirement of 50 percent.

Again, reflecting his binary view on trade as win or lose, the president last week said the U.S. was probably losing $130 billion a year to Mexico. The U.S. 2017 trade deficit in goods with Mexico was $71.1 billion and $17.6 billion with Canada.

A False Assumption

Apparently, the president is under the belief that if trade deficits go down, economic output rises. Most economists say it doesn’t work that way. Having a trade deficit — which happens when a country imports more than it exports — reflects more about robust U.S. consumption than about unfair trade.

When calculating a country’s Gross Domestic Product, it is true that economists will count a trade deficit as a negative, but that is more a matter of accounting. Most economists believe a trade deficit does not cause GDP to be smaller.

Unintended Consequences

What they will also tell you that raising import taxes on goods (which is what tariffs are) can have all sorts of unintended consequences. Research by economists Nicholas Bloom, Mirko Draca, and John Van Reenen indicates that while exposure to Chinese competition did destroy U.S. jobs, it also forced U.S. companies to innovate faster and become more productive.

Erecting trade barriers and protecting domestic industry groups tends to inhibit innovation. In other words, the shielded companies get fat and lazy while consumers pay more for goods and services.

To be sure, corporate America was happy to see a reduction in the corporate tax rate from 35 percent to 21 percent. We have not seen a spate of new capital investment because of it yet, but it is still early. U.S. companies have also been quite happy with the Trump administration’s attitude toward reduced regulation.

But a trade war would be a bridge too far. Let’s hope we don’t go there.

Dean Barber is the principal of Barber Business Advisors, LLC, an economic development and corporate location consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com. Visit us at www.barberadvisors.com to learn more.

 

Let Us Keep the Essence of America

In Corporate Site Selection and Economic Development on February 26, 2018 at 4:04 pm

There is a robust African community in Dallas and my wife has been on a kick lately for Ethiopian restaurants, to which there are many. Being that we are married, well, I get to tag along.

The last restaurant we went to was not Ethiopian, but Eritrean, which was a part of Ethiopia but broke away in the early 1990s after a decades long civil war. After our meal, the owner approached us to ask if we liked our meal.

We assured him that we did, and then the topic of how and why he opened his business came up. It turns out that he and his wife came to the U.S. three years ago via the Diversity Immigrant Visa program, a government lottery program for receiving lawful permanent residency, informally known as a “green card.”

The Essence of America

He was a lawyer and a judge back in Eritrea. While I will not use the same terminology as our president in describing any country (President Lyndon B. Johnson referred to Vietnam as “that damn little pissant country.”), I can tell you that a casual reading about Eritrea indicates that it is a very repressive country, rivaling that of North Korea.

But what impressed me most about our host was his positive outlook about this country and becoming an American. To him, America was still very much the land of opportunity, of freedom, and where hard work would pay off for him and his family. He had every intention of living the American Dream.

Back in the car driving home, I told my wife, “My God, we need more people like this in our country, not less. This man represents the lifeblood of America, the essence of what this country is about. We cannot lose this or we will lose ourselves.”

Nativist Movements

If you look at our history, we have had our share of nativist movements. The subscribers of this organized xenophobia hold a shared belief that immigrants pose a threat.

During the late 1840s and the early 1850s, there was The Know-Nothing Party, also known as the American Party, empowered by fears that the country was being overwhelmed by Catholic immigrants who were hostile to American values and controlled by the Pope in Rome. The Irish in particular were singled out. (Watch the movie Gangs of New York.)

In 1875, Congress passed the Page Act, also known as the “Asian Exclusion Act,” and in 1882, it passed the Chinese Exclusion Act, which was renewed in 1892 and 1902. In 1890, Wisconsin passed an act known as the “Bennett Law,” which threatened to close hundreds of German-language elementary schools.

In the 1920s after World War I, the nativists focused their attention on Catholics, Jews, and south-eastern Europeans. A book by Madison Grant, The Passing of the Great Race, gained notoriety, in which Grant argued that the American racial stock was being diluted by an influx of immigrants from southern and eastern Europe.

In the 21st century, the Tea Party shifted its primary focus from deficit reduction to immigration, declaring President Obama’s decision to enact immigration reform through his executive powers as “amnesty for millions, tyranny for all.”

Which brings us to today’s political climate.

Stubborn Things

But before I go there, how about a few facts to chew on? President John Adams said, “Facts are stubborn things,” and, indeed, they are. But sometimes, they show us the way.

Analyzing data for 2017, the Center for American Entrepreneurship found that 43 percent of Fortune 500 companies were founded or co-founded by an immigrant or the child of an immigrant. CAE found that the occurrence of first- or second-generation immigrant founders is significantly higher among the largest Fortune 500 companies – accounting for 52 percent of the top 25 firms and 57 percent of the top 35 firms.

Immigrant-founded Fortune 500 firms are headquartered in 33 of the 50 states, employ 12.8 million people worldwide, and accounted for $5.3 trillion in global revenue in 2016.

These American powerhouse companies founded by immigrants or their children include Dow, AT&T, DuPont, Levi Strauss, Anheuser-Busch, Pfizer, Goldman Sachs, Sun Microsystems, Google, Yahoo, eBay, YouTube, PayPal, Tesla, Facebook, and LinkedIn.

What the heck, let’s name a few more – Home Depot, United Parcel Service, Northrup Grumman, General Dynamics, Procter & Gamble, Comcast, Kraft Heinz, Lockheed Martin, Merk, Costco, Apple, Walt Disney, and the current holiest of holies, Amazon.

Job Creators on Main Street and Wall Street

Immigrant entrepreneurs have also made their mark their mark on Main Street. Among small U.S. businesses, almost 20 percent were founded by immigrants.

At a time when the number of new firms as a percentage of all firms has fallen near a four-decade low, immigrants are twice as likely as native-born Americans to start a new business. Though just 14 percent of the population, they account for a quarter of all business owners.

According to an analysis by U.S. News and World Report, immigrant small businesses are responsible for 10 million jobs in this country. If you extrapolate that to large businesses, it means immigrants and the children of immigrants are responsible for 50 million jobs. That’s 40 percent of all jobs attributable to less than 14 percent of the population. That, my friends, is economic development.

Think about that Eritrean restaurant owner in Dallas for a moment. The idea of leaving one’s home country to go to a different country, with a different language and culture, that in itself is the epitome of risk taking. That takes, forgive me for using a rather course but accurate Mexican-American slang word, cojones.

Pushing Entrepreneurs Away

In his State of the Union speech, President Trump stressed the need for a “merit-based immigration system — one that admits people who are skilled, who want to work, who will contribute to our society, and who will love and respect our country.”

And yet, the Trump administration is considering rescinding the International Entrepreneur Rule (IER), which allows foreign entrepreneurs to build their businesses in the United States if they meet certain criteria and are vetted by the Department of Homeland Security.

In a letter to the president, the National Venture Capital Association, along with 31 other business groups, urged the president not to rescind the IER.

“Twenty years ago, our country’s share of global venture investment was 90 percent, but that number has dropped precipitously to 81 percent in 2006 and to 53 percent in 2017. In 2016, China was home to six of the 10 largest venture capital investments in the world. If we continue to push entrepreneurs overseas, our share of global investment will continue to decrease.”

In a recent analysis of a immigration reform plan offered by the White House, the Cato Institute concluded, “The plan would cut the number of legal immigrants by up to 44% or half a million immigrants annually—the largest policy-driven legal immigration cut since the 1920s. Compared to current law, it would exclude nearly 22 million people from the opportunity to immigrate legally to the United States over the next five decades.”

Note that we are talking about legal immigrants.

Final Thoughts

Nativism, the basis of which is prejudice against immigrants due to their color, ethnic and religious backgrounds or country of origin, does not make logical sense. It certainly makes no economic sense.

And it is also counter to who we are as a people. I actually believe in American exceptionalism. I believe in the everlasting dream, the promise of America. If you take that dream away, we are no longer what Ronald Reagan called “that shining city on a hill.” We’re just another country.

I’ll see you down the road.

Dean Barber is the principal of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com. Visit us at http://www.barberadvisors.com to learn more.

That Was the Week That Was

In Corporate Site Selection and Economic Development on February 11, 2018 at 9:07 am

Wall Street had its freak-out and a new space race was born. What a week. With a little bit of luck, I can bring these interesting new developments “down home” and show how they may affect us all.

Let’s first look at the wild ride last week on Earth, on Wall Street to be precise, leaving many of us scratching our heads and wondering what was going on.

What we have learned is that good news on Main Street – that the U.S. economy added 200,000 jobs in January and that wages grew at the fastest pace in eight years — can be viewed bad news on Wall Street.

For investors, the long dormant fear of inflation was revived – that bigger paychecks might mean bigger price increases and eventually bigger rate hikes on the part of the Federal Reserve. That would be bad for business and the economy at large, which means most of us.

No doubt, investors had become a bit complacent with the stock market rising and never suffering a bad loss. The Dow and other major stock market indexes hit record highs on Jan. 26. The S&P 500 was up 7.5 percent in 2018, with the Dow industrials up 7.7 percent and the Nasdaq 8.7 percent. Amazon and Netflix had sprinted 20 percent and 43 percent.

But last week was crazy. The Dow average experienced two drops of more than 1,000 points and two gains of more than 300 points. The Dow and the S&P 500 both ended the week 5.2 percent lower, their worst performance since January 2016.

What are We Seeing?

Wall Street uses different words for a drop in the markets, all with different shades of meaning. Are we seeing a “dip,” a brief downturn from what has been a long-term uptrend? Or are we looking at a “crash,” a sudden and very sharp drop in stock prices, which while rare, do happen after a long-term uptrend.

Perhaps we are experiencing what most analysts are calling a “correction,” defined as a 10 percent drop in the market from recent highs. Then again, we might be in the early stages of a “bear market,” a long, sustained downturn in which losses will surpass 20 percent from the market’s most recent high.

I doubt that anybody truly knows right now. I cannot help but recall the words of John Kenneth Galbraith who said, “The only function of economic forecasting is to make astrology look respectable.”

A Lack of Serious Leadership

And while the fundamentals of the economy appear to be very good, I do worry that our nation’s debt, now at over $20 trillion and growing, is not being addressed in any serious manner by policymakers in Washington, D.C.

And therein may be another underlying cause for the jitters on Wall Street – nobody, it seems, is minding the store, the ship of state, in a competent manner. I quote from the New York Times from last week:

“Republicans propelled themselves to power in Washington by promising an end to fiscal recklessness. They are now embracing the kind of free spending and budget deficits they once claimed to loathe.

“Congress is debating a bipartisan spending deal that would blow through the caps imposed by the 2011 Budget Control Act, unlocking $300 billion in additional spending for the military and domestic programs over the next two years. That comes on top of last year’s $1.5 trillion tax cut package and as the White House prepares to unveil Monday a $1.5 trillion infrastructure plan that would require $200 billion in government funding.

“While the White House says it plans to offset that $200 billion through unspecified cuts, none of the other spending is paid for at a time when the nation’s debt already tops $20 trillion.”

Some day the chickens are going to come home roost, and I fear that it’s going to get very, very ugly.

Now let’s go onto something a little more uplifting.

A New Space Race

Somewhere floating out there in outer space is a red shiny 2008 Tesla roadster with a space-suited mannequin named “Starman” behind the wheel. Conceivably car and driver could be up there for a very long time. And the car will probably get a little dusty along the way.

“It’ll probably get hit with something the size of very fine sand every year or so, and get hit a few times an hour with 100-nanometer-size dust,” Andy Rivkin, a planetary astronomer at Johns Hopkins Applied Physics Laboratory, told The Atlantic magazine. “On average, we think it’d get hit by a fist-sized rock every several million years.”

Several million years. And to think, back here on Earth, Consumer Reports says the average life expectancy of a new vehicle these days is around eight years or 150,000 miles.

This Tesla’s life expectancy was extended by its billionaire owner, Elon Musk, the real-life Iron Man whose enthusiastic embrace of technology for technology’s sake and desire to push the limits of what is possible for private enterprise has ignited a new space race.

“We want a new space race,” Musk told a press conference in Cape Canaveral after the launch of his SpaceX’s Falcon Heavy rocket into deep space. “Races are exciting.”

Mind you, the original space race was between the old Soviet Union, which took an early lead with the launch of Sputnik 1, the first artificial Earth satellite, on October 4, 1957, and the United States, which came roaring back with NASA’s Mercury and then Apollo programs, which resulted in man setting foot on the moon.

Competition is the American Way

Last week’s launch of the Falcon Heavy, now the most powerful operational rocket in the world, underscores that we have entered a new era in which companies and not just governments are competing for a place in space.

And it comes at a time when the Trump administration is looking to restructure the role of NASA, ensuring that private enterprise and international partners work closely with the space agency. Musk is forcing the issue whether NASA likes it or not.

“He’s being Elon again. I’d call it competition, and competition is the American way of life,” said John Logsdon, professor emeritus at George Washington University and founder of the Space Policy Institute told the British newspaper The Guardian. “SpaceX has challenged the traditional launch industry in the United States and in Europe and in China and in Russia.”

Elon, Jeff and Richard

Now billionaires and their companies have ambitions well beyond government contracts but the commercialization of space itself. Virgin Galactic, the space company founded by Richard Branson, and Amazon founder Jeffrey P. Bezos’ Blue Origin are hoping to fly humans for the first time this year on suborbital jaunts that could reach the edge of space.

Blue Origin recently opened a facility at Kennedy Space Center in Florida to build the New Glenn reusable rocket system, named after John Glenn, the first American to orbit Earth, which will be even bigger than the SpaceX Falcon Heavy rockets. In a tweet posted Tuesday night, Bezos congratulated Musk on the launch with a “Woohoo!”

Branson, founder of airline Virgin Atlantic, established Virgin Galactic back in 2004 with the goal of provide suborbital spaceflights to tourists and suborbital launches for missions into space. There are also plans for orbital human flight.

“Elon is absolutely fixated on going to Mars and I think it’s his life mission,” Branson said on CNBC “Squawk Box” in October 2017. “Jeff and ourselves [at the Virgin Group] are more interested in how we can use space to benefit the Earth.”

So 49 years after the first man set foot on the moon, we have entered a new era, a new space race where the private sector may take the lead. While this may alarm some of the traditionalists at NASA, I believe this is a very good thing in the long run.

Along Florida’s Space Coast, most of which lies within Brevard County, there is a renewed excitement

“No question that other companies around the world, they are looking at establishing facilities in Florida so they can be near the center of space activity,” Space Florida President and CEO Frank DiBello told the Orlando Sentinel. “We want to drive all of those to create tourism and job opportunities for next-generation engineers and the space workforce.”

Musk was right. Space races are exciting.

I’ll see you down the road.

Dean Barber is the principal of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com. Visit us at http://www.barberadvisors.com to learn more.

The U.S. Emerges as an Energy Superpower

In Corporate Site Selection and Economic Development on February 5, 2018 at 2:13 pm

No doubt you have heard the expression, “that which does not kill us makes us stronger.” That might be in essence the story of America’s oil and gas industry. Not surprisingly, Texas, where I live, has figured prominently in it.

From 2000 to 2008, the price of oil saw an unprecedented spike, going from under $25 per barrel to almost $150 per barrel. In response, U.S. drillers began in earnest to employ hydraulic fracturing, a technology pioneered by Mitchell Energy in the early 1980s near Fort Worth. In short, fracking — blasting water and sand deep underground to free oil from shale rock — gave the drillers access to once inaccessible shale gas reserves.

That development did not escape the attention of Saudi Arabia, which soon recognized this “fracking revolution” to be a potential threat to its hegemony around the world. Faced with the prospect of ceding market to these upstart American wildcatters, the Saudis convinced other OPEC nations to increase production, figuring that plentiful supply and lower oil prices would devastate the U.S. industry.

And it did. The price of oil dropped from over $100 a barrel in the summer of 2014 to $26 a barrel in February 2016. Most U.S. oil and gas producers were scratching and clawing just to survive, and many did not. More than 100, nearly half of them in Texas, went bust. The oil patch workforce in Texas dropped from 300,000 in December 2014 by 192,000 workers by September 2016.

Firing on All Cylinders

But late 2016, the Saudis came to the realization that these crazy Texans were in it for the long haul and would not go away. OPEC then decided to cut production and the price of oil rose to where it is today at about $65 a barrel.

Now that prices have stabilized, the Texas economy is “firing on all cylinders,” projected to add about 366,000 new jobs in 2018, according to Keith Phillips, senior economist for the Federal Reserve Bank of Dallas.

(The gross domestic product of the state is $1.6 trillion. If it were an independent country, and it once was, it’s economy would rank 10th in the world. My apologies for the apparent bragging about Texas. As a New York Times writer noted, “You don’t just move to Texas, Texas moves into you.)

Doing More With Less

Texas oil production is projected to reach 1.42 billion barrels a day this year, beating the 1972 record of 1.26 billion barrels. But it is worth noting that oil companies will do that with 75,000 fewer workers than at the peak in 2014 when 300,000 worked in the industry in Texas.

Efficiency is now the watchword. In short, the drilling companies have learned they can do more with fewer people. And that, too, has the world watching.

U.S. shale is “seemingly on steroids,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London, told Bloomberg. “The market remains enchanted by the ability of shale producers to adapt to lower prices and to continue to grow.”

And while the oil and gas industry remains a key economic driver in certain cities in Texas, Midland and Odessa would be examples, it represents less than 1 percent of the workforce in the Dallas-Fort Worth Metroplex. Statewide, it is less than 3 percent.

Explosive Growth

In his first state of the union speech last week, President Donald Trump, not surprisingly used the word “strong” to describe the state of the nation (all presidents do), all the while taking credit for an economy that appears to be doing very well.

Notwithstanding the Dow loss of 1,100 points last week in what most analysts says was a self-correcting response, the Labor Department on Friday reported that the economy added 200,000 new jobs in January, up from 160,000 in December.

Wages saw their biggest year-over-year increase since June 2009, rising by 2.9 percent over January 2017.

Other than saying, “we have ended the war on American energy,” Trump touched little on that subject. But prior to his speech, he has talked not only of energy independence for the U.S., but energy “dominance” in the world. There are indications that this might be actually happening.

U.S. oil production has surged above 10 million barrels a day for the first time since 1970, and the International Energy Agency says the U.S. is poised for “explosive” growth in oil output that will push it past Saudi Arabia and Russia this year.

Exports of crude oil and petroleum products have risen 20 percent in 2017 in the past few months to 7 million barrels per day. Natural gas production has also hit a record of more than 93 billion cubic feet per day.

“For the last 40 years, since the Arab oil embargo, we’ve had a mindset of energy scarcity,” said Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University and a former Obama administration official in an interview with Bloomberg. “As a result of the shale revolution, the U.S. has emerged as an energy superpower.”

That is also the assessment of Dr. Daniel Yergin, author of “The Prize: The Epic Quest for Oil, Money and Power.”

“This is a 180-degree turn for the United States and the impacts are being felt around the world,” Dr. Yergin told the New York Times. “This not only contributes to U.S. energy security but also contributes to world energy security by bringing new supplies to the world.”

Trump no doubt will claim credit for this relatively newfound superpower status, but the shale fracking revolution took place mostly during the Obama administration. The ban on crude exports from the U.S. was lifted in 2015, also when President Obama was in office.

Environmental Concerns

Much to the ire of many, the Trump administration supports opening 90 percent of the outer continental shelf to oil drilling as well as the Arctic National Wildlife Refuge where there is an estimated 11.8 billion barrels of recoverable crude.

Alarmed at the prospect that an offshore spill could devastate tourism in their respective states, governors of states along the Atlantic and Pacific coasts are seeking the same exemption that Florida Gov. Rick Scott (R) apparently got from the administration that would keep the offshore drilling ban in place.

Truth be told, there is not much planet sensitive about the current administration’s energy plans. Many environmentalists argue that shale drilling only extends the life of fossil fuels, much to the detriment of the planet.

It should be noted that the last three years have been warmest in 138 years of record keeping, resulting in, what scientists point out, the decimation of coral reefs, thawed polar ice at an unprecedented rate and raised global sea levels.

“We’re warming up pretty much at the rate we anticipated a decade ago,” Gavin Schmidt, director of NASA’s Goddard Institute for Space Studies, told Bloomberg. “Basically, all of the warming of the past 60 years is attributable to human activities.”

Whether you agree with that assessment, held by most scientists, or not, the environment would appear to be a low priority with the Trump administration.

What Does This Mean?

So what does the shale revolution and America’s rise as an energy superpower mean to most of us? Lower energy costs, at least compared to much of the world, is likely one result, which can and should be a boon to certain industry sectors, particularly manufacturing.

Will there be a movement away from renewable sources of energy, such as solar or wind? Possibly, which would not be in the nation’s long-term best interests. But in the short-term, the economy is very much cooking with gas.

I’ll see you down the road.

Dean Barber is principal of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com. Visit us at http://www.barberadvisors.com to learn more.

In Pursuit of Business and Deer

In Corporate Site Selection and Economic Development on January 23, 2018 at 9:23 am

This much we do know – that economic development is business development. And business development means, in some form or fashion, outreach.

If we are to further break it down in the simplest of terms, and I think there is value in doing that, then it follows that much of what economic development organizations should be doing is about reaching out to businesses.

This holds true whether businesses already exist in a community or are outside a community. One forms the basis for business retention and expansion (BR&E), while the other is the bedrock for attraction.

And yet despite stating what might seem the obvious, I’ve come across more than a few economic development organizations that are not so accomplished at business outreach. They don’t know where to start. They don’t know how to start.

This past week, I was engaged by the Lake Martin Economic Development Alliance in Alabama to show them the wheres and hows. Using my laptop computer, I sat down beside Denise Walls for most of a day and showed her how to cross reference and hone in on potential prospects using a variety of methods that I have learned over time. We identified prospect companies, decision makers within those companies and then “scraped” for phone numbers and email addresses.

The following days I would be looking for scrapes of a different sort.

Develop Your Base

Years ago when I was a newspaper reporter, I somehow came to understand that it was vital for me to develop trusted sources who would tell me things, sometimes on the record and sometimes off the record.

I was only as good as my sources, people to whom I developed relationships with over time. Years later, when I became an economic developer, I took that journalistic model of developing sources and applied it to building a network of business contacts.

Periodically, not too often as to be annoying, I would “touch” my contacts – sometimes by telephone, sometimes by email — to see how they were doing, if there was anything new happening with their company, and inform them of things that I thought might be of interest.

And that approach worked. I found projects, some of which resulted into substantial capital investments by companies. It’s a system that I have never abandoned but have only refined now that we have social media such as LinkedIn, Twitter, Facebook and host of other platforms.

Now, too, we have the benefit of digitally-based CRM and research tools at our fingertips that can help us determine who the corporate decision makers are, where they went to school, and even their hobbies.

Where to Start

The Lake Martin Economic Development Alliance is not unique in the fact that it has been largely dependent on the state to bring it projects, to which I would quote Dr. Phil: “How’s that been working out for you?”

That is not a cut at the Alabama Commerce Department, but rather a declaration that all local economic development organizations, no matter where they are, will have to tackle business development on their own.

You got to start somewhere and slowly but surely building a base of contacts, inside and outside your community, is a pretty good place to start. Indeed, I would argue that it is foundational, just as it was for me as a newspaper reporter in developing my sources.

If you are an economic developer and are not on LinkedIn, then I have to wonder what in the hell are you doing. I’m serious. And if you don’t have at least 500 contacts on LinkedIn, are you being serious about business development?

But here is a cautionary note and one that must be said. Business development is very time consuming and is far from being a perfect science. I’m not sure it’s even an art so much as a methodology. Mistakes and miscues will be made. Rejection comes with the territory. There are no guarantees.

Then What?

It might take me three minutes to find a CEO’s email address and direct phone number or it might take me three hours. Or I might not be able to find it at all using all my tricks of the trade. And even if I do find the desired contact information, then what? How do I best make contact and what is my message?

The hard truth is that business development is a rocky road to travel, which was the subject of a blog that I wrote in 2015. Since then, I have come up with a more refined way of developing contacts, to which I am willing to share to those so interested. (Using LinkedIn is only one segment.)

But the basics are that you must build your base of business contacts, you must continually expand and update your base (people do leave jobs), you must periodically touch base with your contacts, and you must develop a tailored message approach that clicks with people.

Your goal is making an emotional connection, developing a relationship of trust. Without that, you’re just making noise.

Study Up

Tailoring a specific message to a specific contact or contacts that will create a favorable impression is one that many economic development organizations struggle with. Your message to senior executives in the food processing industry will be and should be quite different from that of automotive suppliers. One size, one message, will not fit all.

What that means is that it is incumbent on economic developers to develop a deep knowledge of their target industries and about business in general. In short, it means studying up on the subject matter, knowing the players, the drivers, trends and challenges, of any particular industry sector.

At Consultant Connect’s annual Economix event last month in New Orleans, it was revealed that economic developer’s No. 1 gripe about site selection consultants was the frequently imposed short deadlines for submitting information on projects.  Their No. 2 complaint — that many consultants come off as arrogant know-it-alls, to which I would agree.

Default Contacts

A primary criticism that site consultants lodge at economic developers is that they (the economic developers) are not particularly good students of business. Too often, they have no deep understanding of their target industries; hence, they are unable to talk turkey to them. I would also agree with this assessment.

This lack of study, lack of industry knowledge often results in economic development organizations limiting their marketing efforts to only site selection consultants at the exclusion of prospect companies. It’s precisely because of their lack of knowledge that economic developers see the consultants as their default, go-to contacts.

To make matters worse, much of the material sent to the consultants is marginal at best. On almost a daily basis, I will get an email from ED group that should never have been sent to me, but rather should only have been directed to internal stakeholders within the community.

Come to our community breakfast next week and hear animal control officer Bob Jones speak about recent coyote sightings at local craft breweries.

“He walked right in liked he owned the place. But he couldn’t belly up to the bar and ask for a pint, because, you know, they’re short little fellows.”

Do No Harm

I got an email today inviting me to a four-hour jobs fair for hotel and restaurant workers in a city in Virginia. I remember that my first job as a teenager was as a dishwasher in the kitchen of a hotel restaurant, but I no longer have aspirations to work my way up to busboy.

These why-in-hell-are-they-sending-me-this emails used to irritate me as it was apparent that the offending ED group had made no attempt to sort its database for marketing purposes. Now I take it more in stride, knowing full well that I can always unsubscribe if things get too out of hand. (I don’t like to do that but have.)

Just as in the Hippocratic oath, when it comes to email marketing, which is always a bit of precarious undertaking, I would advise economic development organizations to do your best to do no harm, knowing full well that you will always get some unsubscribers. Again, rejection comes with the territory.

Back in Bama

I had a good time in Alabama last week, a place where I lived for 23 years. The state is coming off some big wins of late, the $1.6 billion Toyota-Mazda in Huntsville, gunmaker Kimber to build a $38 million plant in Troy, and strong indications that Canadian-based Bombardier may build a new aircraft assembly line in Mobile.

Then there is that national championship with Nick Saban and the University of Alabama. Intangible but notable nonetheless.

My trip was both for business and recreation. After showing Denise how to build a contact base by identifying prospect companies and decision makers within those companies, I subsequently joined old friends for a two-day deer hunt on a beautiful, remote piece of property that revived my spirits.

Exercises in Pursuit

We stayed in a small farmhouse, where there was no TV, no internet service, not even a cell signal for my phone. After dinner each night, there was chopped wood and a fireplace to enjoy, along with craft beer and whiskey. With that came, good fellowship and meaningful conversation. The hunt was just a backdrop. Just an excuse.

I saw plenty of deer but never took a shot, because it wasn’t the right shot or the right deer to take. But spending time alone in a serene natural setting gave me time to think.

Business development and deer hunting are both exercises in pursuit. In business development, you want to be noticed by your quarry, to even get their full attention. But it is the pursued that largely calls the shots on what eventually happens.

In deer hunting, you want to go unseen, unheard and unscented. You don’t want your quarry to know of your presence or the fact that you even exist. And then, if circumstances permit, you take the shot. Or not.

Pondering on that while sitting in a ground blind, a rifle on my lap, I nodded off asleep.

I’ll see you down the road.

Dean Barber is principal of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com. Visit us at Barberadvisors.com

Alabama Zen: The Ways of Nick Saban and Toyota

In Corporate Site Selection and Economic Development on January 14, 2018 at 9:54 am

There were problems to be overcome. But in the end, the systems were the solutions. Two belief systems, both focused on continuous improvement and with roots in Eastern philosophy, made national headlines last week.

And Alabama was the big winner as a result.

For Nick Saban, the University of Alabama’s football coach, there is “The Process” – a core belief that players should focus solely on execution and the immediate task at hand and not be distracted by past events or future outcomes.

And last Monday night, the Process prevailed. The Crimson Tide, a team utterly void of any superstars, rolled and won its fifth national championship in the 11 years that Saban has been its coach.

Two days later, there was evidence of another, not unsimilar process at work when Alabama edged out North Carolina as the winner in a multi-state contest for a prized Toyota Motor Corp. and Mazda Motor Corp. joint car factory worth $1.6 billion.

The Nature of An Assembly Plant

To understand the problem facing the Japanese automakers and why a 2,400-acre site near Huntsville was chosen, you must understand what an automotive assembly plant is. Add to that backdrop one of the main pillars of the Toyota Production System, which is Just-in-Time production.

It means transporting only what is needed, when it is needed, and in the amount needed.

In some respects, today’s automotive production line is not that much different from when Henry Ford installed the first moving assembly line for auto production in 1913.

Then as now, vehicles are mechanically moved to the workers at individual work stations where parts are added in sequence. Those interchangeable parts have been acquired and shipped in from other companies, which are the suppliers.

By the time a car or truck reaches the end of the production line, all the parts, almost all of which have been manufactured offsite by the suppliers, are fastened and attached, resulting in a brand new ready-to-drive vehicle rolling off the assembly line.

The Toyota Way

The fact that Toyota already has a substantial number of suppliers near the general vicinity of North Alabama, serving its other assembly plants in Blue Springs, Miss., and Georgetown, Kentucky, was probably the difference maker as to why North Carolina was not chosen.

Much of “The Toyota Way” is about conserving resources and eliminating waste. Had North Carolina been chosen for the assembly plant, it would have required building entirely new supply chains and an array of supplier plants. Such a move would not be conserving resources.

Which is probably why at the end of the day, when North Carolina was offering $1.5 billion in incentives, Toyota instead choose Alabama, which offered a state and local incentive package totaling about $700 million.

Of course, I am assuming that Toyota, the largest automotive company in the world, was, in effect, the managing partner with Mazda in choosing the site. The future Huntsville plant will be Toyota’s 11th assembly plant in the United States. Mazda currently does not manufacture in the U.S.

Back to Fundamentals

So what can we learn from this?

In some ways, it should be very reassuring to economic developers everywhere, including North Carolina, that basic business principles trumped (no pun intended) the financial incentives that were offered. While substantial, the Alabama incentive package was less than half that of North Carolina’s.

Two things stand out in my mind. First, incentives cannot make a bad location decision good. That is something that all companies truly should understand.

Second, logistics, the art and science of moving resources and which began as a military precept, is very much a basic business principle and certainly a major cost factor that should be understood by all manufacturers. But curiously it is often not given proper due consideration in the site selection process.

We know, for example, that a relatively short distance between two competing sites can mean millions of dollars in reoccurring transportation costs on an annual basis.

So Toyota’s choice in Alabama was a nod to the fundamentals, something that Saban stresses with his Alabama teams.

Chop Wood, Carry Water

It is interesting to note that both in Saban’s Process and in The Toyota Way, there is a consistent, ongoing emphasis on team, respect and getting the fundamentals right. It’s all about focusing on becoming the best that you can be, knowing that there is always room for improvement.

“The key to the Toyota Way and what makes Toyota stand out is not any of the individual elements…But what is important is having all the elements together as a system. It must be practiced every day in a very consistent manner, not in spurts.” — Taiichi Ohno, Japanese industrial engineer and considered to be the father of the Toyota Production System.

“Eliminate the clutter and all the things that are going on outside and focus on the things that you can control with how you sort of go about and take care of your business. That’s something that’s outgoing, and it can never change.” – Nick Saban.

“Before enlightenment, chop wood, carry water. After enlightenment, chop wood, carry water.” — Zen proverb.

Both Saban and Toyota subscribe to the idea that no matter how big or small the task may seem, the focus should be on the task at hand, which will help you develop a habit of always doing your best. Do your work, do it well, and when you find success, do it again and always strive to improve.

This is very much rooted in Zen doctrine. A worker on the assembly line in the Toyota Production System can stop the entire line if a problem is detected or to introduce change and improvement.

Go to the Source for Facts

At Toyota, as part of its “Chie to Kaizen” continual improvement mindset, there is this concept of “Genchi Genbutsu,” which means “going to the actual source and getting the actual facts” so as to make the correct decisions. Decisions should not be based on data alone, but one must have a deeper understanding of the problem at hand.

For Toyota and Mazda, the problem was picking the right site for the joint assembly plant. It was enshrined by the news media nationwide and opining consultants like myself who were not involved in the project. We voiced our opinions with little knowledge of the facts.

And whether they knew it or not, the Japanese managers and the assisting JLL team practiced Genchi Genbutsu as they did go to the competing megasites in North Carolina and Alabama to get the facts.

I do not know of any site selection consulting firm that would not take corporate client to the finalist sites under consideration to get the facts and gain a deeper understanding. In that sense, we’re all Zen.

Learn from Loss

“The best things come to those who wait” was a slogan used in an advertising campaign by the H. J. Heinz Company in the 1980s to promote its ketchup. However, that is not a truism in business.

What may be a truism is that good things happen to those who prepare. In 2008, Volkswagen passed over the very same Huntsville site in rural Limestone County that Toyota and Mazda chose in favor of a site in Chattanooga.

“When Volkswagen came, we weren’t ready,” Huntsville Mayor Tommy Battle said Wednesday night. “”… We didn’t have the soil compaction, we didn’t have the environmental, we didn’t have the utilities to the site. We didn’t have plans on roadways. We didn’t have everything necessary to make those sites a success. We took a learning lesson off of the loss of Volkswagen.”

But this time around, the Limestone County site was ready. The prerequisite work had been done for it to be certified in 2016 as a TVA megasite, meaning that all the basic infrastructure to accommodate a large manufacturing plant was in place.

At a press conference in Montgomery last week, Toyota President Akio Toyoda, grandson of the company’s founder, said he had fond childhood memories of spending time in Alabama as a Boy Scout.

And we all know the Boy Scout’s Motto, “Be Prepared.”

I’ll see you down road.

Dean Barber is principal of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com. Visit us at Barberadvisors.com

The Times They Are a-Changin’

In Corporate Site Selection and Economic Development on January 6, 2018 at 7:40 pm

On August 16, 1964, Lowell Eggermiers walked into a San Francisco police station, and announced, “I am starting a campaign to legalize marijuana smoking. I wish to be arrested.” Whereupon he fired up a joint, and his wish was granted.

In 1964, possession of marijuana was a felony crime in every state. A first conviction for a minor possession could result in up to a year in prison, which is about what Eggermiers served.

James R. White III, a libertarian attorney who described himself as “to the right of Barry Goldwater,” organized the original marijuana reform advocacy group, LeMar (Legalize Marijuana) in 1964 to support Eggermier’s defense.

Also in 1964, Dr. Raphael Mechoulam, a Bulgarian-born Israeli chemist at Hebrew University in Jerusalem, identified delta-9-tetrahydrocannabinol (THC) as the active psychoactive compound in marijuana.

When asked why he chose to do research on marijuana, Dr. Mechoulam replied, “Well, a scientist should try to find topics of importance.”

New Horizons

About two weeks after Eggermier’s arrest, on Aug. 28, 1964, Bob Dylan introduced the Beatles to marijuana. It was also in 1964 when Dylan wrote and released the title track of an album by the same name, “The Times They Are a-Changin’,” an anthem for change.

Fast forward to today, in doing the research for this blog, I came across the website of the 1964 Supply Company, which describes itself as “a cannabis lifestyle brand run by a collective of craft cannabis artisans and industry pioneers.”

According to the company, 1964 “marked a time of change and new horizons.”

Pot’s Gone Mainstream

Certainly, times and attitudes have changed. A Quinnipiac poll in August found that 94 percent of Americans support legalized medical marijuana and 75 percent oppose the government enforcing marijuana prohibition in states that have chosen to legalize.

That coincides with an October Gallup Poll discovered that 64 percent of Americans favor the legalization of marijuana, and that only 20 percent of support the federal government enforcing federal laws in states that have already legalized the substance.

Certainly, it would appear that legal marijuana has gone mainstream. According to the United Nations Office on Drugs and Crime (UNODC), cannabis is used by 16.2 percent of the population of the United States, the second highest, no pun intended, in the world. (Iceland is the highest at 18.3 percent.)

California was the first state to legalize the use of medical marijuana in 1996 via a ballot initiative. So it was not surprising that it became the eighth state in the nation to allow for legal and regulated recreational marijuana, again approved by a ballot initiative on Nov. 8, 2016.

A Huge Economic Impact

By virtue of the fact that California is the most populous state in the union, approaching 40 million, and has the world’s sixth largest economy, the market for marijuana there will be very large.

A study by the Agricultural Issues Centre at the University of California, Davis predicts that sales from recreational cannabis will eventually reach $5 billion a year. The state already sells marijuana worth more than $2 billion a year for medical purposes. For comparison, Colorado sold $1.3 billion in total, for recreational and medical use, in 2016.

The UC Davis study coincides with forecasts by Green Wave Advisors that California should reach $5.3 billion in retail sales in its first year. But there are plenty of other predictions, all of which agree that this is a big and growing industry.

The recently released Green Market Report forecasts sales in California at $9.1 billion to $11.5 billion to $11.5 billion, with the creation of 160,000 new jobs, while ICF International estimates the California market could reach between $15.9 billion and $20.2 billion per year.

According to cannabis research firm ArcView, the North American legal marijuana industry grew by 34 percent in 2016 to $6.9 billion, and is expected to grow by an average of 26 percent per year through 2021.

“The total economic output from legal cannabis will grow 150% from $16 billion in 2017 to $40 billion by 2021,” Arcview said in a statement. “U.S. consumer spending on legal cannabis in 2021 of $20.8 billion will generate $39.6 billion in overall economic impact, 414,000 jobs, and more than $4 billion in tax receipts.”

In its report, “US Legal Cannabis: Driving $40 Billion Economic Output,” Arcview states that the legalization of adult-use sales in California will lead to the creation of nearly 99,000 cannabis industry jobs and 146,000 indirect jobs in the state by 2021.

About $1 billion dollars in wholesale, excise, and cannabis-specific sales taxes were taken into state treasuries during 2016. Arcview forecasts that number to grow to nearly $2.8 billion by 2021. Adding local sales taxes, the 2021 figure could jump to $4 billion and $4.7 billion.

ICF projects California to earn between $2.4 billion and $3 billion a year in tax receipts from sales of marijuana. The state’s current budget deficit is $1.6 billion.

But Hold On There

By me quoting all these economic impact guesses, and that’s truly all they really are, you might think that I am a proponent of legalization.

Actually, I am quite torn on this subject. Mind you, I view myself as a live and let live kind of fellow. For example, I have no problem with gay marriage. To quote that great Texas icon Kinky Friedman, “I support gay marriage. I believe they have a right to be as miserable as the rest of us.”

But I have qualms about the legalization of marijuana. While I do not want to see a person’s life ruined on a minor possession charge (and therefore favor decriminalization), my reservations about legalization are rooted in the workplace.

Workforce Concerns

In my capacity as a consultant to industry, if I were representing a company in a site search for a location for let us say a future manufacturing plant, and if that site search area were to include a state or states where recreational marijuana was legal, it would behoove me to voice concerns to my client about absenteeism, productivity and workplace safety. As workforce is a primary factor in a corporate site search, those are, in my mind, proper considerations.

I would also advise a corporate client that the possibility exists that they could face legal challenges to drug-free workplace rules in jurisdictions where marijuana is legal. I’m merely saying that this is something to take into account, and I would not be serving my client well unless we did have that conversation.

The bottom line is this: In states where recreational marijuana is legal, is there a greater chance or frequency of some workers being impaired while on the job? I’m not sure we know the answer to this.

But Paul Bittner, partner and vice chair of the Labor and Employment Group at the law firm Ice Miller, contends that that legalization of marijuana can have many ramifications on the workplace, including:

  • It will affect a company’s current drug policy.
  • It may impact the overall safety of a company’s employees, suppliers and customers.
  • It could affect a company’s hiring procedures.
  • It can affect a company’s standing with the federal government.
  • It may affect a company’s insurance policy and rates.

A Possible Indicator?

And while it is by no means a perfect comparison, The Denver Post reported in August 2017 that the number of drivers involved in fatal crashes in Colorado who tested positive for marijuana has risen sharply each year since 2013, more than doubling in that time, federal and state data show. (The legalization of recreational marijuana in Colorado began in late 2012.)

Colorado transportation and public safety officials, however, say the rising number of pot-related traffic fatalities cannot be definitively linked to legalized marijuana. But if more people are hitting the streets impaired, might they be doing the same at work?

An article in the Journal of Occupational and Environmental Medicine in May 2015 concluded that there is a likely statistical association between illicit drug use, including marijuana, and workplace accidents. While some studies suggest that marijuana use may be reasonably safe in some controlled environments, its association with workplace accidents and injuries raises concern.

And therein lies my concern. I believe that data in forthcoming years will give us a better picture of the effects of legalization of marijuana on the workplace. In other words, we shall see.

Jeff the Moralist

Having said all that, I believe decriminalization of marijuana nationwide makes sense and that Congress should act to do just that. Decriminalization means that a given activity no longer qualifies as criminal conduct and can only be treated as a civil infraction, if that.

Criminal convictions can have devastating consequences on a person’s life, making it difficult for them to obtain employment, bank loans and housing. So I have to think that decriminalization is needed to repair the damage done.

But we have an ill-informed attorney general in Jeff Sessions who has made claims that have been dispelled by science, such as cannabis’s gateway effect and the idea that marijuana is “only slightly less awful” than heroin.

Furthermore, having last week rescinded a trio of memos from the Obama administration that had adopted a policy of non-interference with marijuana-friendly state laws, Sessions takes a moral stand, saying “good people don’t smoke marijuana.”

I live in Texas, and anybody who says that Willie Nelson is not a good person is just wrong. To quote former Texas Governor Rick Perry on Nelson’s long-time use of marijuana, “You gotta love Willie.”

I’ll see you down the road.

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