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BBA Economic Digest: A Call to Action

A Call to Action

Businesses are embedded in American society far beyond that of the roles of markets, competition, and finance. More and more, the nation's top CEOs are coming around to the idea that businesses are founded not only to provide needed products and services, but to make a difference in their communities and for their employees, too. Hence, the Business Roundtable's redefinition of a modern corporation in 2019 centered on how to preserve our free market system while ensuring that the benefits of capitalism flow to every American. It rejected Milton Friedman's belief that corporations are only answerable to stakeholders. That same year, the Harvard Business School found that business leaders were deeply concerned about the state of democracy in America. Nearly seven in 10 surveyed HBS alumni said democracy is at risk and that dysfunctional politics are negatively impacting U.S. competitiveness. These results echo a national survey of more than 1,000 business leaders conducted in late 2019 by Leadership Now. It found that nine in 10 leaders were concerned about the state of our democracy and half felt they had a personal responsibility to act.

Our democratic institutions not only enshrine and preserve individual rights, but are the underpinnings of a healthy system of business. They go a long way in ensuring capitalism and sustained economic growth.

This week we have seen a plethora of business groups and CEOs speak out against President Donald Trump’s attempt to subvert a peaceful transfer of power, a hallmark of our democracy.

I am glad to see them speak out. Businesses need to act to preserve these democratic institutions and systems that guarantee democratic freedom. They know that democracy and capitalism are intrinsically linked and are the pillars of the American way of life.

A Faustian Bargain

From the start of Mr. Trump’s presidency, corporate America has vacillated between supporting the president’s economic agenda -- cutting taxes and rolling back onerous regulations -- and condemning his worst impulses.

After Wednesday’s events on Capitol Hill, the cost of that balancing act was plain to see, and many CEOs said they had enough. “This is what happens when we subordinate our moral principles for what we perceive to be business interests,” Darren Walker, the president of the Ford Foundation and a board member at Square and Ralph Lauren told The New York Times. “It is ultimately bad for business and bad for society.”

Lloyd Blankfein, the former chief executive of Goldman Sachs, told The New York Times that to a large degree, Wall Street enabled Mr. Trump. "For Wall Street, it was lower taxes, less regulation. He was delivering what “we” wanted. We put a clothespin on our nose. We weren’t ignorant of the kind of risks we were taking. We repressed them."

But no longer.

In the aftermath of the assault on the Capitol Building, one of the most strongly-worded statements came from Jay Timmons, president of the National Association of Manufacturers, representing some 14,000 companies. It is noteworthy that Mr. Timmons was once the executive director of the National Republican Senatorial Committee.

“Armed violent protestors who support the baseless claim by outgoing president Trump that he somehow won an election that he overwhelmingly lost have stormed the U.S. Capitol today, attacking police officers and first responders, because Trump refused to accept defeat in a free and fair election. Throughout this whole disgusting episode, Trump has been cheered on by members of his own party, adding fuel to the distrust that has enflamed violent anger.

"This is not law and order. This is chaos. It is mob rule. It is dangerous. This is sedition and should be treated as such. The outgoing president incited violence in an attempt to retain power, and any elected leader defending him is violating their oath to the Constitution and rejecting democracy in favor of anarchy. Anyone indulging conspiracy theories to raise campaign dollars is complicit. Vice President Pence, who was evacuated from the Capitol, should seriously consider working with the Cabinet to invoke the 25th Amendment to preserve democracy."

More CEO Reactions

Alan Murray, the CEO of Fortune Inc.: "A coup attempt, incited by a defeated president. That’s a plot line for a Tom Clancy novel, not something that would happen in the citadel of democracy. But yesterday, it did. It was the most significant attack on the U.S. Capitol since the British invaded in 1814."

Sundar Pichai, CEO of Alphabet, the parent company of Google: “The lawlessness and violence occurring on Capitol Hill today is the antithesis of democracy, and we strongly condemn it.”

Albert Bourla, CEO of Pfizer: “So many people dream of living in a country governed by the rule of law. America must continue to be that place ... Whether we are Republicans or Democrats, conservatives or liberals, we all have a role to play in making this democracy work." Tim Cook, CEO of Apple: “Today marks a sad and shameful chapter in our nation’s history. Those responsible for this insurrection should be held to account, and we must complete the transition to President-elect Biden’s administration." Julie Sweet, CEO of Accenture: “Our elected leaders must stand together to support democracy, accept this free and fair election and bring to justice the perpetrators of today’s violent assault on our country." Arvind Krishna, CEO of IBM: “IBM condemns today’s unprecedented lawlessness and we call for it to end immediately. These actions have no place in our society, and they must stop so our system of democracy can work.” Bob Swan, CEO of Intel: “We condemn all acts of violence and attempts to unlawfully disrupt a democratic process that has long been a model for the world.”

The Importance of Manufacturing Some years ago, a community reached out to me asking if I might consider a job heading its local economic development organization. I did my research and determined pretty quickly that this community saw the recruitment of retail as its primary strategy and function. I canceled the interview, telling them that I wasn't the person they were looking for. Manufacturing has always been near and dear to me. I grew up in a manufacturing family. Before going on to college, I worked for two years as a laborer in a grey iron foundry. Back then, it was hot, dirty, and even dangerous work. But believe it or not, I found it somewhat satisfying. I never took work home with me. It saddens me that in my lifetime, I have seen manufacturing substantially slip away in this country. And with it the erosion of the middle class. The scramble for medical equipment with the outbreak of the pandemic was a telling moment. It revealed that our country could no longer produce what it needs in a time of crisis, even if those things were invented here. I have watched us following a path of offshoring, driven by an ideology celebrating short-term financial gains above everything else. Our country was once a manufacturing powerhouse. Now it's populated by corporations that have moved their manufacturing operations overseas, leaving behind shell companies that employ relatively few people. I've always believed that as a country we have to make things if we are to remain a superpower and retain the hope and promise of the American dream. We just have to.

Could Mid America Startups Get New Life?

So many economic developers that I know want to capture some of Silicon Valley's magic, hoping that the talent in their communities will create a successful tech company that then births more.

It has rarely worked out that way, largely because venture capitalists have been reluctant to invest in startups outside the San Francisco Bay Area or the Northeast corridor. There is a reason for this. Investing in a startup often requires a hands-on approach, particularly if the venture capitalist is going to take a board seat. If a problem arose, they have wanted to be present. That's not to say that VCs never invest far from home, but such deals often needed to pass a higher threshold. But, but, but: The pandemic has forced venture capitalists to conduct meetings via Zoom, and like the rest of us, they have learned that their work hasn't suffered. The result just might mean that a California-based VC will be more comfortable investing in a Midwestern or Southeastern U.S. startup because it will not necessarily translate into years of travel. If this holds true, if the advent of Zoom meetings become the norm, then it would follow that non-coastal startups should have a better chance of getting an audience with a wide group of prospective investors.

And if that's true, then maybe, just maybe economic developers will be able to build a cluster of tech companies. A lot of maybes. We shall see.

By the Numbers

What percentage of small businesses fail? Here are some stats that might prove useful to economic developers. According to the Bureau of Labor Statistics: about 20% fail in their first year, and about 50 percent of small businesses fail in their fifth year. But it’s also helpful to see the numbers in terms of the survival rate. About 80 percent of businesses with employees will survive their first year in business. (The most recent data shows that, of the small businesses that opened in March 2016, 79.8 percent made it to March 2017.) About 70 percent of businesses with employees will survive their second year in business. (The recent data shows that of the small businesses that opened in March of 2015, 69.2 percent made it to March of 2017.) About 50 percent of businesses with employees will survive their fifth year in business. (Data shows that of the small businesses that opened in March of 2012, 50.2 percent made it to March of 2017.) About 30 percent of businesses will survive their 10th year in business. (The most recent data shows that of the small businesses that opened in March of 2007, 33 percent made it to March of 2017.) Health care and social assistance businesses tend to have the highest survival rates. BLS data shows that the health care and social assistance industry is projected to grow by 21 percent, which is the fastest job growth rate of any other industry surveyed.

About 85 percent of small businesses in this industry survive their first year, around 75 percent survive their second year, and about 60 percent make it through their fifth year. It not so great for the construction or transportation and warehousing industry.

For the construction industry, about 75 percent of businesses survive their first year, 65 percent make it through their second year, and about 35 percent make it through their fifth year.

For the transportation and warehousing industry, a little more than 75 percent of businesses survive the first year, a little more than 65 percent survive the second year, and about 40 percent make it through the fifth year in business.

There are many reasons why small businesses fail, but capital access, cash flow, lack of demand, and poor management are the top reasons, according to a CBInsights analysis of 101 startups.

Your Obedient Servant

During the 18th and 19th centuries, when letter writing was the norm, it was not uncommon, for men in particular, to sign off on correspondence or reports with the following words: "Your Obedient Servant" or simply "Your Servant." For me, as a consultant, the operative word is "servant." I may not always tell my clients what they want to hear, but if I am to responsibly serve them, I have a duty to do so. Recently, I tried something that I've never done before. I allowed -- through Google docs -- for a client to watch me build, write and rewrite a report for them. In short, I let my client watch the sausage being made. I realized the risk to my radical transparency, but I also saw the value in doing so. My client was not going to be caught off guard, and if they do have comments or suggestions, which they invariably do, I want to hear them. After all, I am in their employ to serve. Never once has a client asked me to change an uncomfortable finding. But they have made suggestions worth pursuing, something that I welcome if it means providing greater value.

I am, (Sir or Madam), Your Obedient Servant, D. Barber

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