Modern economic growth is driven by innovation and technology. In partnership with the Colorado Business Roundtable, this issue of ICOSA Magazine explores some of these topics in an attempt to inform and inspire leaders here in Colorado and beyond.
Imagine you are reading the Sunday paper. You suddenly see your vendor’s company name in an article about its stock value plunging upon news it was experiencing “constraints” delivering its services. On August 10th, that very thing happened to the customers of Swift International (Swift). “Where Have All the Trucker’s Gone?” Sunday, Aug. 10, 2014, New York Times. Apparently, Swift (and presumably other logistics providers as well) can’t find enough qualified drivers to work for wages that have decreased up to 6 percent on an inflation-adjusted basis in the last decade. Those customers that had not already heard the news read about it in the paper. If you are a sourcing, contract or procurement professional, this type of news should cause you to pause and reconsider your vendor pool.
Some companies and their service providers may have gone too far in asking for and attempting to deliver savings. In some circumstances, savings have apparently come at the cost of performance. Swift is not the only service provider to face pressures to reduce costs and had performance challenges as a result; it is merely the company in the spotlight at the moment.
Traditionally, buying companies would seek to limit their risk exposure by diversifying their vendor pools. In the logistics industry, dedicated carriage- or fleet-leasing arrangements have been used to reduce both parties’ risk as well as reducing their costs in re-bidding. But if a lack of drivers, or any other kind of qualified personnel in your industry, means that a diverse pool of vendors will face the same challenge, it is time to do something different.
The answer lies in the method the buying and selling company uses to negotiate value. Most companies think using a collaborative negotiation approach should be reserved for the service providers who are already performing well. That’s a huge mistake.
In research, conversations and personal experience as a contracts attorney, buying companies have placed a lot of pressure on themselves and their vendor pool to deliver savings—in some cases guaranteed savings.
The problem with this pressure occurred in the bargaining process, not with the attempt to control costs. Both the buying company and the service provider spoke only of claiming their value (each attempting to capture as much margin as possible), rather than about ways in which to create and then allocate newly created value. The book, Getting to We, outlines three ways business people negotiate value. Negotiators can claim value (literally take the largest share of a limited resource), create and then claim value (expand the pie and then take the largest share of that pie – a limited resource) or they can create and allocate value for mutual gain.
Allocating Value is Not Claiming Value
This third method for negotiating value is literally a framework. Unlike conversations centered on claiming value, which are one-off events, the two companies are in effect structuring an approach to work together to solve problems associated with rising costs, disruptive innovations and pressures to reduce costs.
Allocating value may seem too good to be true: it is not. Allocating value is real and companies have done it. The article “Unlock Value By Decreasing Vendor Risk” describes how two companies successfully allocated value by decreasing risk. Establishing a financial framework instead of a one-time negotiation to fix the fee does require a significant shift in both companies’ mindsets.
Allocating value is premised on two pillars. First, both parties have a what’s–In-It-for-we attitude. This attitude is the philosophical mantra for all highly collaborative relationships, and for allocating value.
To truly deliver savings without sacrificing one company at the expense of the other, both companies need a we mindset that is the opposite of the mindset used by negotiators when claiming value for their company.
If you accept the we mindset, then you accept the reality that wages are going to rise at some point. Rather than shifting the burden to the vendor in a fixed-fee agreement, the parties would seek ways to absorb the rising wages and to reduce costs in other areas. For example, one of our clients had success in re-routing its drivers to consume less fuel, which offset other costs. In a value-claiming negotiation, the buyer may have chosen a traditional fixed rate or fee agreement believing that rising wages are not their problem – they are the vendor’s problem. It is an illusion that a fixed-rate or fee agreement will shift the risk to the vendor and all the buying company has to do is enforce it.
The buying company still has the risk because it is the buying company that disappoints its customers when the buying company can’t deliver. Not a single one of the buying company’s customers cares who the carrier is and what the problem is.
A we mindset acknowledges that business environments change, and the only successful way to truly tackle rising wages is to do it as a cross-company team jointly enabling innovation.
The second pillar needed to establish a value allocation framework is a set of negotiation norms that support problem solving and eliminate a culture of blame. Getting to We explains six guiding principles that all highly collaborative relationships abide by.
The principles act as negotiation norms. They establish the tone and tenor of the relationship and steer a fair course of action when establishing a value-allocation framework. The six principles are: reciprocity, autonomy, honesty, equity, loyalty and integrity.
For the purpose of this article, let’s focus on the interplay between reciprocity and equity. Reciprocity is all about the give and take in the relationship and equity addresses proportionality and finding a fair solution in extraordinary circumstances. Taken together, both companies would seek to give and take on the issue of rising wages, and agree to modify the contract to adjust for wage fluctuations (both increases and decreases) as a pass-through cost to the company.
There are two keys to keeping a cost pass through fair. First, both companies have to establish a mechanism for minimizing the impact of the costs. For example, decreasing costs elsewhere or using labor more wisely to avoid overtime pay. Secondly, both companies have to trust the data whether the hourly wage, the hours worked or hours idling. Transparency is important. The more transparent the companies are in sharing data the better able they are to problem solve in a meaningful way.
By Way of Example
Say, for example, that your company’s logistics provider immediately warns you that wages are rising, that the pool of available long-haul truckers is shrinking industry wide and they would like to brainstorm ways to address this issue with your company.
If you have a highly collaborative relationship, it is both companies’ problem, as it always has been. But instead of fighting over the price and demanding guaranteed savings, you and your service provider develop a framework for addressing rising costs.
The framework should incorporate these five concepts:
One: What’s-in-it-for-we mindset. Remember that as the buying company, it is your risk to deliver to your customers. You do have a role in solving the pressure associated with rising wages, especially when those costs are industry wide.
Two: Have a balanced approach to cutting costs. The best solution will have actions by the buying company to reduce or use consumption more wisely and efficiencies on the service provider side. In other words, each is doing what it can control.
Three: Ensure reciprocity. No one likes feeling pressured to accept a bad deal. Too often in a value claiming negotiation, one company is giving more than it is getting, but as soon as the tide turns, the “loser” gets even in some way. Each company should give and get something out the deal.
Four: Develop an equitable plan to compensate the service provider for “idiosyncratic” investments, meaning those that favor only your company. If the solution to rising wages and too few drivers requires an investment by the logistics provider that solely benefits your company, the buying company has to compensate the provider for the investment. It is unwise and unrealistic to expect investment without a return. Likewise, provider investments that will provide significant long-term savings, such as equipment upgrades and system investments beyond direct labor, need to be compensated for.
Five: Get stakeholder buy-in at the top levels and hold them to their promise to support the measures you’ve negotiated. There are negotiations in which a senior leader at one company (the one with the power at the time) makes an unrealistic demand at the 11th hour that derails months of work by hard working team members. Bad behavior will literally freeze people out of the process and create an environment with little or no innovation.
You may have at least one at risk vendor in your pool and that vendor is likely facing pressures that are industry wide. Rather than take a more traditional value claiming approach to negotiating (or enforcing) the agreement, try establishing a value-allocation framework instead. Business happens all the time. The what’s-in-it-for-we mindset and guiding principles have proven themselves up to the challenge of addressing difficult situations head on and in a fair way. Are you up to the challenge of trying a new negotiation approach?
Jeanette Nyden works to transform underperforming business partnerships into collaborative relationships. She has written three books, including: Getting to We: Negotiating Agreements for Highly Collaborative Relationships.
Peter Moore has over 30 years in Supply Chain Management and Operations in industry and as founder and leader of a third party logistics company. He has served as North American Leader for Ernst and Young and the Capgemini Logistics Consulting Practices.
While speculation on economic impacts, pricing fluctuations, supply and demand and hedging occurs daily with commodities, this article will delve into the bigger concern: Will commodities be around in the future and at what cost? As a simple primer, there are two basic types of commodities, hard and soft. Wikipedia looks at a commodity as a marketplace item provided to satisfy wants or needs. The easiest differentiator is hard commodities are mined, while soft commodities are farmed. Some examples of hard commodities include metals, oil, coal, copper, zinc and mercury. Examples of soft commodities are corn, wheat, sugar and cocoa beans. Sometimes, soft commodities are referred to as the 3 F’s: food, fuel and fiber.
Why pose a question on the future of commodities when mining activities have increased, farmers markets are springing up everywhere and the shelves in the supermarket are fully stocked? Global population is expected to increase 11 percent by 2020 and 20 percent growth by 2030. Two hundred years ago, global population hit one billion. According to US Census Bureau data, it took another 118 years to double, hitting two billion in 1922. It took just 37 years to hit three billion, 15 years to hit four billion, 13 years to hit five billion and just 12 years to hit six billion. The dramatic increase in population sprawl reduces new farmland and drives up demand. The strain on natural resources is beginning to manifest itself in different ways.
China and India are increasing their consumption of commodities at a rate three times higher than that of the United States. Population is just one factor impacting commodities. Hedging and speculation within the economic sector is putting an intense demand on certain commodities. Soft commodities are prone to numerous factors outside of human control factors – weather, climate and spoilage to name a few. Soft commodities are at the mercy of marketplace pricing, with little to no ability to hold onto product and wait for more favorable pricing. As our climate continues to regulate, floods, typhoons, droughts and hurricanes ravage crops and supplies driving up prices, reducing already scarce resources.
On the hard side, commodities like coal and others have faced increased political pressures and have been under attack. Communities have put certain commodities squarely in their crosshairs and have worked to limit production through ballot measures or increased regulations. The EPA has been targeting carbon emissions, water and air quality standards among others. Millions are being targeted on a war against coal and energy production.
With population increasing and commodities become more and more scare, we are faced with the question of how to protect valuable resources and continue to produce essential commodities so necessary for day-to-day life. Crucial advancements and improvements in yield to offset less land available to farm and higher demand are essential. While the picture painted is bleak and has many in despair, there is good news out there.
Equipment advances and improvements in techniques have had a positive impact on yield. Creativity and experimentation within the commodities sector has led to innovation and new best practices. Science has created higher yield and more durable strands of soft commodities. Good ecological and social standards efficiently applied at scale are driving large-scale changes in production. Hybrid stains are proving to be resilient and withstanding some of the climate challenges.
The recent demand and consumption for healthy food, moving away from sugary snacks and treats is changing the landscape as well. It has certainly changed the demand and availability related to certain soft commodities.
Douglas County School District Reinvents Teacher Pay to Reward the Very Best Through an innovative performance-based pay system, Douglas County School District (DCSD) is one of the first districts in America to truly address the lack of professional compensation for teachers.
“Our goal is to attract and retain the very best teachers and employees,” said DCSD Superintendent Dr. Elizabeth Fagen. “We know that the number one factor in a student’s success is an excellent teacher.”
While the concept of the plan is simple – reward outstanding employees with pay raises and bonuses – the development and implementation of a quality framework has set a new precedent in education.
In 2009, the voters of Douglas County swept a reform-minded Board of Education into office. The newly elected Directors ran on a platform to provide universal choice to parents, establish financial stability and pay teachers based on performance.
The new Board hired Superintendent Dr. Elizabeth Fagen to implement its vision. Fagen immediately set forth to develop a systemic blueprint for change and a strategic plan. “Too often in education, we tinker at the edges. In Douglas County we had the opportunity to implement systemic change. We examined every aspect of our District from classroom instruction to professional pay for teachers with one guiding principal – to do what is best for our students,” said Fagen.
At the heart of change in Douglas County is the charge to provide every student with a world-class education that allows them to pursue the college or career path of their choice. Great teachers are critical to providing a world-class education, so DCSD set a goal of retaining and attracting the very best teachers from across the nation. Enter Chief Human Resources Officer Brian Cesare.
In a bold move, Fagen hired Cesare to lead the HR team and develop a system to pay teachers based on performance and market forces. Unlike most school districts, Cesare’s background and experience is in the private sector, not in education.
Upon his arrival at DCSD, Cesare found that like most school districts, Douglas County employed a ‘step and lane’ program to pay teachers. Developed in the 1900s, the plan allowed teachers to attain a job and increase their salary based on years in the job rather than any measure of performance.
“Market pay and pay-for-performance are standard for the private sector. Efficiency and excellence are required to meet the demands of the customer and succeed in the marketplace,” said Cesare. “Education was just the opposite, typically all teachers are paid the same whether they are average or outstanding and whether they are PE teachers or in hard-to-fill positions such as special education teachers.”
Fagen noted that the change was not as simple as it might sound to some. “Changing a centuries-old practice is a challenge, but it simply had to be done – we know it’s best for our great teachers and ultimately it’s what is best for our students.”
One of the first steps in the process was to develop an evaluation that discerned teacher performance.
“We value our teachers as professionals, and it was extremely important to us to involve them in the process of change,” continued Fagen. Hundreds of DCSD teachers worked together to develop a new evaluation tool that provides teachers with clearly defined expectations and criteria on which to judge. The result of that work is CITE (Continuous Improvement of Teacher Effectiveness).
CITE not only determines teacher performance based on a scale of effectiveness, the tool is also differentiated for 27 different types of teachers. “We know that we have many different categories of teachers,” continued Fagen. “Consider the work of a first-grade teacher compared to a high school art teacher. We want evaluations to not only establish performance but to inform professional development for every teacher, and that means developing different outcomes for different positions.”
Fagen also worked hard to gain community support for change. She and her team visited with chambers of commerce, Rotary clubs, economic development organizations and parents to discuss the plan and win support. Ultimately, a number of organizations publicly endorsed the pay-for-performance system. “It was very important to us to have the support of the community and local employers,” said Fagen.
After two years of implementation, the results speak for themselves. Over the last two years, DCSD has offered some of the biggest raises along the Colorado Front Range. In addition, the District’s retention numbers are very impressive. In 2014, DCSD had a total teacher turnover rate of 13.1%. Perhaps most impressive, the district retained 94% of teachers rated as highly effective and 90.4% of teachers rated as effective. There was a 100% turnover of ineffective teachers and a nearly 30% turnover of partially effective teachers.
“We are very pleased to say that we are retaining the very best teachers and rewarding them with significant raises,” said Cesare. “The higher turnover in the ineffective and partially effective categories allows us the opportunity to get the best teachers in front of our students.”
In addition to successfully implementing pay for performance, Cesare developed a market-pay system that allowed the district to offer higher salaries in order to recruit hard to fill positions, such as special education teachers. The system is based on pay bands that categorize positions based on market forces.
“Introducing market pay to education has been a challenge,” continued Cesare. “Our system is based on quality supply and demand, not value. We have really emphasized that point to our teachers and to potential hires. We value every position but we rely on market forces to set salaries.” Beginning in the 2012-2013 school year, all new teachers were hired using the market-based pay system, which takes a wider picture of a candidate’s education, certificates, experience and skill to determine a baseline offer.
“It is important to have the freedom to look at different factors,” continued Cesare. "Being able to weight those factors and create a pay that mimics the uniqueness of the position, allows us to attract and retain the best people. That is very important to us.”
The combination of an outstanding work environment that rewards performance and the use of market forces is delivering a quality candidate pool to the District. “In hard to fill positions such as special education, positions have gone unfilled in the past due to a lack of quality candidates,” explained Cesare. “This year we had great candidate pools and were able to hire outstanding teachers in all of our traditionally hard-to-fill categories.”
The success achieved by DCSD is not measured by numbers alone. School districts across the country have sought advice and information about the new pay system. “We want to be a model for the nation. We know our students are the future and we aspire to provide them with the very best educational opportunities available. That means attracting and retaining the very best teachers,” said Fagen.
The world has entered a new epoch characterized by intensifying international competition, continuously improving technology, a blizzard of information, and trans-national capital flows, making every company, technology, product, service, market and job vulnerable to worldwide competition. To compete, businesses must change their modus operandi. They must dismantle hierarchies and organize into smaller and smaller units that can respond quickly to growing competition for fast-changing, specialty, niche markets worldwide.
These dynamics are changing the very nature of economic production as we have known it for the past 100 years. In this fast-changing global information economy, ideas are capital. More important than technology, machines, or money are people: well educated, multi-skilled, creative, adaptable, innovative people who can respond quickly to rapid change to seize opportunities and solve problems. People are the most competitive factor in the global economy.
The product design/creation/marketing/distribution/service/quality process now happens simultaneously. To continually make incremental improvements in products and services requires new leadership styles, empowered employees, state-of-the-art technology, a common vision, and continuously adapting to and mastering change.
Organizations now require workers who are able to work on autonomous teams, solve problems, take risks, are resilient, co-accountable, will make decisions and collaborate with associates, adding value, improved quality and achieving customer loyalty.
Change will likely continue to accelerate. It is estimated that scientific and technological information now doubles every three years. Sometime in the first decades of the 21st century, the world information will double every year. Those who have learned how to use information effectively are dominating and inventing the future.
The most essential skill that workers (and that includes all of us) need, is to learn how to learn—to become critical thinkers, able to analyze and synthesize information, make connections, evaluate, estimate outcomes, communicate clearly and join with our associates in a continuous search for solutions and opportunities.
Workers need to perform not as robots as in the industrial era, nor as technocrats (although technical skills are necessary), but as thinkers, challenging assumptions, searching for better, faster, less expensive ways to do everything. Competition is now a global race with no finish line, for new enterprises, jobs and wreath creation.
Economic Development is the best tool communities, regions, states and countries have to create competitive businesses, good jobs, new wealth and diversified tax base.
As Jim Clifton, CEO of the Gallup Group, has pointed out in his book The Coming Jobs War, those places in the world which figure out how to create and grow new enterprises and good jobs will dominate the 21st century and beyond.
Jeff Wasden, PresidentColorado Business Roundtable
Economic Development in my own words…
To me, economic development is fostering a culture, an environment and thought processes that are centered around a healthy, vibrant, and strong economy. Scaled down, it’s the utilization and application of resources in a manner that creates increased business activity and opportunities, employment and sustainability. It is getting an infrastructure in place that allows you to attract the right mix of jobs and workforce opportunities.
ICOSA: Where are we at with economic development in Colorado?
I am extremely encouraged about where Denver and Colorado are in terms of economic development. We have incredible resources, recreational activities, and a remarkable quality of life. We have had some leaders guide us through some difficult economic times with bold, courageous guidance that has seen us not only survive but, in many cases, thrive. While we still have some challenges ahead, I am very optimistic about what local communities and counties are doing, as well as the regional cooperation we see manifested in our state.
ICOSA: Where do you think the most effort is being directed currently?
We are seeing three major efforts currently being undertaken. One is the I-70 corridor. The second is continued growth around the airport with new flights that have opened up access to new regions, as well as business opportunities in other parts of the world that we are not in currently, and finally, our work around this states precious and scare water resources.
ICOSA: Where should we be focusing more?
We need to create a conservative, workable transportation and infrastructure plan that utilizes shared resources across jurisdictions, public private partnerships that include a long-range vision. We will soon see additional overpasses and bridges that are deemed unsafe, roads that will deteriorate past patchwork, and congestion that will threaten our movement of goods and services. We need to be open to out-of-the-box, creative plans and make tough decisions on allocation of resources.
ICOSA: Where does economic development start for you?
Economic development for me starts in the same place that everything I do stems from - my core belief that collaboration and partnerships make us stronger. We as leaders need to understand that people are our greatest resources. We need to involve others, listen, and work together. Traits I strive for are a strong work ethic, coupled with an open mind and a servant’s heart. My hope is to then take these traits to get the experts in the room, create a vision and a plan and make things happen!
Jeff Wasden is with the Colorado Business Roundtable, an organization that works with leaders of great groups who work towards sound public policy and a thriving economy for Colorado and its neighbors. You can contact Jeff via email at firstname.lastname@example.org.
For more than a quarter century, state and provincial legislators from northwestern states in the United States and western provinces in Canada have been reaching across the border in a model of Canada-U.S. collaboration. Originally founded in 1988 as a forum for leaders from the state and provincial legislatures representing Washington, Oregon, Idaho, Montana and Alaska in the U.S. and the Canadian provinces of British Columbia and Alberta, the Pacific North West Economic Region (PNWER) has grown to include the province of Saskatchewan, and the northern Canadian regions of Yukon and the Northwest Territories.
The idea of what is today’s PNWER came from then Washington state senator Alan Bluechel, who was PNWER’s first president. Growing up on the Canadian side of the border in western provinces, Bluechel understood the common issues and interests that connected states and provinces in the region. His counterpart at the time who played a pivotal role on the Canadian side was Jim Horsman, then Alberta deputy premier and minister of intergovernmental affairs.
Every year, a PNWER delegation visits the two nations’ capitals – Washington and Ottawa – where meetings are held with federal politicians and government officials to address key cross-border issues. As well, PNWER stages an annual summit, an event that this July will be held in Whistler, B.C. This year’s agenda will tackle issues such as expanding market access, workforce development, ocean policy, as well as energy and the environment, among others.
In recent years, PNWER has been particularly active on Canada-U.S. border issues, working to ensure both a safe and efficient border. With the U.S. and Canada sharing the largest, most mutually beneficial two-way trading relationship in the world, ensuring the border provides the security needed, but, at the same time, does not become a barrier to trade and economic growth for both nations, has been a key PNWER priority.
Another issue that has received significant attention from PNWER has been energy and the environment. A key feature of the focus on energy is PNWER’s Legislative Energy Horizon Institute (LEHI), which is designed to educate legislators on the North American energy infrastructure and delivery system. Given the high turnover rate in state legislative bodies, there can be a lack of institutional knowledge about the complex energy issues in state and provincial legislatures. LEHI holds annual sessions to raise the awareness and understanding of legislators on key energy and environment issues from a U.S.-Canada perspective.
What started out as purely an organization to bring together U.S. and Canadian legislators, PNWER has broadened its scope in 1994 to become a true public-private partnership. It includes official private sector participation that involves non-elective public sector, non-profit organizations and non-government organizations. A private sector council, mirroring that of the organization’s legislative delegate council was established and private and public sector co-chairs became part of the working group structure.
As a result, funding for PNWER has become a blend of the public and private sectors. It is financed primarily through three sources, approximately one third from state and provincial dues, one third from private sector sponsorship and dues, and one third from public and private grants.
In an age where both the U.S. and Canada face ever-more complex and challenging issues, when collaboration is key to ensuring both nations continue to benefit from what has been a model bilateral relationship for the world, PNWER stands out as a key example of working together to ensure strong economies and societies.
In his book “The World Is Flat,” Thomas Friedman writes about globalization, a process in which diverse economies from distant regions of the world are coming together in a single global economy. It is commonly accepted that we live in a globalized world, where the most recent advances in technology enable instant information exchange and communication, efficient bulk transportation of goods and services and worldwide adoption of the universal financial instruments. Globalization brings growing awareness of the common problems that have to be solved on a global scale. And whether it is drastic changes in weather patterns, environmental pollution or shortage of water, globalization makes leaders come together in international task forces and action committees to form multi-lateral agreements and resolutions.
However, we should not forget that underneath the layers of global issues requiring attention from the global community at large, there are many issues that have to be solved on a more regional basis. Because not all regions of the world are equally equipped with financial resources or know-how, even in a globalized world it all comes down to relationships and a friendly handshake, which sharpens the sense of responsibility in each partner for their counterpart.
It is that sense of responsibility that drives people to look further than just a commonly accepted solution for a problem, to find uniquely fitting creative ideas and ways to implement them to help their friends in need. By increasing the number of opportunities for such committed relationships, organizations can facilitate transition of less-developed communities from the status of humanitarian aid recipients to fully engaged contributors in their own wellbeing. This applies, by extension, to their local economies as a way of continually improving the world we live in.
While many large organizations have key connections and clout in business circles around the world, many small- to medium-sized businesses do not. That is why the World Trade Center in Utah is committed to bringing people from different regions of the world together, one handshake at a time.
Some trade missions are seen as cleverly orchestrated publicity events for the governments of these states and countries, but Utah and its team has created worthwhile and prosperous trips for the countries and businesses involved. One such example is the World Trade Centers recent trade mission with Peru.
Even though Peru is an emerging economy, its steady annual growth has shown it is serious about expanding and growing its economy. Since 2002, the country has grown on average 6.4 percent in relevant industries to Utah, including technology services, energy and natural resources and life sciences. With so many opportunities, leaders from each of Peru’s regional and municipal governments flew to Lima last fall to participate.
Officials from Peru and Utah signed a memorandum of understanding to “establish concerted actions in sustainable economic development for years to come,” said Harvey Scott, Director of International Trade and Diplomacy for Utah’s Governor’s Office of Economic Development. The memorandum has helped facilitate higher education exchanges. One of the key issues is helping Peru with sustainable models for technology and infrastructure through the help of research and innovation. Universities in Utah and Peru are collaborating on this initiative.
The World Trade Center in Utah has also completed several trade missions within the last year in Israel, the United Kingdom, the Philippines, China, Brazil, Colombia and, in early April, to Mexico, to which Utah exported roughly $550 million in goods and services to in 2013. This mission successfully helped to expand business relations with three Utah-headquartered businesses.
Looking further, the World Trade Center in Utah is working on trade missions to Ghana, Senegal, Romania, Belarus and the Middle East. As long as there is use for outside markets to increase trade and development, the World Trade Center will continue to create trade missions that not only garner business opportunities but educational ties as well. One highlight of the trade missions is the opportunities to help institute programs that garner sustainable activities that will help each host country with issues like clean air and water.
A Report from the Business Roundtable The U.S. economy continues to underperform relative to its potential at great cost to workers, businesses and taxpayers. While America’s leaders continue to totter from confrontation to crisis, economic growth remains stubbornly low, unemployment remains unacceptably high and wages remain stagnant for the vast majority of Americans. The CEOs of the Business Roundtable are deeply invested in America’s success. We understand that when America succeeds, our companies succeed. We believe that realizing the economy’s full potential should be the nation’s top priority. And we believe that fully unlocking economic growth and job creation will require policymakers to rededicate themselves to a singular purpose: restoring America’s status as the most attractive destination for investment.
America’s doors have traditionally remained open to the investment that it needs to realize its full economic potential. But something has changed in recent years. America’s public policies have become increasingly inhospitable to those who are willing to contribute to building a stronger economy. Our fiscal outlook has significantly worsened, reducing the predictability that taxpayers and businesses need to make long-term investment decisions. Our corporate tax rate is the highest in the developed world, discouraging businesses from locating and hiring here at home. Our trade agenda is being affected by failure to pass updated Trade Promotion Authority (TPA) legislation, stifling efforts to complete trade agreements and expand U.S. trade and investment opportunities abroad. And our immigration policy has failed to keep pace with the demands of a modern global economy, threatening America’s ability to attract the world-class talent that it needs to remain an open, innovative and competitive economy.
Solutions to these problems are possible if there is the will to act. Policymakers can reopen America’s doors to the investment needed to drive innovation, economic growth and job creation. To succeed, it is critical that our elected leaders focus their efforts. Priority should be placed on those measures that are meaningful, urgent and ripe for action. Accordingly, the Business Roundtable calls on policymakers to take immediate action on four priorities:
◗ Restore Fiscal Stability
◗ Enact Comprehensive Tax Reform
◗ Expand U.S. Trade and Investment Opportunities
◗ Repair America’s Broken Immigration System
By adopting this four-point plan, our nation’s leaders can lay the groundwork for a strong, balanced and sustained economic recovery. It is time to end the era of governing by crisis. It is time to rebuild a sense of confidence, predictability and optimism among consumers and businesses. It is time for Washington to join the business community in investing in America’s success.
Restoring Fiscal Stability
America’s long-term fiscal trajectory is irresponsible and unsustainable. Mandatory federal spending is rising steadily. Until policymakers act with decisive leadership, these failures will continue to escalate, risking our nation’s economic future and ultimately our social safety net.
While annual federal deficits have recently declined as a result of short-term sequestration policies, the long-term fiscal challenges have yet to be addressed. The overall debt level is already approaching alarming levels. Debt held by the public as a share of gross domestic product (GDP) has doubled in the past five years, rising from 35 percent in 2007 to 70 percent in 2012; government analysts project that it will increase to 100 percent of GDP by 2038.1 This trend is primarily driven by increased spending on federal entitlement programs. For example, mandatory outlays for major health care programs and Social Security are projected to rise from 9 percent of GDP in 2012 to 14 percent of GDP by 2038.2 In addition, as the economy recovers and interest rates rise, interest payments to service the debt will increase as well — leaving fewer resources for the discretionary budget that pays for critical investments in infrastructure, education, and research and development.
Washington’s failure to address long-term fiscal challenges has lowered overall confidence and is undermining investment in America. Despite record-high corporate cash holdings, companies are delaying or foregoing major investments. Evidence suggests that fiscal instability is a key cause of this trend. For instance, in a recent survey by the Business Roundtable, nearly half of CEOs indicated that they were less inclined to hire new workers due to fights in Washington over the 2014 budget and debt ceiling limit.3
This lack of predictability is holding America back from achieving sustained, robust economic growth. Macroeconomic Advisers estimates that fiscal policy uncertainty has reduced annualized GDP growth by 0.3 percentage points and destroyed 900,000 jobs since 2010.4 Similarly, Moody’s Analytics estimates that increased political uncertainty from 2008 to Q3 2013 significantly constrained business investment, reducing real GDP by $150 billion and eliminating 1.1 million jobs.5
The Business Roundtable calls on U.S. policymakers to adopt a more strategic approach to budget and fiscal policy that focuses on predictable and timely fiscal policymaking, thoughtful near-term spending reductions, and measures that strengthen the nation’s health care and retirement system. Specifically:
◗ Congress should pass annual budgets and appropriations bills on time. This would avoid disruptions to government operations and allow an orderly process for necessary borrowing.
◗ Congress and the Administration should constrain federal spending in a manner that reduces long-term spending growth rather than imposing abrupt and arbitrary reductions in near-term outlays.
◗ Congress and the Administration should strengthen Medicare and Social Security by:
Making both Medicare and Social Security more progressive by considering increased means testing of eligible benefits for higher income recipients and increasing the focus on preserving the safety net for low-income Americans.
Updating the method for calculating Social Security cost-of-living adjustments based on the Chained Consumer Price Index, which more accurately reflects the costs people pay.
Preserving the existing system for current retirees and those nearing retirement, while gradually increasing the age at which people receive full benefits from both Medicare and Social Security to 70.
Expanding competitive models of care within Medicare by offering beneficiaries the opportunity to choose among competing and comprehensive private plans and traditional Medicare.
Enacting Comprehensive Tax Reform
America’s unwieldy and outdated tax system is undermining the competitiveness of businesses large and small, holding back economic growth. Policymakers from both sides of the aisle agree that the tax code must be streamlined in a manner that promotes economic efficiency and growth, yet practical proposals have fallen victim to Washington gridlock. Comprehensive tax reform is essential to realizing the U.S. economy’s full potential.
Corporate tax reform is a key component of this overhaul. The global economy has changed considerably in the last several decades, and the corporate tax code has failed to keep pace. The United States imposes the highest corporate tax rate of any Organisation for Economic Co-operation and Development (OECD) country, at 39.1 percent.6 On average, American companies are also subject to higher effective tax rates than their foreign competitors. For example, a study by PricewaterhouseCoopers found that the average effective tax rate for companies with U.S. headquarters was 27.7 percent, compared to 19.5 percent for those with foreign headquarters.7 In addition, the United States is the only G8 country that still uses a “worldwide” tax system, which collects U.S. taxes on the earnings of foreign subsidiaries. The vast majority of OECD countries have modernized their tax systems to tax a company’s sales in foreign markets at local rates.
Burdened by high business tax rates and an outdated method of taxing overseas earnings, the U.S. tax system stifles the business investment that drives innovation, economic growth and job creation. The high corporate tax rate discourages investment at home and places U.S. companies at a competitive disadvantage in the global marketplace for investment and jobs. When comparing different forms of taxation, the OECD characterizes corporate income taxes as “the most harmful for growth as they discourage […] investment in capital and productivity improvements.”9 Furthermore, our antiquated system of taxation severely damages the international competitiveness of U.S. businesses, which increasingly rely on foreign markets for growth and investment opportunities.
Improving the competitiveness of our nation’s corporate tax system would deliver significant benefits. Several studies estimate that cutting the U.S. federal corporate tax rate by 10 percentage points would boost real GDP by a percentage point or more.10 Moreover, transitioning to a modern international tax system would allow companies to return foreign profits to the United States and reinvest them in domestic ventures. For instance, a recent study by economist Laura Tyson found that switching to a territorial tax system would incentivize U.S. multinational companies to repatriate $1 trillion in foreign earnings, boosting U.S. GDP by at least $208 billion and creating at least 1.46 million additional jobs.11 Capturing these economic benefits is essential to realizing the U.S. economy’s full potential.
The Business Roundtable calls on policymakers to adopt a competitive, pro-growth tax framework that promotes economic expansion and levels the playing field for U.S. companies competing in global markets. Specifically:
◗ Congress and the Administration should reform the tax code to enhance the competitiveness of all businesses to fully strengthen the U.S. economy, enhance job creation, and enable American workers and businesses to compete effectively.
◗ Congress and the Administration should reform the corporate tax code in a manner that is fiscally responsible and enhances growth, including (1) encouraging capital investment by setting the corporate tax rate at 25 percent and (2) aligning the U.S. taxation system with other countries by adopting a modern international tax system.
Expanding U.S. Trade and Investment Opportunities
Washington gridlock is holding back efforts to expand U.S. trade and investment opportunities abroad. In particular, Congress has yet to pass updated Trade Promotion Authority (TPA) legislation that would empower U.S. trade negotiators and help complete trade agreements. Repeatedly updated and passed since the 1970s, TPA outlines the nation’s goals for trade negotiations with other countries, establishes a framework for consulting with and seeking input from Congress and other stakeholders at all stages of trade negotiations, and allows the President to bring a completed trade agreement to Congress for an up-or-down vote. By failing to pass updated TPA, Congress weakens the hands of U.S. trade negotiators and undermines their ability to open new markets for U.S. goods and services while ensuring a rules-based, two-way trading system.
International trade and investment are important engines for U.S. economic growth and job creation. More than 30 percent of U.S. GDP is tied to international trade and investment.12 International trade alone supports more than one in every five U.S. jobs.13 U.S. engagement in the international marketplace will become even more important in the coming years, as more than 95 percent of the world’s population and 80 percent of its purchasing power lie outside the United States.14 If the U.S. economy is to realize its full potential, policymakers must aggressively pursue opportunities beyond the nation’s borders.
The successful completion of pending and future trade agreements is critical to that endeavor. The United States is currently pursuing a range of trade agreements, including the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), the Trade in Services Agreement (TISA), and an expansion of the 1996 World Trade Organization (WTO) Information Technology Agreement. These agreements would expand U.S. exports, boost economic output and support millions of American jobs. Securing TPA is a critical step to realizing these economic benefits.
The Business Roundtable calls on U.S. policymakers to take action to fully capitalize on U.S. trade and investment opportunities. Specifically:
◗ Congress and the Administration should work together to pass updated TPA legislation as soon as possible.
◗ Congress and the Administration should aggressively advance and finalize high-quality trade and investment opportunities in the TPP, TTIP, TISA and expanded WTO Information Technology Agreement.
◗ Congress should reauthorize the U.S. Export-Import Bank to help U.S. companies compete for sales abroad and support the U.S. jobs that depend on those sales.
◗ The Administration should continue to implement reforms to outdated U.S. export controls.
Repairing America’s Broken Immigration System
America, once a beacon for diversity and innovation, is now turning its back on a wave of talent and entrepreneurship. While the forces of globalization and international competitiveness have never been stronger, current U.S. immigration policies discourage foreign students and essential workers from joining the labor force, imparting their expertise and contributing to the economy.
Policymakers from both sides of the aisle agree that the immigration system is broken. An estimated 11 million immigrants currently reside in the United States illegally, raising important concerns related to border security and law enforcement. Nearly two-thirds of this population have lived and worked in the United States for more than a decade.15 In addition, existing legal channels for attracting foreign workers are cumbersome, and the protracted process costs U.S. employers the chance to retain talented foreign students or persuade foreign nationals to relocate. The partisan politics of Washington have prevented practical solutions from being adopted. Our nation surely can find a way to manage border and security concerns while benefitting from the energy, innovation and skills that immigrants can bring to America.
Immigration fuels entrepreneurship, as immigrants are nearly twice as likely to start a new business as U.S.-born individuals.16 It produces widespread employment benefits, with studies estimating that each temporary work visa for a skilled worker or less skilled nonagricultural worker supports an additional 1.8 to 4.6 jobs for U.S. natives.17 And the impact of successful reform would resonate throughout the economy. For example, the Bipartisan Policy Center estimates that over the next 20 years, immigration reform could boost economic output by 4.8 percent, add as many as 8.3 million jobs and reduce the deficit by $1.2 trillion.18 Balanced, sensible immigration reform is a critical step toward realizing the U.S. economy’s full potential.
The Business Roundtable calls on policymakers to fix America’s broken immigration system and recommit our nation to attracting the brightest minds and hardest workers from around the world. Specifically:
◗ Congress and the Administration should improve security and better enforce immigration laws, in part by increasing resources for border security and requiring all U.S. businesses to use the E-Verify system.
◗ Congress and the Administration should welcome legal immigrant workers to contribute to America by increasing visas for higher skilled workers and establishing a new system for lower skilled workers.
◗ Congress and the Administration should find a solution to integrate undocumented immigrants into our society and allow those already residing in the United States to come forward, pay a penalty, and earn a legal status so they may work and travel freely.
Washington inaction continues to undermine the U.S. economic recovery. Despite recent progress, policymakers have largely failed to address long-term fiscal imbalances, significantly reducing the predictability that consumers and businesses need to make long-term investment decisions. The existing corporate tax system, marked by high tax rates and an outdated method of taxing overseas earnings, discourages U.S. companies from locating and hiring here at home. By failing to pass updated TPA legislation, policymakers have stifled efforts to complete key trade agreements and expand U.S. trade and investment opportunities abroad. And the failure to fix America’s broken immigration system is threatening the nation’s ability to attract the world-class talent that it needs to compete and win in the modern global economy.
Fortunately, these challenges are not insurmountable, and thoughtful, long-term solutions are well within Washington’s reach. Policymakers have the means to reopen America’s doors to the investment that it desperately needs to realize its full potential. By adopting a responsible approach to fiscal policymaking, modernizing the business tax system, expanding trade opportunities abroad and implementing sensible immigration reform, Washington can join the business community in investing in America’s success.
Business Roundtable (BRT) is an association of chief executive officers of leading U.S. companies working to promote sound public policy and a thriving U.S. economy. To learn more about the BRT, visit www.brt.org.
Central City is a small mountain community located only 35 miles west of Denver. A mining town founded in 1859 and once called the "Richest Square Mile on Earth,” Central City struggled as a tourism destination until gambling was approved by amendment of the Colorado State Constitution in 1990. The City approved gaming as a way to preserve its historic assets and attract tourists. It then experienced an influx of investors wanting to fill historic buildings with casinos. But the City struggled with protecting and preserving the historic structures that led to a moratorium in 1992, which prohibited large casinos. It essentially dealt itself out of the gaming market. In 2004, the City completed construction of the Central City Parkway to provide easy access from I-70. However, gaming and the construction of the new Parkway have not proven to be a permanent solution to reviving the local economy. Recently, a decline in gaming has resulted in the closure of several casinos. Two more casinos have closed their doors in the past year, and today there remain only five modest to small casinos. The City has been challenged in balancing the value of protecting its historic charm and in welcoming growth. This balance placed it at a competitive disadvantage to its neighboring city of Blackhawk, resulting in Blackhawk landing more casinos and their associated tax revenues.
While gaming was a part of the mining industry of the Old West, it poses a challenge to tourism today. The City is a town with great historic structures, but more than half of them are vacant. The presence of casinos has repelled some families, particularly those with children who are seeking alternative forms of entertainment.
Central City is now preparing to launch its biggest economic development project by standing up a second industry based upon arts and culture. It intends to embrace all forms of art and culture (fine arts, culinary arts, theatre, etc.), but the centerpiece will be music.
This new economic development effort is being started with a strong foundation – the Central City Opera House. Opened in 1878, the Central City Opera Company is the fifth oldest in the United States. It continues to provide quality musicals in the 2014 season that will include performances in both Central City and Denver.
Robert Fejeran, City Planner for Central City, said, “I believe that we can create a strong industry in arts and culture that will diversify our economy with new jobs unrelated to gaming while strengthening our existing gaming industry. Capitalizing on our existing opera assets by offering a variety of musical events will give people another reason to make Central City a tourism destination: getting a dinner and a show and still having time to visit one of our casinos. We will continue our tradition of sharing our music by producing musicals that can be offered in schools and local theatre venues across Colorado and the West.” Mr. Fejeran brings to this project his undergraduate work in Business Development at Regis College, his training in film production at the University of Southern California School of Cinematic Arts, as well as his Master’s degree in Urban Planning at Cal Poly University, which is combined with his prior work experience in sustainable building practices with Urban Collaborative Studios.
Central City faces all of the usual challenges of economic development in a single-industry, small community: small population, need for greater broadband infrastructure and limited access to capital in addition to limited parking and a rivalry with the adjoining city of Blackhawk.
An unusual challenge to development efforts is the supply of heating to Central City’s historic buildings. Most of these buildings were constructed at a time when wood stoves and air pollution were the norm. Now, over half of the commercial and residential buildings within Central City, including the Opera House, are in need of heat to enable year-round operations. This infrastructure problem may be addressed with solar or geothermal power. An Arvada business, SkyFuel, Inc., is completing a preliminary assessment for construction of a combined power and heat plant.
To coordinate economic development efforts, a new nonprofit was formed: the Cultural Economic Development Association called CEDA. This organization is working to bring attention to the economic development efforts through a series of events and fundraisers.
In support of these efforts, The Resource Group, a local private economic development business, was engaged. Karl Dakin and John Strom, partners in the business, work to create outcome-based economic activities. “In Central City, we would like to frame economic development around a well-defined theme that everyone can understand and support. Working with the City’s heritage, we have recommended creation of one or more independent, experimental musical production companies that can create musical presentations for the Opera House, local casinos and restaurants and for touring in cities across Colorado,” said Dakin. “Using this as a foundation, the plan is to create and accelerate additional related businesses such as stage building, costuming, ticketing, music production, etc. to establish an entire industry.”
It is anticipated that the arts and culture project will include the establishment of a Public Benefit Corporation (PBC), a new type of social enterprise authorized by the Colorado legislature that became legal on April 1 of this year. “The combination of a municipality with a nonprofit with a PBC opens up the full spectrum of available capital,” said Dakin. “It will be possible to match the right kind of capital with each individual project.”
Currently, work is focused on planning. Grants are being solicited by the City and CEDA to bear the costs of gathering data, assessing options, designing solutions, engaging local businesses and prospective partners and coordinating and distributing information. “We anticipate that we will be working collaboratively at the local, county, state, federal and international levels,” said Strom. “For economic activity to be sustainable, we need to reach out and work with all citizens, businesses, charities and government organizations in ways that not only benefit Central City but also benefit our partners.”
Planning will continue through the summer, culminating in the Evening of Wine and Roses Gala on August 7 as a fundraiser for CEDA. The Gala will kick off the Central City Jazz Arts Festival on August 8, 9 and 10 (http://jazzartsfest.co/), which will feature such jazz musicians as David Sanborn, Arturo Sandoval, Jane Monheit and Kneebody. The unprecedented line-up of musical artists and planned list of activities for the whole family not only makes this the leading jazz festival in the region, but also provides an opportunity for Central City to share its vision for the future with the public, the media and power people within the music industry.
The theme and purpose behind this festival, however, is the real story. “What the we at CEDA are stressing to anyone who asks is that the Jazz Arts Festival is MORE than just a musical event; it is a celebration of the revitalization of a historic community, said Cicily Janus, the Creative Director for the Jazz Arts Festival. Ms. Janus brings 20 years of experience in the arts and entertainment industry. She said, “Historically, jazz has always been about creating lasting, tight-knit communities through music. Bringing jazz back to Central City is a logical bridge beweteen the past and future."
Let the music play!
Amid the business challenges we’re all facing this year, there are also opportunities for growth. The global financial crisis is not affecting every sector of the real economy. Many companies are growing, often by expanding their international sales. While overall exporting volume is lower than it was a few years ago, worldwide market demand for goods and services continues to engender a considerable amount of international trade . . . and even growth in some sectors. The U.S. economy is projected to remain relatively flat throughout this year and into 2015 before beginning to recover, but with just five percent of the world’s population and less than one-quarter of global GDP, the U.S. is not the only country with purchasing power. While all countries are linked to some degree by economic interdependence, different cultural, political and market forces will lead Europe, Asia, Latin America and other regions each on their own trajectory.
Facing limited access to capital in their own countries, as well as high interest rates, new regulations and currency exchange controls, foreign companies are turning to their international suppliers for working capital in the form of longer payment terms. Exporters who seek to capitalize on sales opportunities emerging this year, next year and beyond can use export credit insurance and other financing tools to respond competitively to the global market’s heightened demand for trade credit.
You need to extend competitive credit terms to grow your international business, but what happens if you don’t get paid? Your foreign customers could go out of business or file bankruptcy, face currency devaluations or foreign exchange problems, run short on cash, take you for a ride, or fail to pay you for any number of other commercial or political reasons. You can protect your foreign receivables against virtually all non-payment risks with an export credit insurance policy.
Export credit insurance is an effective sales tool that enables you to extend competitive payment terms with confidence. It can help you penetrate new markets, negotiate larger order quantities, establish or expand distribution and increase the profitability of your export business. If you finance your receivables, the coverage will also make your foreign A/R more attractive to banks, factors and other lenders so you can negotiate the most favorable advance rates and loan terms.
All of your foreign receivables can be covered under one multiple-buyer policy that assigns a credit limit for each customer or insures the credit decisions you make yourself based on your own experience. Premium rates are a fraction of a percent of your covered export sales, less than the fees typically charged for letters of credit. Whether or not you pass this incremental expense to your customers, the price is insignificant compared to the additional business you gain by extending competitive credit terms.
MERIDIAN FINANCE GROUP & EX-IM BANK
The Export-Import Bank of the U.S. is the official export credit agency of the United States, with a mandate to provide financing, insurance, and guarantees that increase US exports. Each year Ex-Im Bank programs support billions of dollars in US export sales, strengthening the US economy and creating or sustaining an estimated 250,000 jobs nationwide. Rather than costing US taxpayers money or adding to the fiscal deficit, in the past five years Ex-Im Bank has returned more than $1 billion to the US Treasury.
Meridian Finance Group has worked with Ex-Im Bank for over 20 years and has received Ex-Im Bank’s “Broker of the Year” award three times. While most of Meridian’s credit insurance and trade finance business is underwritten in the private sector, Meridian is particularly proud of the work it does with Ex-Im Bank to support US exports. Exporting is one of the key components of the United States’ economic recovery and, in partnership with Ex-Im Bank, Meridian is helping hundreds of US exporters to expand their international sales.
Meridian provides access to trade finance tools that exporters can use to expand their international sales, including export credit insurance, cross-border equipment financing, foreign buyer credit lines, political risk insurance, supply chain financing, international leasing, L/C insurance and other services. Meridian’s clients include banks, non-bank lenders, multinational corporations and—with no minimum size requirements—middle-market companies and small business exporters nationwide.
Specializing in trade-credit insurance, Meridian helps exporters extend competitive payment terms overseas while protecting their foreign receivables against default risks. With export credit insurance, exporters can be confident of getting paid, use credit as a tool to increase international sales and arrange financing by making their foreign receivables more attractive to lenders. In addition to Ex-Im Bank, Meridian brokers policies underwritten by every other government agency and insurance company in the market.
For more information, visit www.meridianfinance.com or contact Robina Peanh, Regional Manager – International Insurance Services, Meridian Finance Group. email@example.com.
Why Small Business Is The Engine of Every Growing Economy Big businesses work great for investors, but when it comes to building economies or creating jobs, they are a failed experiment. A wide array of research has recently proven they actually have the opposite effect; they hurt economic growth and destroy jobs. It is the small and local businesses, particularly those starting up, that data shows are the engine of economies and job growth.
Big Businesses Destroy Jobs
In 2010, the Kauffman Foundation published its groundbreaking research on who creates jobs (The Importance of Startups in Job Creation and Job Destruction – July 2010). Since then a lot of other researchers have confirmed their findings.
Using newly available data from the U.S. government called Business Dynamics Statistics (BDS), Kauffman concluded that all business more than one-year old, including those that are centuries old, are “net job destroyers, losing 1 million jobs net combined per year.” It turns out 100% of job growth actually comes from brand new companies in their first year of growth. 98% of those startups will never be bigger than nineteen employees, 99.6% will never have more than one hundred. Startups that will almost all exclusively stay small are the engine of job growth, and bigger, older businesses destroy jobs.
General Motors is a classic example. Started as a holding company in 1908, it bought companies like Buick, Chevrolet, Cadillac, Oldsmobile and many others. Every time it acquired on of those companies, GM laid off a high percentage of “redundant” workers. Everybody touts the 200,000 jobs GM provides, but if you take into account the jobs they have destroyed over the last 100 years by swallowing other companies, the net effect is more like a negative 200,000 jobs.
Big Businesses Slow Down Economies
Stephan Goetz, professor of agricultural and regional economics at Penn State and director of the Northeast Regional Center for Rural Development, says small businesses are good for the economy and big businesses are generally not. In his research, “Big companies that employ more than 500 workers and that are headquartered in other states are associated with slower economic growth.”
“Many communities try to bring in outside firms and large factories, but the lesson is that while there may be short-term employment gains by recruiting larger businesses, they don't trigger long-term economic growth.” Goetz says a better strategy to promote economic growth is to encourage local businesses rather than recruiting large outside firms. “We can't look outside of the community for our economic salvation,” Goetz said. “The best strategy is to help people start new businesses and firms locally and help them grow and be successful.”
Big Businesses Don’t Create or Innovate
One of the serious side effects of big businesses growing by acquisition is the effect it has on innovation. All of General Motors’ successful car lines were created by entrepreneurs, then swallowed up by GM, which itself has only created one internal car line in its 105 year history, the Saturn line, which failed. This is not atypical. One of the reasons large companies want to acquire small ones is because they produce 16.5 times as many patents per employee than large companies, and virtually all the game-changing innovations come from the Smalls. Big companies rarely do anything new.
Big Businesses Create Recessions
Big businesses also create recessions, something no small business has ever done. Before the 1850s, only governments had created recessions, usually by bone-headed decisions around devaluing currency, and then only rarely. In 1873, Jay Cooke’s bank failed, which took down Henry Clews bank, creating a chain reaction that took us into a depression that lasted until 1880. Sound familiar? In 1907, J.P. Morgan set off a national depression by a few very calculated comments about risky Wall Street investments intended to drive down the stock of his competitors so he could buy them cheaply. Ever since then, big business has taken over the central role from government in bringing down economies.
Big Businesses Drain National Treasuries
The bank bailouts of 2008, which started at $500 billion and ballooned to over $1.2 trillion by 2009, were deemed necessary to keep the world economy from collapsing. After accepting the money, the banks turned around and took away the credit lines of virtually every small business in America with under $1 million a year in revenue, without consideration of credit worthiness. It simply made their books look better.
This lack of credit for small businesses, those Kauffman and others claim are the engine of all job growth, continues today and is considered by many, including this author, to be the central reason we have experienced the slowest recovery since the Great Depression of the 1930s. Big businesses have always caused recessions and small ones have always brought us out. This time the Smalls are hobbled by lack of credit and have not been able to play their role.
Big Businesses Lobby to Be Seen as Small
The Small Business Administration has been just as destructive to small business. From 2008 through 2013 the SBA, under the leadership of Karen Mills, set about the biggest expansion of the definition of “small” since its inception in 1953. As a result, tens of thousands of extremely large corporations with $30-plus million in revenue and 500-plus employees were reclassified as small. The banks that work closely with the SBA had lobbied for this for years and rejoiced. Over the last couple years, you regularly see the SBA and the banks putting out press releases about how small business lending has increased. But this expansion of the definition of “small” tells a different story.
Big Businesses Receive Loans That Should Go To Small Business
The 98% of small businesses with 1-19 employees (98% of all businesses) need loans of $50,000 to $250,00. In 2008, the average SBA loan was $180,000 and 24% of them were under $100,000. In 2013, the average SBA loan was a bloated $485,000 and less than 9% were under $100,000, and declining. The SBA and their banks are making much bigger loans to a lot fewer, much bigger corporations, and claiming they are helping small businesses. Nothing could be further from the truth. The SBA is as infatuated with Big as the rest of the world.
Big Business Benefits From Government Regulation (Crony Industrialism)
Government attempts to regulate big businesses to lessen their effect on the economy have also hurt the Smalls and helped the Bigs. Dodd-Frank, which big businesses helped write, was signed on July 31, 2010. It was supposed to keep banks from being a threat to our national security. But instead it created such onerous requirements that small banks and small mortgage companies were crushed under the weight of them. The Bigs just added a few lawyers and accountants and went about acquiring the Smalls. By 2011, the top 15 banks in the U.S. were all larger than when they were deemed “too big to fail.” In an attempt to regulate the negative effect big businesses can have on the economy, they made it more likely.
What’s To Like?
So the facts are that big businesses create recessions and depressions, are national security threats, have proven to be net job destroyers, require government bailouts, encourage politicians to create bad regulations, and are infamous for crony industrialism and lack innovation.
But as long as the Bigs are the main source of political contributions for all politicians, the deck will continue to be stacked against the Smalls, which are the true engine of every economy. Every successful economy in the world is founded on 98% or more of the businesses with one to nineteen employees because small and local companies make the world go round. The sooner we get over our infatuation with Big, the better.
Chuck Blakeman, World-Renowned Business Advisor and Best-Selling Business Author of Making Money is Killing Your Business and Why Employees are ALWAYS a Bad Idea
As the United States slowly emerges from the economic downturn of the Great Recession, pockets of the country have enjoyed a much faster recovery thanks to development of shale oil and natural gas resources. For example, cities west of the Mississippi River have boomed in population and economic growth due to increased energy production in oil- and gas-rich areas of the Great Plains and Mountain West, according an Associated Press report based on new U.S. Census data.
The same data confirm that energy production is one of the fastest-growing industries and an engine for economic growth in the United States. Generally, in locations where energy development occurs, economic opportunity arises and towns and states thrive.
However, economic opportunity has not been limited to just those production areas. The shale boom has also helped American families across the nation through indirect job and economic growth, lower energy costs and higher incomes. In fact, IHS Global Insight estimates that the domestic oil and gas boom created the equivalent of $1,200 of real disposable household income to American families in 2013.
Resources Fuel Our Economy
As the shale energy revolution continues to impact the nation, we are reminded of how energy development is closely correlated to economic activity. In fact, the former House Resources Committee Chairman Richard Pombo (R-CA) said during a hearing in 2006, “The fact is, resources fuel our economy...they are the building blocks of our society. Without them, we produce nothing.”
As Charles Mann noted in his recent The Atlantic article, economic growth and energy use go hand in hand: “According to the National Bureau of Economic Research, the United States has experienced 11 recessions since the end of the Second World War. All but one were associated with spikes in energy costs—specifically, abrupt jumps in the price of oil.”
This strong connection between energy development and economic growth is even more evident when examining economic figures stemming from the U.S. shale boom. According to the consulting and forecasting firm IHS Global Insight, shale development has supported more than two million American jobs and generated $75 billion in federal and state tax revenues. By 2020, IHS estimates, total jobs linked to shale will grow to 3.3 million, and the total impact on U.S. gross domestic product will be nearly half a trillion dollars.
According to energy expert and Vice Chairman of IHS Global Insight, “Shale gas has created hundreds and hundreds and hundreds of thousands of jobs in the last five years in the United States. It's brought $1 billion of revenue into the state government of Pennsylvania…"It does have a transformative impact."
But the economic development doesn’t end there. The boom in domestic natural gas production has pushed down utility prices for customers and bolstered energy-intensive manufacturing, particularly steel, chemical and plastics producers.
Where specifically are we seeing the firsthand positive impacts of the shale boom? Let’s take a look at a few examples from across the U.S.
The Bakken Shale formation covers Eastern Montana, Western North Dakota, and parts of Saskatchewan and Manitoba in the Williston Basin.
North Dakota’s shale energy boom has produced a parallel ripple effect in income, employment and population. The U.S. Bureau of Economic Analysis reported this week that North Dakota’s personal income level grew 7.6 percent in 2013 – the highest among all states for the sixth time in the last seven years.
The report noted the state’s growth is connected in great part to its energy development, the epicenter of which is the Bakken shale formation. Its riches have transformed North Dakota into the second largest oil-producing state in the U.S. after Texas in volume of oil produced, according to the EIA.
The Marcellus Shale formation stretches across western New York, Western Pennsylvania and all of West Virginia, and is the largest shale formation in the world in terms of oil and gas input.
Stretching across nearly two-thirds of Pennsylvania, the Marcellus Shale formation has provided significant economic benefits such as lower utility bills, new jobs, economic growth and new opportunity for the state. According to economic reports published by Consumer Energy Alliance over the past two years, a number of Pennsylvania counties have directly seen economic development stemming from production in the Western and Northeast parts of the state.
Marcellus Shale natural gas drilling has been ongoing in Bradford County since 2008, increasing by 20 percent and attracting national and international investment in the area. The state Dept. of Labor & Industry reported in 2010 that Bradford County experienced the highest increase in employment in any county in the entire state. Shale gas development has reduced unemployment and revitalized businesses and real estate in Bradford County.
The rolling countryside of western Pennsylvania just north of Pittsburgh envelops the abundant Marcellus shale formation whose natural gas development is revitalizing the county’s economy. In late 2012, shale gas revenue channeled $4.3 million to Butler and neighboring counties. In first quarter 2013, Butler County ranked in the top 50 counties in the nation for wage growth, according to the U.S. Bureau for Labor Statistics. Shell Chemical’s plan to build a multi-billion dollar ethane cracker plant in nearby Beaver County is expected to endow the region with additional business growth.
As one of the most active Marcellus natural gas production areas, Washington County has attracted national and international investment in the area. An increase in population and demand has brought a business boom for the service, transportation and tourism fields. Shale gas development in Washington County has helped to lower unemployment, boost average earnings and increase business growth outside the energy market.
The Green River Formation in Colorado, Wyoming, and Utah holds the world’s largest oil shale deposit. The Niobrara Formation’s most productive zones are in the Denver-Julesberg basin of northeast Colorado and southeastern Wyoming.
Colorado promises to be an emerging locale for prosperous shale development, as companies are increasing their footprints and adding more jobs to the region. The U.S. Department of Energy estimates that 80 percent of recoverable oil shale in the Green River Formation is located in Piceance Basin in northwestern Colorado. The largest energy-producing county in Colorado is Wattenberg Field, located in the Niobrara Shale Formation in the Denver Basin.
The natural gas and oil riches of the Niobrara and Green River formations are sparking many job opportunities. Colorado’s energy industry employs 110,000 people and contributes $29.5 billion in economic activity. The Colorado School of Mines saw increased enrollment in its Petroleum Engineering Program from 30 to 200 in 10 years. Some two-thirds of the school’s graduates, no matter their major, work for oil and gas companies upon graduation with an average starting salary of about $90,000 a year.
A Bright U.S. Energy Future is on the Horizon
With the Energy Information Agency (EIA) forecasting that U.S. crude oil production will approach a record by 2016 and natural gas production will increase 56% between 2012 and 2040, it’s clear that tremendous opportunity for the nation lies ahead.
Through the availability of abundant energy resources across the nation and new energy production technologies, energy will continue to fuel the U.S. economy for years to come. But that opportunity will only remain on the horizon if the U.S. continues to promote access to these resources. Whether it is oil and gas, coal, wind, solar, and other renewables, there must be both access to the resources and reasonable regulation, as well as a focus on producing energy in a way that is responsible and acceptable to the public. By following this path, the United States will remain a leader in energy and economic prosperity for years to come.
Kristin Schrader Marcell is former House Resources Committee staff member and political appointee for the U.S. Department of Transportation. She is a public affairs consultant that focuses on the energy and transportation industries.
The human brain is a wondrous bit of biology, one often taken for granted. The brain has been compared to familiar technologies such as telephone switchboards or supercomputers, but new discoveries made by scientists show it is much more valuable. The brain is astonishingly complex, and the true extent of its neural capabilities is still unknown. It contains roughly 100 billion neurons that form about 100 trillion synaptic connections. Humanity has only recently gained the ability to venture into this exciting new world, create ever more useful maps and profit from opportunities for economic gain. Fortunately, there is now adequate capital to fund neuroscience research. Last year, both America and the European Union launched major programs -- the BRAIN Initiative and the Human Brain Project, respectively – that expand the scope of brain research.
Timing is imperative, as the already massive economic costs associated with Alzheimer’s disease and other neurological illnesses are expected to rise as the populations in advanced economies are aging rapidly. In an era of vicious budget battles, some shortsighted arguments might be made to oppose this public funding of research. While fiscal responsibility is admittedly of high importance, ignoring this opportunity would almost certainly be a mistake in the long term.
Like the great sea voyages of the Age of Exploration, societal investment in neuroscience research involves costs and risks, yet the results can fuel unprecedented economic growth. Since neuroscience also holds the promise of improving millions of lives, funding research to advance the frontiers of neuroscience is a wise investment.
A Brief History of Neuroscience
Knowledge of the human brain was limited until about 20 years ago. Ancient Egyptians, while vaguely aware of some of the negative impacts of head trauma, believed the heart to be the seat of intelligence. The Ancient Greeks had differing primitive views, though the brain was commonly thought of as simply a sort of radiator designed to cool the blood. In the 1700s, Luigi Galvani pioneered the idea that muscles and the nervous system are electrically excitable.
Modern neuroscience began only in the 1890s, when the combination of using microscopes and colored dyes first made the shape of single neurons visible. This is around the same time that work with brain injury patients began to show that certain anatomical structures and regions have specific functions that affect behavior. In the mid 1990s, a giant leap forward began with the development of new tools such as magnetic resonance imaging (MRI) machines. Imaging technology allowed for the systematic and scientific study of living brains. Since then, many technical improvements have made possible the visualization of not only anatomical structures, but also the rates of metabolic activity over time.
Governments around the world are recognizing the importance of investing in basic and clinical research to advance fundamental scientific understanding. Improving health and promoting economic growth are also priorities. This research spending creates high-paying jobs. In 2011, for example, biomedical research grants from the National Institutes of Health created more than 430,000 quality jobs that produced more than $62 billion in new economic activity here in the United States.
Brain science is especially important to the economy. In the United States more than 1,000 brain diseases and disorders cause more hospitalizations than any other category, including cancer and heart disease. Neurological illnesses strike more than 50 million Americans per year and cost the economy more than $460 billion in healthcare expenses and lost productivity. According to recent medical-industry research, delaying the onset of Alzheimer’s by just five years could produce annual savings of $51 billion in health care costs by 2015.
Public Research Supports Private Innovation
Governments are best suited to fund basic research, but exciting applications are already being seen in the private sector. A company called CereScan is using cutting-edge functional imaging technology to diagnose a variety of neurological conditions and better guide treatment options. Chairman and CEO John Kelley is passionate about the potential for improving lives. He recently shared with me a confidential presentation given by Dr. Greg Hipskind, MD., PhD, CereScan’s Chief Medical Advisor, to an audience at the B.R.A.I.N. Conference in Long Beach, Calif., on the evaluation and treatment of traumatic brain injuries – the No. 1 cause of death and disability in children and young adults.
Approximately 7 million Americans are currently disabled as a result of a brain injury. By comparing a patient’s brain scans with those of a normative database, statistical differences in brain activity can be mapped and studied. Specific regions can be identified as suffering from hypoxia -- a lack of adequate oxygen supply. Near infrared light (NIR) therapy shows promise of increasing blood flow in targeted areas through vasodilation and angiogenesis. Kelley was excited to announce that an efficacy study using such techniques has been approved by an Institutional Review Board in partnership with the Tug McGraw Foundation and the Invisible Brain Injury Project.
Returns Require Investment
From 1988 to 2003, the United States invested $3.8 billion in the Human Genome Project, which has since created economic activity of $796 billion and holds further promise as private industry innovates new products and services. That amounts to a return of $141 for every $1 invested.
Neuroscience still contains more unknowns than the challenge of genetic sequencing did, but such examples of scientific returns should not be forgotten. As exciting as today’s neurotechnology is, the field faces danger from politics. Sequestration and budget cuts threaten the momentum of neuroscience research and development. Cuts would be felt immediately through the loss of jobs and economic growth prospects would suffer over the long run - actually detracting from the goal of a sustainable and balanced budget.
While America is a scientific leader in this growing field, other countries are investing, too. Continued backing of neuroscience research is necessary for the United States to remain globally competitive. Take action and call or write a letter to your congressman to voice support today.
Sources and Further Reading
America’s Neuroscience Initiative: Mind Expanding. The Economist. 2013 Brain Facts: A Primer on the Brain and Nervous System. Society for Neuroscience. 2012. NINDS Overview. National Institute of Neurological Disorders and Stroke. February 2009. Brain Facts: A Primer on the Brain and Nervous System. Society for Neuroscience. 2012. The Numbers Count: Mental Disorders in America. National Institute of Mental Health. 2010. CDC Report: Mental Illness Surveillance Among Adults in the United States. Centers for Disease Control and Prevention. September 2011. Medical Research: Saving Lives, Reducing the Cost of Health Care, Powering the Economy. Research!America. 2012.
Businesses often wonder how they can improve their strategic relationships. They ask, “Do I dive straight into the ‘deal’ terms to hammer out problematic clauses or do you take a different approach?” If you want to deliver an enduring relationship that will deliver value in the long run, you do need to take a very different approach to negotiating strategic relationships.The danger with the traditional approach to deal making is that it sets you up for an adversarial negotiation. Not a good way to improve any relationship!
Negotiate The Relationship – Not Deal Points
Getting To We: Negotiating Agreements for Highly Collaborative Relationships changes the goal of the negotiation from getting a deal done to establishing a collaborative relationship between the parties. In other words, the relationship itself becomes the focus. This unique and compelling idea says that once the parties establish the relationship according to common social norms, the parties are in a better position to continually improve their relationship.
Social Norms To Do Business By
In order to negotiate the relationship, the parties ought to use an ethical approach to negotiating. Naïve and impossible to achieve you say? There is ample research from sociologists, economists and legal theorists from the U.S. and Europe that suggests relationships based on common social norms outperform power-based relationships on multiple levels.
For example, academics have studied cattle ranchers in Shasta County, California; fishermen in Norway, apparel firms in New York, New York; and the economic performance of thirteen regions in Italy. The body of research clearly supports the connection between social capital and improving economic prosperity.
Social capital is the application of commonly accepted norms and social networks that exist to enable cooperation and mutual benefit. Adding to that body of research, the authors working with the University of Tennessee confirmed that companies of various sizes that established highly collaborative outsourcing relationships often had a fair amount of social capital.
Getting to We took both bodies of research and identified six guiding principles that help relationships excel: reciprocity, autonomy, honesty, equity, loyalty and integrity.
These principles, so important in our personal endeavors and interactions, also drive collaborative business behaviors. These behaviors apply equally to existing relationships and to new ones.
To ensure a constant state of collaboration, each party is responsible for always following the principles. For example, if the parties take seriously the principles of loyalty and integrity, they will look out for and strive to preserve the relationship. That means buying companies do not disingenuously threaten suppliers with re-bidding work, and suppliers do not sell the “A” team just to substitute the less expensive “C” team to make a hefty profit.
Negotiating the nature of the relationship means the parties create a negotiation atmosphere that encourages trust cooperation. Some very common negotiation tactics become unacceptable, such as coercion, bluffing, or withholding relevant information.
What’s In It For We
Collaborative relationships start with a What’s-In-It-For-We (WIIFWe) mindset, which is radically different from the What’s-In-It-For-Me (WIIFMe) mindset present at most buyer/supplier negotiations. WIIFWe is the philosophical mantra that forms the architecture for a collaborative and trusting relationship. Once embraced, a WIIFWe mindset has the power to deliver a powerful competitive advantage for the parties long after a deal is signed. There are three things about a WIIFWe relationship that alter conventional negotiations:
• The players turn into partners for success. They set out to enter into a long-term relationship where each partner intends not to “eliminate” their partner by moving to another supplier or customer. The intent transforms a transactional business relationship into a strategic relationship. • The relationship adheres to the common set of principles (outlined above) that drive cooperative behavior. • The partners live the WIIFWe approach in daily interactions and use a formal, governance structure to ensure compliance with cooperative behavior.
Thus, the relationship itself generates successive rounds of cooperative negotiations that allow for parties to constantly improve their relationship and the output of that product whether the output is a product or service. Structuring the relationship should follow a process. Getting to We suggests a five-step process for establishing highly collaborative relationships.
The Getting to We Process
The Getting to We process comprises five distinct steps: the first four take the parties to WIIFWe, and the fifth step ensures that the parties live the WIIFWe mindset. None of the steps should be skipped, because cutting corners will only derail the ultimate purpose: a highly collaborative relationship.
The five steps are outlined briefly as follows:
1. Getting ready for WIIFWe. This initial step looks at three foundational elements for a successful collaborative relationship: trust, transparency and compatibility. The CaT™ (compatibility and trust) diagnostic tool helps the parties identify their level of trust and compatibility through a 360 assessment. When the parties complete this assessment, they will have a deeper understanding of their relationship.
2. Jointly agree on a shared vision for the partnership. The parties discuss and create a shared vision for the partnership. They will each enter the discussion with their own vision, of course. But then the parties transform their separate visions into one shared vision, giving the partnership its purpose beyond a series of transactions. Furthermore, it will guide the partners, not only throughout the negotiation process but throughout the term of the relationship.
3. Collaboratively negotiate the guiding principles for the partnership. The Getting to We process demands that partners not only improve the relationship but also abide by a set of principles to drive highly collaborative behavior. This is the critical step that distinguishes highly collaborative relationships from average functioning relationships. The principles provide the mindset to support the partners on their journey to live WIIFWe. Without guiding principles to prevent opportunism and competitive tit-for-tat moves, partners will not behave in a collaborative manner with each other.
4. Negotiate as We. It is now time to begin to negotiate deal points. Partners following the Getting to We process must not start by negotiating the details of the deal such as the scope of work, pricing and terms and conditions. Rather, they must first establish the mechanisms they will use as they negotiate the details. Once the partners have agreed to these mechanisms, they will use them to achieve a consensus on the deal’s specifics.
5. Living as We. At this point the partners have reached the final stage of the journey – living as we – which occurs when they maintain a focus on the shared vision and guiding principles throughout the life of the relationship. Because relationships are dynamic, the partners choose to focus on relationship management by taking actions and measures required to keep it highly collaborative. The principles continue to play a critical role by driving the partners’ daily behaviors.
So it’s not just a one-off negotiation, a handshake and then on to the next negotiation. Partners are developing and nurturing a collaborative entity based on social capital. This is the beauty and transformative power of the Getting to We concept: the business deal gets done, yes, but as a long-term partnership based on the parties' commitment to fundamental, beneficial social norms.
Are You Ready to Get to We?
Moving away from the traditional approach to deal making is not for the fainthearted. It takes some courage and determination, as well as a willing partner. But when these things come together, the results are transforming and the economic benefits are all but impossible to replicate using traditional ‘Me’ focused methods. A collaborative deal is going to deliver these results, not just initially but for the long term. So what’s stopping you – start getting to we with your partners!
The following economic projections and commentary were compiled from various products of the Business Research Division at the Leeds School of Business. Primary sources are the 2014 Colorado Business Economic Outlook, the Colorado Secretary of State Quarterly Business & Economic Indicators Report and the Leeds Business Confidence Index. Job growth was strong in Colorado in 2013, with the state adding 68,100 jobs, a gain of 2.9%. This is the highest rate of employment increase since 2000. This growth accelerated to a rate of 3.0% in February 2014, with 70,900 jobs added compared to February 2013. In June 2013, the state surpassed the previous peak employment reached in May 2008. The consensus of the 2014 Colorado Business Economic Outlook estimating committees is that employment growth will continue in 2014, with the state adding 61,300 new jobs. The fastest growth is being observed in the Greeley, Fort Collins-Loveland, Denver-Aurora-Broomfield, and Boulder metropolitan statistical areas (MSAs).
New business filings from the Colorado Secretary of State’s Office serve as a leading indicator of employment. Business filings fell slightly in Q1 2014, to 26,522, despite increases in existing entity renewals and entities in good standing. New entity filings remained near record highs despite this slight drop of 0.1% in comparison to Q1 2013, with a five-year compound annual growth rate of 5.3%. Despite the aforementioned drop in Q1 filings, annual new business filings rose 3% over the past year. This relationship between new business filings and employment in Colorado signals continued employment expansion in the first half of 2014. Existing entity renewals numbered 118,167, an increase of 7.3% in comparison to Q1 2013. Likewise, the Leeds Business Confidence Index (LBCI) indicates further growth in 2014 as the index increased from 59.9 to 61 in the Q2 2014 survey. Expectations above 50 show a positive economic outlook for the upcoming quarter. Improvement coincided with improving economic conditions and subsiding political risks. Compared to the Q1 2014 survey, respondents’ confidence improved for all metrics except capital expenditures. The greatest gain was in expectations for profits, which rose 3.4 points. Large companies were notably more optimistic than small companies. Sales expectations rose to 62.7 while profits rose to 61.3. Capital Expenditures slipped to 58.6, yet remained strongly positive. Hiring expectations rose slightly, from 59.3 in Q1 to 59.6, in Q2. Around 43.5% of respondents were neutral on hiring, while 46.4% were positive.
Over the past 10 years, goods-producing industries lost a net 25,000 jobs; however, in 2013 the industry saw growth, adding 12,800 jobs, or 4.6%. Services-producing industries gained 253,300 jobs and an accelerated growth of 2.7% in 2013, up from 2.3% in 2012. Both goods- and services-producing sectors are anticipated to add workers in 2014.
Highlights on the goods and services industries follow.
The goods-producing sector includes Agriculture, Natural Resources and Mining, Construction and Manufacturing.
Agriculture — While total cash receipts to farmers and ranchers are projected to decline into 2014, expenses are anticipated to moderate only slightly. Real interest rates remain low, and fuel prices are up over the past month, despite an overall downward trend. The year 2014 might be viewed as a transitional one in which both farmers and ranchers make adjustments stemming from lower corn prices. Net income is projected to fall by about 7%, to $1.48 billion, in 2014.
Natural Resources and Mining — Colorado has abundant natural resources, ranging from coal and natural gas to molybdenum and uranium. In 2013, Natural Resources and Mining saw 200 jobs added, or 0.7%. This is significantly down from 2012, when the industry was adding jobs at a rate of 8.6%. The value of production is anticipated to increase in 2014 for oil, natural gas, carbon dioxide, coal, minerals and uranium. This has translated into a promising growth in 2014, adding 6.1% over 2013 through February.
Construction — The greatest casualty of the recession, this industry is exhibiting strong year-over-year growth in permits, values and employment. Total value of Construction is estimated to rise 14.8% in 2014, to $15.1 billion. The largest increase is attributable to residential construction, which will grow to more than $1.4 billion in 2014. Non-residential projects recorded a decrease of 18% and non-building plummeted 38%. Residential increased 7% year-over-year in February. Total housing permits are expected to rise to 33,500, with 17.5% growth marked by year-over-year gains in both single-family and multifamily units. Employment will increase by 11,000 jobs, or 8.4%, in 2014.
Over the past year, home prices have climbed by 8.2% in Colorado according to the Federal Housing Finance Agency (FHFA). This gain was attributed to increases in six of the state’s seven MSAs: Denver-Aurora-Broomfield (10.9%), Boulder (9.4%), Fort Collins-Loveland (8.5%), Greeley (7.3%), Grand Junction (5.7%) and Colorado Springs (3.1%).
Manufacturing — Following a decade of decline, Manufacturing employment is expected to increase for the fourth consecutive year, ending 2013 with 1,900 jobs added (+1.5%) and 2014 with 1,700 more jobs (+14%). This growth will be mostly in the Durable Goods Sector. The services-producing sectors include Trade, Transportation and Utilities; Information; Financial Activities; Professional and Business Service; Education and Health Services; Leisure and Hospitality; and Government.
International Trade — Colorado’s merchandise and commodities exports experienced strong growth last year. Strength included electronics, beef, medical and surgical equipment, orthopedic appliances and engines and motors. Despite this, the state still ranks only 36th among U.S. states in dollar value of merchandise and commodities exports. Colorado’s manufactured exports and commodities are projected to grow 10% in 2014, to $9.8 billion in sales.
The Service Producing industries include Trade, Transportation and Utilities, Information, Financial Activities, Professional and Business Services, Education and Health Services and Government. The outlook for services employment shows growth in all sectors but Information in 2014.
Trade, Transportation and Utilities — TTU employment is anticipated to increase by 9,100 in 2014 due to growth in wholesale and retail trade. Transportation and Warehousing employment increased in 2013, and Utilities recorded no net change. It is projected that Denver International Airport will record more than 52 million passengers in both 2013 and 2014. Retail sales are anticipated to rise 5% in 2014, following 4.2% growth in 2013.
Information — A best-case scenario is that the Information Sector will remain flat in 2013 and post a modest decline in 2014. In 2013, growth in telecom, software publishing and film outweighed losses in traditional publishing. It is anticipated that many of the losses related to the telecom merger between CenturyLink and Qwest have already been absorbed in the Denver Metro region.
Financial Activities — The Financial Activities Sector began rebounding in 2013, adding 4,000 jobs. Despite some employment declines related to reductions in mortgage refinancing, the sector is still expected to add 2,700 jobs in 2014, with most activity concentrated in banking and other finance and insurance activities. Increased regulation and tepid loan demand will continue to impact the industry.
Professional and Business Services — Employment in this sector will increase by 14,200 jobs in 2014, building on gains in the Professional, Scientific and Technical Services subsectors related to Colorado’s high-tech industries and research institutions. Growth in the sector may be stronger if political and fiscal uncertainty subsides.
Education and Health Services — Private education and health care services are expected to add 8,000 jobs in 2014, demonstrating resilience both during and after the recession. Most of the growth has been in health care, driven by population growth and demographic shifts.
Leisure and Hospitality — Despite a number of setbacks in 2013 (e.g., fires, floods, drought), the Leisure and Hospitality industry added 10,100 jobs. The 2014 forecast calls for 7,500 additional jobs, mostly in the Accommodation and Food Services Sector. This forecast rests on a number of assumptions, including average snowfall and reasonable gasoline prices.
Government — Government is expected to add jobs in 2014, but not at all levels. Federal government is expected to shed jobs in 2014, continuing a trend that coincided with economic recovery in 2010. Sequestration will impact both direct federal jobs, as well as federal contractors. State and local government are adding jobs, with a portion of the increase related to education. Population continues to grow, pressuring the public education system to accommodate a growing student number of students.
Colorado will continue to record employment growth that will place it in the top five states for growth in 2014 with the unemployment rate remaining below 7%. With respect to population, Colorado is the seventh-fastest growing state in the nation in percentage terms and the ninth fastest in absolute terms. Population growth in 2014 is projected at 1.7% with a healthy amount of in-migration contributing to this scenario.
The forecasted employment growth will be broad based, although some sectors will do better than others. The information sector is forecast to continue the weak employment situation it has experienced since the recession of 2001. Agriculture production and tourism will continue to be impacted by volatile weather fluctuations and natural disasters of the past several years.
An additional bright spot is the value of homes. Home prices will continue to grow in Colorado as inventory is absorbed, foreclosures abate and more homeowners elevate from being underwater in their mortgages. Tightening inventory and more stable households are driving appreciation in all Colorado MSAs except Pueblo.
With Colorado’s skilled workforce; high-tech, diversified economy; relatively low cost of doing business; global economic access; and exceptional quality of life, the state is poised for long-term economic growth.
For more information on each industry sector, visit leeds.colorado.edu/brd.
Volume 6, Issue 1 ICOSA Magazine - The Economic Development Issue
A Glimpse into the Mind of John Hofmeister If you didn’t know who John Hofmeister is, you might believe he’s a roving political figurehead and not a former energy CEO. And while the topic of energy seems like a convoluted issue to most, for Hofmeister, understanding energy is as simple as understanding that proper nutrition is good for your body; he often compares being an intelligent energy consumer to being a healthful consumer of food.
Traveling around the country, the former Royal Dutch Shell, U.S. Business, CEO talks to groups about the importance of energy and its role within the political realm. His commonsense fervor toward energy slaps you upside the head in a “wise up” kind of way. He enthusiastically reminds consumers that it is important to know the ins and outs of supply and demand as well as the availability or lack of availability of energy and how to keep it affordable, sustainable and available.
He warns that consumers’ lack of knowledge about energy and how it affects their day-to-day lives is not only detrimental but elicits unintended consequences we as a society are not ready to face. He stresses the importance of learning the basics. For Hofmeister, energy isn’t a hard lesson. In fact, it is a lesson we don’t focus on but we should. In a one-on-one interview, ICOSA had the distinct honor and opportunity to learn more about Hofmeister’s perspectives on the energy sector and its impact on citizens across America.
ICOSA: How do you think leaders in the oil and gas industry can be more transparent about what is going on in the industry so that citizens can have more informed conversations around fossil fuel development?
Hofmeister: We have to explain energy from the consumers’ perspective and that’s not generally what companies do; they tend to explain energy from the engineering and natural resources perspective. While it is completely logical to approach a technology industry from a technology standpoint—that’s not where consumers’ heads are.
We must dramatically shift how we talk about energy and think of who the ultimate consumers of energy are and the implications on their consumption of energy, which means affordability, availability and sustainability. Everyone assumes that we have enough energy; everyone hopes that energy is affordable, and everyone prays that energy is sustainable. Well, we can do all three with a sound energy policy that enables the production of more energy from all sources.
It’s very clear that in elections going back, really, all the way to Richard Nixon, who was the first to promise energy independence, that politicians have basically manipulated misinformation, disinformation or lack of information of the average voter to try to get what they want from an energy priority standpoint. That’s not good enough; public officials should not manipulate voters. Voters should have the freedom of choice to choose people who they hold accountable for energy. But they won’t do that if they are not well informed. Consumers have to be convinced before they vote for people who have a rational balanced approach to energy.
ICOSA: The energy industry continues to be demonized. How can leaders within the energy industry get their message out front to halt some of the blatant misinformation perpetuated by the media, environmentalists and politicians to scare the American public?
Hofmeister: I think you have to go back to the consumer. If you compare industries like the food industry, the information technology industry and the financial services industry, any consumer product industry focuses on advertising and public awareness of what they do with the consumer first. Energy is exactly the opposite—it doesn’t focus on the consumer because it is selling to a wholesale marketplace, or it is producing oil that goes into a global trading market. The industry believes that by going into a global trading market, there’s no customer there. They don’t think about the person who’s ultimately buying the refined product. You have to continuously think about what the implications of your product is as it relates to the ultimate end user—that to me is how you build your communications. The oil and gas industry in particular, but also the electricity generation industry, tends not to focus on the consumer.
People will wait outside, in line, overnight for a new Apple product. Nobody, however, is about to wait outside, in line, overnight for a tank of gas unless they’re desperate or unless gas is in short supply. People just take it for granted, but they still need more information about how hard it is to get that gasoline to market.
ICOSA: Consumers have an ideological fear that’s been constructed by media, environmentalists and politicians. And as outlets that exist based on consumer and constituent satisfaction, the output of topics and information can in most cases be skewed for ratings and favorability numbers. With politicians spending more time trying to be re-elected, it seems as though they are nurturing ideology with bad regulatory policies instead of educating their constituents and holding more productive town hall type meetings to quell un-needed public fear. What are your thoughts on this?
Hofmeister: First, I think we have to recognize that the free market for energy disappeared a long time ago. There is no such thing as a free market for energy; it’s completely regulated by the government, and that’s something that consumers need to know. They’re completely governed as to what they can sell, where they can find it, where they can produce it and how they can produce it.
The U.S. government, not the manufacturers, sets the specifications for gasoline; the government sets the implications for distribution, and whether we have pipelines or not is a government decision. So the public needs to understand who is really running the show. It’s not the oil companies—the oil companies are trying to do the best they can to serve their customers through a publicly regulated process.
Generally politicians escape accountability by artificially blaming oil companies for public policies, which they either did not create or refused to create, or which created public policies that harmed the consumer. We have to be brave enough as an industry to explain all of that so that politicians can’t get away with the manipulation and the demonization when the problem is not the companies—when the problem is the public policy failure. If politicians blame the oil companies for something, the oil companies can only do what they do based on public policy. It happens over and over again; politicians love to demonize the oil industry to move the accountability for problems away from themselves.
ICOSA: Why aren’t more company leaders speaking out and addressing these concerns?
Hofmeister: There are two problems: One, if politicians think they are being criticized by companies that are depending upon them for permits—they will withhold permits. They will punish the companies that criticize them. They will retaliate against the companies who need the public’s permission and who need the permits for speaking badly about the politician or the public policy that the politician supports. Number one, you don’t bite the hand that feeds you. I don’t know how you get around this problem easily, especially when the public doesn’t understand that politicians or public policy are the problem.
The second problem is that many of the leaders in oil and gas companies do not accept that it is their responsibility to inform the public of what they need to know, much less to engage politicians. There’s a phrase that’s expressed quietly among many energy companies when they run up against opposition, whether it’s consumers, environmentalists or politicians demonizing the industry; the under-the–breath, soft expression is, “Well, let them freeze in the dark.”
If you have a mindset that says because you are opposed, then your opponents can simply freeze in the dark, I propose that you’re not likely to go out and communicate openly and effectively with those people who are dependent upon your product down the road. Or if the price of gas gets skyrockets, instead of explaining that poor public policy has led to the high pricing, companies just don’t say anything. They try to explain their high prices based upon their cost systems which overwhelms consumers.
Most people understand supply and demand, whether it’s milk, whether it’s tickets to athletic events or whether it’s gasoline; supply and demand is supply and demand. If companies presented basic economic education for the public with respect to supply and demand, people might not be so antithetical to what the oil companies are trying to do.
ICOSA: You wrote a book called. Why We Hate The Oil Companies. What led you to write the book and to give it such a title?
Hofmeister: Believe it or not, I got the title from Tim Russert, the former moderator of Meet the Press. On my first Meet the Press interview, Russert interviewed me and two other oil company CEOs. His first question to three heads of oil companies was, “Do you know how much the American people don’t like you?” And that stuck with me. Then he presented the favorability numbers of the annual Gallup Poll on “How Americans Perceive the Oil Companies,” which is hard data. He demonstrated to the three of us live on television in front of millions of people how disliked the oil companies were.
Of course, when you go through decades of being demonized because the industry has done some terrible things to the environment, like the Exxon Valdez spill or BP’s Deepwater Horizon disaster or other oil spills, you don’t effectively engage the public on what happened and what you’re doing about what happened. Instead, you’re not transparent about it, which builds mistrust. There is a reluctance to engage, and it’s a reluctance companies will pay a price for.
The oil industry must move from being introverted to being more extroverted like any other consumer products company because oil and gas companies are ultimately consumer products companies. There must be a mindset shift in the boardroom and at the executive level that recognizes that they are in fact consumer product companies as well as technology companies.
ICOSA: One of the biggest challenges for the industry right now is hydraulic fracturing. The American people don’t know much about any of the upstream, midstream or downstream processes, yet they “know about fracking.” New York State is finalizing its comment period over its moratorium, and many of its residents can see the benefits just over the border in Bradford, Pennsylvania, but the issue continues to linger. How do consumers become better educated on the topic, and how do people within the industry resolve this issue on hydraulic fracturing?
Hofmeister: You really have to out-Hollywood, Hollywood. In 2010 you had Gasland, a movie about natural gas extraction and fracking, and now we have Promised Land with Matt Damon, a movie, where Hollywood gets to define the natural gas extraction issue. The industry has been so far behind in explaining itself to the public that now Hollywood gets to give their version of the facts—which are often created or invented for the purpose of selling movie tickets. Meanwhile, the reality of fracking hardly gets explained. But when it does get explained through a movie or documentary, I credit the film industry for going into communities with a premeditated storyline to explain the issue—whether it’s the farmers, the townspeople, seniors or the young people of the community.
Companies really are doing a good job explaining the case of fracking, but what they are not doing is explaining the case of fracking to the American people at large. Take Pennsylvania as an example. You often get people from the Philadelphia area to go to Pittsburgh or other communities in western Pennsylvania, who have never been talked to about fracking, to go and protest fracking. Often, the local residents like the economic opportunity that drilling represents, like the fact that their young people don’t have to move away to get good jobs and can live at home or stay in the community. But the Philadelphia folks show up to protest the fracking and make it out to be something that’s just plain awful. So when the news media covers the protests against fracking, it’s not the local residents in many cases that are protesting—it’s the visitors.
Or, what about New York state … I’ve been in southwestern New York state and talked to a number of people there. They have been waiting for fracking to be approved because they want the economic option to have private landowners to be able to sell their mineral rights. But citizens from the New York metropolitan area or upstate New York, where there is no opportunity for fracking, are trying to shut it down, encumbering these locals who’ve been patiently waiting.
You end with outsiders, so to speak, making a case for fracking. I’ve invited the American Petroleum Institute to come and present to a number of groups, and the people there do a wonderful job. They have an excellent presentation that is completely understandable and puts everything into perspective. Why isn’t the industry using that information to make a movie? There are great actors who could create a movie that sells the benefits of fracking as it pertains to national security, to economic growth, to job creation—to all the things that it actually does deliver to communities.
It’s not that people love fracking; nobody loves fracking—including the frackers. It’s a dangerous, dirty process, but it leads to economic value creation. Steel-making is a dirty, dangerous process too, but think of all the things that come from that—cars and huge buildings—all because of steel. We must make fracking safe, just like steel-making became safe to realize the full benefits of it all. We can put up with the risks associated with the dirty and the dangerous part, which are mitigated by technologies, as well as the safety regulations and rules. The industry doesn’t think that way, and that’s why I’m out in the public trying to describe, in my own words and in my own views, what needs to be done. The industry can help itself a long way by out–Hollywood-ing Hollywood, and not trying to be the technicians that they are but getting their messaging out in front of people.
It’s hard to find Americans who want to fight job creation. But, they don’t think of fracking as job creation, they think of fracking as destroying the Earth. It doesn’t destroy the Earth. It’s such a small piece of what the Earth represents, and it can be done in such a way as not to harm or seriously damage it. If, for example, you went to a so-called dirty fracking site and then returned in two or three years, all you’d see is a pipe in the ground, because nature would have reclaimed the land—you wouldn’t know that there was ever a fracking site there. Same with coal mining and other harsh excavation-type activities; there is something called restoration, and it is part of the regulations. So it can be done, and should be done because we need the energy.
ICOSA: You retired as Royal Dutch Shell’s president of U. S. business and soon founded and became the CEO of Citizens for Affordable Energy. What led to this transition?
Hofmeister: My former company (Shell) had a retirement policy of 60 and out. So when I reached 60, I had six months to leave—and so six months later—I left.
When I thought about what was next I experienced the frustrations of trying to deal with the political process to create sound public policy on energy. I was engaging with thousands of people across the country in an outreach program, and I was flabbergasted by the lack of knowledge, awareness and information that the public had with respect to energy.
So I decided being relatively young at age 60, being healthy and being somewhat of an extrovert, that the American people deserved better, they deserved to know what they needed to know, not only to enable themselves to have a better future, especially when it comes to the future of energy, but also for their children and their grandchildren. After discussing it with my family, we concluded the best thing that we could do was spend the next period of our years trying to persuade as many people as possible to simply learn more about what affects their life every day.
Since starting the work I am booked solid and my time is no longer my own—my time is given to the people that I talk to. My wife and I started the nonprofit, Citizens for Affordable Energy, which is solely funded by voluntary contributions from consumers only. We do not accept any money from the oil and gas industry or any other energy company. We are constantly talking with people all over the country and sometimes outside the country about the future of energy and the environment. It’s not that difficult to engage people.
We believe to move forward we must address four basic energy priorities: (1) we need more energy from all sources; (2) we need more technology for efficiency; (3) we need more environmental protection so that all future generations have clean air, clean land and clean water; and (4) we need more infrastructure to move energy from where it’s produced to where it’s consumed. These parameters are what we call “The Four Mores” and they can guide Americans’ understanding of the future of energy and the environment, as well as serve as a foundation to create public policy.
Our mission is to educate many people as we can to support energy for the future because our energy systems are old. Furthermore, the reliance on existing supplies is not secure, so we need more secure supplies to promote affordability and availability, and we need environmental protections to provide sustainability. We’re not idealists, and we’re not ideologues—we’re practitioners, and we’re very pragmatic.
If you read the discussion on the environment in my book, you could probably come away from that chapter believing that I am a full-blown environmentalist, which I am, but I also recognize that we need energy. So it’s not how do we stop using energy, but really how do we make dirty processes cleaner, and how do we make dirty energy cleaner? I believe it’s possible because we have all the technology available to us to make it happen. And, I think it is important to have a secure nation with a strong potential for economic growth while we make sure that our environmental needs of the nation are also protected.
ICOSA: Beginning in 1919, the oil industry created the American Petroleum Institute, its governing body, to self-regulate and standardize the way oil companies do business. The group enforced advocacy, standardization and certifications to ensure the industry was held to an exceptional standard of business. How does the industry converge their views along with the views of the environmental movement?
Hofmeister: You listen to all sides. You don’t start with criticism—you start with openness, transparency, realism and pragmatism. You can’t start with ideology; if you make it religious zealotry where you cannot comprehend or you are unwilling to comprehend the views of others, nothing works. I’ve met environmentalists who are absolutely and fundamentally, with every fiber of their being, opposed to a hydrocarbon future. They’ve closed down their minds; they’ve just refused the beliefs of others and the needs of others. They have the right to be a zealot but because they are a zealot, they are on the fringe of our society.
All the surveys tell you that most of our society consists of centrists and pragmatists. I think it is dead wrong for politicians, because of a noisy, zealot-led minority, to make public policy that affects the top of the bell curve. That’s not what a democracy is. Citizens have the right to disagree, they have the right to protest, they have a right to their own point of view, but if they are going to try to stop the vast majority from enjoying the benefits of energy because of their zealotry and the elimination of hydrocarbons, that’s not good public policy. That’s not where the majority lives; it doesn’t deny them the right to protest, but it should not empower them to stop what society needs.
The United States has a unique problem that most other countries in the world do not have—we tend to have a binary view of the world—it’s either this way or that way. That binary view of the world gets in the way of rational conversation for the common good. Zealotry on either side doesn’t take us to the common good. We have to have the public involved because the public are the decision-makers of the future of the country. That’s where the industry has let itself down and has let society down by being too remote from the mainstream of political behavior and political knowledge and understanding.
ICOSA: You talk a lot about the future, but with no real energy policy and increasing regulations, where do you see the future of domestic energy development as it pertains to exploration and production, new technology and domestic energy independence?
Hofmeister: We’ve been muddling through for years, and we’ve been successful because we have been so reliant on foreign imports. We’ve basically exported the risk of producing energy for the United States by buying imported oil. We have totally enriched other parts of the world with our disposable dollars. When we import foreign oil into this country, jobs are created elsewhere in the world—not here. Because those jobs are created elsewhere in the world, we have promoted economic growth in other parts of the world while our own economy has suffered the loss of those reinvestment dollars.
We have an old infrastructure in this country, water systems, sewer systems, highways, bridges—you name it—our infrastructure is old. We have an energy system that’s the oldest in the world and we are not reinvesting in it. Instead, we’re still relying on foreign imports to get through the day. So while we’ve been muddling through for decades, we can and should make choices that demonstrate that a crumbling infrastructure and enriching other locales is not a good enough option.
Going forward I am promoting a reasonable, rational plan that extends beyond an election cycle. In that plan, we must change the governing structure of the industry, which is extremely convoluted. Today, the energy governance consists of 15 cabinet agencies in the executive branch, 40 committees in Congress, 735 federal judges, plus 50 governors; 50 state legislatures; 50 state court systems; and thousands of municipalities, counties and townships, which all set energy rules.
We have so much governance over energy that there is no free market left. I believe we need a new governance model for energy, which includes the creation of an independent regulatory commission that enables the energy system to be managed for the future, independent of politics, independent of who’s in office; in the same way that that independent regulatory commission called the Federal Reserve to manage our monetary system for the good of the nation, for the good of the economy and for the good of American consumers. We need an independent regulatory commission to manage energy for the good of the nation, for the good of the consumer and for the good of the economy because the politicians have proven that they can’t do it.
They can’t do it as politicians because they won’t—they won’t reach agreement, they won’t come to bipartisan conclusions, and they won’t operate from a consensus model. Currently they operate from a partisan party model, and that model doesn’t work. That’s sort of the last item to discuss here because—it gets pretty complex—you’re asking elected politicians to give up some of their authority to an independent regulatory agency as a result of their failure. Politicians don’t want to admit that they’ve failed, so it might take power blackouts to demonstrate that their failure is real.
The failure of the political process to provide for future energy security is real. When we realize this, then we might have the wherewithal and the pragmatism to solve the governance problem, which has created the impossibility for this nation to have a secure energy policy.
Immersing itself in an international festival of ideas, art and culture for the 2013 edition of the Biennial of the Americas, Colorado once again demonstrated its commitment to inspiring thought-provoking solutions. From July 16-19, 2013 thousands of Colorado residents and international guests participated in more than 23 events throughout Denver. With the support of more than 80 sponsors, 19 thought partners and 21 cultural partner organizations, visitors had the opportunity to explore provocative art and architectural exhibits, attend stimulating parties and engage in incredible symposia and peer-to-peer workshops capturing the richness of the Americas.
Draft Urbanism transformed downtown Denver with four large-scale architectural installations and eye-catching urban signage. The First Draft exhibition at the McNichols Civic Center Building featured the work of 22 Colorado artists and drew more than 500 local and international guests on its opening night. The Biennial’s cultural partner organizations, including its lead partner the Museum of Contemporary Art Denver, presented film and documentary screenings, public events, parties, performances and exhibitions showcasing Denver’s vibrant and thriving cultural scene.
Beyond the art and cultural programming, the Biennial’s symposia and peer-to-peer workshops convened leaders in business, government, philanthropy and the arts to examine critical issues around the theme Unleashing Human Potential: Reinventing Communities, Business, and Education. Four evenings of thought-provoking discussions between 256 renowned experts led by media icons including Tina Brown, Arianna Huffington, Don Tapscott and Patricia Janiot provided a platform for innovative ideas to be sparked, discussed and acted upon with the aim of enhancing the quality of life in the Americas and beyond.
Thank you to everyone who made this incredible celebration a success. We look forward to building on this year’s discussions in the 2015 Biennial of the Americas and hope you’ll join us.
John W. Hickenlooper