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Business Community
06

Jan
2019

Trump Vs. The Business Community

Chris Kleponis/CNP/AdMedi/SIPA/NewscomMost business executives fumed and groused for the eight years Barack Obama was in the White House. He was a former community organizer who had never met a payroll, and those in the corporate boardrooms thought he was no friend of free enterprise.

In 2010, New York real estate and media tycoon Mortimer Zuckerman said Obama’s “demonization of business” was discouraging investment, sapping job growth and generally creating an “economic Katrina.” Gary Shapiro, head of the Consumer Technology Association, called Obama “the most anti-business president” in his lifetime. Former General Electric Chairman Jack Welch implored the president, “Stop it. You can’t go industry by industry … through intimidation, business by business by business.”

As ordeals go, though, theirs was notably mild. The stock market soared; corporate profits nearly tripled; and the unemployment rate declined from 7.8 percent to 4.8 percent. From the depths of the Great Recession, the economy began what is now the third-longest expansion on record. When it came to the economy, the Obama years looked more like Mardi Gras than Hurricane Katrina.

Now, instead of a liberal lawyer in the White House, CEOs have one of their own. And they’re finding it’s not everything they hoped. The stock market and other economic indicators look about the same as they did before Donald Trump took office. In Obama’s final six months, the economy added an average of nearly 181,000 jobs per month. In Trump’s first six months, it added 179,000 per month. GDP growth has even slowed a bit.

More troublesome at the moment is Trump’s insistence on defending Confederate monuments and stoking white racial resentments. In recent days, so many CEOs resigned from the president’s two business advisory councils that Trump closed them down. Some of the executives no doubt were genuinely upset at the president’s coddling of bigots and his inability to behave with a dignity befitting his office. Some were fearful of alienating customers who find Trump toxic.

Other business executives are edging away from the president as though he were an erratic panhandler, and for the same reason: Best not to be close to him if he flips out. You don’t want to have to stand there in silent mortification, as White House chief of staff John Kelly had to do the other day, while the president makes a fool of himself on national TV. It would not be good for your company or your career.

But even before Trump’s Charlottesville debacle, he was not covering himself with capitalist glory. His January travel order put him at odds with some 100 tech firms that sued to block it, arguing, “It disrupts ongoing business operations. And it threatens companies’ ability to attract talent, business, and investment to the United States.”

His decision to pull out of the Paris climate accord didn’t go down well with many big companies, 25 of which had signed a letter urging him to stay in. Even oil giants Exxon Mobil and ConocoPhillips opposed the withdrawal. In abandoning the Trans-Pacific Partnership trade deal, Trump spurned the recommendation of the U.S. Chamber of Commerce. His insistence on renegotiating NAFTA has the Big Three automakers worried about their supply chains.

Business Community

A lot of executives applaud Trump’s war on federal regulation. But what else has he done for them? His failures on Obamacare have generated uncertainty among insurance companies and health care providers. His sour relations with Congress make tax reform less plausible every day. Infrastructure is what he was supposed to focus on Tuesday when he appeared before reporters at Trump Tower. But he buried that issue by venting about Charlottesville.

Perhaps worst of all, he has been the arrogant bully that Jack Welch and others accused Obama of being. Trump slammed Boeing over the cost of Air Force One. He blasted Ford over a planned factory in Mexico. He has repeatedly attacked Amazon.com CEO Jeff Bezos, who also owns The Washington Post. He went after Nordstrom for dropping his daughter’s products. When Merck’s Kenneth Frazier quit his manufacturing advisory group Monday, Trump flamed him for “ripoff drug prices.”

His recurring message is that any executive who doesn’t do as Trump wishes can expect retribution from the most powerful man on earth. Obama was not the friend CEOs think the president of the United States should be. But in Trump, they’re finding out what it’s like to have a real enemy.

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Small Manufacturing Boom
07

Oct
2018

Innovation Drives The Small Manufacturing Boom—If It Can Survive Regulatory Meddling

Contrary to the claims of certain politicians, lots of stuff is still made in the United States. Enough stuff that it hit a new peak in output as of the first quarter of this year, in fact. Even more surprising is that, despite the automation that reduces costs and makes much domestic production possible, there’s even some growth in manufacturing jobs (though the numbers remain far below their past heights). That small resurgence in jobs may be because of the recent boom in small, urban-based manufacturers.

It’s an encouraging trend, but don’t get too attached to those new businesses and their employees. Regulators are busy trying to kill them off.

“The renewal of manufacturing is not an abstract economic issue: It is very much an urban issue,” the Massachusetts Institute of Technology trumpeted in 2014.

“Because of changes in technology and consumer tastes, smaller-scale manufacturing is making a comeback in urban areas around the country,” NPR’s Marketplaceadded just a few weeks ago.

Technologies like 3D-printing allow companies to produce small runs of automotive parts, custom truck bodies, and the like. Crowdfunding lets small businesses simultaneously raise capital and reduce costs to produce American-made clothing and gear at reasonable prices. And targeted production makes it possible to serve niche markets that might have gone overlooked in years past. It’s innovation across the board, generally based in cities that had been losing old-style industry, but which still offer easy access to people, transportation, and resources.

But warning signs of trouble to come were already there in the 2014 MIT article. “Can new manufacturing fit in with the ongoing evolution of cities, and if so, how?” it asked.

entrepreneurs creating new manufacturing businesses work

The problem—and it’s a big problem—is that cities are centers of creativity not just in generating new ideas for serving markets, but also in developing shackles for hobbling economic activity. The entrepreneurs creating new manufacturing businesses work in close proximity to people “evolving” the cities in which they live in more highly regulated directions that raise costs, impose hurdles, and choke off opportunities for creating jobs and prosperity.

“The biggest single drag on U.S. manufacturing has been the decades-long encroachment of the regulatory state—with an army today of 300,000 regulators and an annual budget of $60 billion,” Mark P. Mills of Northwestern University’s McCormick School of Engineering and Applied Science noted in a report issued in June of this year by the Manhattan Institute. “Complying with regulations costs manufacturers an average of $20,000 per employee per year, twice as great a burden as for other businesses. For the smallest manufacturers (i.e., those with fewer than 50 employees), that annual cost is $35,000 per employee per year. In surveys, America’s manufacturers routinely rank regulatory burdens as the top impediment to growth; a large majority also say that regulatory burdens are higher in America than in other nations.”

Mills refers to regulatory challenges that are daunting to manufacturers doing business anywhere in the United States. So long as they’re in place, keeping the manufacturing sector healthy, let alone growing it, will be an uphill battle for American entrepreneurs.

But matters are even worse for the small manufacturers who have been fighting to bring jobs and innovation to American cities. Janet Adamy and Paul Overberg examined the recent decline in American mobility for a Wall Street Journal article. They found that the bitter urban-rural cultural divide and unwillingness to leave behind support networks and social services play a role, as does occupational licensing, but another major problem is found in high housing costs resulting from restrictive regulations. “While small-town home prices have only modestly recovered from the housing market meltdown, years of restrictive land-use regulations have driven up prices in metropolitan areas to the point where it is difficult for all but the most highly educated professionals to move.” That’s a problem for everybody. “This drop in mobility is not only keeping rural residents from climbing a ladder to better livelihoods, it is choking off the labor supply for employers in areas where jobs are plentiful.”

And too many cities seem determined to make the problem worse.

“Many of these production jobs pay around $10 to $15 an hour,” Marketplace notes in its piece about new manufacturers. That means these jobs may not keep up with living costs driven sky-high by urban red tape. They may also fall afoul of the national campaign to raise the minimum wage to $15 per hour—a campaign that is already killing jobs in Seattle. With some employers already reducing or delaying hiring in that city after the minimum wage hike, it seems likely that the costs imposed by the law could smother some new businesses, and prevent others from ever opening their doors.

Unless they can move beyond the law’s reach, that is. Many manufacturing start-ups are locating not in major urban centers, but in smaller cities in the Midwest and the South, points out urbanist Joel Kotkin. “The reasons for this shift vary, from strict environmental laws in Northern cities, as well as stronger unions, and cheaper land elsewhere.”

Separately, Kotkin’s Center for Demographics and Policy at Chapman University has torn into California officials for urban land-use policies that raise costs in overregulated cities. “In recent decades, land use policies have generally included ‘urban containment’ strategies that impose ‘urban growth boundaries’ and related policies that significantly restrict or even prohibit new suburban detached housing tracts from being built on greenfield land.”

Small Manufacturing Boom1

So smaller cities remain something of a haven from the costs and regulatory fervor that make larger cities relatively unwelcoming to start-up manufacturers. These businesses can’t escape the high national regulatory burden examined by Mills for the Manhattan Institute paper—not without following other businesses overseas, anyway. But they can still escape locally imposed costs by avoiding big cities in favor of smaller ones that aren’t so eager to regulate every activity. Smaller cities, incidentally, are more culturally and economically accessible to rural residents who would be best-served by moving where the jobs are.

Sure enough, the small manufacturers profiled by Marketplace are located in Duluth, Minnesota, with a population of 86,000 and a below-average cost of living. But if Minnesota wants to hold on to those businesses, officials might want to loosen up, regulation-wise, and improve the state’s small business environment (ranked #47 by the Small Business and Entrepreneurship Council, and graded an overall C by Thumbtack).

The recent trend toward flexible, innovative small manufacturers driven by creative practices and new technology is a wonder to behold. It’s evidence of the continuing health of the entrepreneurial spirit. To succeed, that drive to create needs only willing customers—and a reprieve from regulators’ equally innovative efforts to meddle and destroy.

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