What would you ask them?
It would be almost impossible to get all of them into one room at one time for a conversation about the current state of business affairs in Kansas City. But Ingram’s has done just that—metaphorically, or course; the “room” is framed by the contours of our e-mail in-box. Just the same, we posed a series of questions to key business figures at the onset of what some in the major media centers are calling an economic recovery, and what a great many business owners in the Kansas City region are calling something else.
Will the next leg of the economic cycle produce a prolonged upturn? A longer-term plateau that delivers stagnation? Or a false start, the middle peak of the dreaded “W-shaped” recession many economists have forecast.
With a little careful analysis, you may glean from their answers a better sense of where this region is headed in the coming months. You won’t have to work quite as hard to see where they generally come down on policymakers and their penchant for tinkering with the internal workings of the nation’s economic engine. Uncertainty, not familiarity, breeds contempt with this lot.
Nonetheless, they are, in the end, optimistic, as Midwesterners tend to be. They know that, given the right tools and a clearly defined regulatory path, the ingenuity of the American business owner will get us where we want to go.
Here, by topic, are their responses.
Are the forces that shape consumer confidence beyond regional control or influence? What can policy makers and/or the business community do to help restore confidence?
“The national economy has necessarily dominated economic policy discussions over the past two years but, by and large, people remain quite attuned to local and regional economic conditions,” said Carl Schramm, president and CEO of the Kauffman Foundation. The recession has not fallen evenly across the country, he noted, but he sees an underused tool that Kansas City region can apply to improve its lot: “Local and regional leaders can be most effective by investing for the economic future, with education at all levels probably the most important thing that can be done at the local level,” Schramm said.
Jim Ferrell, CEO of Ferrellgas, was on the same wavelength with respect to schools, but sees an even broader need: Better elected leadership. But that’s not something that happens in a vacuum, he acknowledged.
“With governments everywhere in ill repute and largely out of control, confidence among the populace can never be high,” Ferrell said. “It begins with governance, and business can best help by trying to attract quality candidates to run for office and backing projects that are good for the community.”
Ken Block, managing principal for Block Real Estate Services, has a livelihood in commercial realty that is finely attuned to the psychology of consumers. He thus sees the need for a calming influence.
“The level of anxiety that currently exists in most Americans is very high,” Block said, and that limits near-term improvements in consumer confidence. Given that consumer spending accounts for two-thirds of our economic activity, easing those anxieties is paramount.
“Policy makers can change this dramatically by working in a more bipartisan manner, by listening to the people and what they want, and by taking concrete steps to strengthen the country economically,” Block said. For small businesses, that means a Congress focused on policies that encourage expansion. One small caveat to that, he said: “This will take a complete change in the membership of Congress, which is currently only interested in expanding government and limiting the opportunities for small business expansion.”
Regardless of the Democratic/Republican breakdown in Congress, production of such policies starts with a coherent set of rules for businesses to play by.
“The most important thing, by far in my book, is to restore a sense of ‘certainty,’” said Greg Graves, CEO of Burns and McDonnell. “To the extent policy makers can do that, they will go a long way to restoring confidence to business that’s ‘OK, I know what the rules are now, I can create a new business plan around that.’ ”
What effect does the federal health-care overhaul have on your planning?
Much of the media effort to put a face on the impact of health-care reform has produced a sketch of the American small business owner. That’s not entirely accurate; lots of big businesses—even public institutions—are still trying to get their bearings.
“We are not sure how health-care reform changes what we are required to provide or pay as of yet,” said Terry Calaway, president of Johnson County Community College. The effect on JCCC, he said, was “major.” “We are assessing long- and short-term costs, but in the meantime, we are not committing to new programs or activities we had in development. It also effects how we are handling negotiations with our employee association.”
Jim Ferrell, as a CEO, views the issue through a straight bottom-line prism: The new law, he said, “means that health-care costs, and therefore insurance premiums, will rise.” Those costs likely will be passed on to employees, he said. “Business has to make a profit; therefore, either employees or customers will have to foot the bill.”
Ken Block saw elements of the plan that were good, but “far too many other things that are detrimental to the overall health of our economy, which in turn, are also detrimental to the business community.” The near-term effect of what he sees as substantially higher health-care costs, for small and large businesses alike, will “cause most businesses to rein in any plans for expansion,” Block said.
At Burns and McDonnell, a strong corporate wellness program already in place will help minimize the impact of new federal mandates, Greg Graves said. “We have a great plan for our employee-owners and we work hard to make them healthier
and at the same time control costs,” he said.
The healthier banks in this region say they have sufficient cash to lend; small businesses say there isn’t enough credit available. Does that contradiction suggest that the playing field for doing business has been fundamentally, and
perhaps permanently, altered?
“This has been a persistent point of discussion over the past 18 months,” said Carl Schramm. “We have heard many stories from new firms and small businesses about the difficulty of getting credit, suggesting a tightening supply of credit.”
At the same time, he said, some indicators suggest that it’s an issue of demand, that banks are open to lending but that fewer businesses are seeking credit. As the economic recovery unfolds, Schramm said, it’s not clear that the national lending dynamic is in a permanently altered state of affairs, “although the severity of this recession may mean a longer timeframe for conditions to readjust,” he said.
Jim Ferrell says the tightening of credit standards will help weed out marginal borrowers. “Eventually,” he said, “this strengthens the business community, although there will be pain in the process. In fact, this is happening at businesses of all sizes.”
Perhaps, but Ken Block says the effects of that are felt more acutely by the smaller companies, which have a harder time generating the collateral needed to secure loans. “Bank lending is available to the strongest borrowers, although at some point, we expect that it will again become more available to the small business community,” Block said.
Greg Graves said the whole point of the regulatory crackdown on financial institutions had produced the desired effect: “Banks are being more conservative,” he said, and credit is tight. Neither is an inherently bad thing, given where looser lending practices and ample supplies of credit got us heading into the fall of 2008. “I hope the new paradigm sticks,” said Graves, “but, personally, I highly doubt it.”
Agreed, said Terry Calaway. “We can’t afford to repeat the practices that caused the economic crisis in the first place,” he said. “The challenge we face, however, is that, historically, small businesses have been the vehicle that drove us out of recession” and the current lending environment is hindering recovery.
From your perspective, what regulatory/policy changes would help re-energize the economy?
Greg Graves doesn’t mince words: He knows that energy is what drives the U.S. economy. Whether the carbon-based subject matter is oil, coal or dairy-herd flatulence, he’d like to see some policy definition coming out of Washington. “Make up your mind one way or the other, set the new rules, and promise (really) not to change them,” Graves said.
Ferrell echoed Graves’ concerns about the nexus between environmental safeguards and economic sustainability. “All agencies have enormous power over what we call the free market and all could back off some,” he said. “But the real threat of further regulation is also dampening the spirit of investors and business in general, a tax on carbon being only one.”
Graves joined most of the other respondents for this e-roundtable by lasering in on the nation’s fiscal affairs, calling for a long-term vision to address the national debt. “I don’t really think it would matter if the plan were 10 years or 50,” Graves said, “just to have a plan would add great confidence to the long-term viability of the economy.”
That, Terry Calaway suggested, was spot-on: “A federal balanced-budget amendment,” should be priority one, he said, just as fiscal responsibility is the charter of most state governments. Beyond that, though, he believes policy makers need to spend more time identifying ways to energize opportunities for small business.
Which leads to Carl Schramm’s vision of what makes an economy truly viable.
“The importance of entrepreneurship,” he said, “can never be overstated. We have seen that, over the past three decades, nearly all net job creation has been generated by new and young companies.” Because entrepreneurs in all likelihood will be key drivers of economic growth, Schramm said it was vital that we do more to encourage people to start new companies and enhance their ability to succeed.
“We shouldn’t pretend that every new company will succeed, let alone be the next Google,” he said. “But by increasing awareness about the promise of entrepreneurship for everyone, and reducing the costs and barriers to starting a growing a new company, we can boost job creation and economic growth overall.”
From a regional perspective, what do you see as the greatest local threats to the business environment in the Kansas City region? And on the flip side, the greatest opportunities?
Ken Block speaks for many in the business community when he says the greatest threat to the region continues to be its decades-long fragmentation along multiple lines. “Our city’s leadership has not taken positive steps to benefit the business community,” he said, and because of that, “it is difficult to produce a unified voice to market Kansas City.” It is imperative, he said, that the metropolitan area “unifies as one ‘voice’ to more easily attract new business and residential expansion.”
Can that be done? Sure, says Jim Ferrell, because the region is populated by folks who have historically shown an ability to
rise to the challenge. “Our strength lies in our people and their basic work ethic and honesty that come with being Midwesterners,” he said. But we could take some pointers: “Texas grows every year partly because capitalism is in the air there,” Ferrell said. “It is a state where people talk about business, and honor its leaders.”
Terry Calaway said the most immediate threats to regional revival were the “continued soft lending market and declining home and business values.” Those he said, cause individuals and businesses to hunker down, slowing the economy even further, a suggestion that something must break the psychological logjam to restore consumer confidence.
Beyond his earlier concern about the public schools, the region puts itself in peril because “we have not been consolidators of businesses, Ferrell said. “This means opportunities for our best and brightest young people are limited, so many leave the area.”
But the region has plenty of tools in the kit to rebuild, Block said. “Kansas City has a very attractive cost of living, excellent housing, a highly educated work force, is one of the top cities for rail, car and air transportation infrastructure, and has a large number of very fine communities that are actively seeking new development,” he said. All provide competitive advantages
as various regions of the country pull out of the recession at varying paces.
And Calaway identified one thread of the proverbial silver lining in the economic cloud that is lifting: “For those businesses that have available capital,” he said, “now is the time to take on new product development and beat those who do not to market.”
That kind of business thinking has a name: entrepreneurship. And again, Carl Schramm identifies a regional strength, citing the region’s rich entrepreneurial history.
“Unlike most cities, however, Kansas City has been able to maintain and consistently renew that spirit for several decades,” Schramm said. The key to the region’s future, he said, is to remain open to ‘the new’—new ideas, new companies, new challenges to established interests.
“The trick for any region,” Schramm concluded, “once it has enjoyed growth because of its entrepreneurs, is to allow room for the next generation of entrepreneurs.” 