Archive for May 11th, 2009

May 11, 2009

Think of it as the IBL – The International Business League

by Steve Dana

Business and trade policies in our country require that businesses be global in their thinking whether they are global in their operations or not.  Competition is keen from the huge internationals right on down to the mom and pop on the corner.

Think of the environment for business today in the context of major league sports.  There are big and small markets vying for the best organizations with various resources available to them.  Within the markets, the organizations are vying for the best talent available in the pool.

Everything is about competition for the best deal.  If you don’t make the best offer, your competition will steal the deal.  It all comes down to how bad you want the best players for your team.  Who are the best players on your roster?

In our market, Boeing is our NFL team, Microsoft is our NBA team and all the other companies represent teams vying for spots on our market roster.  Some are major league competitors and some are not.  Each one of them is a “free agent” looking to make a deal.  What do we have to offer to keep our star players on our team?  How much to we have to give to get the next superstar in our uniform? 

When Seattle made the decision to give up on the Super Sonics they needed to know the actual value that business had to the local economy.  I hope they did some analysis.  Regardless of your personal feelings about an NBA team, the business represented a significant asset to the city.  Losing that business created a hole in the economy.  In this case Seattle decided the cost of keeping that business was higher than the value coming back.  I wonder about their analysis.

How do we accurately calculate what a team, a player or a business is worth to our city, county or state?

At a time when international competition is fierce, businesses have to do what is right for their shareholders.  Decisions are made every day about sourcing raw materials and recruiting a skilled workforce.

Historic relationships between companies and communities have been abandoned as external factors played an increasing role in critical decisions by business owners and managers.  Long gone are the days when a player belonged to a team for life.  Long gone are the days when American workers produced the goods and services consumed by Americans.  American consumers hunger for cheaper and cheaper goods and services driving retailers to look to cheaper markets for materials and labor force.  In order to compete in an international market, who can blame them?

The cost of doing business in a particular place is now a significant factor in determining where future investments will be made.  Proximity to raw materials, availability of energy sources, availability of skilled work force, availability of developed infrastructure and government regulations and taxes play a part in the decision making process. 

At the same time, it is now necessary for current host communities to determine the economic value a business represents as competition heats up for future company investments.  Loss of American jobs to foreign countries has been a foregone conclusion since we adopted a pro-active policy of elevating third world countries’ economic status.  Reductions in American worker wages is also a side benefit as those countries now compete against small businesses across our land for anything and everything made here.

Labor laws in this country vary by state.  As a result, some states are more competitive than others.  State tax laws also play a significant part in the assessments.  Competition for the best deal is brutal on both sides of the negotiations.

Government policies may require that products made for national defense must be produced in the United States, but they don’t specify where in the country.  The competition for a manufacturing company such as Boeing could be likened to the process of recruiting a sports team to your market.  The cost-benefit analysis considers all the variables and spits out a winner.

At the end of the day, how do we stack up against our competition?  What do we have to offer that will attract a winning team to our market?  What are the negatives that might turn the cream of the crop away from our market?  What are the negatives that might cause existing players to be traded away from our team?

If we fail to stay sharp, we risk losing core players to free agency and we stand little chance of recruiting new talent. 

It’s up to us to decide on what level we want to compete and adjust our game accordingly.

May 11, 2009

Show Me the Money

by Steve Dana

When Cuba Gooding Jr. made famous the phrase “Show Me the Money” in the movie Jerry McGuire, we all latched on and use it in so many ways.  The truth is; it is the truth.  It is always about the money.  The discussion about environmental policy even ends up with the money. 

 The dilemma for environmentalists has always been they didn’t have enough money to pay for what they needed so they’ve been trying to figure out how to get it from you and me.

 One problem is that energy is still too cheap to change our behavior (enough to satisfy them).  What we learned last year was that when gas got to $4.00 per gallon or more, it got your attention and you started to change your behavior since it was quickly consuming your discretionary budget. 

 That fact got the attention of the “Green Movement” Regulators (GMR).  They have always wondered about your tolerance for price increases before you blinked.  Now they know.

 The GMRs have always been distressed that they didn’t have the leverage to change your behavior.  My, my, my, the worm is turning. 

 If you thought you could reduce your cash flow for gas by changing your driving habits, you are partly right, but it will only be temporary.  The GMRs now know how high to price energy so it changes your behavior but doesn’t quite break the bank.  They will come after that money and more, very soon.  By manipulating the market through taxes and fees they will raise the price you pay for energy.

 Another problem they have to deal with is the high differential cost of alternative energy.  Bio-fuels need to sell for $4.50 per gallon or more to be profitable.  Solar, wind and tidal energy generators only crack the nut when user prices hit $.15 to $.18 per Kilowatt hour.  You won’t embrace alternatives if traditional sources remain where they are today.  That will have to change.

 Most forms of alternative energy cost much more than what we are accustomed to in our market.  Alternative sources for electrical will be much higher than our traditional hydro power.  Solar, wind and tidal are all great ideas, but none are practical when we have existing resources at much cheaper cost. 

 None of that will matter if they raise the price for hydro-electric supplies to $.15 per KWH and justify the increase with the rationale that we have been enjoying a windfall for too long already and the “subsidy” we have been receiving from the federal government from their investments in the hydro-electric dams must end.

 In Snohomish County, transportation polluters represent almost 2/3 of the total carbon emitted.  So efforts to reduce carbon emissions in other segments will only produce miniscule benefits.  That doesn’t mean they will give up trying to reduce emissions in those areas, but at the end of the exercise the gains will be marginally successful but who knows how much they will cost.  Nobody ever does meaningful cost analysis for these programs.  We need to start.

 Clearly the focus in Snohomish County will be to reduce the transportation related carbon emissions and for most of us that means zeroing in on our personal vehicles.  We all know how diesel busses, trains and eighteen wheelers are “diesel stinky” so the focus on them makes sense because the pollution is so evident. And since most of us don’t operate diesel vehicles, picking on those poor suckers makes perfect sense.

 Don’t think for a minute that there isn’t a target on your chest as well.  The GMRs are scheming to raise the gas tax to a point where you change your behavior with the idea that the windfall should come to our government instead of a foreign oil company.  Small consolation for American consumers.  We are destined to pay $4.00 for a gallon of gas for “national security” reasons.

 The rationale is that if we keep consumption lower, crude oil prices stay lower.  If crude oil prices stay lower oil exporting countries collect less revenue and ultimately have less to spend on things like terrorism.  The only way to keep oil consumption low is to keep the price to consumers high.  We can either pay the differential to our government or to their government but it is pretty clear that we will be paying.

 I hate being so pessimistic about this environment thing but I don’t see an easy fix for any of us.  As a candidate for county council I would hope to inject an appeal for accountability into the debate.  At this point most of us have no confidence in the accuracy of the claims for benefits.  We have been lured into agreeing to a dubious strategy because of overstated benefits and understated costs in the past and this is pretty much the same story.

 It may be that if we know the real cost of achieving legitimate goals we will still reject the plan, but maybe not.  In order to make good decisions, we need good information.  I don’t believe we have been presented the whole story because our predicted reaction would not be the preferred reaction.  When was the last time you heard of a government proposal that delivered everything it promised at the start at anywhere near the estimated cost?  That is where we are on this Climate Change and Global Warming issue.  No accountability for anything.

 We need to start working on that accountability thing so citizens can have confidence that their leaders are not deceiving them. (that is a euphemism for lying)

 As a community we must determine how much change is necessary to achieve reasonable results and balance that with how we plan to pay for it.  Reasonable results for a reasonable price should be our goal.

 I would like you to be able to “show me the money” you are saving by not being taken to the cleaners by unsubstantiated claims.  Then you can show me the money you have for you and your families to spend or invest based upon your choices.