What I Hope Are/Is Common Cents for January 26, 2018

January 26, 2018, by John Norris

Section I

Last week, Amazon announced its short list for what everyone is calling its second headquarters. According to the company, this will be a $5 billion investment that could/should/would create some 50,000 new jobs for the lucky city or metro area. Obviously, this would be a game changer for most places, and nothing less than a massive feather in the proverbial economic cap for all.

Although Birmingham fought the good fight, it didn’t make the cut. Frankly, it had been a bit of a pipedream, or should have been.

Oh, Amazon’s reasoning probably had very little to do with our city’s turbulent history, if any. I seriously doubt if Jeff Bezos has any idea about the number of municipalities in the metro area or even that Jefferson County declared bankruptcy a few years ago. Undoubtedly, no one mentioned the lack of a light rail system in central Alabama. While I obviously wasn’t part of the decision making process, it is highly unlikely Birmingham’s bid failed for the reasons ‘we’ normally throw around for why good things don’t happen to us 100% of the time.

Nope.

You want to know the real reason(s)? We aren’t big enough, and the local tech community certainly isn’t big enough. That doesn’t mean we aren’t big, we sort of are. It also doesn’t mean that we don’t have some really smart people doing some cool stuff in the tech sector; we do. We just don’t have enough. While it isn’t really math, it is just the math.

According to the Bureau of Labor Statistics (BLS), the Birmingham-Hoover MSA had a civilian labor force of 533.1K in November 2017 employing 515.8K people. Of these, 7.4K were in the information sector, which includes communications. Some quick math suggests info/tech is about 1.4% of the local economy, at least in terms of employment. For its part, ‘Professional and Business Services’ accounted for 66.5K jobs in the metro area.

So…..up to 50K new jobs for a corporate HQ for a firm that is as much a tech company as it is anything else? I had a boss once at Regions Financial Corporation who would have said that would be like Birmingham trying to swallow itself. Indeed.

While it certainly would have been nice to have it, Birmingham just didn’t/doesn’t have the bench strength to attract a corporate headquarters of that size and complexity. Again, that isn’t a knock on us, even if folks will try to make it out to be more than it is…economies of scale in the local labor force.

When folks ask me the biggest problem with attracting business to Birmingham, I ordinarily say something along the lines of: “get on I-20 and drive about 2-2.5 hours east. That is the biggest problem in attracting business here.” There is a lot of truth to that.

Some years ago, I asked a friend of mine who works for Bank of America when they were going to enter the Alabama market. You probably could have heard me braying like a donkey when he said something along the lines of: “Norris, we already do as much business in Alabama as we want out of Atlanta. Why do we want to go to the expense of putting up a bunch of expensive branches we don’t really need?”

That was true then; true now, and will be more true moving forward…with a caveat.

Physical location will not be quite as important to the American knowledge worker in the future. As it is, offices are arguably irrelevant for a lot of industries and professions. This means if Birmingham wants to attract business in the future, it needs to work hard attracting people now…if that makes sense. The traditional approach for us has always been ‘top-down,’ meaning we try to attract the business first. Intuitively, this makes perfect sense, absolutely perfect sense. However, businesses tend to want to locate to where people (their workers and potential workers) want to live. Not surprisingly, people tend to want to live where there is plenty of stuff to do.

Fortunately, ‘we’ are further out of the station with this than most people would think, but this particular train is pretty slow.

Simply put: Birmingham is a lot more hip than it was and most folks think. We might not ever get to an Austin, TX, level of cool, but so what? A decade or so ago, this metro area was virtually on its back, and now we have nerve enough to pitch for Amazon’s HQ? With more than a fistful of folks thinking we had an outside shot? Seriously? When was the last time the Birmingham area had that level of confidence?

So, how do grow on this confidence? Particularly after Amazon basically ignored us?

This might seem silly, but go see a concert or a play, and keep going to them. It doesn’t matter if you like them or not, just go. I mean, you might hate Brett Michaels and not even know who Train of the Black Jacket Symphony are, but go fill up that amphitheater, concert hall, or junk joint. Support the Red Mountain Theater Company, the Alys Stephens Center, or the Virginia Samford Theater. Attend the Sidewalk Film Festival this year. How about Opera Birmingham or the Alabama Symphony Orchestra? Also, head out to Red Mountain Park, Ruffner Mountain, Railroad Park, the Rotary Trail, or any number of other parks in the area. If you have the opportunity to chip in and become a member, do so…I have. Of course, it goes without say to buying local as much as you can, whether it be food, beer, or vodka (yes, vodka). Whew, and etc. We have a lot of cool stuff

I guess what I am trying to say is this: we have everything we need in this area to attract more residents, seriously. We just need to support these things more than we do and grow them. This will create a base from which to attract people to the area first, in the effort to attract business later.

This would be, I suppose you would call it, a bottoms-up method of economic development, which would certainly seem to go against our grain. However, and this is just me talking/writing here, it is certainly worth a shot. Who knows maybe it is our best shot?

After all, the top-down approach we have been using doesn’t seem to be generating the results we all would like, or at least not as fast.

 

Section II

During the Q & A session of a presentation I recently made, I got the following question: “did US Treasury Secretary Mnuchin really mean it when he said a weak dollar was good for the US economy?” Since the powers that be have preached the exact opposite for as long as anyone can remember, the asker’s confusion was quite understandable. How is it now a weak dollar is good?

The truth is simple: sometimes it is and sometimes it isn’t. It all depends on what you mean by weak and the cause of the weakness itself.

A short-term, mild decrease in the US dollar due to improved global economic conditions is one thing. In fact, it might actually be a good thing, as it makes our exports to foreign markets that much less expensive. Conversely, it makes imports more expensive for the American consumer. This fosters both domestic saving and production, which are often key elements in wealth creation.

Further, a weak US dollar is great for our large, multi-national corporations who generate a lot of their revenue in other markets. It enables them to translate their local currency profits, hopefully, back into more dollars for reporting purposes. That could be good for earnings, which should be good for the stock price. Obviously, that makes investors happy, and anyone that has a 401K is an investor. Here is a little secret: dollar weakness was a pretty big reason for last year’s surprisingly strong rally.

However, as you can imagine, this type of currency weakness is normally pretty temporary, and that is okay. A slightly stronger dollar has its advantages as well. In fact, some measure of currency fluctuation is completely normal and arguably healthy.

The problem is when a currency collapses due to systemic failure in a country, whether economic, societal, governmental, or some combination, which it usually is.

It should be obvious Secretary Mnuchin was not advocating a complete breakdown in the dollar. He wasn’t suggesting an embattled currency is good for economic growth. That would have been a stupid thing to think and say, and Steven Mnuchin is about as far from stupid as you can get. To that end, his resume is the pipedream of most Ivy League finance and economics majors. Finally, estimates are he has around 300 million of the things, dollars that is. So, why would he want them to be weak to the point of worthless?

You see, unlike most political types, he understands the way the business world actually works. But that doesn’t mean there isn’t a legion of folks taking Mnuchin to task for his comments. After all, we have been conditioned to believe a strong dollar is necessary for economic growth. You know, it kind of makes you wonder whether there is some sort of weird machismo kind of thing going on with that.

Where the rubber meets the road, a systemically weak currency isn’t good any economy, and is usually a reflection of larger problems. Further, an artificially strong one can be just as bad, as we have perhaps found out over the last couple of decades with a ballooning trade deficit and shrinking manufacturing sector.

However, in a free, dynamic economy with a fully convertible, floating currency, weakness and strength are usually relatively short-term phenomenon, both with advantages and disadvantages. Basically, currency strength tends to smooth out over time, making a weak dollar as transitory as Mnuchin’s comments about it being good for economic growth.

I will probably write more on this in the future IF the dollar continues to slide as it has.

 

Take care, and have a great weekend.