What does the economic development future hold under President Barack Obama? It's a question that has been on a lot of people's minds since the election and inauguration.
Indeed, plenty of uncertainties remain about the administration's direction, its ability to pay for its priorities in the midst of economic turmoil, and its ability to push significant policy changes through Congress. But observers are hopeful that the administration has the aptitude to wrestle the downturn into submission and make positive things happen. "I think the Obama administration is off to a very strong start," says Charles E.M. Kolb, president of the non-partisan Committee for Economic Development. "He has made some outstanding choices in senior leadership in the cabinet, and the economic team is superb."
Kolb notes that Obama inherited the worst economy the United States has seen in seven decades. "He's got three challenges," he says. "One is to deal with the credit problem and the difficulty of how to dispose of the bad paper clogging the system; that has to be fixed. Second is aggregate demand; we're in a period when various bubbles have burst, and we're trying to ward off a deflationary spiral. Third is how to restore confidence in the financial-services sector, the productive sector and also with consumers in general."
With that in mind, the first burst of attention has gone to the economic stimulus plan that quickly moved from legislation into reality. Kolb has mixed views about the stimulus. "I think it'll have some stimulative effect, but I think it needs to be carefully monitored," he says. "We are throwing an awful lot of money around."
Though the $789 billion stimulus bill is just one part of the impact that Obama hopes to have on the nation's economic future, it's a good place to start examining how the business world will fare with regard to Washington policymaking. For one thing, stimulus promises to be a primary focus of the federal government for the time being, given the depth and intransigence of the economic crisis. Plus, the administration has made no secret that it intends to use its recovery plans as the first steps toward some of its new policy directions.
Roads and Bridges to the Future
With the help of the stimulus, billions of dollars worth of infrastructure will move to the front burner, and that - the administration hopes - will pave the way for more economic development and prosperity. Some of that money will pay for roads, bridges and other projects that could have an effect on the marketability and attractiveness of specific development sites.
"Only a relatively small amount will be spent on real infrastructure," says J.W. "Jim" Wheeler, a senior vice president at Thomas P. Miller and Associates, an Indiana-based consulting firm with focuses that include economic development. Still, this pie is so big that even a relatively small slice adds up to big money. And that, Wheeler says, spells opportunity for communities with infrastructure needs, as well as the businesses that will be hired to meet those needs. "Those companies and states associated with potentially reaping some of that kind of money clearly will be having a lot of activity," he says.
The recovery package sets aside more than $27 billion to pay for highways and bridges, but roads are just the beginning of the transportation investment. More than $9 billion targets rail projects, and $8 billion will help finance high-speed passenger rail projects. More than $8 billion goes to public transportation, $1.3 billion to air transportation and a little bit more to local transportation projects.
Beyond transportation, the Army Corps of Engineers gets nearly $5 billion for dams and other flood control projects, various maintenance initiatives, and cleanup of atomic energy facilities. Some $3 billion is assigned to facility projects on public lands and parks. The recovery plan also supports millions of dollars of grants and more than a billion dollars in guaranteed loans to help rural communities develop such essential facilities as hospitals. More money goes for veterans' hospitals and projects to upgrade community health centers. Also, about $4.5 billion is targeted at broadband development in rural areas, which in turn could make those locations more attractive for development projects that require strong communication links.
Help and Health
The economic recovery package also targets the millions of unemployed Americans, and has benefits that will help companies that hire them. Tens of billions of dollars are working to extend jobless benefits and help people afford COBRA healthcare coverage. Employers seeking to hire well-trained workers will benefit from the $4 billion that will support job training programs, as well as the dollars for training healthcare workers. Support for higher education increases, along with Pell grants.
"In the labor area, there's going to be a lot more spent on dislocated workers," says Wheeler. "There will be a lot of opportunities to tap into new money. That could be very helpful to companies that are restructuring and looking at sites."
The healthcare provisions in the stimulus package offer a look at some of the new administration's ideas for policy change. In particular, the health information infrastructure receives a $17.2 billion shot in the arm, which provides jobs and opportunities now but also paves the way for more efficient delivery of healthcare down the road. Wheeler says that companies involved in healthcare information technology can expect opportunity to grow through the recovery package.
The Future of Energy
Energy is one of the most prominent areas in which the recovery plan provides a glimpse into broader economic and business development policy goals of the new administration. Alternative energy is a strong focus, with billions of dollars targeted to stimulate the development of renewable energy facilities, modernization of the nation's electrical grid, research into better batteries for electric cars, education for those interested in working in alternative energy, and a host of other programs that promise to have an impact on the economic development playing field.
"One of the huge growth areas will be green anything," says Wheeler. "There will be huge opportunities in energy." Look for opportunities related to alternative fuels, he says, including cellulosic ethanol, which could be made from such non-food sources as grasses and wood chips. Some see cellulosic ethanol as a big step beyond corn-based ethanol, which creates competition with the food supply. One producer already has a Georgia plant in the works that would process wood chips into ethanol as early as next year.
Wheeler also expects policy initiatives from the Obama administration to create big opportunities in wind power. "We're not going to keep importing all of the components for wind turbines from Europe," he says, adding that American companies need to be on the lookout for ways to cash in. "If I'm a casting company, I'm going to really look at the housings for wind turbines."
From his base in Indiana, heavily dependent upon the auto-producing economy, Wheeler eyes a governmental push to move vehicles away from petroleum and toward such alternatives as electricity. "The big issue here in the Midwest is moving vehicles to a more efficient framework," he says. To that end, there is an effort to expand Indiana's place on the motor vehicle electrical systems map, through creation of next-generation batteries and other components. Some help might come from the stimulus and future Obama administration initiatives.
The economic stimulus bill is seen as a down payment toward the administration's energy plans, plugging $14 billion into alternative energy facilities, $11 billion into energy grid modernization, $6 billion for the Innovative Energy Loan Guarantee program, a similar sum for state and local government energy-efficiency projects, and $5 billion for home weatherization, among many other targets. "There is an array of things that I would see as being huge opportunities," says Wheeler.
The long-term goals espoused by the Obama administration include support for a wide range of other research and innovation beyond energy, aimed at building a 21st century economy. Some of that thinking can be seen in the stimulus plan, which includes $10 billion in science and research funds for the National Institutes of Health and $3 billion for the National Science Foundation.
The Road Ahead
So how should the business world proceed? For starters, keep an eye out for stimulus-related opportunities, Kolb advises. Watch those parts of the federal government that are receiving windfalls. "Look at where some of the dollars are going to be spent. You have the labor department, the energy department, the education department, all getting significant increases," he says. "People in companies that have an interest in these areas should be following very closely the day-to-day developments."
Wheeler agrees. "The Feds are going to pour a lot of money down the energy pipeline and a lot of money down the health care and life science pipeline," he says.
In the long-term, though, not everyone is certain that the stimulus will provide all of the "oomph" needed to get the sluggish economy up and running again. "We see the stimulus package as a Band-Aid and not a long-term fix for the economy," says Jeff Burton, president of American Dream Development in Kansas. To the extent that stimulus means spending on infrastructure, "that means we'll see an initial influx of cash and employment in roads and bridges," he says - but once those dollars are spent, what happens then?
"On the policy side, I would encourage the administration to look less at stimulus and more at sustainability," says Burton. "Be thinking about ways to reach more deeply into the economy in a more long-term, sustainable way."
Getting the world of real estate back on its feet is a top priority, says Rick Peters, president of the R.E. Peters Co. in California, a specialist in distressed commercial and residential properties. "Pricing for commercial, industrial, and residential property has fallen dramatically," he says. "The devaluation of these properties could reach well above $2 trillion." He believes improving the housing market and other parts of the real estate sector will go a long way toward healing the rest of the economy.
Meanwhile, Wheeler advises companies need to spend the downturn looking for opportunities wherever they arise, not just from the Obama administration's policies but also from the efforts of local and state governments. "With the economy in the state it's in, communities are going to be scrambling for any of the few deals that are out there," he says. "In site selection, what I would be looking at are what kinds of negotiations you might be able to engage communities in. There will be realignments, closures, and consolidation, and there will be a lot of interest in communities that are facing those threats or opportunities."