Thinking that perhaps his message will have more impact, if, instead of submitting to interviews, he communicates his ideas directly, Warren Stephens, the $2.5 billionaire CEO of Little Rock’s Stephens, Inc, has authored an op-ed in the Wall Street Journal. Under the title, “Business Regulation vs. Growth: The View from Middle America,” which he probably didn’t choose, Stephens, purporting to speak for firms with revenues between $25 million and one billion a year, identifies the problems these middle Americans have with uncertainty.
As the CEO of an investment bank based in Middle America and specializing in the middle market, I speak regularly with the leaders of midsize companies. Many of them talk about the uncertain regulatory and tax environment we are in as a deterrent to growth. I will try to give you a few examples of what they say.
Ordinary folk, who know that “one never knows what tomorrow may bring,” may find it a bit strange that leaders of companies have different expectations — indeed, that they can’t even act, if the costs of doing business might change. Talk about scratching our collective heads!
For example, they are scratching their collective heads as they watch the National Labor Relations Board (NLRB) challenge whether Boeing violated labor laws by putting a plant in South Carolina to assemble its 787 Dreamliner. The concern is whether this an indication of future action the NLRB may take against middle market companies that have far fewer resources than Boeing to fight back.
I’m tempted to say they shouldn’t “watch.” On the other hand, firms relocating manufacturing plants in search of workers they can pay a little less has got to stop. Fighting agencies designed to preserve people’s jobs is a waste of effort and, when you come right down to it, unpatriotic. As is the habit of extorting concessions from distressed communities with promises of jobs and then pulling up stakes and moving somewhere else.
But, that’s just an introduction to what Stephens, the banker, is really concerned about.
Finally, the regulations and rules that will emerge from the Dodd-Frank financial reform inject great uncertainty as to the availability of credit for middle market companies. Banks don’t know, for example, the capital requirements that will be required to support certain types of lending activity.
The bankers are uncertain about Dodd/Frank (never mind that the legislation was deliberately left with few specifics in the hope that, after the 2010 election it could be thrown out or amended to suit the banks’ purposes) because it might just require that the banks have the money they lend out in hand. “Certain types of lending activities,” for example to people who have no money of their own to put into the pot and no track record of accomplishment might no longer be considered “qualified” for loans just because they play a good game of golf or because, like Tom Graves of Georgia he’s a public servant, won’t be bailed out. Sounds pretty certain to me.
Anyway, Warren Stephens has a plan with five recommendations, but I’m only going to mention two because they reveal quite a bit about where this uncertainty of which he complains comes from — an apparent inability to keep straight the order in which things take place. When Stephens writes:
• Regulatory agencies should be required to study the costs and economic impact, including on job creation, of their rule-making before any rules take effect.
He’s wanting to put the cart before the horse, so to speak. It’s not possible to know the value of something until after you’ve tried it. Of course, it’s possible to speculate and bankers/bond brokers do it all the time, but that’s why we’re in the mess we’re in. Because bankers speculate with money that doesn’t even belong to them and then they head over to the Federal Reserve window and ask for more.
Speculation is to be rewarded. To his credit, Stephens comes right out and says it:
• Tax loopholes should not be confused with smart tax policy that offers incentives for innovation by middle market companies. A permanent Research and Experimentation tax credit is an example of a smart tax initiative that rewards a business that is willing to try something different.
Why on earth should business be rewarded from the public purse before we even know the speculative innovation has any merit? Besides, isn’t that what the market is for? Never mind that taxes pay for necessary services that don’t go away, regardless of whether enterprises prosper or fail. Doling out rewards/incentives ahead of time doesn’t seem real smart.
Before I get to Stephens’ conclusion, which reads for all the world like a campaign slogan and reminds me of the fact that Warren’s brother Jackson has recently been dispatched from ailing Stephens Media LLC to take the helm of the Club for Growth, let me just note that American corporations are currently sitting on $2.5 trillion in cash that they are too chicken to invest because the future is uncertain.
Let’s substitute ideological arguments with straight talk and commonsense solutions to unshackle investment. By designing a set of policy solutions that eliminate obstacles, remove disincentives and reward smart risk-taking by middle market companies, we can reignite our economy and create the kinds of jobs that built this great country.
Somehow, I think that last sentence needs to be rethought. Setting the economy on fire is perhaps not a good metaphor when the swamps of Georgia are burning and Texas is being scorched. Also, let’s not forget that the U.S. Capitol and the White House were built by slaves and the railroad tracks were laid by coolies.
An example of what Stephens might be referring to when he notes that Wall Street is not seeing many initial public offerings (IPOs).