The Credit Crunch and the New Economy in Appalachia

What will the world look like once the financial crisis passes? Mark Penn has a worthwhile take on things:

The economic crisis will ... dramatically affect the rising elites, their lifestyles and kids.

For them, Wall Street was becoming the career of choice. But with markets plummeting, will young people now switch to careers in the nonprofit sector helping to combat climate change? Will they go back to founding small businesses after both Big Business and the financial community have proved unreliable employers? The number of law school applications will certainly rise as society becomes even more contentious and litigious, fighting over a shrinking pie.

Maybe we will finally see more young people put their faith and their studies in engineering and science, as people become disillusioned with careers based on moving around information and derivative financial instruments. People will want to make something tangible again, and the government is likely to help by pouring billions into new public works projects.

Telecommuting and four-day workweeks will surge as businesses look to cut back on hours and travel expenses.

Until recently, Americans were buying second homes like crazy — millions of middle-class families have two mortgages. That market has collapsed. But the silver lining will be for first-time home buyers who will find it easier than ever to afford a house, as prices have tumbled by 25 percent or more.And the love affair with the SUV and the truck seems to be fading. Even as oil prices come down from their sky-high summer peak, Americans’ tastes will now permanently shift to smaller (but not too small), higher-mileage cars. Function will gain on form as the most important factor in car purchases.

Full article: http://www.politico.com/news/stories/1008/14531.htmlSome potential ways the above might affect Appalachia, economic development and entrepreneurship:

1. Big business has never thrived in Appalachia- with a few notable exceptions such as mining. Perhaps entrepreneurship will experience some boom times as more and more investors look to put their money in ventures they can more easily get their arms around.

2. Non-profits have always been a thriving sector of our economy. The Christian Appalachian Project is the 12th largest non-profit in the nation. MACED does terrific work, both with the bully pulpit and, more importantly, by putting money where their mouth is. If we’re about to enter a new era of non-profits then it could be good for the mountains.

3. If we see a rise in opportunities for telecommunting then it’ll be good for Appalachia. After all, as Hal Rogers likes to say, we may not have the highways but we do have the skyways… i.e. broadband. (Thanks partly to another non-profit that does great work in Appalachia, ConnectKy.)

4. If cars turn towards the functional and we do, for better or worse, see added costs to reflect the environmental impact of automobiles, perhaps the used car market will boom. Appalachia has historically had a car culture. I have a neighbor who can’t get to Lexington and back but who can take apart and rebuild a motor, transmission, etc. with ease. My wife says he could fix a car with aluminum foil. This surplus talent could find a market someday soon. After all, the carbon footprint for buying a used car is much lower than a new Prius ever thought of being.

Admittedly, predicting the future based on Mark Penn’s work is a little risky. Just ask Hillary. Still, I think some of the above has a pretty good chance of coming to fruition over the next few years as we move away from the credit glut and into an era of more frugality.

Don McNay Preaches the Virtues of Entrepreneurship

I spend quite a bit of time on these pages railing about the importance of entrepreneurship. Skills in small business (and enterprises in general) will be crucial for millions of American as our economy changes from one that favored big industry to one that smiles more brightly on small business. The reasons are simple: globalization and technology. Our economy is moving away from one that favored capital investment to one that favors human capital.

Don McNay gets that. Here are snips from his most recent op-ed, the entirety of which I strongly suggest folks read:

Every person in the financial world has skills that can be transferred to a business they own. Media people have a “brand name” with the public. Both groups can take the skills honed at large institutions and use them to make their own fortune.

Entrepreneurs in the next generations won’t have the opportunity of training at a large company. They will have to start business for themselves from day one, instead of learning their craft from experienced hands with vast resources.

[…]

In 1900, only 10 percent of Americans worked for large companies. The other 90 percent were self-employed farmers and shop owners. By 1970, the number of people working for large companies reached 90 percent.

It’s been dropping every year since 1970. We are on a steady march back to that 10 percent number. The recent economy is quickening that march.

So what do we do about it? McNay notes that it’s a challenge to prepare folks used to working for a big business to run their own business. But as he says: “it’s a challenge that must be met.”

So how do we meet it? For starters, we need to get it. I really think that Governor Beshear gets it. More so than any recent Governor he preaches the gospel of growing Kentucky companies here in the state rather than recruiting them from elsewhere. If you read press releases from the Cabinet for Economic Development you’ll see that the Guv is relentless on message about this point.

We should build on this kind of attitude. Pols should actively preach the virtues of that funny French word entre-pruh-neur-ship. That’s important. Because an entrepreneur is more than a small business owner. An entrepreneur is someone who creates new enterprises, taps new markets, does things innovatively.

In the legislature there are periodic attempts to promote math and science education in schools. What about entrepreneurship? The Kentucky Entrepreneurial Coaches Institute has long advocated for and actually implemented on a smaller scale youth e’ship programs. It’s time we get serious about these here in KY. Pols could play a vital role in the promotion of e’ship here in the bluegrass. Their bully pulpit and the fact that Kentuckians still look to them to do things to foster economic growth means that they can spread this message with ease.

Further, we should evaluate the myriad economic development programs and agencies in KY to see which ones are and which ones aren’t promoting entrepreneurship. We have to let our children know that they should align their college education with the realities of this new economy. And kids should know that lifelong learning is a must. No matter what entrepreneurial endeavor you launch, odds are it will change, possibly even die, in this rapid new economy. This means that business owners must be nimble and flexible and willing to learn new skills.

The dinosaurs are becoming extinct folks, but the mammals are rising in their place. Don McNay gets that: “When people decide they’re not going to depend on a big boss to hand them opportunity, it is a liberating experience. Like our forefathers, we have the chance to thrive in an environment where we control our own destiny.”

Cross Posted at the Kentucky Entrepreneurial Coaches Institute Blog.

What do New Economy Bizs Need? From Jakarta, Indonesia, the Answer

A few people around the world get it when it comes to economic development. They disdain bald protectionism and subsidies and emphasize what's really important to small bizs: access to capital and training in entrepreneurship. From the Jakarta Post, here's one of the leading business experts and economists talking about what Medium to Small (Business) Enterprises, aka MSMEs, really need:

I think the approach used so far in nurturing MSMEs has been inappropriate because most of the programs emphasized subsidies and protection from market competition. This is the wrong way to nurture MSMEs.

In our experience at Bank Mayapada, MSMEs don't need charity, subsidies and excessive protection. What they mostly need is easy access to financing and technical extension services (consultancy) on various aspects of their business operations.

They don't have assets as securities for loans and they are not comfortable with, and sometimes even hate, arduous bureaucratic borrowing procedures.

We design our lending programs specifically to meet the special characteristics of MSMEs. Hence, we don't focus on collaterals but cash-flow or revenue-stream prospects based on their business feasibility. (Ed. Note: Very intriguing idea)

We have developed a body of experienced experts to assess the MSMEs' commercial viability. We have opened what we call the Mayapada Business Partnership in various areas.

These business units are assigned to look out for viable MSMEs, nurture them with financial and technical assistance and constantly monitor their development and their needs as they continue to grow and expand. Each business unit also operates as a complete business advisory center. We decentralize credit assessment and decision making to these units.

[...]

To put it briefly, our approach is market oriented and designed to transfer not only financing capability but, and most importantly, business competence and entrepreneurship to MSMEs.

Here in KY, I think there are two great examples of programs that blend the need for entrepreneurship training and access to capital: the SBDC, which has a longstanding relationship with the Small Business Administration and the KY Innovation Network (I'll admit I'm biased on this one), a program that provides additional access to capital for New Economy companies and the hands on business training that entrepreneurs need.

Can we improve on this? Yes, but this is the template.

Check Out Our Web Site Too

It's located at: http://www.ekyneweconomy.org/.

Special thanks to Breathitt County companies Dogwood Technologies and Clarion Solutions, LLC for their donated effort at this site.