BIZTIPS - December 14, 2008

by Art Hill

Small Business Can Respond to Financial Crisis

BizTips December 14, 2008

Russell Cheetham was in Pendleton this week to celebrate the 18th birthday of his granddaughter, Kelli McBee. But he also gave the Pendleton Rotary a clearer and more informed “inside view” of the current global financial crisis than any national or international media report has yet offered. Then he graciously agreed to spend an hour with the author of this column to share insights into the impacts and opportunities the crisis has in store for small business.

Mr. Cheetham should know. He retired as an officer of the World Bank after twenty-seven years of service in a long list of countries including Asia and the former Soviet Union. With the bearing of a diplomat and the expertise of a Cabinet appointee, he outlined the historical context of this recession, its current status, and estimates of its depth and duration. Perhaps most significantly, he suggested options for recovery.

For example, the causes and remedies for deep economic crises are well known and documented. By Mr. Cheetham’s count, there have been 124 such crises in the past 25 years. Each has been meticulously recorded by World Bank economists as well as by the International Monetary Fund.

As a result we know that an effective response to the collapse of economies is massive, rapid infusions of public money to provide jobs and build public infrastructure – roads, educational institutions, and other needed projects that can be quickly funded and started. Sweden and Norway took decisive actions like these and turned the Scandinavian recession of the 1990’s into a rapid recovery. Japan failed to act quickly and firmly following the Asian financial crisis of 1997. The price Japan paid has been a 10-year recession.

The U.S. has the opportunity to respond quickly and decisively to the current global melt-down. Mr. Cheetham has personally worked with President-elect Obama’s nominees for National Economic Council, Larry Summers and for Treasury Secretary, Tim Geithner. Both are capable, respected, and as aware of what must be done as is Mr. Cheetham.

But what must be done locally, by small business in Oregon and our region? What is the best response to both the recession and the proposed Federal stimulus? Mr. Cheetham has several suggestions.

First, business owners can take the necessary steps to qualify as certified Emerging Small Businesses, giving them the right to contract as product or service providers on state jobs. They can also take advantage of training like that offered by ODOT through Oregon’s Small Business Development Centers.

Second, small businesses can bid on public works funded by Federal economic recovery programs. These projects will require everything from paper clips to campus buildings. Governor Kulongoski has proposed a massive catch-up on deferred maintenance of pubic higher education campus facilities (Oregonian 11/24/08). The Oregon Department of Transportation has rolled out training programs for small businesses who can serve as contractors and sub-contractors.

Third, small businesses can work with their banks, some of whom have strong balance sheets and continue to lend to qualified companies. Contracts can become collateral for working capital. Terms of mobilization and progress payments can be structured to provide cash for later project phases.

In summary, economic recovery will require a combination of quick and decisive Federal investments in economic stimulus. Linked with pent-up demand for infrastructure repair and improvements in each state, Federal money will fund projects that offer revenue opportunities for small businesses. Small businesses that are prepared to respond will survive and prosper. Others may disappear.

According to Mr. Cheatham, “We are in the first act of a five act play.” It can be a drawn-out tragedy or a brief performance with a happy ending. Each of us must decide which one it will be for our families, our businesses, our employees, our customers, and our country.

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