he voters have spoken. The U.S. election of November 2012 resulted in very little visible change — Democrats retain control of the White House and the Senate, Republicans the House of Representatives and most governors’ mansions — 30 as of this month. The U.S. remains a nation split fairly evenly along party lines, just as it was prior to the election. So what now? Will the U.S. economy scrounge up enough energy to climb out of the bog it’s been mired in for the last few years? Will U.S. businesses now expand at home and bring their overseas operations back to America? What does a second Obama term mean for U.S. economic development?
If an informal survey of corporate real estate managers, C-suite executives and site consultants this publication conducted in December is any indication, the U.S. business climate status quo is about to change — for the worse. Economic development in the U.S., therefore will be a harder row to hoe. Just how much harder remains to be seen, as businesses small and large await rules and regulations to be written stemming from the government takeover of the healthcare industry, for example. No perceptible movement on lowering corporate income tax rates in the U.S. — the highest in the world — is evident. And hundreds of new regulations on businesses are issued every month.
At the same time, Site Selection reports in every issue on new, significant capital investment projects in virtually all areas of the U.S. In all likelihood, the March issue, with its state, metro and micropolitan project tallies, will note an increase in the number of new or expanding projects announced in 2012, the vast majority of which were announced well before the November 6th election. Plenty of capital investors, therefore, still consider the U.S. to be the best location for their growth strategies. Were they rolling the dice on a more business-friendly administration taking over in January? Was the U.S. their only location option, given their situation? Is the argument that the U.S. business climate is increasingly thorny since Barack Obama came to power in 2009 overblown? Do they think it will improve during his second term?
To the last point, Site Selection readers overwhelmingly think not. Eighty readers of Site Selection participated in the December survey, all of whom hold capital investment location sway or negotiate project details with economic development authorities as site consultants on their behalf. Given the options of pleased, displeased or indifferent, 63 (78 percent) are displeased with the outcome of the 2012 presidential election; a dozen are pleased and the others indifferent.
All respondents have property holdings in the United States — most have 75 percent or more of their portfolio on U.S. soil. Nearly half say their organizations did defer plans to expand in the U.S. prior to the conclusion of the election. Now what? Well more than half — 70 percent — of respondents say they are less likely to proceed with expansion plans now that President Obama has been elected to a second term.
Some even plan to expedite their offshoring agenda in light of the election outcome, according to comments left by survey respondents: “We have offshored a handful of functions that are not essential to handle in the U.S.,” reads one. “We will now accelerate that program as well as further invest in our offshore, back-room operations so that we can offer them to others who want to reduce their exposure to Obamacare and other mandates.”
Survey participants were asked which business-climate issues concern them most looking ahead into 2013 and beyond. Tied at first place with 20 respondents each are healthcare costs and the tax burden. Next, with 18 respondents, is onerous business regulation. A few cited a lack of suitable real estate, and a handful pointed to work force availability. Only six used the “none of the above” option.
A Duller Competitive Edge?
A site consultant participating in the survey identified a concern not included in the question options. But it perhaps best captures the gist of what so many capital investors sense will be the case in a second Obama term: “I have an overall concern that the U.S. will not remain competitive. For example, we will likely continue our restrictive immigration policies, which damage our ability to recruit top people — scientists, entrepreneurs and engineers from around the world. Also, rail, electrical grid and road transportation infrastructure are a problem. I am in the process of recruiting FDI [foreign direct investment] from Germany, and these issues are all surfacing. This administration has a transfer wealth approach rather than a create wealth approach.”
For a more specific business-climate concern, with a healthy dose of foreboding, consider this input from a C-suite manager: “The Obama administration is not very friendly toward the aerospace industry. We are developing plans to build an advanced aircraft manufacturing complex in the United States, and Texas is our first choice. Our biggest fear is that the administration would impose regulations that would make it harder to operate the plant. Since Texas is a right-to-work state, and the plant will change the landscape of aircraft design and manufacturing, this in turn will damage Democratic union labor support. This is why we expect this administration to go to great lengths to diminish support for our program once we issue a formal press release.”
At least that investor’s company seems to be moving forward with its plans, and intriguing ones at that. Others will take some more convincing, to say the least. “The current administration is as anti-business as any government on the planet,” writes another C-suite Site Selection reader. “The increasing regulations, costs, taxes and other hurdles provide incentive to locate elsewhere, particularly given that our demand growth is outside the U.S. Why should we invest in the U.S.?” A site consultant wrote in a similar vein, “The present administration hasn’t a clue on how to re-energize the American economic machine … I am advising all of my clients to invest in offshore opportunities in Europe, China and Central and South America.”
Not all consultants see the election outcome that way. In fact, some maintain that the election did just what so many hoped it would do — provide certainty around which businesses can proceed with their plans. “I believe businesses can now plan effectively for expansion and growth,” noted one respondent. And there’s this from the “Don’t Let a Crisis Go to Waste” school of management: “Everyone will be much more cautious with expansion. However, there will be lots of opportunities in the bankruptcy area to pick up properties.”