I attended the 24th Annual Economic Forecast Breakfast entitled “Captains of Industry”. Each year, the breakfast is sponsored by the South Metro Chamber. With approximately 1000 people in attendance, five distinguished panelists answered questions posed by Brian Vogt, CEO of the Denver Botanic Gardens. The panelists were: Mike Matthews, Denver Market President for Wells Fargo; Rick Jory, CEO of Sandhill Scientific; George Bye, CEO of Bye Energy; Donna Lynne, President of Kaiser Foundation Health Plan; and, Jack Ekstrom, VP in charge of Corporate and Government Relations with Whiting Petroleum.
I thought a summary of the dialogue would be extremely powerful. It certainly highlights how some successful business leaders see the state of our economy, where opportunity lies, and some potential pitfalls. Please know that I was unable to capture every word; however, I attempted to capture the essence of what each person had to say. I also sent this to each panel member, and some of the panel members offered some suggestions for this article. The good news is that there is a lot of promise for the Colorado economy, even though we face some major challenges. It seems that the U.S. economy, given the massive federal debt, may be in more even greater challenges.
Brian Vogt: Where are we today in terms of the state of the economy?
Rick Jory: As everyone knows, the United States is the world’s largest manufacturer; however, we are losing jobs to countries overseas. The bottom line is labor and materials cost less in many parts of the world outside of the U.S. We have major challenges ahead in manufacturing. For example, we can obtain labor in Prague for $6 an hour, and in Vietnam for $1 an hour.
Brian Vogt: If we cannot afford manufacturing – how do we survive?
Rick Jory: We simply must give entrepreneurs more autonomy. We have a lot going for us. I worry more about innovation. I’d make it more positive, i.e. “What sets our nation apart is our entrepreneurial spirit and our phenomenal track record of innovation. As long as we don’t squelch either we should be in good shape.
George Bye: Colorado is known for aerospace and alternative energy. As a nation, we are known for innovation, and we must maintain this reputation. Further, I believe alternative energy is our future. The highly educated characteristics of the Colorado workforce is a great fit for combining these two promising industries.
Donna Lynne: Unfortunately, we cannot buy labor or health care in America for just a dollar. As you are all aware, we have not seen a recession in health care. Costs are going up and will continue to do so. The federal health care law just passed recently will have great impact on our future. It will ultimately raise the cost of health care, unless we address the real drivers of cost: waste, inefficiency and a finance system that rewards procedures but does not reward outcomes. As it stands currently, health care makes up about 17% of Gross Domestic Product, and this number is only going to go up unless we turn our attention to improving our health care delivery system.
With the current realities, how do you plan for the future? We only know that more people will have health care coverage and the government will pay less and less per person. Health care is like a balloon, when we push on one side, we see an affect on the other side.
Mike Matthews: The current state of banking is not as bad as Great Depression. Actually, banking is strong and things are looking brighter. Our goals for Wells Fargo are first to provide outstanding service to our clients and, what has not changed for us, second to grow our business through loans and deposits. Nonetheless, there is a great deal of misinformation in the media and elsewhere. Money is available for lending. On the other hand, the risk is higher, and the cost is higher as a result. Of course, credit has tightened. Our goal at Wells Fargo is simple: grow loans and grow deposits.
The Frank Dodd Act will have a huge impact on everyone. The Frank-Dodd Act contains more pages of legislation than in all of the major banking legislation in the past 30 years combined. We have a lot to get our arms around. In fact, we don’t know full impact yet.
Jack Ekstrom: Oil and gas are the number one economic drivers in Colorado. From my perspective, we are in the end of the beginning, not beginning of the end. We are now drilling into source rocks, and we have 100 years of reserves of natural gas. Our industry is quite wonderful, we drill a hole in the ground and money comes up. Because of its rich natural resources, Colorado’s future is sound. Governor Hickenlooper comes from this industry and understands it. He knows that natural gas is the part of the future – it is the best fossil fuel we have.
There is a technology play that is two or three years away. Right now new technologies are being developed. The shale project is no where near commercialization. The prospect of harvesting shale is certainly exciting, but extremely challenging. I believe it will be 20 to 30 years before we are ready to commercialize shale.
Brian Vogt: In the current environment, what would you like to see go away that would help your industry? Also, what one essential element makes your business successful?
Jack Ekstrom: The success part is easy for me to answer; it is the evolution in hydrofracturing. Right now, North Dakota is largest producer of oil over all other states, and that is very exciting. What would I like to see go away? Regulatory overreaching. The EPA is getting involved in too many areas. There are over a million wells hydrofractured, and there is no evidence of harm from hydrofracturing. However, hydrofracturing costs lots of money given the layers and layers of regulation.
Donna Lynne: What would I like to see go away? The way we deliver health care. We cannot go without health care — it is fundamental. Under the first steps of health care reform, more people now have access to health care. But it is criminal that more do not have it. People who do not have health insurance obtain expensive care in hospitals, and their bills are passed on to those of us who do have health insurance. It is inequitable. There are perverse incentives from which others can make money from this problem. Being a nonprofit is important in health care. As a non-profit, Kaiser Permanente serves the community and individuals.
Also, we need electronic medical records. Much improvement is required in this area. We should be able to access our medical records just like banking. Technology is the key.
Rick Jory: We are a medical device manufacturer and, as such, we are regulated by the Food and Drug Administration (FDA). By definition our products have to be both safe and effective–but the least effective product, be it a drug or a device, is the product that the patient needs but can’t get due to bureaucracy and delays. The FDA walks a tight rope, but delays can ultimately negatively impact health, and impact the ability of a company like ours to grow and add jobs. Improvement in technology is key for us too. We must do more for less, while improving quality
George Bye: Looking at the dynamics affecting us today, we couldn’t underscore that “more for less concept”. Also, pre-revenue stage companies need access to capital to maintain our status as an innovative state. This can be subtle. For example, while we have an educated workforce, half of our aerospace engineers will be retiring in next few years. There is opportunity, but we must be more forward-thinking about the future.
Mike Matthews: What I see is need for change, and the “holding back” needs to stop. What will help is for businesses to better understand the future to allow a releasing of high cash reserves. This would have an impact to help stimulate our current slow growth. Many businesses are sitting on large amounts of cash and not investing it. They must start investing, and yet many businesses are reluctant to do so.
Foreclosures are a reality and the impact is real on the housing industry, much of the information around this tends to be from the borrower side as financial institutions are not going to violate the confidentiality of client information.
The title of today’s breakfast captures the key to what we need. We need more Captains of Industry. We must train our Teams for the “new normal” and make the appropriate adjustments. For us, the Wachovia integration was fantastic, and has produced huge opportunities. Wells Fargo’s innovation has come in many forms to include, ATM upgrades, improved cash management products and services, and advancements in on-line banking. As you have probably noticed, there are no more deposit envelopes – it’s like talking with Hal when you go to ATM.
Brian Vogt: If you could spend 60 only 60 seconds with Governor Hickenlooper what would you say to him?
Donna Lynne: This may be controversial. The state budget is bare bones. Our most important assets are the 35,000 state employees, who are being asked to do more. The challenge is for the Governor to support and encourage state workers. Their job is about to get more difficult, and we must improve morale.
Jack Ekstrom: I would encourage him to work on tax regulation and stabilize our higher education footing. We are losing our scientists, and we need more. There is going to be a dearth of talent in this state in the near future.
Rick Jory: I would say to him, watch closely what California does and do exact opposite.
George Bye: This is a lean time for our state. You must show up, and use “bully pulpit,” if necessary, to present how vital and important industry is to our state.
Mike Matthews: The three executive orders signed yesterday we’re great. We need more and with more teeth. Who will take leadership roles in Colorado? We need some great leaders. Funding the job’s bill is the probably the most important thing he could do.
Brian Vogt: What is our future? Obviously, despite what we read, none of us seems to be putting gold under our beds or hoarding food. So, tell us what you think the future holds.
Mike Matthews: I am very optimistic. There is no sprint going on. Of course, there are some things looming globally, and we cannot control that. However, our capital base is strong and the national savings rate is increasing. As a result, the expansion opportunity is great, and will continue. We must get people back to work. I believe people are picking themselves up by their boot straps, and that will ultimately help our economy.
Rick Jory: I believe our business leadership may be too optimistic. We have some substantial problems with federal spending and we must get this under control. We are going to need political will to get this done, and this will involve cutting expenditures, including sacred cows associated with entitlements, as well as raising revenues through taxation. There is no way around this, and it’s going to be a fight. I’m not sure if Obama and others have the courage to get it done.
Jack Ekstrom: I hate to be the skunk at the party; however, I’m not optimistic. When it comes to budget bill, there could be blood and guts on the floor of Congress as they discuss raising the debt ceiling. There is no up without a tax increase. We must have it. Also, we must decrease spending in the “big four” areas: defense spending; Social Security; Medicare/Medicaid; and the budget. I do not know if the president will take ball and run with it. There are congressional members on both sides of the aisle who are behind decreasing spending and increasing taxes. We need courage to do the right things.
George Bye: Look at the aerospace industry. It has been difficult in the last couple years, but we are integrating new directions like clean energy. Business is lean and hungry. I believe we do indeed have bright future. We are poised with innovation. I’m an optimist.
Donna Lynne: I’m going to be another skunk at the party. The health care industry will be okay; however, health care spending is out of control. We need innovation and we are stuck in the mud. There is no system to ensure we are getting our return on investment in health care. There are fundamental issues that need attention and we are not paying attention. This will produce a crisis at some point.
Brian Vogt: That may not be a very positive way to end. I know Denver is full of talented and incredible people. If we come together, we have the power to change things. Success is what we make it. When times are tough, we keep going. Things are a heck of a lot better when we do it with friends and colleagues who care and understand what we’re going through. We can support each other to better times.
Jon P. Terry
Alaris Properties, LLC