Category Archives: Business and economics

In Greece and the U.S., economies are based on trust

Business and economics, Politics

By Steve Brawner
© 2015 by Steve Brawner Communications, Inc.

Remember the bank run scene in the movie “It’s a Wonderful Life”? George and Mary are traveling to their honeymoon when they see a crowd gathering outside the bank. George runs to the Bailey Bros. Building and Loan to find a crowd of worried customers wanting to withdraw their savings. He explains to them how financial institutions work. (“The money’s not here. Why, your money’s in Joe’s house … and in a hundred others.”) Then he begs them not to panic and starts handing out his own $2,000 in honeymoon savings to tide them over. Meanwhile, across town, Mr. Potter, the richest (monetarily) and most powerful man in town has just become richer and more powerful by taking control of the bank, which would be shut down for a week.

That scene is unfolding on a national scale in Greece.

In a nutshell, Greece’s debt has reached 180 percent of its gross domestic product, it’s not paying its bills, and the patience of its European creditors is wearing thin. Previous loan terms have required the Greek government to impose higher taxes and cut government spending, but the country is still mired in debt. The economy is collapsing. Unemployment is 28 percent. The banks have been closed, and Greeks have been limited to withdrawing the equivalent of $67 per day from their ATMs. On July 5, the Greek people defiantly voted not to accept the terms of a previous bailout proposal. It accomplished little but to strain the tolerance of their creditors, who forced Greek’s prime minister to accept an even worse deal.

Bankrupt debtors don’t get to set the rules.

International economics is above my pay grade. If you’ll pardon the pun, it’s mostly Greek to me.

Here’s what I know: Economies are based on trust. You and I work because we trust we’ll be paid. We deposit our money in banks trusting it will be there if we need it – without considering what would happen if everyone needed it at once. Trust is the basis for loans, investments and insurance. With it, an economy has a strong foundation. Without it, an economy becomes a house of cards.

The United States can’t yet be compared to Greece. America’s debt-to-GDP ratio is 103 percent. It’s still the world’s most dynamic economic engine, with abundant and untapped resources.

But let’s go there anyway. America’s national debt is now $18.2 trillion, or $57,000 for every American man, woman and child. In 1981, just 34 years ago, it was less than $1 trillion. Because of currently unfunded liabilities, that $18.2 trillion is projected to grow much larger. Meanwhile, the political system – long an inspiration to other parts of the world – has become incapable of doing anything about all this.

This behavior should be hurting the United States much worse than it is. One reason it’s not is because American taxpayers are paying very little interest on the debt. Why? Because investors see the United States government as one of the world’s safest places to store their money.

And that should concern us. If economies are based on trust, then what does it say about a global economy when one of the world’s most trustworthy investments is the one described two paragraphs ago?

It’s not just Greece or the United States that have issues. China’s stock market has been in a free fall lately, and Puerto Rico is practically bankrupt. In a global economy, what happens in these places matters, because, metaphorically speaking, our money isn’t just in Joe’s house. It’s also in Qiao’s.

In “It’s a Wonderful Life,” George Bailey prevented a panic by talking sense into his depositors and by handing out his own money. The building and loan survived that day because of the trust he had built.

But there are two realities that can’t be ignored. One is that trust can be lost very quickly. Had George failed to keep his institution open in the coming days, his customers would have pledged their loyalty to Mr. Potter, the powerful autocrat down the road who offered a little temporary security in exchange for some of their wealth and freedom.

The other reality is this: George Bailey was a fictional character. If trust in the real economy – domestic or global, there’s not much difference now – is lost, it’s going to take a lot more than an impassioned speech and $2,000 to calm people’s fears.

Changing health care’s business model

Business and economics, Health care

By Steve Brawner
© 2015 by Steve Brawner Communications, Inc.

On Tuesday, the CEO of a major Arkansas employer announced a new offering that could cost it a lot of business someday.

Troy Wells, president and CEO of Baptist Health, announced his hospital system had received a grant from Verizon Wireless for a yearlong diabetes study. The study will provide 125 Pulaski County patients with tech tools such as wireless glucometers that will transmit glucose levels to medical staff when patients test themselves at home. The patients also will be given cell phones so health professionals can coach them up on taking care of their health. Another group will be given more old-fashioned equipment, and the results will be compared.

The technology will help medical staff keep an eye on their patients to spot problems early and help them stay healthy. All of the patients will be “medically underserved,” meaning they face barriers to health care. In other words, they’re probably poor, they’re often aged, and they need help managing their diabetes.

This kind of preventive telemedicine holds great promise for society. Aside from the human factor, it costs the health care system much less to keep a patient’s blood sugar levels stable than it does to intervene after the disease has begun to take its toll.

The problem is, what’s good for patients, and for their families, and for the health care system, and for society, is not necessarily good for Baptist Health’s bottom line.

Of all the problems with health care reform, the biggest is that not nearly enough has been done to address the system’s perverse financial incentives. Baptist Health, like most medical providers, makes its money by treating patients, not by curing them and not by helping them stay healthy in the first place. About the only time health care providers have a meaningful financial incentive to promote good health is when they’ll otherwise have to provide uncompensated or inadequately compensated care – which is probably the case with some of the patients in this study.

The health care payment system operates under a “fee for service” model. Medical providers bill insurance companies or the government for each procedure, regardless of the results and regardless of how efficiently they perform. Therefore, promoting a healthy population cost-efficiently is about the worst thing a medical provider can do for itself, financially speaking.

That’s not to say that doctors and hospitals don’t try to cure us. Frankly, they deserve credit for acting against their self-interest. But, like all humans, they respond to incentives. As a writer, when I’m paid by the word, I’m not going to cut the story short – and no, I’m not paid by the word for this column. Likewise, incentives shape how medical providers decide priorities, in how they invest resources, and in what interventions they recommend. The reason there’s no cure for the common cold is because it hasn’t been financially viable to invent one. For cold medicine, it has been, which is why pharmacies and grocery store aisles are stocked full of multiple varieties.

Reforms are occurring. For example, the state has been engaged in a years long effort, the Arkansas Payment Improvement Initiative, which is replacing the fee for service model with one based on “episodes of care” in some situations. Medical providers, state agencies and insurance companies together have determined appropriate costs for various health events. If medical providers’ costs over time are lower than that range, they receive a financial reward. If costs are higher, they’re penalized. The federal Medicare system is doing something similar.

After the Arkansas initiative began and the incentives changed, unnecessary antibiotic prescriptions for unspecified respiratory infections dropped 19 percent. As former Arkansas Surgeon General Dr. Joe Thompson, a pediatrician, told me, it had been easier for him to prescribe the medication than it had been to spend 10 minutes telling a mother why it wouldn’t help her child. Now that those unnecessary prescriptions could cut into doctors’ bottom lines, they might take the time to explain.

To create a healthier society and save on health care costs, the system must provide a higher profit for the good folks at Baptist Health when they prevent disease, or quickly cure it, or cheaply manage it, than it does when they treat it or operate on it. Doctors and hospitals often nobly act against their own financial self-interest, and thank goodness they do. But it’s hard to build a lasting business model that way.

With 600 jobs at stake, reality beats ideology

Business and economics, Legislature, State government

By Steve Brawner
© 2015 by Steve Brawner Communications, Inc.

This week, state legislators, many of them elected promising to fight big government, voted for a lot of it, coming and going. They did so because today’s realities trump their political ideologies.

The legislators voted in special session for an $87 million bond package, paid for by Arkansas taxpayers, to help Lockheed Martin win a federal government contract to build 55,000 Joint Light Tactical Vehicles near Camden. In other words, state taxpayers will go into debt so the federal government can spend money.

This is corporate welfare at its most naked. Almost all of the package, $83 million, is going directly to a global company with $45.6 billion in sales last year, dwarfing Arkansas’ state budget. The practice is so ingrained that, during a press conference on the Capitol steps Tuesday, when asked why taxpayers should give his company money, a Lockheed representative simply turned and walked away from the podium, letting Gov. Asa Hutchinson answer the question.

All of this should be contrary to somebody’s political ideology, and yet of course legislators said yes, because in this case, reality is far more important. And the reality is that this project is expected to create at least 600 jobs and perhaps far more in south Arkansas, which badly needs them.

This would be the auto plant Arkansas has long wanted, but it’s even better because the customer is almost guaranteed to buy the plant’s products. Moreover, in addition to Uncle Sam’s 55,000-vehicle order, foreign governments will come shopping. Suppliers would locate close to the JLTV factory, creating more jobs. The presence of the JLTV facility would increase the area’s defense presence; already, hardware such as the Patriot missile is produced there. And if the state does this auto plant right, maybe civilian auto manufacturers could be persuaded to locate here as well. These things tend to snowball.

Those are realities. Here’s another one: Legislators knew the next potential large employer might want to locate in their district. They’d better play ball with south Arkansas lawmakers, because someday they may need their votes.

Finally, there’s this reality. Lockheed Martin is competing against two strong companies, Oshkosh and AM General, maker of the Humvee. The Pentagon has already decided that these 55,000 vehicles will be built somewhere, so Arkansas taxpayers will pay for them regardless. If 600 jobs are to be created, it might as well be in Camden.

Human beings need foundational beliefs lest we twist in the wind. For lawmakers, those foundational beliefs might include – actually, I hope they include – an aversion to big government and corporate welfare.

But there’s a difference between foundational beliefs, which allow room for difficult moral judgments and common sense, and rigid political ideology, which runs everything through a filter and requires new facts to conform to prior beliefs, or to be ignored.

Outside of this session, legislators and others are talking about difficult issues that won’t be settled in three days: how Arkansas’ health care system should look; how it should fund highways; how it should reform its prison system; what it should do about the Common Core.

If lawmakers are willing to vote for the JLTV package because it’s better to do so than not, then let’s hope they are willing to accept some other realities as well, and then work within them. Ideologically, they may hate the private option, but the reality is that it now provides health insurance for a quarter million Arkansans who mostly wouldn’t have it otherwise, so if they want it to go away, they should replace it with a better idea. The reality is that highways are badly underfunded, so if lawmakers’ ideology says that taxes are bad but roads are good, they need to offer creative ideas that are consistent with their foundational beliefs but not hamstrung by rigid ideologies.

If it were up to me, the federal government would buy fewer than 55,000 JLTVs. We’re going to pass part of the cost to our kids, and that’s not right. But if they’re going to be built, I hope they’re built in Camden by my fellow Arkansans. All things being equal, I think you take care of your own first.

It’s a foundational belief.

K through job education

Business and economics, Education, Legislature, State government

By Steve Brawner
© 2014 by Steve Brawner Communications, Inc.

The elected official in the state Capitol making the biggest impact next year will be Gov.-elect Asa Hutchinson. The second most impactful elected official may be a 74-year-old grandmother with an agenda.

That would be Sen. Jane English, R-North Little Rock.

English spent her career in economic development and will use her chairmanship of the Senate Education Committee to try to change how Arkansas educates and develops its workers. She says the education system is composed of too many disconnected silos – K-12 public schools over here, colleges and universities over there, career education in a third spot, etc. – that don’t always prepare students for the workforce.

“We typically think of education as K through 12, but for me, education is K through job,” she said after selecting the chairmanship.

She wants to reform a system that did not serve the state well enough during her career in economic development. There’s also this motivation: “I have a 17-year-old granddaughter, straight A student, takes AP (Advanced Placement) courses,” she said in an interview Dec. 12. “She’s going to play softball with the Lady Razorbacks. Well, she’s fine with this whole pattern. But then I have a grandson, that may not work for him. I had a grandson, and it didn’t work for him at all. He was not an AP person. He was never going to college, but he has a good career now.”

English is not the first or the only one making this point. Lt. Gov. Win Rockefeller would say the education system is like a string of water pipes laid end to end but not fastened together. Hutchinson talked a lot about workforce development in the gubernatorial campaign. In September, the State Chamber of Commerce hosted a summit highlighting the need for Arkansas’ education system to be more responsive to the job market.

Changes already are occurring, particularly at the local level, to make the system more connected and responsive. Many high schools offer students opportunities to earn significant college credit. Bearden High School students are bussed to Southern Arkansas University Tech each day for academic and career classes. At Maumelle High, students basically select a major and take classes that are tailored to their interests and that prepare them for a job. Colleges and universities are becoming more responsive to workforce needs. The University of Arkansas – Fort Smith, for example, created a robotics program after surveying local industries and discovering a surprising number needed training in that area.

Despite these individual successes, Arkansas needs a more comprehensive overall strategy, a reallocation of resources, and a different mindset. And that’s where English has become a pivotal figure. In February, she switched her vote on the private option – until then, one vote short of passage in the Senate – from no to yes in exchange for a commitment from Gov. Mike Beebe to focus on the issue. As a result, for much of the year she chaired weekly meetings each Monday with various state education and economic development officials. Shane Broadway, director of the Department of Higher Education, says one of his staff members jokingly referred to the meetings as “English class.”

English said the meetings have produced no concrete proposals, though she has some ideas. She said many of the needed changes don’t require legislation.

Whatever the Legislature passes will be the result of collaboration and compromise. English’s main role will be to continue doing what she has already done: serve as a catalyst. Broadway said state agency heads were already discussing the need for changes, but English’s switched vote was the spark. As she explained it, “Sometimes you have to have something wild that starts things in motion and gets people to start talking. Otherwise, you’re just churning around forever and ever.”

The private option, prisons, and other issues will get the most attention this session. But, quietly, significant workforce development changes could occur. The facts are clear, the need is obvious, and the agreement is broad. Too many students aren’t being prepared for actual jobs, while too many jobs are unfilled because workers with the right skills aren’t available.

Now the Senate Education Committee is headed by someone whose top priority is doing something about it. We’ll see if the other legislators speak English’s language.