Editor’s note: Today’s Guest Opinion is from Don Piper of VisageSolutions, LLC.If you believe in the market’s propensity for creating self-fulfilling prophecies by promoting mass speculation, history would appear to be on our side. In each major conflict since the Civil War, the U.S. economy has experienced an upswing after the war was won.
Nonetheless, debate continues about the “cost” of a short war versus a longer war.
In December 2002, the White House Office of Management and Budget estimated the cost of the war with Iraq to be between $50-60 billion. At about the same time, the Congressional Budget Office figured it would cost $13B to deploy troops, $9B a month to carry out the war and another $7B to bring the troops home. (And that’s before ongoing costs of occupation that could be between $1-4B a month.) One might surmise that the White house was originally forecasting a three to four month war.
Last week, the White House won approval for over $80 billion to support the war effort and the first month of rebuilding. Perhaps, they were anticipating the war might be extended by another three or four months. At this point in time, one might speculate that they over-budgeted. While this is a huge sum of money, put in perspective, it is about 1 percent of the national debt and only 0.6 percent of GDP. By contrast, the Vietnam War took 2 percent of GDP from 1965-1968 and the Korean War 9 percent. Even the Carter-Reagan defense build-up during peacetime (1979-1986) consumed 1.5 percent of GDP.
On a micro level, what is more important to our local economy in the Triangle, is the amount of funding the Pentagon puts toward Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STFR) programs. More than $800 million was invested in the two last year, and the war economy may well increase the commitment toward SBIR and STFR. (The precision bombing technology implemented in this war is a testament to the success of these programs since Desert Storm a decade ago.) Small companies produce almost two and a half times as many innovations per employee as large companies according to one study, and the military is gratefully aware of this.
While $1.5 billion of USAID funds have been circled for redeveloping Iraqi infrastructure after the war, most of that seems be targeted toward larger, established, existing government prime contractors like Flour, Halliburton, Bechtel and a few North Carolina companies including divisions of Lockheed Martin, Honeywell, General Electric and Charlotte based J.A. Jones Construction. Research Triangle Institute already has landed a contract for a variety of redevelopment services.
Not a panacea
Don’t think for a moment that this is a panacea for the economy. Some sectors will continue to suffer. Housing for one, seems a likely candidate, as budget deficits increase, U.S. Government interest rates are more likely to rise and less money will be available for home mortgages. The tourist/travel sector is another area hard hit. Local economies around military bases where troops have been deployed are all feeling the impact. Small businesses, dependent upon specialized expertise of reservists who have been called to action, are much more vulnerable than their larger competitors. In this regard, the depletion of local police enforcement agencies has been reported in the news recently.
At the same time, other sectors are in a position to benefit from a shift in the economy; equipment manufacturing (especially those that will help rebuild Iraq’s infrastructure), cargo handling, medical support/supply, oil field equipment, food processing (meals ready to eat, MRE’s) and contamination testing equipment and reagents to mention a few. Small companies are in good a position to extend their innovation capacity to address small-business products that prove themselves in helping to rebuild Iraq’s economy or which would support the troops and contractors leading this effort. Delivery systems, tracking systems and the commercial applications of these military technologies for local positioning offer another sector of opportunity for creative small business owners.
Security will continue to be a hot market, although there is considerable debate about how much of that is real, especially for the small businessman. “Is this glass half empty or half full?” Consider the possibility that it’s overflowing and get in position to capture some of the spillage.
Contact Don at Don.Piper@visagesolutions.com or call at (919) 606-4343