Many outside the Biden administration know that a recession is now a possibility. We may be entering what economist Noriel Roubini describes as “The Great Depression: An Era of High Growth, High Growth, High Debt and High Recession.” Certainly, weak growth figures, a declining labor force and interest rates falling the fastest in six decades are not signs of happy times.
But the coming recession could show the full benefits, if we make decisions that restore competition and bring manufacturing back to the United States and the West. The shape of a new post-pandemic economy is emerging, especially in the Sun Belt and other parts of the heartland. That revival would leave us with a stronger, smarter and more entrepreneurial economy.
That doesn’t mean the recession won’t be difficult, especially for groups like millennials, blue-collar workers and immigrants who have already suffered from the 2008 recession and pandemic. They have become victims of poor business and government policies that have led to inflation and incentives to either idle or invest in unprofitable assets. But if the recession of 2008 ended and only worsened, this time around we may see something different.
The best evidence of the hope for a better time lies in the post-pandemic increase in new businesses, in 2020 to 4.4 million applications compared to about 3.5 million in 2019. businesses increased by 44 percent since before the pandemic. In 2021, applications, including employer applications, totaled nearly 1.8 million by the end of the year — nearly half a million more than in 2019. According to the Economic Innovation Group, new US businesses are on track to record a record this year.
The trend today, unlike in the last decade, is not much to be found among the IPOs funded, which have suffered the most in two decades. Instead, small rural businesses are taking over new spaces, even in the service industries, that will transform our economy. “A lot of good things happened on Covid,” says Shaheen Sadeghi, founder of California-based LAB Holdings, which creates “anti-malls” that cater to local businesses. “The medium is gone, but the people who survived are doing better than before. They created new ways of doing business that fit the new reality.”
This low growth is in stark contrast to what happened after the last recession in 2008. After City and Wall Street economists ended the collapse of the economy, governments moved to bless further stimulus.
Big banks have recovered well while inequality has risen and incomes, especially for minorities like African Americans, have fallen. As one conservative economist put it in 2018, “The economic legacy of the past decade is one of excessive consolidation and the transfer of most wealth to the 1 percent from the middle.” Fortunately, entrepreneurship remains in our national DNA. In well-regulated societies – such as Germany, Japan or France – leading companies remain the same over time; even those previously associated with fascism, such as Mercedes, Krupp and Mitsubishi, survived their disgrace and continued. But in the United States disruptive change has become the norm: only eighty of the current Fortune 500 companies were here in 1955.
The coming new economy is reshaping our financial landscape. Sadeghi’s LAB (“Little American Business”) has created about fifty projects for small, independent companies, mostly in rural areas, places that are not considered sources of culture and business. In contrast, the investment boom of the last three years has not slowed the movement of people and companies away from urban areas, which are often overcrowded, dispersing people and working on the fringes.
This is a marked change from the last recession. The Great Depression of 2008, caused by the housing boom, led many to think that the Sun Belt region would be Atlantic it was prophesied that there would be “shacks after them,” and the inhabitants of the city would return. To be sure, the oligarchic nature of the recovery was less damaging to cities like New York, San Francisco and Boston, where financial and technology companies were concentrated and great management talent remained, despite past mistakes.
Yet the ongoing migration to big cities started before Covid, with 90 percent of the growth in big cities between 2010 and 2020 in cities and suburbs. The 2020 Census reports that four out of five US states with at least 300,000 residents were in Texas, Arizona or Nevada. Houston and Dallas added more people than New York, Chicago, Los Angeles or the Bay Area.
The pandemic, along with the rise of internet services, seems to be contributing to this move. The main cities along the blue sea coast have all grown slightly and, as of 2020, their population will decrease significantly. In the past year, the largest migration losses occurred in three key states: New York, New Jersey and Illinois. In a post-pandemic economy where 30 percent of workers expect to work remotely, this is turning even small towns into new economic hubs.
Overall, says economist Wendell Cox, offices on the fringes have recovered more quickly than those in larger cities. According to Jay Gardner, President of the Site Selectors Guild, leading companies are focusing on opportunities in smaller cities and rural areas. Most of the growth of new companies took place in the Deep South, Texas and the Southwest while New York and the West Coast lagged behind. This year, Zen Business found that the best places for small businesses – in terms of taxes, survival and control – were the most in the South, parts of the Great Plains, Utah and the Midwest.
One interesting fact about the upcoming economic situation is that companies are trying to return to the United States. The “reshoring” movement has been building over the past few years, aided by the rise of shale oil and natural gas, making the US more productive. But the return became necessary when China banned medical exports during the worst days of the epidemic. Our painful dependence – even military assets – on our greatest international enemy has begun to cloud our minds.
Indeed, up to 70 percent of companies surveyed in a March 2020 survey said they could or expected to resume operations in the coming years. Camille Farhat, CEO of RTI Surgical, says the pandemic is urging business leaders to stop “destroying the environment” that makes manufacturing possible. “To be safe, you have to make contingency plans. You have to restore the network and keep more generating capacity. We hope we’re learning this lesson.”
Bringing manufacturing back to the United States opens up new opportunities for continued manufacturing. When companies move to other countries, they often follow and move research and development there. Now the United States, and the West in general, has the opportunity not only to relearn the basics of manufacturing but also to develop and maintain its future. In short, there is political consensus on this issue, outside of some religious libertarians and a few born-again socialists.
The return of the production will only add to the changes that are already taking place. The new wave of investment is likely to go to business-friendly, less expensive states like California, which ranked near the bottom of the table last year for major new projects. It is also important that the new expansion of chip production – supported by the federal government and the pride of my state – is happening almost exclusively in revolutionary states like Ohio, soon to be the site of the world’s largest semiconductor factory. Even the green economy, eagerly welcomed on the coast, will not provide many jobs there. Almost all electric cars and new batteries are in the heart of the heart, south or east of the Sierra Nevada. Tesla’s first plant in California may soon be the only “green” factory left in the state.
This new industrial development can change, bringing new wealth and opportunities to the left. Manufacturing companies attract skilled workers such as engineers and programmers, as well as training and development for local workers. States such as Ohio, Kentucky, Nebraska and Tennessee already have reform programs following successful practices used in places such as Germany, Sweden and Denmark.
Of course, even the threat of a recession, however strong, can cause widespread pain. Whether or not the pain is mitigated by new opportunities depends on whether cities, states and governments follow policies that allow American culture to improve. Calmness and self-interest – sometimes seen as determination and perseverance – may not be popular with the ruling class, but the restlessness of wanting to prove it is the best way to deal with distractions.
This would require, especially in our big cities, a shift from focusing on “inclusion” and environmental justice to a regulatory framework that encourages new growth that occurs locally. This includes abandoning policies such as laws restricting contract labor or minimum wages that hinder job growth. Instead of focusing on pleasing big business and investors, countries and cities need to see startups and start-ups as the most important seed for their future.
As this recession deepens, there will be calls to expand the developing world along Scandinavian lines, comforting to some but unlikely to create a strong America capable of leading the global economy or competing with China. Nor should we return to the destructive combination of wealth that funds chimeras like WeWork and their successful hypesters, which produce very little profit.
The real heroes of post-pandemic America are not the oligarchs, moneylenders or government officials who dominated the country during the pandemic and tried to replicate what is happening under the “state of emergency”. Instead of aspiring small businesses and corporate executives, our future economy depends on those who rent storefronts on Main Street, set up home businesses, or build new manufacturing facilities in rural or suburban areas. Many will not be celebrated in the press but together they represent the hidden forces that will move America back to the strong democracy that the world, especially the next generation, so desperately needs.
This article was originally published in An observerof the November 2022 World Edition.