What’s NEXT for Florida? Ask Alex Sink

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Alex Sink

I love former politicians.  They learn to fly once their political parties no longer tether them to the ground.  In the case of Alex Sink, it’s more like soaring than flying.  Ms. Sink is the former CFO of the State of Florida and ran an unsuccessful campaign for governor two years ago.  Before politics, she was a banker and a really good one at that.  She enjoyed a reputation as someone who truly got to know her clients’ business.

With that as a background, it surprised no one when she founded the Florida NEXT Foundation last year.  It’s mission?  To “empower young people, entrepreneurs and small businesses so they can drive the innovation needed to enhance Florida’s economy and quality of life”.

I had the pleasure of hosting a luncheon at which Alex was in attendance last week along with my partners at The SCA Group. The attendees included business owners, professionals and executives.  It was interesting to watch Alex hold court.  Like all great leaders, she listens more than she talks.

We had a far ranging conversation covering education, business incubation and, most of all, how we keep our best talent from relocating to another state. 

This last topic was of great interest to one of our guests, Dan Madden.  Dan is COO/CIO of Lake Worth based Eastern Metal Supply.  He is also a Ph.D. candidate at Nova Southeastern University and is in the process of founding a non-profit of his own.  The “95 Research Corridor Alliance” would nurture technology businesses in Southeast Florida.

With everything he is involved with, I wondered why he would make time for this new initiative.  “Because I don’t want to have to travel to Texas or California to visit my kids when they graduate from college,” he told me. 

Those are two very interesting states when you think of nurturing business.  California, of course, is home to Silicon Valley, highly concentrated with venture capitalists and tech entrepreneurs.  Texas’ claim to fame in this regard is Austin, home to the University of Texas and a burgeoning tech incubator in its own right. 

But, beyond that, the two states are very different.  California – the Golden State – has been a center of innovation and cultural leadership for over a century.  But, the emphasis here should be on the words “has been”.  A recent report of the Federal Reserve Bank of San Francisco concluded, “economies of states ranked high on tax-and-cost indexes [meaning lower taxes and costs]…  tended to grow faster than the states ranked lower”. 

Meanwhile, low tax and low cost Texas – with its low propensity to provide social services and quality public education – is thriving.  Now, before you conclude it’s all because of oil, I’ll tell you that the Dallas Federal Reserve Bank has reported that only 2.4% of Texas employment is in the oil and gas industry.  And, Texas’ job growth has been more than triple that of California over the last 20 years.

So, how should Florida respond to Dan Madden’s desire to keep his kids closer to home?  Should we become California with its first class public schools and infrastructure?  Or Texas with its 19^th Century pioneer spirit? 

Well, my answer is neither.  We shouldn’t pursue job growth so single-mindedly that we sacrifice efforts to improve public education.  The workforce of the future will be better educated than past or even current employees or else they’ll be waiting tables.

In other words, the fundamentals of attracting businesses and high content jobs to Florida are low cost and low taxes coupled with a well-educated workforce.  In a micro sense, Dan Madden’s 95 Research Corridor Alliance is focused on incubating businesses, especially high technology businesses – info, bio or nano.  In the macro sense, Alex Sink’s Florida NEXT is about mixing the right cocktail of entrepreneurial energy, government policy and infrastructure. 

Florida is a small business state.  In the tri-county area that makes up the Miami metropolis, there are about 3000 businesses with more than $10 Million annual revenue.  Of those, only 300 exceed $100 Million. 

We keep hearing that small businesses drive job growth and that’s true.  But, it’s not universally true.  A November report by McKinsey & Company identified the top tier of job creators by industry – heavy construction, social services, industrial instrumentation, chemicals and utilities.  So, should Florida focus on attracting those industries?  And, how should we take into account the wave of mobile technology that is destroying jobs in airports, publishing and banking?  What jobs will be created?  What companies will thrive?

Whatever the answers are – and, I don’t think there is only one right answer – the LEADERSHIP provided by both Ms. Sink and Mr. Madden will be critical to our success.

Are You Ready for Y2K? No, I Am Not Kidding

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I am not sure why we love zeroes.  But, we do.  It’s noteworthy when the stock market hits a milestone, when our odometer goes over 100,000 or when our age passes a decade mark.  The granddaddy of them all?   Y2K!  It was supposed to be a big deal.  And…

Nothing significant happened.  Sure, the stock market crashed.  But that’s hardly unusual.

We shouldn’t be surprised.  It has been the years ending in 1-3 that have been significant in our history.

In 1813, our nation was at war.  That, in and of itself, is not surprising.  But the War of 1812 was the first time the nation fought as the United States of America.  The Revolutionary War had been fought by separately governed colonies united in a common cause.

The defeat of a superior military force, twice in a generation, solidified U.S. dominance of the North American continent.  The economic expansion that followed – known as the Era of Good Feelings – was driven by immigration, cheap land and laissez-faire capitalism.  The military hero of the war was future President Andrew Jackson, whose efforts to decentralize banks financed the growth of an agricultural economy for half a century.

The passage of the 16^th amendment to the U.S. Constitution, authorizing the federal income tax, was the watershed that marked the year 1913. The Progressive Woodrow Wilson, inaugurated that same year, ushered in the era of big government. 

Progressivism was a reaction to corporate abuse leading to the creation of the Federal Reserve Bank, the Federal Trade Commission and a variety of federal financing schemes to help the little guy.  All were funded by a tax of 1% of income above $3,000 rising to 7% of income above $500,000.

The expansion of the U.S. military began with WWI and continues to this day.  Large-scale public works projects, the passion of Herbert Hoover, were expanded during the New Deal.  LBJ’s Great Society created new entitlement programs building on FDR’s legacy. Over the last 100 years, government has grown inexorably to become the force it is today.

The evolution of corporate interests drove the reforms of the 1910’s just as the evolution of the global economy over the last two decades has set the stage for 2013.  

Despite the massive loss of U.S. manufacturing jobs (from 18 Million to 12 Million over the last decade), the volume of manufactured goods is increasing.  Automation has allowed U.S. companies to repatriate their factories if not the jobs that went with them. 

A recent study by the McKinsey Global Institute outlines the impact succinctly:   “Two key priorities for both governments and businesses are education and the development of skills. Companies … will need qualified, computer-savvy factory workers … policy makers must work with industry and educational institutions to ensure that skills learned in school fit the needs of employers.”

So, at a time when many have started to question the value of a college education, as tuitions rise and jobs are not abundant, companies will look for different skill sets.  I expect that many who are not eligible for the top academic programs that lead to Wall Street or the Silicon Valley will opt for specialized programs that will train them as welders who understand metallurgy, fabricators who understand computer aided design and repair technicians who deal with the software that runs a modern factory. 

Concurrently, the International Energy Agency projects that the U.S. could become the world’s largest oil producer by 2020.  The combination of new technology and the discovery of abundant oil and gas resources offer hope of energy independence within a couple of decades.  These developments will have a major impact on our foreign policy and military strategies as the Middle East becomes less important as a provider of natural resources even as terrorism remains a strategic threat. 

For the first time in history, a majority of people lives in cities, 3.3 Billion people according to the World Bank. In the United States, the trend toward urbanization has created entrepreneurialism and innovation.  Our best educated students are flocking to cities like Palo Alto and Boston if they are tech oriented; or, to New York or Chicago if they are financially oriented.   But, even cities like Pittsburgh, a symbol of rust belt decay a generation ago, have undergone a renaissance of entrepreneurialism. 

Journalists and pundits tell us that in 2012, the electorate has chosen the status quo.  The president was reelected and the makeup of Congress was hardly affected by the election three weeks ago.  But, it was the states with large cities that reelected the president.  And it is the urbanization of the electorate will engender social change.  When Bill Clinton was elected 20 years ago, the WW II generation was a significant factor in the electorate.  Now most of them are gone, replaced by the millennial generation with open attitudes toward social issues and a drive to create new ventures in a more connected world. 

The forces that will overcome our financial crisis are in place.  Capital will be invested and investors will get a return.  

Jobs will be created.  The world will be a better place.  And, when that happens, our short-term petty squabbles will fade away.

And, a hundred years from now, no one will remember the fiscal cliff or why gay marriage and immigration reform were controversial.

How's This for a Healthcare Problem?

"Hundreds of residents had been seized by the disease within a few hours of one another, in many cases entire families, left to tend for themselves in dark, suffocating rooms."

Steven Johnson, from his book “The Ghost Map: The Story of London's Most Terrifying Epidemic - and How It Changed Science, Cities, and the Modern World”



Not much was understood about disease and how it spread in the early part of the nineteenth century. In London -- perhaps the most civilized of cities at that time -- the medical profession theorized that the black plague and cholera were spread through miasma, the foul smelling stench that emanated from factories and sewers. London’s population had more than quadrupled in the first half of the century and the city was unprepared for the impact of more than 2.4 million people.

A cholera epidemic in the 1840’s had killed thousands and led to the creation of the General Board of Health. Despite the Board’s efforts, an outbreak of Cholera threatened London again in 1854. Inside of a week, over 100 people died and many more were sick. Seventy-five percent of the residents of Soho fled the city leaving factories with a dearth of workers. There were calls to shut down the factories as they were thought to be the primary cause of the miasma.

Dr. John Snow did not believe in the miasma theory and he set about to prove that contaminated water was the cause. The science of epidemiology was in its infancy and it wasn’t as simple as peering at water samples under a microscope. Rather, Snow acted more detective than physician. He famously mapped the cases and triangulated on a public well – the Broad Street Well -- that had been contaminated by sewage.

The city government shut down the well. How? By removing the pump handle. Wouldn’t it be great if all such problems could be solved so easily?

The following year, the General Board of Health drafted a bill for consideration by Parliament. The Nuisances Removal and Diseases Prevention Act threatened to curtail or shut down factories by regulating the foul odors that emanated through the city. Its proponents continued to promote the theory that miasma caused disease. Businesses objected vehemently. In their view, the bill jeopardized their ability to continue to do business.

In other words, the bill was a “job killing” healthcare law. Dr. Snow testified on behalf of industry, reasoning that since factory workers were no more likely to die of the disease than other residents of the city the smell could not be its cause. The bill was defeated.

I guess some things never change.

Today, congressional Democrats, who believe that the government should engage in economic intervention, argue that we are the only industrialized country that does not provide universal healthcare to its citizens. As though that is a good reason to do anything!

Meanwhile the Republicans have labeled Obamacare as “government controlled healthcare” and have promised to “repeal and replace” it. Huh? Replace it with what? If you think that government controlled healthcare is bad, then just repeal it! They point to the US Constitution as the proper construct and who can argue with that. It’s an extraordinary document and no other country has been able to improve upon it in the last 230 years.

In my view, all of the political rhetoric is a distraction.

The Brits don’t even have a constitution. And, whether the foul stench of 1850’s London was causing disease or not, it was probably a good idea to get rid of it. It’s not there today so something must have happened in the last century and a half.

There’s no question healthcare needs reform. The rising costs threaten our economic security.

Fifty years ago, the AMA feared Medicare and decried it as “socialized medicine”. Over the last two generations the program, which is a bottomless pit of taxpayer money, has made many a doctor filthy rich. Meanwhile, roughly 40 million Americans have no coverage. Many, who can afford it, can’t get it because of pre-existing conditions or some other nonsense. (I’ve been there, personally.)

The problem with Obamacare is that it doesn’t address the core problem – cost. So, what should we do? Like most of you, I have opinions but lack expertise. However, I have read a number of studies including one by McKinsey and Co. which compares the embedded costs of our system to others in the industrialized world. McKinsey lays it down to three simple matters that need to be addressed: (1) the rapid growth of outpatient costs due to higher utilization, (2) higher pharmacy costs and (3) higher administrative costs (including malpractice claims). I won’t go into details. If you’re interested, you can read the study by clicking HERE.

Those who would argue for no change (let the market decide) are not coming to grips with reality. The current system is not free enterprise. And, anyone who doesn’t think it needs reform is simply nuts. The reason that government needs to be involved is that the industry is too fragmented. Unlike for example the auto industry, there is no dominant player who can drive standards and automation into the supply chain like GM did in the 80’s.

That said, the country simply cannot afford another entitlement program when the national debt threatens our financial security.

We will undoubtedly be treated to lots of posturing by politicians and blathering by pundits. Ignore it. It’s a distraction.

It really comes down to one question: WHO WILL LEAD?