The race toward economic and social stability

Businessman jumps over gap. Overcoming obstacles business concept

By Leslie D. Green | Special to Crain’s Content Studio

Economists suggest the speed of recovery from pandemic-related shutdowns shows the United States is on an upswing that could continue into 2021. However, presidential transition-related conflict and a third-wave surge in global coronavirus cases have economists, investors and businesses on edge.

Credit spreads, overall financial-stress indicators and the dollar have remained relatively tame, suggesting the equity market is mainly consolidating its outsized gains while anticipating clarity on the profits outlook. Indicators, including positive corporate earnings in the third quarter, have been pointing toward stronger U.S. growth—particularly since they rebounded faster than during the last recession. And the United States has been experiencing solid momentum in economic growth so far in the fourth quarter, bringing activity within the 90 percent to 95 percent range of pre-coronavirus pandemic action.

Yet, uncertainty remains. Business leaders question how the President-elect’s plans and policies, including taxes, health care and tariffs, will affect industries and their consumers. And, as more states implement and reestablish COVID-borne restrictions, worries over country-wide shutdowns and hopes for an additional stimulus are growing.

“We have seen a fairly quick rebound. But that last 5 percent of economic growth is going to be very, very difficult to reclaim. It will be a long climb—and probably not until 2022—until we return to the levels of economic growth we had prior to the pandemic,” said Matt Elliott, Midwest Region Executive for Business Banking and Detroit Market President of Bank of America.  

Elliott recently moderated a virtual roundtable conversation with metro Detroit business, academic and community leaders about the state of the region transitioning from 2020 to 2021.

collage image of roundtable participants

Top row, from left: Christina Brown, Consumer Research Insights Analyst, HMS Mfg. Co.; Matt Elliott, Midwest Region Executive for Business Banking and Detroit Market President of Bank of America; Ki (Kouhaila) Hammer, President and CEO, Ghafari Associates; Darienne Driver Hudson, President and CEO, United Way for Southeastern Michigan. Bottom row, from left: Rip Rapson, President, The Kresge Foundation; Nicole Sherard-Freeman, Executive Director, Workforce Development & Detroit at Work, City of Detroit; Michelle Sourie Robinson, President and CEO, Michigan Minority Supplier Development Council; M. Roy Wilson, President, Wayne State University.

Nicole Sherard-Freeman, executive director of Workforce Development & Detroit at Work for the City of Detroit, said city administrators are encouraged by the recent bump in economic indicators but recognize that it’s unlikely to be the real story.

“We won’t know the real measure of impact of what’s happening with the economy for another 12 or 18 months,” she said. “That’s when we’ll start to feel the ripple effects of what happens when you close casinos and hotels and restaurants, and when Detroit’s small business community fails at a rate of about 40 or 50 percent.”

Going beyond economic figures and issues of financial volatility, roundtable participants also delved into the impact of this dramatic year and their concerns surrounding the future of COVID-19, supply chain shifts, racial justice and equity.

Down, Not Out

Increasing cases of coronavirus in the U.S. and Europe is a top concern for investors and business leaders alike though many businesses have been able to rehire workers and the number of unemployment claims is decreasing. Still, there’s growing, but cautious, optimism.

The City looks at residential employment, instead of unemployment, as the real measure of how economic development, economic stability and mobility are affecting Detroit neighborhoods. That number was close to 231,000 in February 2020, Sherard-Freeman said.

“But those numbers dropped in April to 165,000. It looked a lot like a 90-degree angle fall off a cliff,” she said.

With 208,000 residents employed as of late October, the city appeared to be bouncing back. Still, Sherard-Freeman said city leaders remain watchful.

While dips in the economy often hit contract labor first, that sector is also usually the first to rebound, said Ki (Kouhaila) Hammer, president and CEO of Ghafari Associates, which operates technical staffing company G-Tech.

“Before COVID, things were going just fine. Then the pandemic hit, and business in the G-Tech world went down by about 50 percent almost overnight,” she said. The company furloughed staff and cut employee hours, and clients began requesting billing-rate reductions.

Now, though, G-Tech is getting “requests for many engineers, in many different frames for different clients,” Hammer said.

Likewise, HMS Mfg. Co., which designs and manufacturers housewares for retailers, was doing well and focusing on developing innovative products for the home in the beginning of the year. The company paused that strategy when the quarantines started and businesses shifted to delivering essential products.

The company’s niche has helped.

“We did all right because we make everything that’s in the house,” said Christina Brown, consumer research insights analyst for HMS. “Now, we need to make sure we are making the right things for the home to ensure we support life looking a bit different.”

While COVID didn’t hurt HMS sales, it did complicate order fulfillment and supply chain logistics, and it altered company priorities.

“All of our business units focused on shifting away from new design into human protection—what our people need to get through the pandemic and what customers need from us,” Brown said.

In part, this means determining whether employees truly need to travel to accomplish their goals and developing more secure online platforms to help people feel more comfortable making purchases.

“This idea of pivoting and shifting toward the people is really critical for growth,” Elliott said.

Agility Is Key

Pivoting or evolving business strategies is really about resilience and resilience planning, Elliott said. This requires having a diversified source of revenue, planning for sustainability of revenue sources and business models, and ensuring your organization has a technology angle and technology support.

“Not every organization can make that sort of a pivot. But you have to if you’re going to be resilient,” Elliott said.

HMS, which has U.S. and global operations, found itself contending with different and ever-changing pandemic-related executive orders. Shipping also became more complicated for goods manufactured domestically and internationally. At the same time, production was complicated by executive orders requiring some businesses to shut down, Brown said.

Still, HMS shifted goals, optimizing what it manufactured to maintain retailer partner expectations while still protecting their workers. The company also began using its 3D printing capabilities to produce personal protection equipment (PPE), which it distributed to staff and frontline workers.

Now, Brown said, “We are looking at different fulfillment options to optimize where the staff can be and what we can do from various locations. We are looking at doing things like shipping directly to the consumer, shipping larger volumes to our retail customers at a time to optimize fulfillment.”

While work with aviation, shipping companies and online retailers, such as Amazon, accelerated, many construction projects stopped, especially those in the Middle East, which essentially halted for Ghafari Associates, a global engineering, architecture and construction services company.

So, Ghafari shifted its focus from construction to designing more capital projects for the future. Because work in the Middle East is predicated on oil prices, the company is used to and prepared for shifts there.

“If the oil prices are up, they’re spending money. If oil prices are down, they’re not spending money, and everything shifts to a very slow pace,” Hammer said.

Adjusting Service Models

Nonprofits were among the most visible organizations to shift strategies and processes to both endure the pandemic and support those suffering through job and other losses.

In March, most of the region’s K-12 and post-secondary schools turned to remote learning. Whereas digital learning has kept students with adequate technology connected, schools have been paying the price.

By April, many colleges and universities began seeing decreases in fall enrollment—16 percent around the country—and drops in residence hall renewals. Consequently, they initiated layoffs and other budget cuts to help stave off hundreds of millions of dollars in predicted losses while also trying to mitigate the financial pain many students were experiencing.

Yet, Wayne State University is bucking the trend. The Detroit school has seen increases in some enrollment figures.

“We actually had a 5 percent increase in our first-year students,” said university President M. Roy Wilson, M.D., a trained epidemiologist.

The university also hasn’t taken the financial losses most universities have so far experienced this year because of shifting strategies a few years ago that included turning to a public-private partnership for housing and food services, Wilson said.

Still, with decreased consumer spending in 2020, property taxes left unpaid or deferred, high rates of unemployment and other hits to state budgets, college and university administrators expect state and federal budget cuts to affect their bottom lines in the near term.

“We’ve been fortunate, but we are going to be impacted financially,” Wilson said.

The United Way for Southeastern Michigan was beginning to witness more stable households and thriving children before the world was thrust into the pandemic, said United Way President and CEO Darienne Driver Hudson.

However, the board quickly released $2 million from emergency reserves to help nonprofits on the front lines of serving those in need and to provide collaborative and regional grants. Through ongoing and new corporate partnerships, the nonprofit also acquired the volunteers they needed to answer calls from distressed citizens.

“We were able to raise $37 million with the COVID fund. But the actual campaign we run annually plummeted,” Hudson said. The nonprofit, which has more than 740 corporate and community partners, shifted from using its resources to deal with decreasing donations to pushing much-needed resources into the community.

“That’s not a sustainable funding model for any of us, especially people who have fee-for-service models like our family service agencies,” Hudson said. “That’s a big question in terms of what happens next, how we think about those models.”

More than the economy’s finances, Rip Rapson, president of The Kresge Foundation, said the “dark matter of the economy” needs addressing. He described this as the fraying of the soft tissue of the community that is creating a health crisis throughout society.

“Unless people feel a sense of cohesion, a sense of confidence in their daily routines, unless they feel like they have the kind of mutual supports and community that permit them to succeed over the long term, all this falls apart,” said Rapson.

“Nicole’s comment about 40 to 50 percent of the small businesses in the city of Detroit failing is not something that gets put back together right away. This has enormous traumatic, personal, professional community implications.”

Wilson added that there’s also the issue of children missing out on the social and educational development they get from in-person learning. “As an epidemiologist, I’m worried about the pandemic and think we have to be very cautious,” he said. “So, I just urge everyone to think in terms of being as aggressive as we can be in driving the numbers down so that we can open up schools earlier.”

Which is why, Rapson said, philanthropy’s energies have been redirected. “Philanthropy can step in and underwrite every one of those 50 percent of businesses who fail, or they can do any number of other things. But it can’t do everything,” he said. “So, this deconstruction of what it takes to be healthy and vibrant and sustainable over the long term is at risk.”

Understanding, Addressing Disparities

Pivoting in philanthropy, Rapson explained, requires a deep commitment to trying to figure out the infrastructures of social and racial justice that are needed to carry the country into a different rebuilding process.

“There’s no question that urban centers of America are going to have to rebuild. Whether it’s housing, small business development, transportation or infrastructure, this is going to be a different world, and municipal government is only going to have so many tools at its disposal,” Rapson said.

“It’s sad, but I think it took the pandemic to remind people that you can’t talk about health without talking about disparities. You can’t talk about housing without talking about disparities. Just tick through every single indicator,” Rapson said. “People don’t want to deal with it. It’s complex. It means sort of undoing systems and kind of rejiggering them.”

When it comes to rebuilding the city of Detroit, Sherard-Freeman pointed out that it won’t happen with $15-an-hour jobs as the ultimate goal.

She and colleagues at the City are exploring what prospects they have to benefit the region. Beyond FCA building and bringing 5,000-plus jobs to Detroit and the opportunities through suppliers considering a move to the city, Sherard-Freeman said there’s more they can do.

She cited closing the gap on public education and building a workforce that becomes an attractive economic value proposition for industries outside of the auto industry, like health care.

But this means understanding the impact of COVID on the healthcare industry, on communities of color and on industries that don’t yet exist, Sherard-Freeman said.

Rapson added that understanding the open space possibilities and neighborhoods around FCA is as important as determining what to do about the city’s transportation, education and health-related issues.

“What it means is that we have to go back to basics, but the basics are sort of predicated on issues of racial disparity and justice. How we think about a next-generation housing program in the city, how we think about a next-generation small business program or commercial quarter redevelopment program has everything to do with issues of identity and race and history and legacy and opportunity. So, in some ways we’re looking at what we’ve always been looking at,” Rapson said. “But I do think that there’s sort of a bright light that has shined in our direction, and we have to take advantage of the moment.”

The responsibility is on everyone, Hudson said. “Even if you were not the person who built the system, or you are not perhaps the oppressor, or you’ve been victimized, everybody has a role to play, and everyone has a responsibility to understand how we can improve it,” she said.

For its part, the United Way Worldwide has changed its bylaws to include statements on diversity and against racial justice, which they are pairing with staff training.

Elliott said Bank of America thinks about diversity and inclusion as a core part of its business strategy.  “There is also an extremely strong business case for closing the racial wealth gap,” he said. “We can’t be a top 10 state for jobs and income if we don’t make progress on closing the racial wealth gap.”

Ghafari has always had internal policies promoting diversity and inclusion and standing against discrimination, Hammer said. However, not everyone on staff understands the perspectives of other cultures.

“We’re finding out we all need more education in terms of what we have to be aware of so that we don’t think that we’re doing such a good job when we’re not. So, we’re on our first journey, if you will, of pivoting after the whole situation with Mr. (George) Floyd,” Hammer said.

Michelle Sourie Robinson, president and CEO of the Michigan Minority Supplier Development Council, said they’ve seen eloquent letters, commitments and pledges from corporations since the video of the death of George Floyd came to light.

But, she said, equitable education and simply the opportunity for minority-owned companies to compete for business are the best ways to close the racial wealth gap.

“Minority firms are often overlooked. But because of their ability to hire in some of these often-forgotten sectors, they have the ability to help close that gap in a more sustainable manner,” Robinson said. “We’ve seen some amazing organizations that are raising funds, but when you look at the fact that the average black family has about $3,000 in net worth, and you compare that to the average white family, which has about $147,000, we have some gaps to close.

“And we close those through economics. So anytime you support minority-owned firms, you are actually helping to do that in a fashion that is much more sustainable than most.”

Forging Ahead

Global manufacturing hit a 29-month high in October and appears to be dealing valiantly with shifts in demand and supply chains. USDA economists predict higher commodity prices in nearly every agricultural industry in 2021.

However, the country is not out of the woods.

Fundamental changes in the way we operate are as necessary to growth as are a second stimulus, a vaccine, a return to pre-pandemic employment levels and a peaceful transition of power at the federal level.

“Going forward doesn’t mean continuing the way we’ve been going,” Elliott said. “If you’re not being inclusive, we’re going to have problems. If your business isn’t resilient or planning for resiliency, we’re going to have problems.

“We all need to take into account how what’s happening now is impacting not just the business community, but also our children, our educational system and the fundamental building blocks of what our economy and society will look like as we head into 2021.”

This piece was originally printed in Crain's Detroit Business Book of Lists 2021 and on CrainsDetroit.com.

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