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Business still holding its breath

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By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times
published September 8, 2002


University of Tampa students who enter the grand Sykes College of Business building on campus should pause to view the plasma screens that display news and college bulletins. One current item briefly salutes UT undergrad and MBA alumnus Russell Keene. He had gone on to work as an analyst for the Keefe, Bruyette & Woods investment company on the 88th and 89th floors of Tower Two of the World Trade Center.

A husband and father at 33, Keene died in the terrorist attacks on Sept. 11. He was one of 67 company employees (a third of the staff) to perish. Keene, writes Keefe CEO John Duffy in a new book on 9/11, Triumph Over Tragedy, "was known by his coworkers as a hard working, enthusiastic, genuine, kind person with a huge appetite and southern ways." Duffy himself lost a son and a close business partner who served as co-CEO.

Reminded of Keene Friday, college of business dean Joe McCann finds it hard to believe a year marked by terrorism, the record bankruptcies of Enron and WorldCom and a flood of corporate deceit has already passed.

"The coincidence of the diving stock markets, the 9/11 tragedy and then all the business scandals," he sighs. "I can't think of a more devastating collection of events, and 9/11 accelerated the whole thing."

Not that a one-year anniversary will bring much resolution. More than 60 percent of Americans say they are very or somewhat concerned that there will soon be another terrorist attack on the country, according to a new poll released Thursday by the Pew Research Center for the People & the Press.

The same number believe the ability of terrorists to launch another major attack on the United States today is greater than or the same as it was a year ago.

Amid such fears, the good news is how well the diverse local economy has held up, McCann says. "I see a lot more resilience in the Tampa Bay area than I've seen in other parts of the country that are concentrated in technology or reliant on a few big corporations," he says.

"For me, one lesson from 9/11 is: You need to have a broad base to stand on."

The bad news? Tampa Bay area's businesses, like many throughout the country, were traumatized for much of the past year. Only now is McCann starting to see business people tentatively come forward with new ideas and a willingness to act on them. It's as if everyone's been holding his or her breath for the past year, just waiting for the next bad thing -- the next terrorist attack or a new war against Iraq -- to happen.

Short term, 9/11 left the Florida tourist business in tatters, helped vaporize some $7-trillion from the U.S. stock markets and disrupted and depressed the international economy. And 9/11 stung already weak consumer confidence and damaged investor confidence even more -- so badly that it's still unclear when bearish attitudes will fade.

Long term, it's a different story. As the chart at the start of this column suggests, U.S. business confidence has been sorely tested, only to rebound time and again over many decades. Crises ranging from Pearl Harbor, the Korean war, the Cuban missile crisis, the Vietnam war, President Nixon's resignation and the Iran hostage situation to the Persian Gulf war and the Oklahoma City bombing have all pummeled the confidence of business leaders. For awhile.

As nasty as it seems, by now the struggling economy was supposed to be in worse shape. After 9/11, economists warned of financial disaster: a ruined airline industry, deserted tourist destinations and a shopaholic population too stunned to keep spending.

Instead, we're stuck somewhere between a thumbs-up and thumbs-down economy. US Airways is in bankruptcy court, and United Airlines is talking about going there. Other major airlines are tightening their belts. Orlando's hard-hit theme parks are hanging tough with drive-in tourists but are hurt by sharp dropoffs in international visitors.

Consumers, surprisingly, continued to spend aggressively this year, aided by remarkably low interest rates, cheap car financing and extra cash squeezed from a frenzy of mortgage refinancing and strong housing appreciation.

Unemployment, which bottomed out at 3.9 percent late in 2000, rose to 5.9 percent in July. But it dipped in August to 5.7 percent, the lowest level since March of last year.

* * *

So where do we go from here?

* Short term: We're still shaken and trying to regain our personal confidence and business optimism. A USA Today/CNN/Gallup poll suggests Americans are making the transition from living in a very secure setting to existing in a world already familiar in places like Israel, a place where life proceeds despite the awareness that there are terrorists bent on destruction.

The same poll shows that only 24 percent of the people say they have a great deal of confidence in the U.S. government to protect them from future attacks.

The volatile stock markets will continue to show big swings, driven by daily ups and downs of economic news, rumors of a U.S.-initiated strike against Iraq, the failure of the military to capture or verify it has killed al-Qaida's Osama bin Laden, not to mention the general lack of vision by our nation's leaders toward addressing broader problems, from health care to the environment.

* Medium term: When President Bush took office as the "CEO president," he was eager to further minimize the role of government in American life. Instead, he finds he is expanding the government in size and reach to counter global terrorist threats and an epidemic of U.S. corporate chicanery.

Over the past year, the country has seen the largest one-year increase of government spending on national defense as a percentage of GDP since 1982. In the next few years, that private-to-public shift of resources, mostly on defense and homeland security, will fuel the government's rising budget deficit. That will encourage higher interest rates and squeeze the availability of capital for business.

Insurance of all kinds, but especially specialty coverage against terrorist acts and for large commercial properties, will continue to grow more and more expensive.

That brings us, again, to Iraq and Bush's extreme interest in removing Saddam Hussein from power. For an already wobbly U.S. economy, an attack on Iraq is probably the most important variable over the next several years. Does Iraq have weapons of mass destruction, and will it use them if confronted by U.S. force? Can we replace Saddam with a friendlier leader who will survive? Must a U.S. presence remain (as it does now in Afghanistan) to prevent chaos?

* Long term: One of the country's greatest economic benefits of the past century was the so-called "peace dividend" achieved when the arms race ended with the former Soviet Union. From 1990 to 2000, defense spending fell from 5.2 percent of gross domestic product to less than 3 percent, the lowest level in the postwar period.

Now some experts warn that funds once used in the Cold War and since used to invest in private enterprise will again be used to fund a military buildup.

Another vulnerability: The major gains in U.S. worker productivity that helped maintain the economic boom of the 1990s could fall prey to smaller investments by businesses in technology and improved manufacturing. That means the U.S. economy likely would grow more slowly in the future.

Will the war on terrorism and other Middle East conflicts mean a serious decline in regional relations? Are U.S. ties with Saudi Arabia in danger of falling apart? If so, what happens to the availability and price stability of Middle East oil? And what steps will the United States take to reduce its Mideast oil dependence?

Driven rapidly by terrorist and energy concerns, Bush has grown closer to Russia (an up-and-coming oil exporter) and its president, Vladimir Putin. The evolution of that relationship bears watching.

All these scenarios leave us hoping for the best but fearing the worst. They also leave us with three different lessons.

First, the U.S. financial system (with some smart government intervention) proved robust enough to withstand 9/11's attacks and continue to function. That's very encouraging.

Second, we're now facing years, if not a lifetime, of unaccustomed uncertainty. Please pardon the cliche, but markets hate uncertainty.

And third (go back and look at that chart on confidence), history suggests the U.S. business community again will find a way to regain its optimism.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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