With the U.S. economy already showing several disconcerting mixed signals, March saw a jolting shockwave surge through the U.S. banking industry. One of the largest banks in the country – Silicon Valley Bank (SVB, for short) – collapsed. Justified concerns about insolvency led to a massive run on the bank. With a very short hesitancy, the FDIC quickly stepped in to secure SVB’s depositors even with deposits well over the federally insured $250,000 limit. Following the weekend scramble in DC, President Biden gave a speech on Monday the 13th to calm the markets. SVB’s implosion was soon followed by the folding of several other banks around the nation, causing further concerns about everything from investor exposure, to wider contagion in Europe, to the overall health of the U.S. banking system in the face of rising interest rates and deteriorating economic conditions.
And while the SVB collapse and subsequent failures do not appear – at least so far – to threaten the economy on a level with the financial crisis of 2008-2009, it has certainly stimulated robust debate about a multitude of issues. Questions about everything from risk-balanced investments and overindulging on cheap money, to additional fallout from high inflation (particularly in the bond market) to the role of government in the economy, have all been raised following this recent banking scare.
But while the SVB situation can be seen as a “sudden” event, there are multiple slow-moving trainwrecks that are coming down the tracks of the US economy. Arguably, the most impactful is the financial squeeze put on small and medium size businesses by the proclivity of long-term government fixed priced contracts colliding with the reality of the high inflationary environment and supply chain hangover from the policies adopted during the COVID epidemic. The question is clear: Does the government only respond when something becomes a crisis, or work proactively to avoid the crisis (or crises) and keep the train on the tracks?
In our current battle for superiority in the world with the rising Chinese hegemony, this becomes doubly troublesome. We have experienced western politicians express admiration for how fast a dictatorship like China can move. To counter that, we cannot become more like China, but instead utilize our forward thinking abilities to mitigate or avoid crises in the first place. Our competitive position vis-à-vis China is eroding and NOW is the time to act to outmaneuver our competitors in the defense, strategic space, and commercial space industry.
One deep concern that is never adequately addressed in the wake of these problems is who decides what the priorities are for relief. Moreover, why aren’t other industries that may be stretched because of current economic conditions – and which are arguably better managed and as important (cumulatively) to the national defense and strategic interest as any other business – not provided the same degree of relief when a challenge becomes too big to ignore? Businesses all have to make payroll, keep their people employed, pay taxes, abide by the rules (in some cases more rules), and roll with macro-economic punches from bad regulation and policy emanating from Washington that contributes to inflation. When times are tough, some industries always seem to get a convenient life preserver, while others are expected to simply “sink or swim.”
The plain reality across America’s business landscape for the past year – especially small businesses, and particularly those small businesses involved in manufacturing – has been one of extreme uncertainty, astronomically high and rapidly rising costs of input and employment, and increasingly difficult regulations. The fact that these conditions are mostly the result of economic moves coming out of the nation’s capital, makes it all the more confounding.
These disparities are not academic. In fact, small businesses in the high-technology manufacturing sector have had to deal with record-high costs – all of which raises the purchase point and flows down to the customer – IF they can modify their fixed-price contracts. Bailout or federal relief SHOULD be a last resort…but wouldn’t it be better to fix the issue before the malady becomes dire?
Make no mistake, the issues above are not meant to endorse the argument for an activist government that should constantly jump into the fray to pull a private company’s fat out of the fire. Far from it. But in watching how the government reacts, and who the government decides to help – often ignoring or bending its own rules to do so – the taxpaying citizen is left wondering about the rationale for when and why some industries seem to enjoy quick relief, and some do not.
The popular phrase “wall street versus main street” may be simple – and in some cases, perhaps a bit oversimplified – but it certainly speaks to frustration that private enterprise feels when it sees the same institutions making the same mistakes and placing risky bets over and over, but still getting the same type of favored treatment from Washington, D.C. What about those businesses that play by the rules, pay their bills, work efficiently and conservatively to deliver a quality product or service to a nationally critical industry? Do they get a lifeline when conditions beyond their control imperil the future?
In the end, the disintegration of multiple banks in recent weeks should highlight the need for a real conversation about how the federal government prioritizes its economic impact, crisis avoidance and rescue efforts. Speaking as the President and Chief Executive Officer of a company approaching 30 years in business, the current process is no way to run a railroad.
Grant Anderson, P.E. is the President & CEO of Paragon Space Development Corporation, a recognized leader in life support and thermal control in extreme environments. He holds a B.S. in Mechanical Engineering and an M.S. in Aeronautical & Astronautical Engineering from Stanford University.