Michael Whalen is president, CEO and founder of Heart of America Group. Starting with one restaurant in 1978, his company has grown to 27 hotels and restaurants in 10 metropolitan areas. Mr. Whalen ran for Congress in Iowa in 2006, serves as the policy chairman for the National Center for Policy Analysis, a free-market think tank, and is a leader for Job Creators Alliance, a group of entrepreneurs who promote pro-growth policies to support small business. Out of the office, he has established Wildwood Hills Ranch, a camp for at-risk youth, and a contemporary Christian radio station. You can find out more about Heart of America at heartofamericagroup.com and Job Creators Alliance at jobcreatorsalliance.org.
Decker: You talk about government policy “killing the gazelles.” What’s that metaphor all about?
Whalen: One of the few facts that gets universal agreement is that small- and medium-size businesses generate the bulk of new jobs. That is true, but drill down into that fact and you will find that a small group of these businesses accounts for the vast majority of the new jobs. Most small businesses stay relatively small. But a select group of fast breakers explode from the pack; economists call them the gazelles.
An effective pro-job-growth policy needs two stages. First, obviously, we need policies that encourage new business startups. But that’s not enough. We then have to have policies that encourage and facilitate the gazelles so they can rocket away. If the gazelles can’t get the care and feeding they need, they will either flounder or stay small. What is gazelle food? First and foremost, capital. Capital is the fuel of expansion. Rapid expansion needs lots of capital. Without that plentiful capital, there will be no gazelles. I apologize for mixing metaphors, but a Ferrari without gas is nothing more than a pretty coffee table.
Decker: Every time I sit down with a business leader, I get an earful about 2002’s Sarbanes-Oxley Act that dramatically altered federal accounting regulations and 2010’s Dodd-Frank Act to supposedly reform Wall Street. What is so bad about these laws, and what is their true legacy for the U.S. business climate?
Whalen:Sarbanes-Oxley and Dodd-Frank are badly flawed laws. Because we had a few criminally piloted jumbo jets crash, like Enron, we got SOX, and from the Wall Street big boys meltdown we got Dodd-Frank. But as with so many laws that have pernicious unintended consequences, the real damage inflicted by both these laws has been to hurt businesses on Main Street, not to rein in excesses on Wall Street. Remember those gazelles? Their gazelle food is capital. Historically, the three main sources of significant growth capital have been Initial Public Offerings (IPOs), commercial-bank credit and private equity. The gazelles have traditionally created more than 90 percent of their new jobs after going public and getting a pop of cash, and it used to be relatively easy in the USA to go public. But because of the complexity and costs imposed by SOX on IPOs, small company IPOs have virtually come to a halt. The recent remedial federal legislation won’t make much of a difference. POW … POW … a bunch of gazelles drop.
Dodd-Frank has hit the second source of gazelle food: commercial-bank credit. Bankers on Main Street are scared to make loans because of the fear that the feds will second-guess their loan decisions. Pepperdine University found that 71 percent of bankers admitted that they had turned down a loan they wanted to make because of fear of federal retribution. POW … POW … More gazelles drop. If we are to restore our entrepreneurial job-creating machine, both laws need not tinkering, but fundamental change.
Decker:I remember a time when corporate leaders were a lot more outspoken against intrusive bureaucracy and laws that were harmful to business. Why are so many prominent executives hesitant to speak out to defend their own interests today?
Whalen: The simple reason that many business executives do not speak on public policy and how it impacts their business in particular is a legitimate fear of retribution, and not from their customers. When I ran for Congress, I wondered if it would hurt my business as my company is in very “retail” industries. It had no impact. The general public respects conscientious public and political involvement. Rather, these reluctant executives fear government retribution. I am asked all the time if I am scared about it. There are so many ways retribution can occur: an audit or inspection with unusual vigor, an investigation, or even outright legal attack. Don’t kid yourself, it regularly occurs.
I have never told this story publicly, but it needs to be told. Years ago, one of my company’s top executives got a phone call from a social friend. He worked for the government and had recently been at a multiple-agency training function. At the evening social, a counterpart got pretty drunk and when he found that my executive’s friend was from Iowa, the drunken guy asked him if he knew Mike Whalen, a “big * * * * there. We are going to really get him soon.” The friend called my executive to warn us, as he was quite angry, adding he would lose his job if we ever mentioned the call. A few months later, the vicious attack did come. It was painful and cost much time and money to rebut, but I’m still speaking out. I guess I am a slow learner.
Decker: It used to be said that, “The business of America is business.” Now, we have a worse corporate tax rate than Europe and businesses are strangled by miles of new red tape every year. I have had many job creators tell me that if they had to start all over again today, that creating their own company would no longer be worth all the hassle, harassment and heartache. What are the most damaging government hindrances to entrepreneurs today?
Whalen: It would be much, much tougher to start Heart of America today. When I was starting out, I dealt with little banks on Main Street, not just “the bank” but personally with their leaders and often major owners. I knew them by name. Jim and Bob Slavens at Northwest Bank in Davenport, Ollie and Ron Hansen in Durant, Iowa, Stan Goodyear in Walcott, Iowa. They ate at the restaurant, and they watched me work. They saw the progress we were making. So, when I asked for loans to expand, we weren’t just a compilation of numbers - and thank goodness, since my balance sheet, financial ratios and cash in the bank probably wouldn’t have justified lending me the money we needed to grow. They were, in effect, Main Street venture capitalists. Dodd-Frank kills that.
Decker:The Obama administration talks an awful lot about an economic recovery, yet the unemployment rate is still high, record numbers of Americans are on food stamps and the national debt continues to mount. What does such an anemic recovery say about the real state of our economy?
Whalen: That the uncertainty surrounding taxes, Obamacare and exploding regulation has been - as Steve Wynn said - a “wet blanket” on the economy has been echoed by a vast choir of business leaders, and no one coordinated the message. They all see the same impact. Adding to these real substantive impediments to growth is the anti-business environment that has emanated from this administration. Trust me, it demoralizes business leaders. That said, I believe there has been an important shift in the business psyche in the past six months or so that has not been reported. Instead of a cautious, conserve cash, deleverage, generally negative mindset in the business community, I sense what I call the “thoroughbred in the starting gate” mentality that is antsy, hooves scratching the ground, and snorting. American business is ready to run. They want to get out there, but they still are hesitant. Let’s open the starting gates.
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Brett M. Decker, former Editorial Page Editor for The Washington Times, was an editorial page writer and editor for the Wall Street Journal in Hong Kong, Senior Vice President of the Export-Import Bank, Senior Vice President of Pentagon Federal Credit Union, speechwriter to then-House Majority Whip (later Majority Leader) Tom DeLay and reporter and television producer for the legendary Robert ...
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