Fall 2016: The Economy Issue

Dean Terry S. Maness Elected AACSB International Board Member

Dean Maness of Baylor University’s Hankamer School of Business was elected to the Board of Directors for the Association to Advance Collegiate Schools of Business International (AACSB). Maness was elected to a three-year term, beginning July 1, 2016. AACSB International advances quality management education worldwide through accreditation, thought leadership and value-added services. Fewer than 5 percent of business schools have the prestigious AACSB accreditation. Baylor’s Hankamer School of Business achieved provisional associate membership in AACSB in 1950. It achieved full accreditation and membership in 1959.

Hankamer School of Business Programs Ranked in U.S. News 2017 Best Graduate Schools Rankings

Baylor’s Hankamer School of Business MBA Program moved up to No. 57 among the top-rated master’s programs in business. Baylor’s MBA employment rate at graduation ranks No. 3 in the nation. Its employment rate three months after graduation is ranked No. 10. Among specialty rankings, Baylor’s online MBA program was ranked No. 69, based on factors such as admissions selectivity, reputation for excellence among peer institutions, and academic and career support services offered to students.

Baylor’s New Venture Competition Awards $138,000 in Prizes

Baylor University’s John F. Baugh Center for Entrepreneurship in the Hankamer School of Business announced winners of the 5^th annual Baylor New Venture Competition. Held at the new Paul L. Foster Campus for Business and Innovation, 12 finalists competed out of the 146 applications from 83 universities in the preliminary round. More than $138,000 in prizes was awarded, in addition to many thousands of dollars worth of support services from sponsors.

Baylor Entrepreneurship Partners with Town of Addison for TREP EXPO

Baylor University’s Department of Entrepreneurship & Corporate Innovation partnered with the Town of Addison’s economic development office and the Dallas Entrepreneur Center (DEC) for TREP EXPO 2016 in March, an event that offers aspiring and experienced entrepreneurs information, inspiration and encouragement to launch, build and grow their businesses.

Baylor Student-Managed Investment Fund Provides Contributions For Scholarships

For the 13^th consecutive year, Baylor University’s student-managed Philip M. Dorr Alumni & Friends Endowed Investment Fund provided a generous financial contribution for student scholarships. A check in the amount of $180,000 was presented to Baylor Athletics. Along with a significant gift from Don and Ruth Buchholz, the Practicum students have increased the fund’s value to $7 million in 15 years of managing the portfolio. With this year’s generous contribution, the Dorr Fund has distributed a total of $1,835,000 in support of student-athlete scholarships.

Baylor’s Executive MBA Program in Austin Announces New Schedule

The Baylor Executive MBA program in Austin has announced an innovative new delivery of its MBA curriculum beginning in fall 2016 that combines classroom and online learning. Working professionals will attend class only one night a week while they also participate in online class activities, so they can earn the MBA degree in just 21 months.

Baylor MBA Candidates Provide Recommendations for Canadian City

The Baylor MBA Focus Firm project concluded in April with a presentation of recommendations based on primary research to the city of North Bay, Ontario. Nineteen graduate students handled the second phase of the project, which focused on the key areas of opportunities identified in Phase I of the project–the development of strategic priorities, as well as the need for enhanced communication, retention and promotion.

McBride Center for International Business Hosts Annual Global Business Forum

The 10^th annual Global Business Forum, titled “Middle East in the World Economy,” was held in March.

Baylor Business Review, Fall 2016

By Becca Broaddus

The manufacturing industry in the U.S. is growing amidst a renewed push to “Buy American” among domestic consumers. Already, much of what America consumes, America makes, but since the recession in 2008, manufacturing on American soil and the promotion of locally sourced and locally made products has been on the rise.

The recession spurred a change in consumer culture, according to Department of Marketing Chair and Professor Chris Pullig.

“You see a lot of companies branding locally sourced or regionally sourced as well as ‘Made in the USA,’” Pullig said. “People will buy and actually pay a price premium for products they think has this other benefit of supporting the local economy. When things get tough, like the recession, people tend to withdraw and focus just on their needs and surroundings.”

In a recent Gallup poll, 45 percent of Americans claimed they’d made an effort to buy products made in the U.S. More than 60 percent of those consumers attributed the strategic purchases to one of two motives: patriotism or stimulation of job growth.

“It has more to do with the values and the social undercurrent right now of taking care of our own rather than patriotism or ethnocentrism, which is contrary to what a lot of people think in business,” Pullig said.

The reshoring movement, the opening of manufacturing plants in the U.S. rather than overseas, is not solely because of an increase in consumer interest, though.

“The talk [of reshoring] really got serious as oil prices went up and transportation costs started to go up,” Department of Management Chair Blaine McCormick said. “But also, the advanced manufacturing trends that we see that lower the cost of labor. Everything from robotics in manufacturing to additive manufacturing [3D printing], those advances along with the rise of high transportation costs, a new engineering culture and cheap, reliable electricity, I think those all converged into this conversation.”

Many companies are making moves to bring manufacturing back to American soil because it makes good business sense. The business news section is full of examples. The new Tesla lithium ion battery factory in Nevada, called the Gigafactory, is scheduled to begin cell production in 2017. Boeing builds planes in Washington. Many Toyota trucks are made in Texas. Even the production of pink yard flamingos has been moved back to the U.S.

The “Made in America” segment on ABC’s World News Tonight with David Muir is a testament to Americans’ renewed interest in manufacturing at home. Recently, a May 2016 segment covered Marriott’s decision to replace the towels in their nearly 3,000 American hotels with towels made in the U.S.

“The manufacturing that’s reshoring to America is much less labor intensive and much more high tech than the manufacturing that left decades ago into other countries,” McCormick said. “Warehouses are no longer dark and dirty. Warehouses now are highly automated, robotic wonderlands.”

With the increased automation of manufacturing, other stages of the supply chain are being affected, like transportation and communication. By 2025, Daimler expects to mass produce a driverless tractor-trailer, a move that faces safety concerns and potential governmental restrictions.

Despite the influx of plants and factories to the U.S., the technological improvements reduce manual labor needs, and the job openings that are available require more tech savvy skill sets. Many Americans, including politicians, are concerned with the effect increased trade liberalization will have on this upward trend. The displacement of unskilled labor and the wage stagnation of recent years is often falsely attributed to trade increases rather than technological advances, according to Emeritus Professor of International Economics Joe McKinney.

McKinney attributes the negative connotations of the North American Free Trade Agreement (NAFTA) to technological shifts in labor needs in the 1990s and early 2000s.

“When you look at the data, there were special provisions for trade adjustment assistance for people displaced by NAFTA,” McKinney said. “They were hardly used at all because there was so little displacement. And in fact, we had a huge increase in employment in the decade after NAFTA was implemented.”

As the presidential campaign rhetoric criticizes trade liberalization efforts, two major trade agreements have reached their final stages.

In February 2016, 12 countries signed the Trans-Pacific Partnership Agreement (TTP). The 12 countries, which include two of the world’s largest economies, the U.S. and Japan, account for approximately 40 percent of the world Gross Domestic Product (GDP) and 26 percent of global trade.

“I think that the TPP has significant potential to be very beneficial to the U.S. on a number of grounds,” McKinney said. “Among other benefits, it will reduce tariffs of some important trading partners, so it will open up considerable export opportunities.”

TPP will come into effect within two years, if all 12 countries ratify it. The agreement could go before the U.S. Congress following the 2016 elections. Meanwhile, President Obama’s administration has been pushing to conclude the Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations by the end of the year.

With the election, it’s unclear what trade policies will take effect and whether it will affect the growth of manufacturing in the U.S., but regardless of a person’s stance on trade liberalization, the next few years should prove important.

McCormick believes America will continue to grow manufacturing domestically and veer away from its historically recent push for a more service-based economy.

“We’re makers,” he said. “We’re created in the image of the Maker. Maybe we’ve lost that maker image deep inside of us, but we’re asked to be co-creators. This is the backbone of our economy. My opinion and my hope is that we’ve hit the high-water mark of the service economy, and we will begin to revive and reshore a new kind of manufacturing and maker economy.”

Baylor Business Review, Fall 2016

Capitol Investment: D.C. Attorney Shapes Lives Through Legislation, Mentorship

By Becca Broaddus

Russ Sullivan loves what he does. From Capitol Hill to the courtroom to the chaos of his home, Sullivan has made an effort to live out his passions.

“Unless you really strike it rich, you’re going to work for a significant portion of your life,” Sullivan said. “It might as well be something that when you wake up in the morning, you look forward to doing. And so, that’s what I’ve done my entire life.”

Before working on Capitol Hill, Sullivan, a Baylor Accounting graduate and University of Texas Law School graduate, worked at an accounting firm and a law firm for about a decade, respectively, before pursuing his goal of “bring[ing] a business perspective to government and public policy.”

He started working on Capitol Hill during President Clinton’s first term, and he left during President Obama’s second term. In the 18 years between, Sullivan worked on tax, trade, healthcare, social security, banking, budget and most of the domestic economic portfolio.

“I got the opportunity to craft and draft the Bush tax cuts of 2001, the expansion of Medicare and prescription drugs in 2004, the agreement to add China to the World Trade Organization, various trade bills, and then ultimately, the Affordable Care Act,” Sullivan said.

Sullivan’s face brightens as he rattles off the list of his proudest achievements at the U.S. Senate. He includes the passage of the 2001 tax cuts, a bipartisan agreement led by his boss at the time, Sen. Max Baucus (D-MT). As a result, Sullivan found himself at the helm of an impromptu press conference. Additionally, he considers his role as a chief architect of the Affordable Care Act among his proudest achievements.

“It was thrilling to help drive a very significant change in the way a portion of our economy works, and then to see that process implemented, challenged in court, and ultimately, have those issues resolved,” Sullivan said. “I never envisioned I would be where I am now. I intended to only stay on Capitol Hill for a couple of years. I was just having such a great time. I didn’t want to leave, so I stayed for 18 years.”

In 2013, he retired from his position as staff director of the U.S. Senate Finance Committee and joined Washington, D.C.-based law firm McGuireWoods as partner, building a tax law and tax policy practice. At the time, he had nine kids in college, and Sullivan joked, he “had to earn some money!”

In fact, he has been legal or designated guardian of 22 kids, and all but three are in college or beyond.

“My passion is changing the lives of young people who face extraordinary challenges due to the death, incarceration, illness or other problems with their parents,” he said. “That’s my calling, and that’s my purpose in life. Ultimately I realized, like the Rick Warren book says, you need to find your purpose in life, and once you do, life gets a lot easier because it’s easier to make choices.”

Although he’s no longer working in Congress, Sullivan continues to serve and impact the lives of others. His priority for the next few years is to build the practice, “pour [his] life” into his middle school-aged children and serve on the boards of nonprofits focusing on children.

“For the last 20 years, I have invested a good part of my waking hours… as a mentor [at work] and then as a guardian for all these kids,” he said. “That has brought me joy, and I feel like I have made a difference.”

Baylor Business Review, Fall 2016

One-Two Combo: Baylor Grad Uses Teaching, Research Background to Effect Change

By Becca Broaddus

In high school, Emily Gutierrez swore she’d never be a teacher. She never imagined herself in boxing gloves four times a week either. But within a few years of graduating with a triple major in Economics, Spanish and Public Administration, she did both.

On her way back from a trip to the Dominican Republic with the Business Excellence Scholarship Team (BEST) her senior year, a fellow student complained of being inundated with emails from Teach for America (TFA), a national organization that recruits leaders with a record of achievement by asking them to teach for two years in a low-income community. Gutierrez suggested the peer forward them to her.

“God’s got a funny sense of humor… I applied not fully knowing what I was getting myself into,” Gutierrez said. “Joining Teach for America opened my eyes to what occurs in public schools on a daily basis. I began to ask how an education system could be considered successful when so little was expected of the students.”

By her second year teaching in the northern Fort Worth school district, she was appointed department head and witnessed the administrative side of education, in addition to the classroom.

“Decisions were being made using data, but without considering all factors, including those outside of the classroom,” she said. “I knew my students, and comparing them to students in another classroom, much less in a school across town wasn’t going to be the solution. The data isn’t always perfect, but how can we best influence this process?”

That question continues to fuel her career.

After two years teaching high school math with TFA, she returned to Baylor to learn more about the economics of education and how she could make a difference. While working on her master’s degree, she accepted a job at the Federal Reserve Bank of Dallas and drove to Waco once a week for class and thesis work until graduating in December 2014.

In the meantime, she met her husband while teaching: a high school counselor, U.S. veteran and boxing enthusiast. Soon, the newlyweds were part owners of local boxing gym Faith, Hope & Gloves Boxing, Inc. She was at the gym four nights a week until she started commuting to uptown Dallas from Fort Worth every day.

“I don’t function unless I’m overwhelmed,” she said.

She left her position as a research analyst in July 2016 and began her PhD work at the Maxwell School of Citizenship and Public Affairs at Syracuse University in the fall to focus on social policy. She’s already looked up nearby boxing gyms to join.

“Ultimately, I want to bridge the gap between policy makers and the classroom,” she said. “There’s a lot both could learn from one another. While my experiences gave me insight into the issues, using data to provide hard evidence as support would allow me to have a greater influence on policy.”

After receiving her PhD, Gutierrez hopes to work in a think tank, like Mathematica, that conducts education research as a collective.

“I want to make a positive impact using my personal experiences from teaching and my research skill set that I will have and will continue to develop during my time at Syracuse,” she said.

Baylor Business Review, Fall 2016

By Eric Krell

It turns out that gross domestic product (GDP) and porridge have something in common.

When describing the recent U.S. economy, “Goldilocks and the Three Little Bears”serves as a fitting analogy. The term “Goldilocks economy” refers to a period that is neither too hot nor too cold. But when describing the underlying economic issues affecting the U.S. population as a whole, this description sounds, well, like a fairytale. That’s because sharp claws have been flying during increasingly rancorous debates, presidential and otherwise, about how fiery or frigid the economy really has been.

There exists a widening and puzzling gap between the status of indicators used to assess the country’s economic health and the severity of issues that Americans cite when describing the country’s–and their own–prosperity. This gulf is important to address by rethinking how we create, construct and disseminate economic narratives.

Indicators vs. Issues

Measures used to assess and forecast economic health include GDP, several employment measures, business spending, consumer spending, interest rates, inflation, energy prices, housing indicators and more. By many, but not all, of these measures, the U.S. economy looked relatively healthy as the summer began. Considering the impact of the 2008 global financial crisis and the U.S. economy’s unchallenged status as the world’s primary engine of economic growth, our position seems even rosier.

Unemployment has dropped significantly since 2009. Housing prices, sales and starts (which reflects new construction) have increased over the same period. Business spending is poised to increase this year, and our GDP growth rate remains positive but relatively small (around 2 percent). Despite increasing volatility, U.S. equity markets reached historical highs in July. This marks an extremely condensed economic assessment, and clouds always loom. Continuing household income declines, a deteriorating Chinese economy, a spike in U.S. inflation, geopolitical tensions and/or an ill-considered interest rate decision could rain a swift reversal down on our partly-sunny economy. Or not. July’s Dow Jones Industrial Average record quickly followed on the heels of Britain’s stunning vote to leave the European Union (EU). While the actual Brexit may take up to two years to negotiate, the results of the vote sent U.S. equity markets plunging, briefly, before they rebounded strongly. Over the longer term, the negative impacts of Britain’s EU exit on the U.S. economy appear likely to be relatively low-key, but that could change depending on how the negotiations play out.

Forecasts, downpours and uncertainty aside, the following economic issues should be pivotal in the near future:

• Monetary policy: In recent years, the U.S. Federal Reserve has relied on less conventional moves, such as quantitative easing, to stimulate the economy while interest rates remained near zero. Even more creative methods may be needed to goose growth if rates do not rise as soon or as steadily as previously expected.
• Income levels: Household income and wages mark a highly personal economic issue, which naturally generates heated political and policy-making debates. The growing focus on “income stagnation” and “income inequality” puts a wide range of potential economic policy changes in play that could affect global trade, the tax code and more.
• Business regulations: During the presidential campaign, The Dodd-Frank Wall Street Reform and Consumer Protection Act was alternately portrayed as a deadly threat to U.S. competitiveness and a woefully inadequate stab at curtailing unprincipled Wall Street behavior. The next president’s view of Dodd-Frank could result in dramatically more or far fewer regulations. Either outcome could have a major impact on business spending.
• Global trade: Are multilateral trade pacts diabolical drivers of U.S. job losses or crucial enablers of global free trade, peace and prosperity? How the next president addresses this charged question will affect workers in manufacturing industries, most U.S. businesses with global footprints and the economy.
• China’s economy: The nature and pace of the slowdown of the Chinese economy–the second-largest in the world–will have major impact on most economies, including the U.S.

Data-Driven Fairytales

Another economic issue looms large, and it relates to both the accuracy and the relevancy of economic indicators. The growing disconnect between economists’ quantitative assessments and Americans’ qualitative assessments (of the economy and their own prosperity) requires reconciliation.

A recent Gallup poll of 1,000-plus U.S. adults found that the economy remains the biggest problem facing the country. Another recent Gallup poll found that only 28 percent of Americans are satisfied “with the way things are going in the United States.” This suggests that most Americans are far gloomier on the state of economy than those highly educated professionals who are trained to assess the economy.

This puzzles a growing number of business and economic experts, like The Wall Street Journal columnist Greg Ip, who earlier this year wrote that the economy “can’t explain why Republican voters backed insider Mitt Romney in 2012 when unemployment was 8% and an outsider … this year when unemployment is 5%.” Ip also wonders why so many warmed to one of the candidate’s “hard line against illegal immigration when the number of illegal immigrants has been dropping since 2007” while others cheered another primary candidate’s “promise of government-run universal health care when the number of uninsured is at an all-time low.”

Two reasons for these types of gaps reside in our economic data and narratives.

First, key traditional economic data points should be rethought, revised and/or supplemented. Type “Is GDP…” into your search bar and Google’s algorithms will instantly complete your question: “…a good measure for economic well-being why or why not?” Click through the search results and you’ll find that notable authorities from numerous disciplines—The Economist, The Atlantic, The Organisation for Economic Co-operation and Development (OECD) and Psychology Today, to name a few–offer compelling “why not” arguments centered on the fact that wealthy economies are increasingly services-based. The Economist proposes improving “how GDP data are collected and presented” and then supplementing a more effective GDP with two related measures, one that focuses on services and another that measures longer-term prosperity.

Second and more broadly, data-driven storytelling is overwhelming us with information and misinformation, making it more difficult to distinguish between fact and fairytale. As technology democratizes broadcasting, there are fewer editorial fact-checkers and far more broadcasters. Rather than crafting compelling narratives based on carefully sourced data, many communicators conduct “narrative-driven data dumping” in which incomplete and often self-serving messages are bolstered with dubious data. Tying the loss of U.S. manufacturing jobs to global competitors alone, for example, reflects a narrative that neglects the significant impact of some staggering manufacturing-technology innovations and the rise of services industries.

Regardless of how hot or cold U.S. GDP turns later this year and beyond, it will be increasingly important to take a deep look at the relevancy of each ingredient in our economic porridge and the accuracy of the narratives they support.

Baylor Business Review, Fall 2016

Americans are proud and resourceful. From the American Revolution to the civil rights movement to recent terrorist attacks, our nation’s history is steeped in hard work and overcoming hardships during our 240 years as a nation. In this issue of the Baylor Business Review, we evaluate how the economy is doing in 2016.

For more than two years, the American people have watched pundits and politicians discuss the American economy and the major issues facing the country as the presidential election neared. This issue delves into the state of the American economy. In a presidential election year, these conversations become even more relevant topics of discussion. With insights from faculty, these articles approach various matters facing the nation, including the state of the economy, immigration climate, trade liberalization and the rise in American manufacturing. We also talked to Baylor Business alumni, students and faculty to find how Hankamer School of Business community members make an impact on the economy in different ways and in vastly different careers.

We hope to see you at the annual Hankamer School of Business Homecoming Reception on Friday, Oct. 14!

Terry S. Maness
Dean
Hankamer School of Business

Baylor Business Review, Fall 2016