Now that President Barack Obama has won a second term and control of Congress will remain split for at least two more years, should U.S. businesses expect a continuation of the government policies they’ve seen over the last four years? Yes and no, prognosticators say.
By and large, our government’s leaders will keep pushing down the same paths, or trying to, and thus, the federal government’s economic policies probably won’t change much. But there are plenty of new factors coming into play, some of them highly unpredictable and well beyond the control of the government’s leaders.
However, there are several measures that business owners can and should be taking to prepare their organizations to perform well and avoid some minefields as they step onto the new/old playing field they’ll encounter in Obama’s second term.
Health of the nation
One of the most important aspects of this new playing field is Obamacare. The president’s re-election makes it a certainty that this initiative, which has already begun implemention, will continue, with the largest part of the law going into effect in 2014.
“Obamacare is not going away,” says Herman Schwartz, a professor in the Department of Politics at the University of Virginia. “One-sixth of our economy is health care-driven, and a huge chunk of businesses in the health care sector of the economy have to adapt themselves to the reality of Obamacare — to the reality of the ‘Medicare-ization’ of health care — because it’s clear that’s going to be a long-term trend.”
When the bulk of Obamacare takes hold as the law of the land, it will initially be difficult for nearly all businesses in the health care sector, insurance included, because it will produce downward pressure on revenue and greater pressure to deliver better services at lower cost. There is going to be pressure to do more with less, so the overall result for that segment of the economy is going to be much slower revenue growth.
The impact on the remaining five-sixths of the economy remains to be seen.
“There’s no single, simple business story with Obamacare,” Schwartz says. “It’s going to produce both winners and losers.”
Other business experts foresee Obamacare exerting downward pressure on most businesses economywide, especially small and mid-sized businesses, because they believe the law’s tenet requiring companies with 50 or more full-time-equivalent employees to provide health coverage for their workers will deter business growth.
“Many companies are trying to get their arms around the employer mandate,” says Bill Conerly, a business consultant based in Lake Oswego, Ore. “It’s a very confusing law. It’s going to be a nightmare for some companies, and it’s going to lead some to decide not to get too big because they don’t want to grow beyond that threshold without considering the costs and benefits.”
Peter Morici, a business professor at the University of Maryland, also believes the new health care law will discourage growth for small U.S. businesses.
“Businesses should be looking to minimize employment and focus on hiring part-time workers,” Morici says. “They need to be very conservative about new hires. They need to focus on what role part-time employees can play, to minimize their health care costs.”
However, under the law, 32 hours a week is considered full time, and even businesses that employ only part-timers will be required to provide coverage if those part-time hours add up to 50 full-time-equivalent employees.
U.S. businesses must also grapple with the complexity of the president’s health care initiative. Businesses should be bringing in expert help as needed to assess where they stand and what their options are regarding the new health care law.
“You need to sit down with somebody who really knows the law,” Conerly says. “Bring in an attorney or a consultant and have that person lay out, for your particular circumstances, what your choices are, because it varies from company to company. You can’t use a cookie-cutter answer.”
Another aspect of the health care law — one that employers might be able to use to their advantage — is its creation of state-regulated, standardized health insurance exchanges from which individuals may purchase health insurance. Businesses must decide if they are going to continue providing coverage or decline to do so, pay the penalities and put their workers in the exchange.
For many companies, the decision won’t be purely financial, as employee morale also comes into play. Schawartz says that pushing employees into exchanges is probably not going to be well received by those workers unless the result is a significant drop in their costs. And, at least in the beginning, he doesn’t anticipate that costs will drop dramatically.
Conversely, Schwartz says that if he owned a business that already provides a health care plan for its employees, he would capitalize on the emergence of health insurance exchanges by using them as a bargaining chip to pressure his company’s current health plan provider. He suggests business owners put someone in charge of finding out what the health exchange will cost and then begin bargaining with the insurance company on the price for insurance.
“My overall strategy would be to try to keep the status quo on health insurance, because it would mean fewer hassles for the work force and fewer transition costs,” he says. “But at the same time, I would use the existence of the insurance exchange to try to bargain down the price.”
In this way, Obamacare could help employers use the basic market forces of competition and supply and demand to reduce their own health care costs, as well as those of their employees. Because there is not a lot of competition in the insurance market, an increase in the number of players as a result of the exchanges gives consumers more options, allowing them to bargain on price. The result will be downward pressure on the health care sector.
“As an employer, I would tell my workers that we are looking at options and that we are going to get you the same or better, for lower cost,” Schwartz says.
Businesses must also weigh government regulatory policy, as some experts predict the federal government will become more stringent over the next four years. Morici, of the University of Maryland, says businesses are likely to face increased regulation from Washington, unless the economy goes into recession. In that case, the Obama administration may put the brakes on regulations.
And while all sectors will be impacted, the energy and manufacturing sectors are most likely to feel the effects of this regulatory intensification as a result of CO2 emission requirements and the president’s position on energy regulation, Morici says.
“President Obama believes that you can make the country independent by relying solely on natural gas and on alternative energy sources, and not developing oil,” he says.
Conerly, the Oregon business consultant, says the administration’s regulatory stance won’t be enough to hinder the economy as a whole, but it will negatively impact some sectors.
“That’s due to the president’s strong position to dictate the terms of regulatory agencies, the main one being the EPA,” Conerly says. “There have been rumors that they’ve delayed some rulings, waiting for the election to be over so they would not influence the election. Clearly, going forward, there will be some businesses that will find it harder to comply with environmental regulations.”
The financial sector is likely to see more regulation as well during Obama’s second term. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 laid the groundwork for stepped-up financial regulation. Dodd-Frank provided an outline, with the details left to be filled in by regulatory agencies, Conerly says. As a result, he anticipates efforts to put consumer financial products in well-defined boxes, limiting both businesses and consumers in their ability to go outside of those boxes.
Schwartz, however, doesn’t foresee a significant heightening of regulatory pressure but a continuation of status quo.
Whether the result is a heightening of regulatory pressure or maintenance of status quo, Conerly says businesses should avoid the angst and focus instead on their companies.
“Too many people tend to wring their hands and gripe instead of saying, ‘What can I do about it?’” Conerly says. “The best defense is simply to provide good products and services to your customers. I recommend to business leaders that they think less about politics and more about their business. Get back to the basics and don’t get too upset over the political world.”
That said, however, businesses do have to deal with the regulations, even if they don’t agree with them. The best businesses learn the rules and comply with them, and don’t bet the business on their ability to get around a regulation.
The rest of the world
Because the U.S. economy is mutually dependent on the economies of other countries, especially those in Europe and Asia, economic instability in those areas is another factor for businesses to consider as they make plans over the next four years.
“If we don’t do the wrong things here, I think we can withstand the gradual collapse of the Eurozone,” Medici says. “I don’t think the Eurozone is going to go up in flames. Rather, I think it’s going to go through a long period of stagnation, much the way Japan has.”
Most experts concur with Medici’s assessment that the U.S. economy should be able to weather the European downturn. Conerly says the U.S. can survive a mild European recession, and, in fact, is doing so now. Eurozone GDP is edging down slightly but it appears to be avoiding a major meltdown and should be able to grow next year, a positive thing for U.S. companies because Europe receives about a fourth of U.S. exports.
With the worldwide economic picture so choppy and unpredictable, U.S. businesses should assess where they stand in terms of their economic susceptibility and make sure they have a solid plan in place should their markets take a plunge. Conerly says the first step is to evaluate your business’s vulnerability. U.S. recessions are commonly triggered by rising interest rates as the Federal Reserve tries to fight inflation. However, that would not be the case if a recession were to occur in 2013 and, as a result, the interest-sensitive sectors of the U.S. economy should do well, Conerly says.
The biggest immediate risk to U.S. businesses is the export economy slowing. If a company is a major exporter or a vendor to companies that export a large percentage of their output, they face a high degree of financial risk. And companies whose revenue is highly dependent on consumer discretionary spending are also more vulnerable than other businesses, because if the U.S. economy were to edge into recession, discretionary spending would be one of the first areas to take a hit.
The smartest thing that U.S. companies can do right now is to have a plan in place.
“I recommend that companies, after they’ve evaluated their own vulnerability, sketch out a recession contingency plan,” Conerly says. “Say, ‘If our sales go down by this much, what would we do?’ Just thinking about it ahead of time makes it easier to pull the trigger if you have to execute such a plan.”