The Crisis Mentality

Feb. 15, 2013
Sequestration prioritizes federal spending Maintaining competitive manufacturing Eliminate the causes

Apparently, our economic future relies on just one critical choice: to save a little or to continue spending a lot. That’s the binary dilemma presented by the looming sequestration crisis – which is merely the current crisis presented to us by a political crowd that thrives on crises. This crisis seems set to impact on March 1.

Maybe it will happen or maybe it won’t. If it does, sequestration will be a bad turn for a lot of manufacturers whose businesses rely in some part on defense spending or federal infrastructure programs or energy policies. There will be automatic reductions in other federal spending, too: millions of individual citizens are likely to feel the cut.

In brief, sequestration is a method for prioritizing federal spending when resources are too scarce to cover all the expenditures that have been authorized. Note, the U.S. has a deficit now estimated at $16 trillion, which is so far beyond the estimates of federal revenues that one wonders how the U.S. government is able to get any business to take its orders.

But many manufacturers are involved in federal programs, and if they have been expecting payment they may soon be reviewing those projections.  By sequestering discretionary funding (i.e., spending on all federal programs other than health and retirement benefits), federal officials will reduce spending across-the-board, automatically. Many programs would slow down or be cancelled entirely.

The current prospect of sequestration emerged from the Budget Control Act of 2011, in which the U.S. Congress and the Obama Administration agreed on automatic sequestration as a way to address chronic federal deficits and insufficient revenues to support federal spending plans. Various deadlines were set into the agreement, to avert sequestration, but all of these have been missed, and as I write the crisis will arrive in March. Sequestration of mandatory spending will be enacted each year between FY2013-FY2021, with a one-year sequestration of discretionary spending for FY2013, followed by lower discretionary spending limits for FY2014-FY2021.

Urgent concerns

I wrote about the prospect of sequestration last year, after a forging company executive explained to me how it was likely to complicate his company’s production programs, and capital investment plans. But, his more urgent concerns were those of any responsible citizen, and he underscored the need for the U.S. to maintain a manufacturing sector that is creative, responsive, and competitive in global markets.

He’s right, but let’s not overlook that what we’re facing here is not a crisis in the way that any business is used to facing crises. This is more in line with a bad business plan, and an enterprise in need of an overhaul.

Manufacturers and other businesses face crises all the time, and they address them – or else. That is, the management is replaced or the business is acquired and reformed, or it goes out of business entirely.

Manufacturers often face crises of lesser magnitude, problems that involve engineering or design, or resources or capabilities – and these can be effective tests of managers and executives. The successful companies will isolate the problems, identify causes, analyze options, and expedite resolutions. 

In short, crises are things to be avoided, but if they occur they are to be addressed as comprehensively as possible. Manufacturers that find they are dealing with too many crises will begin to eliminate the causes — an inefficient product design, for example, or an unreliable supplier, or customer.

Federal sequestration beginning on March 1 may sting many forgers and other manufacturers, and they’d be wise to consider the cause. Can they really succeed with a customer that thrives on crises?