Hi Folks,

just wondering if anybody out there knows of any research done on failure of buisnesses and the effects of such failures on a community. While it's true that something like 90 percent of all new business start ups fail within the first two or three years, THAT is not what concerns me. Rather, I'd like to know if anyone has studied failing economies to see at what point the debt load / bad credit load of failing businesses starts to be appreciably felt over the entire area...maybe something from the 1930's?

just wonderin'

Arlin

-- Arlin H. Adams (ahadams@ix.netcom.com), June 02, 1999

Answers

* * * 19990602 Wednesday

Arlin:

This event will be unprecendented. Only a Y2K postmortum will reveal lessons learned--if any! Duh!

During the "Great Depression" the infrastructure--such as it was ( some [ all low-tech! ] electric, telecom, financial )--was intact. The carrying capacity of the infrastructure was a lot lighter. ( What, 150 million USA citizens? ) Unlike this scenario, 270 million USA citizens, totally dependent on electronic everything: electric, telecom, financial, et al.

Maybe someone could play Sim-City (?) and put this scenario into play for a wild result. Probably a better indicator than any living economist would be willing to face today.

Regards, Bob Mangus

* * *

-- Robert Mangus (rmangus@hotmail.com), June 02, 1999.

Bob,

sorry, I guess I didn't phrase that as well as I might have - what I was looking for was some study related to small and medium sized communities - looking at what percentage of the area's businesses have to remain solvent in order to keep the community from going under...something like that...

Arlin

-- Arlin H. Adams (ahadams@ix.netcom.com), June 02, 1999.

Go up to your local shopping center/mall, and count all of the stores that you don't really need. These are the guys that will be gone.

-- dave (wootendave@hotmail.com), June 02, 1999.

Arlin, I don't think you can do much better than David A. Shannon's The Great Depression (Englewood Cliffs, NJ: Prentice-Hall, 1960). (No ISBN) I found it at a used bookstore a few weeks ago--you might call around. Here's the blurb:

A Nation's Nightmare: An Eye-witnesss Account

David A. Shannon's The Great Depression is a journal of human experience during those times: a carefully assembled collection of contemporary articles and news accounts by outstanding writers. Here are vivid documents--case histories--of bands of hungry children roaming the country like scavengers; of men and women seeking jobs in Russia; of shantytowns in New York's Central Park; of hunger riots; of the "lucky" who kept their jobs.

This is a side of the Depression that we must see. Editor Shannon states in his introduction to this absorbing book, ". . . the present is only the cutting edge of the recent past. . . if one would understand the United States today, he must know the Great Depression."

Arlin, there are accounts of small medium and large towns. I don't know that it contains the exact information you want, but it seemed towns did pretty well until the local bank(s) failed. Diversified economies might have held out as long as two years or a bit more after the crash, single economy towns plunged badly almost immediately.

Hre's a bit more from the intro: ". . . and even in 1940 about seven and one-half million workers were unemployed, roughly fourteen percent of the civilian labor force."

-- Old Git (anon@spamproblems.com), June 02, 1999.

In mid-1980s, many small steel mill towns lost the source of the towns primary employer. One was Monesson, Pennsylvania. In Monesson, Wheeling Pittsburgh Steel was the primary employer. When the mill shut down, the entire community suffered for many years - not just the mill workers that lost their jobs but also the service personnel that worked at gas stations, convenience stores, local hardware etc. The community has never completely recovered. What recovery has been made was done largely by the younger ones moving out and finding employment elsewhere, the elder ones retiring or some going permanently on welfare. With Y2K, I suspect the recovery coulb be more protracted because the safety net, the opportunity elsewhere and the help from state government may all be NIL, late or inadequate.

-- Bill P (porterwn@one.net), June 02, 1999.

Remember the prepare as if for a storm idea? (e.g., 3 days?) After Hurricane Iniki (219 mph winds)...7 years ago, we are still pulling out of the doldrums. When I arrived here (5 years ago), small business were still very (no, make that EXTREMELY)depressed. Many restaurants, gas stations, and similar businesses had gone under. Those that remained were working at reduced capacity. High unemployment, youngsters (including mine) moving off island to find work, people working two or more jobs to try to make ends meet. Yeah, the tourists started coming back within a year, but the infrastructure wasn't there any more...restuarants had already gone out of business, hotels were closed and had laid off staff.

Many of the small businesses never reopened. New ones have started (and some failed)...so the recovery progresses, slowly. I would expect that the recovery from Y2K will progress in much the same way, slowly.

-- Mad Monk (madmonk@hawaiian.net), June 02, 1999.

Mad, I've often wondered when told to prepare as if for a storm, three days, if they meant a three day storm... It makes much more sense to me. Ask people in OKC if three days of prep are sufficient for just a few minutes long storm. Linda Newbiebutnodummie would have something to say on that one, I'm sure!

-- Tricia the Canuck (tricia_canuck@hotmail.com), June 03, 1999.

Arlin:

The book Old Git is referring to, The Great Depression by David Shannon, can be found at www.amazon.com - it's $20.

-- Scarlett (creolady@aol.com), June 03, 1999.

Thanks, Scarlett. It's certainly worth $20, but still check used places first--mine was $2 and it's in close to very good condition. Arlin, almost forgot--Greybear's read this book too and he thinks highly of it as well.

-- Old Git (anon@spamproblems.com), June 03, 1999.

Arlin, Not a strict answer but just some information.Most small businesses can only survive a max of 3 months without income.Usually it is shorter than that.

-- Chris (griffen@globalnet.co.uk), June 03, 1999.

Debt load or bad debt are less important than other factors. Cash flow, capital availability, employment, savings and a trend toward deflation are the factors of greater importance in economic downturns.

The problems are:

Cash flow reduction to companies whose product/service is derived from consumer or business discretionary spending.

Low savings rates and cash reserves reduce capital availabilty - banks have less money to lend. If the well is going dry quickly, we ration every drop of life-sustaining water (cash), dig a new well or move to somewhere else. We move our money geogaphically and leave the previous oasis. (Think of the businesses today along Rt1 versus those along Interstate 95).

As long as we have somewhere to move to, things keep working. Redirecting or rebuilding the economy of an area requires capital from savings. That's why it's called "savings." If you don't have sufficient savings to rebuild you must move your business/yourself or you're destined to be a statistic - withering in a failed economic area that you created by not saving.

If there's a macro downturn and fast macro depletion of meager savings or resources...no one has anywhere to move to.

Japan is an example. The 8 year recession and massive debts have failed to sink Japan. The massive savings (approx. $150,000 per family) and corporate cash resources have been enough (so far) to keep it afloat. It remains to be seen if macro economic changes can be implemented before the wells run dry. I think the U.S., with it's meager savings rate, will have great difficulty weathering anything less than a hiccup of macro downturn.

Disclaimer: The information above is the opinion of the author and is offered without expressed or implied warranty. It is understood that your opinion will most likely differ from the above.

-- PNG (png@gol.com), June 03, 1999.