Running Alabama Like A Business

He trained for his job by lifting his barbell company to $43 million in sales.

 

What would happen if you ran a government like a small company? In November 1978, voters in Alabama decided they were willing to find out. In one of the most lopsided elections in the state's history, they swept a 44-year-old athletic equipment entrepreneur into the governor's office vacated by the retirment of George Wallace.

Forrest "Fob" James, Jr., the first businessman to run the state in 25 years, soon made it clear that his small business philosophy was much more than campaign rhetoric. His platform had emphasized fiscal conservatism and sound management practices, and to the bewilderment of many Alabamans, James proceeded to put these principles to work in every corner of state government. He proposed higher taxes and slashed spending for well-entrenched programs. He refused to use patronage to reward supporters. He put a freeze on hiring, laid off state employees, and tried to reduce the number of state holidays from 16 to 12.

James also took to the road to recruit more private investment in the state, with substantial success. He has become one of Alabama's most effective salesmen, in part because he knows the real concerns of other corporate managers, and in part because Alabama under James has taken an aggressive approach to economic development.

Strong management and hard selling come naturally to James. A former All-American halfback of Auburn University, James founded a small barbell manufacturing company in 1962 with $30,000 in borrowed capital. By 1977, when James merged his Diversified Products Corp. into Liggett Group, the company had become a major force in the recreational industry; sales had reached $43 million and profits were a healthy $2.5 million. Diversified's headquarters in Opelika, Ala., had become known as the "Barbell Capital of the World."

Yet the transition from the Barbell Capital to the capital of Alabama in Montgomery has sometimes been a difficult one for James. As governor, James is aware he plays a role rich in symbolism, and at times his instincts are masterful. James took his oath of office on the same Bible that Jefferson Davis used when he was sworn in as president of the Confederacy, then called for "a new beginning free from racism and discrimination on this, the birthday of Martin Luther King, Jr." But James is rarely willing to make political gestures at the expense of good management. His relationship with the state legislature has sometimes been less than cordial, and James swiftly earned the enmity of state employees with his well-publicized efforts to cut state spending. Bumper stickers began to appear with the slogan, "I voted for Fob and lost my job."

"You can't do what James believes has to be done," says Rex Rainer, executive vice-president at Auburn University on leave to serve as special assistant to James, "unless you're willing, to be a one-term governor, because you're going to estrange everyone in the state."

To see how James views the job of running a small state like a small business, INC. recently sent associate editor John Halbrooks to interview the governor in Montgomery. He found James working in the old servants' quarters behind the Governor's mansion, which James has renovated into offices. The interview took place on Mardi Gras, one of the state holidays James has tried to eliminate in the interest of greater productivity. For Fob James, Fat Tuesday is just another 15-hour workday in a long effort to bring discipline to government.

INC: You're fond of using expressions like "the bottom line," and you refer to yourself as "chief executive officer" of Alabama. What are the insights about governing a state that you brought from the business world?

James: In the go-go years of the '60s, everyone got caught up in the idea that growth was good in itself. Businessmen and bankers forgot how to read a balance sheet. At Diversified, we were no different. In 1967 we discovered we were overextended. We had to cut several unprofitable lines and close plants. We went from $20 million in sales to $14 million before we turned things around. For a time we actually had a negative net worth and a negative working capital on our books.

Fortunately, our customers had confidence in us and stuck with us. What we learned was fairly simple: Rapid growth can outstrip your ability to manage. A rising creek covers a lot of stumps, but they're still there wne the waters recede.

Unfortunately, the cost of those mistakes were borne by people who weren't at fault. I recall a plant up in West Haven, Conn., we had to close. I had to let go several vice-presidents and a lot of employees. It was very unfair for management to allow that to happen. And only one person was responsible: me.

Government is the same. When it spends more than it takes in, result is inflation. And inflation is the cruelest condition government can impose on people, particularly the poor. Expanding services, deficit spending, and Congress's refusal to say no have led to the kind of inflation we have today.

So, to come a long way round to answering your question, my insights from the business world are based on a belief in the sacredness of the tax dollar. I think it's a very precious dollar. It is a fiduciary trust, every penny of it.

INC: When and why did you decide to run for governor?

James: I decided to run in January 1977, and it was the literacy issue that kindled my interest. Youngsters were coming into my plant and they couldn't fill out application forms for jobs. I still think the most important problem facing the state today is functional illiteracy. If a child goes into the sixth grade and cannot read, write, add, or subtract, we lose him. And chances are we lose him forever. That means he isn't going to be able to train himself to earn a living. He'll become a pawn of government or some political movement because he will be incapable of making reasoned judgments.

INC: So you declared your "War on Illiteracy"?

James: Yes. We instituted state wide testing in grades one through six. We began testing the performance of teachers, too. We formed teams of the best teachers and administrators in the state and sent them into problem areas.

In the second year of testing, we met the national reading average for the first time in Alabama history. We still have a long way to go, but the determination of the local school boards and local citizens not to settle for anything less than good education is where it starts.

INC: What kind of financial problems did you discover in trying to manage government more effectively?

James: The major cause of all Alabama's financial problems is a tax system here, going back 50 years, that earmarks 88% of all state revenues. Year in and year out, the same bureaucracies receive funds no matter how inefficient they become and no matter how badly that money may be needed for other purposes. Now, if I told you you had to spend your paycheck today the same way you spent it 10 years ago, what would you say? It's absolutely ludicrous! It's crazy!

 1 | 2  NEXT