American business has plenty to worry about. In 2002 the Dow fell 17.3%, corporate scandals rocked the world, the dollar depreciated, and consumer confidence dwindled to its lowest point in nearly a decade. Security threats, some of them hard to defend against, are breaking out all over.
In this kind of atmosphere, it is important to keep a clear head. Whether or not war on Iraq is good foreign policy, it does not pose a fundamental threat to a healthy U.S. economy. We have been living through a kind of storm before the calm; the turbulence leading up to war is likely to have proved more difficult and expensive than war itself.
Walter Russell Mead is a senior fellow at the Council of Foreign Relations. Mead is the author of Mortal Splendor: The American Empire in Transition (Houghton Mifflin, 1987) and Special Providence: American Foreign Policy and How It Changed the World (Knopf, 2001) , winner of one of the world's top prizes for foreign policy writing, the Lionel Gelber Prize. Daniel Dolgin assisted in the research of this article.
Winners and Losers
Companies that supply the Pentagon are in luck. Not so, heavy consumers of energy.
War often provides a springboard for growing companies, particularly those dealing with emerging technology that might prove useful on the battlefield. "Money is flowing," says John Williams, spokesman for the National Defense Industrial Association. Williams's organization lobbies Congress and helps companies navigate the convoluted bidding process that goes along with government contracts. One such company is HemCon, a start-up based in suburban Portland, Oreg., which has developed a line of bandages that can control hemorrhaging almost immediately. Its first big test could come on the frontlines in Iraq. The four-inch-square bandages are made from chitosan, a byproduct of shrimp shells that clings to the wound and causes red blood cells to clot rapidly. As it stands, today's battlefield medics carry bandages that are not so different from those of their Civil War counterparts. While the standard gauze dressings can absorb blood from an open wound, finding a way to actually stop the bleeding has long frustrated the military.
Since its founding in June 2001, HemCon has inked deals with the Department of Defense totaling about $800,000. More recently, a Defense Department spending bill authorized $2.45 million for additional research in the area and $2.8 million to buy bandages -- funds likely to go to HemCon. The company's 11 employees scrambled to complete the military's initial order of 5,000 bandages, and HemCon CEO Jim Hensel expects that the breakneck pace will only continue in the coming months.
BUILDING A BETTER BANDAGE: Oregon-based HemCon is working in partnership with the Department of Defense to make medical bandages that promote blood clotting. The company has experienced a surge in activity, in part because of the Iraq situation.
The pliable HemCon bandages, made to survive the subzero temperatures of the Arctic or the scorching heat of the Sahara Desert, were invented at the Oregon Medical Laser Center through a U.S. Army research grant. Kenton Gregory, a medical doctor and the center's director, helped develop the bandage; he eventually founded HemCon. He says that while the military has been searching for a new and improved bandage for years, the nation's latest conflict is forcing his company into overdrive. "We've made some business decisions very rapidly because of the situation with Iraq," says Gregory.
For example, HemCon decided to open an 11,000-square-foot facility that includes office space, labs, and a manufacturing plant. Should orders continue to roll in, Hensel says, the company would be forced to further expand its payroll and facilities. HemCon currently outsources one-third of its manufacturing operation and is looking for a distributor to help reach more customers.
Outfitting the military remains HemCon's primary focus for now, but Hensel and Gregory are eager to test the waters of other, potentially more profitable markets. With newfound emphasis on preparedness following September 11, HemCon bandages, which will retail for more than $100 each, could make their way into the hands of various homeland security agencies, along with paramedics and emergency workers. And because the bandages are absorbed by the body, the hope is that one day they will be used by surgeons in the operating room to stop internal bleeding.
Rod Kurtz
The uncertainty of the oil market is likely to continue to cause short-term pain for manufacturers, the trucking industry, and other heavy users of energy.
Most small trucking companies juggle keeping their debt at a minimum and operating on the slimmest of margins. Dwight Warner, CEO of Warner Supply, a trucking company based in St. George, Utah, says fuel is his largest budgetary item; he pays roughly $1.45 per gallon for the 27 trucks he runs daily to cities in the Midwest, Florida, and on the West Coast. "A two-cent swing costs me $1,600 a month," he says. "Ten cents costs me $16,000 a month, and we are a small company."
OIL SHOCK?: Like many trucking companies, Warner Supply of St. George, Utah, is wary of the short-term oil price hikes that come with conflict in the Persian Gulf.
Between war in Iraq and the Venezuelan oil crisis, Warner isn't optimistic about his short-term prospects. During the Gulf War, Warner said, his business was stable because there were few surprises: His customers knew what to expect and were less skittish about spending. Now, because war in Iraq could bring more terrorist attacks to the United States, that's changed.
Insurance costs in the trucking industry have more than doubled, and costly security measures have yet to be implemented. Warner says he doles out $17,000 monthly for insurance and isn't sure how far he can stretch to cover all costs. The company is already about $1 million in debt, with about $4 million in annual revenue.
"In our industry we've lost 3,000 to 3,500 trucking companies in the last two years," says David Owen, president of the Tennessee-based National Association of Small Trucking Companies. "That's not one guy with a truck. There used to be a driver shortage. Now there's going to be a truck shortage."
Nicole Gull
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