When Standard & Poor’s officially downgraded the U.S. credit rating on Friday, several conversations ran through my mind. One was with Vivek Gupta, managing director at Texas ProFab, a Dallas-area fabricator, who told me how conservative the company’s balance sheet was, and how the small firm built relationships with larger suppliers by always paying early. The small job shop perhaps didn’t order as much metal as larger manufacturers did, but it always paid on time.
I also recalled Jeff Cupples, vice president of engineering and estimating at Cupples J&J Co., a Jackson, Tenn., contract fabricator. As Cupples explained, "My father [company founder James Cupples] has not borrowed anything since 1979,” when the company moved to its current location in Jackson. “He borrowed $50,000 to build the building. It drove him crazy. He doesn't like to owe anybody. He's a child of the Depression; things could always get worse. So within a few years he paid for the building, and he hasn't borrowed anything since.”
I also thought of Bob Kamphuis, CEO of Mayville Engineering Co. (MEC) in Mayville, Wis. In 2005 the company’s balance sheet was far from perfect. But today is a different story. The balance sheet is in order, and the compay, a behemoth of a contract fabricator with more than 1,000 employees, often agrees to pay suppliers early to get a better deal.
Then there’s the U.S. government, which creates ridiculous budgets with ridiculous deficits and undergoes a ridiculous dog and pony show about spending at the wrong time--after the politicians already agreed to spend the money in the first place. As Michael Kinsley of Bloomberg Business Week aptly put it, spending cuttings should be part of the budget-making process, not a vote on the debt ceiling. You don’t mess with the debt ceiling, because you honor your debts.
Analysts are saying that S&P’s downgrade basically is a judgment on our political process, and I think it’s understandable. Spending should be and is political, but whether or not we pay the national debt shouldn’t be a matter of debate. (That said, I don’t think S&P should have the power it does--but because it does have this power, I think it should wield it a bit more carefully. As I type this, all of us with 401(k)s are losing money.)
What makes me so furious is that I talk with so many good people who run good manufacturing companies, some of whom have turned around operations from the brink of bankruptcy. They’ve managed so well because they adapt their businesses to meet reality, providing what the market demands. The U.S. government has yet to adapt to reality. Until it does, I think all of us will be looking at our politicians and shaking our heads, seeing the ridiculousness of it all.