Just about nobody is happy about the current governmental shutdown—not least the federal employees sent home without pay. But businesses, too, may be wondering how they’ll fare as the shutdown continues with no end in sight.
Most companies rely on government activities for at least part of their profits, explains Russell Walker, a clinical associate professor of managerial economics and decision sciences at the Kellogg School. For these companies, it may not quite be business as usual. Firms relying on, say, the Department of Agriculture to collect and disseminate crop estimates might find themselves short on valuable information. And even so-called “essential” government services may not continue at full speed. “Even though we’ve been told that critical operations will remain in place, I would imagine that permits, licenses, things like that are going to experience some delay. I would also imagine there are mechanisms to expedite that: generally they involve some amount of money,” says Walker. “Getting to the front of the line has a special price.”
In the short term, companies might identify which processes rely in some way on the actions of the federal government. They should also ask themselves some tough questions, says Walker: “Do I need these services? Can I get these services elsewhere? And even if it’s something as seemingly critical as duties or customs examination, can I buy domestically instead?”
Harder to work around may be the impact of all those lost wages on an already struggling local economy. Furloughed employees may cut back on family outings or other discretionary spending, leaving local businesses in the lurch. “Short of finding a replacement for a customer,” says Walker, “there’s no real alternative.”
It is probable that, given the ominous threat of a default, the current shutdown will be short-lived. But long-term, should the political drama continue, businesses might consider protecting themselves from the risk of subsequent government budget battles.
Firms may be reluctant to service only governmental agencies, or restrict themselves to only geographic locations ripe with government work. After all, when you open a store in a given location, you’re taking an economic position on that economy. “If the local economy is dominated by employees from federal agencies, then you’re ‘long’ that business,” says Walker. “And if that business is now subject to this volatility in the political process, you might think about that. You might think, maybe there are other communities I’d like to have retail establishments in, simply wanting to diversify where the revenues come from.”
Alternatively, firms might choose to exercise a political option. “Who decides what’s a critical process in the federal government?” asks Walker. Industries may argue for their own essentiality—and persuade their representatives to make it official, he continues. “I think you may see some industries that are impacted ask for some kind of protection.”
Photo credit: Eric Drost