State of the Union address ignores scale of construction industry collapse

Widespread economic devastation continues

Every structural engineer, surveyor, foundation engineer, electrical engineer, landscape architect, real estate developer, general contractor and realtor that this architect has ever worked with in his entire career is out of business. All architecture and planning firms that he worked for prior to going into private practice are out of business. Almost all of the restaurants and retail stores that this architect designed are out of business. All of the banks that this architect maintained checking accounts with between 1993 and 2010 are no longer in business. They were forcibly closed by federal bank regulators.

Approximately, 25 million members of the construction industry were owners of professional firms, business executives, independent contractors or independent real estate professionals when the economy began collapsing in 2007. They were NEVER counted among the unemployed because they were not eligible for unemployment compensation checks. Most of lost their health insurance, homes and their business property. Many also lost their spouses or even committed suicide.

These vital members of America’s economy were not responsible for the Wall Street Meltdown. They were its first and primary victims. While Congress, the Bush Administration and then the Obama Administration were willing to saddle future generations of Americans with additional trillions of dollars of debt in order to bail out a few major financial institutions, untold millions of its citizens loss their means of making an income and the community banks upon whom they depended for daily business operations. The most economically lethal impact was the elimination of middle class entrepreneurs, the vertebrae of a free market economy.

The victims did not present a unified front to those that govern the nation. If living in Europe or Latin America they would have staged mass demonstrations in the streets. Attention from the media would have forced policy makers to seriously address the anger of the Middle Class. In the United States, though, the victims continued depending on partisan politics. National elections devolved into football games which measured the skill of opponents in waging personal attacks, fomenting irrelevant issues and making insincere promises. The television industry generally encouraged these extraneous political battles because they brought in advertising revenue. It was only within the new internet news media, where America’s dwindling Middle Class could shout out its real concerns.

Public sector infrastructure

In his State of the Union address on January 12, 2013, President Obama proposed a $50 billion investment by the federal government into local and regional infrastructure improvements. Obama justified these expenditures as a means of making the United States more economically competitive in the in the global marketplace and as major “job creators.”

Politicians from both national parties can usually agree to apply borrowed money or taxes to public infrastructure construction. These include such activities as rapid transit, highway, airport, water distribution and sewage treatment projects. They are generally supported by citizens because they have a widely visible impact. They are popular with state and local politicians because they provide an opportunity to reward major donors. These projects are also generally supported by unions because they create large blocks of employment for their members.

Large scale, federally funded, infrastructure projects have been found by several university studies to have little impact on the “mainstream” of the construction industry. Typically, only exceptionally large engineering and general contractors are primary participants in federally funded projects. Many of these companies are the same international corporations that benefited most from construction projects funded by the Department of Defense during the Bush Administration.

The Obama Administration invested about $36 billion dollars into such infrastructure projects during its first term. Serious infrastructure problems were improved in several major metropolitan cities. It can be argued that the recession would have been much worse in these specific target areas without the expenditures. However, overall they had little impact on medium to small members of the construction industry. Almost all the architecture, engineering and real estate offices that closed in 2007, 2008 and 2009 did not reopen. Banks still refused to provide construction loans to middle class entrepreneurs.

Private sector infrastructure

Public statements by national politicians suggest that they still do not understand that the middle class members of the construction industry are generally not capable of participating in a rebound. In economic terms, they have lost the means of production. It is not a simple matter of Joe Engineer, Frank Architect or Selena Realtor hiring back employees when the employees of the International Sewage Treatment Plan Corporation go back to work to rebuild the aging trunk sewers of Megapolis. Their offices are gone. Their furniture is gone. Their computers and professional references are gone. Their credit ratings are abysmal.

The construction industry was first stressed in 2006 and 2007 by the massive inflation of building material prices caused by the rebuilding after Hurricane Katrina and the construction of many military bases in the Middle East. Simultaneously $4 a gallon gasoline quickly caused many restaurants, small shops and tourist oriented establishments to close.

In 2007, banks suddenly refused to make any construction loans to medium and small sized business entities and “called in” relatively small loans that were sound investments. These Middle Class developers were instantly thrown into bankruptcy. Architects could not get the go ahead from clients to proceed from conceptual drawings to construction documents. Medium and small general contractors could not get construction financing to bid on economic stimulus projects funded by the Obama Administration. The large contractors got richer others in the industry sunk below poverty level.

When their work load dropped, owners of small and medium-sized design professional firms and construction companies often took out personal loans to pay the salaries of their employees. This strategy made the situation seem to be far less serious to federal bureaucrats than it really was. In return, the construction industry believed the Bush Administration’s promise that this economic stress was merely a temporary burp. The promise was based on illusion. Financial regulators in the Bush Administration had no clue that Wall Street was at the edge of an economic precipice.

Beginning in 2008 banks began seizing the physical assets of design firms and real estate offices because of defaulted loans. Deputies and eviction companies arrived without warning at these offices to remove all contents, sometimes even college diplomas. Signatories to personal loans returned home to find that their valuables had also been removed from their homes by deputies and bank representatives. Their personal loans had also been secured by personal assets. Because there was no market for the mounds of bank-seized furniture, computers, books and equipment, these seized assets often ended up in land fills. It had taken decades for these design professionals to build up the “private infrastructure” for their practices. A magistrate's quick signature was sufficient to destroy this infrastructure.

In a matter of a few months the design and real estate professionals who had lost their businesses, lost their homes. Those that are still alive are now living wherever they can, in trailers, public housing, relatives’ basements, tents or in shanty towns. Many developed health problems after losing their medical insurance, eventually dying of stress-related diseases.

President Obama’s speech stressed his desire to reinvigorate the Middle Class. Even if his administration is able to convince members of both parties to go along with the proposed programs, the probable impact of these expenditures will be minimal on the vast majority of those people working in the construction and real estate industry at the beginning of 2007. Unless a solution is found to act as anti-venom to the lethal snake bite caused by lax government regulation and corruption on Wall Street, the construction industry will remain the realm of a handful of major players. A chain is only as strong as its weakest link.

Those readers who wish to ask Richard Thornton questions about architecture, urban planning or Native American history may email him at Native Question@aol.com .