Gravitational Forces Helping Heartland

“Places like Mississippi are going to benefit from what I call the Cheap Revolution. There are gravitational forces in place that are going to help the heartland,” was how Rich Karlgaard, publisher of Forbes Magazine started his explanation of why the pendulum is swinging back to the heartland from the coasts. He cited examples of Google, which has a 10:1 cost advantage; India, which offers medical operations at $1500 compared to $75,000 in Europe with a mortality rate that is 50% lower; the VOIP company Skype, which eBay purchased for $2.6 billion; and Max Oshman, a 17 year old high school junior in NJ who has put together a multi-million dollar web design business that is 90% less expensive than competitors because it is based on a global model.

“Trends in the past have helped the coastal areas, but they are driving their costs up to an unsustainable level. When I moved to Palo Alto from Bismarck, ND I was astonished that houses were twice as expensive as in ND. Then in the late 70s it went to 4:1 and when oil prices declined in the 1980s it went to 10 or 15:1.” I had used an example in my talk of a house listed in the Laurel Leader-Call newspaper. It was a 4 BR, 3 Bath on 6.5 acres of land and included 2 fireplaces and a new roof for $160,000. Rich told the audience, “That same house in Palo Alto on a one-quarter acre lot would sell for $2.3 million.”

“Products like cell phones, the internet, broadband and cable TV have narrowed the information and technology gap to nothing. It is the greatest arbitrage opportunity in the history of the USA. The problem is that it isn’t being reported on by the national media because the press is very coastal, lazy and they aren’t very good at math. They wouldn’t know how to find out about what a great company Howard Industries is.” Howard Industries was the local MS company that I blogged on yesterday.

Karlgaard talked about entrepreneurial companies like Cirrus Aviation, which is only six years old but is already outselling Cessna by a 4:1 margin. The company is located in Duluth, MN.

“Greg Gianforte is in my book. He has created the largest company in Bozeman with over 500 jobs paying $60,000 on average in less than 10 years. He recruits back the grads from Montana State with the website www.iloveithere.com. He offers them skiing in the winter and trout fishing in the summer.”

Karlgaard and I are on the same wave length with what we see happening in the heartland of the USA. It is going to be a wild and interesting ride.