THE DARKEST HOUR IS BEFORE DAWN

By: Greg Kaza

Published in The Arkansas Democrat-Gazette on September 6, 2009

LITTLE ROCK — One lesson the business cycle teaches is that recession's darkness disappears in the bright light of economic expansion. Panic and fear surrender to courage and optimism as the economy stops shrinking and resumes its normal historical growth pattern. There have been 33 U.S. recessions since the mid-19th Century, according to the Cambridge, Mass.-based National Bureau of Economic Research. Every recession except the current downturn, which started in December 2007, later ended, and this recession's darkness will also succumb to light when jobs, income, production and sales expand again. The entrepreneur, a risk-taker by nature, is uniquely qualified to emerge in such a climate.

A significant number of Arkansas' best-known entrepreneurs started their businesses in NBER-defined recessions, a little-known fact in this era of multiple speculative bubbles that started in the mid-1990s. Arkansas, historically, is a rural state, and all of these businesses were launched earlier last century in small towns of less than 10,000 population. These Arkansas entrepreneurs, optimists by nature, foresaw the future's light at a time when many saw only darkness around them. They shepherded their savings, oftentimes built painstakingly within families over generations to start businesses that grew into enterprises providing paychecks to tens of thousands of Arkansans. These private sector histories should not be overlooked in the current climate, with its elevated embrace of government policy solutions.

Harvard economist Benjamin Anderson once termed the Panic of 1907 as "almost purely a money panic." The recession was so severe it led to establishment of the Federal Reserve System. That year, an Arkansas entrepreneur, Charles H. Murphy Sr., started accumulating pine wood acreage for investment purposes. His actions led to the creation of Murphy Oil and, later, Deltic Timber in El Dorado.

Murphy's website explains: "[T]he Company's roots go back to a lumber and banking business in South Arkansas and, more directly, to 1907, when the first oil production was established in the Caddo Field in North Louisiana." Deltic's site notes 1907 "when C.H. Murphy, Sr. began investing in timberland and built a sawmill in south Arkansas."

A severe 18-month recession (1920-21) occurred after the first world war. It was the worst recession since 1907 and is remembered for its price deflation. Baldor Electric, now operating out of Fort Smith, opened in St. Louis, Missouri, in March 1920.

The Great Depression (1929-33), also known for deflation, lasted longer than any other 20th Century contraction. Tyson Foods of Springdale traces its origins to the Depression. Founder John Tyson, in 1931, moved to Springdale with his wife and young son, Don. Tyson earned a living hauling hay, fruit and chickens for local growers.

Dillard's of Little Rock opened its first retail store in Nashville, Arkansas, in February 1938, in the 1937-38 recession. Founder William Dillard was born in nearby Mineral Springs. Scholar Leon J. Rosenberg, in his 1988 book Dillard's: The First Fifty Years, explained the small-town strategy that launched a retail empire:

"Opening the store in the county seat of Nashville instead of his hometown was a crucial early business decision for Dillard. Nashville had a population of 3,500 people, about four times the size of Mineral Springs, but was close enough to give him the advantage of the family's favorable name recognition. Nashville was growing much faster than Mineral Springs and was popular with farmers in the county who came to town on Saturdays for supplies and entertainment. . . . On Saturdays he would aim for $1,000 in sales and could usually achieve that goal."

Small towns also played a role in Arkansas's greatest retail story: Bentonville's Wal-Mart. Founder Sam Walton opened his first retail outlet in Newport on Sept. 1, 1945, late in the eight-month recession around the end of World War II. John Huey's 1992 book Made In America, written with Walton, included the following anecdote from his wife, Helen:

"Sam, we've been married two years and we've moved sixteen times. Now, I'll go with you any place you want so long as you don't ask me to live in a big city. Ten thousand people is enough for me."

Huey wrote, "So any town with a population over 10,000 was off-limits to the Walton's." Sam Walton recalled Newport, a cotton and railroad town in the eastern Arkansas Delta: "Our store was a typical old variety store, 50 feet wide and 100 feet deep, facing Front Street, in the heart of town, looking out on the railroad tracks." Wal-Mart went public on Oct. 1, 1970, during the 1969-70 recession, and expanded its workforce in all six subsequent recessions (1973-75, 1980, 1981-82, 1990-91, 2001, 2007-).

Trucker J.B. Hunt developed his business plan during the 1960-61 recession but his life was shaped by the Great Depression. Scholar Marvin Schwartz, in his 1992 book J.B. Hunt: The Long Haul to Success, noted life in Cleburne County, Hunt's home, followed traditional patterns. There was work logging woods and in sawmills. Fields could be rented for sharecropping. "For country people," Schwartz wrote, "the Depression did not dramatically affect their basic sustenance of food and shelter, most of which they provided for themselves."

Hunt told Schwartz:

"We were brought up in the Depression. It had always been there, so we didn't know it was bad times. Father thought everything had to be done by good, hard work. We were all workaholics. It was all we knew."

Hunt, in the late 1950s, was assigned a new trucking route through Stuttgart. His national firm started in 1961.

Entrepreneurs like Murphy, Tyson, Dillard, Walton and Hunt are an integral part of market-based economies. They serve consumers, create jobs and generate income. They are optimists whose vision allows them to see light in the midst of economic darkness. One-third of Arkansas's 18 public companies started in a recession. New entrepreneurs started businesses during the current recession. One may emerge as an entrepreneurial legend if we don't create new regulatory barriers to impede their success.

Greg Kaza is executive director of the Arkansas Policy Foundation in Little Rock.

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