The Hamilton Plan:

A Ten Point Program to Develop Small and Mid-Size Enterprise (SME) Manufactures

Over the Labor Day Weekend Sum2 announced The Hamilton Plan. The Hamilton Plan is a ten point program to foster the development of manufacturing in the United States by tapping the entrepreneurial energy of small and mid-size enterprises (SME). The plan's 10 points address sustainable business models, GRC best practices, capital formation initiatives, SME banking, labor union stakeholder empowerment, association syndication, cooperative formation, support for public education and cooperative learning.

This summer’s banking and credit crisis and the dramatic slowing of our economy’s growth brought to light some startling realizations of the systemic and structural weakness of the US economy. This was starkly brought home when some of our leading banking and capital market institutions were required to tap Sovereign Wealth Funds (SWF) to bolster liquidity and maintain capital adequacy solvency. SWF are massive pools of capital created by a nation’s excessive wealth that are the result of an imbalance of trade with other nations.

It would seem that the United States economy is incapable of generating sufficient economic capital to maintain the liquidity of the banking system. True enough Secretary Paulson and Chairman Bernanke were able to pump sufficient liquidity into the system by lowering interest rates, allowing investment banks to access the overnight discount window, arranging shot gun weddings of collapsing investment bank and tax rebates for consumers but these were temporary fixes to deep structural problems.

In contrast to our summer of economic malaise, the celebrated Beijing Olympic Games showcased a society that is allocating its capital surpluses derived from manufacturing to build infrastructure that will position itself for a century of growth and prosperity. As a person who has never travelled to China, I was flabbergasted and astonished as I watched the state of the art buildings, compelling architecture and a thoroughly modernist urban landscape of Beijing unfold as the marathon runners ran 26 miles through a city thoroughly committed to the future.

The City of Dubai also provides a constructive example as to how the massive transfer of western wealth is being deployed to such startling effect. The miraculous metropolis of the UAE is a leading light of global modernity. Dubai is leveraging the developed world’s dependence on oil and is repositioning itself to continue to prosper in a post fossil fuel dependent world.

Also consider the military and political consequences of the reemergence of Russia as a world power. Russia’s deft ability to drive a wedge between the United States and its European partners and NATO allies speaks volumes about the rapidly changing global political landscape and raises pressing issues concerning America’s energy independence, manufacturing capacity and industrial readiness.

The manufacturing might of the People’s Republic of China, the accumulation of petro dollars in the Gulf States, the natural gas reserves of Russia and other resource rich nations pose a great economic challenge to the United States. Their balance of trade surpluses are tipping the tide of growth to developing nations at the expense of western nations that remain mired in debt, dependent on foreign energy resources and have outsourced much of its manufacturing infrastructure to foreign nations.

Many of the economic, political and cultural challenges confronting the United States can be traced back to the dismantling of our industrial and manufacturing base. Since the 1980's America's economic infrastructure has undergone a dramatic change. The evolution of the US economy to service oriented businesses has seriously eroded the manufacturing capabilities and industrial capacity of our country. This has produced a decline of higher wage paying jobs, the disincentive to develop innovative manufacturing methods and practices; deteriorating support infrastructure, industrial Brownfield abandonment and the impairment of ancillary support businesses.

Small Mid-Size Enterprises (SMEs)

The Hamilton Plan, named after the first Secretary of the Treasury of the United States, proposes a ten point program to develop small and mid-size enterprise (SME) manufactures. The Hamilton Plan invites business owners and executives, industry associations, chambers of commerce, banks, capital market participants, labor unions, academia, non-profit organizations and governmental institutions to join forces in a concerted effort to support the reestablishment of the manufacturing infrastructure of the United States.

It's in the vital national interest for institutions representing business, labor, communities and government to cooperate to foster optimal conditions to incubate and develop SME manufactures. SMEs are a natural strength of the US economy. The SME segment is the largest most vibrant sector of the economy and by combining the entrepreneurial drive and creative energy of SME's with the pressing need for innovative manufactures; America can reestablish its ascendancy as a preeminent power in the global economy. The Hamilton Plan is designed to provide incentives and encourage the formation of support clusters to develop SME manufacturing.

The Hamilton Plan:

Adoption of World Business Council Standards for Sustainable Business Model

Establish Incubators for Targeted Growth Industries

Adopt Sound Governance, Risk, Compliance Practices (GRC)

Formation of SME Development Bank / Private Equity Capital Formation Initiatives

Partnership Lyceums for Government / Business / Academic Institutions

Labor Unions as Preferred Stakeholder / Association Syndication Unions

Establish Cooperatives for Technology / Licensing / Commodity / Energy

Superfund for Progressive Tax Code / Universal Health & Benefits / Infrastructure/ Remediation and Reclamation

Expand Public Education Funding & SME COOP Program

Support Millennium Development Goals

Capital Formation Key to Success

The Plan in its entirety is designed to respond to the compounding economic and political crisis that is confronting the United States. The credit crisis, energy dependence, industrial stasis, trade deficits, geo-political instabilities, aging infrastructure and climate change are the result of long term systemic problems that government and industry has failed to address effectively. The Hamilton Plan advocates the adoption of the program to squarely address these pressing issues with the full understanding that it will require the concerted cooperation of all stakeholders to assure the continued development, security and prosperity of America.

As with all programs The Hamilton Plan requires concerted focus of investment capital to fund development and to make sure that assets are allocated to channels that will assure optimal returns and that equity participation of stakeholders is protected and rewarded. The establishment of an SME Development Bank is an institution that can help to focus, manage and administer capital formation initiatives to incubate and develop SME manufactures.

SME Development Bank (SDB)

The SDB would be chartered to assure that capital is deployed to meet appropriate program projects and assure effective stewardship of shareholders capital. The SDB would be the repository for economic and regulatory capital. It would serve as a fiduciary to distribute capital through local community banking channels. SDB governance would assure that program objectives, ownership equity, credit requirements, capital allocations, shareholder rights and income distributions are made to SDB shareholders.

Shareholders in the SDB would be institutional fund managers, state/local/federal government, private equity firms, business owners and management, associations, labor unions, employees, academic institutions, non-profits organizations. Different forms of capital would be recognized and used to purchase shares in the SDB. For example, local governments can purchase shares in the SDB with tax credits or land grants or infrastructure improvement projects; labor can purchase shares with sweat equity, academic institutions with intellectual capital etc.

Government funding of the SDB would consist of share purchases financed by capital from a national development superfund. The superfund would receive tax receipts from a progressive national tax fund, budget allocations, licensing and royalty receipts and dividend reinvestments and capital gains.

Community Bankers as Risk Managers and Distribution Conduits

Community Banks have a critical role as an SDB equity partner. The community bank is the primary channel by which credit is provided to the SME. They are front line risk managers and advisors for portfolio companies that are astute relationship managers that understand local market conditions and can help to build support clusters for SMEs. Community bankers will focus support efforts in the following areas to assist SMEs to prosper and grow.

Corporate Governance

Risk Management

Business Promotion and Development

Corporate Advisory Services:

Business Acceleration Services

Information Services

Performance Evaluation Services

Community banks will be offered regulatory capital relief through its equity participation in the SDB. It will share in the equity appreciation of the SME and any distributions, dividends or corporate actions the Board of the SDB effects. The differentiation of credit and equity capital participation will be accounted for at the SDB level. Hedge funds and other Alternative Investment Vehicles have developed very sophisticated partnership and shareholding accounting capabilities that can address questions of share class ownership, asset valuation, distributions and returns.

The community bank in working in conjunction with the SDB will offer a series of products and services to help SME's effectively manage risk, improve stakeholder communication, implement effective corporate governance that create sustainable business practices to assure long term profitability and growth.

The Hamilton Plan calls for SMEs have to be astute risk manager’s to effectively seize market opportunities. SMEs in partnership with community bankers and other providers must assess products and markets, business functions and critical success factors. The SME and community bankers must develop action items to support the corporate mission, the larger goals of The Hamilton Plan and work with SME managers to decide what initiatives mitigate the greatest risk and produce the greatest return. Thereby demonstrating to shareholders that company management are effective managers committed to corporate governance excellence.

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Written by James McCallum - SUM2, LLC

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