Stanford Business magazine

Recovery

The Big Easy’s Business Comeback

By Michael Hecht, MBA '98

It was the worst week of our lives. Our 2-year-old turned blue, had a seizure, and was diagnosed with spinal meningitis. Instead of flying from New Orleans back home to New York City (three hours of no BlackBerry and unlimited DirecTV), we spent six days in solitary confinement. When we finally bid adieu to the Big Easy, the whole family felt beaten up. As it turned out, the seizure was nasty but not dangerous; the meningitis diagnosis was false (note to self: Don’t go to ER on a Sunday); and, less than 48 hours after we finally took leave of New Orleans, Katrina hit. You know the rest. We were lucky.

Katrina and her stepsister Rita destroyed or seriously impacted over 100,000 small businesses in Louisiana. Some shops were annihilated by 30-foot-high walls of seawater. Others sat in stinking mud for weeks. The lucky ones were merely looted. When I agreed to return to Louisiana in late 2006 to become the statewide director of Business Recovery Services, the prognosis for businesses was grim: revenues way down, costs soaring, and balance sheets bloated with storm-related debt. Now, prospects for the businesses that managed to hold on look fairly good. By forcing people to care, the destruction of Katrina has catalyzed an unprecedented revitalization within the City That Care Forgot.

Consider, for example, reported gains in school test scores. Long considered some of the worst in the nation, New Orleans public schools are now attracting millions in investment and some of the country’s best pedagogues. Better schools mean a better workforce and allow companies to consider locating in New Orleans.

Corruption is being tackled too. New Orleans finally has an inspector general, Robert Cerasoli, to foster transparency, efficiency, and reliability in government, the three pillars of business development that have been missing and undermining New Orleans for decades. The business community also has high hopes for the new governor, Bobby Jindal, who not only has made addressing corruption and ethics a central part of his platform, but is also an ex-McKinsey consultant who has brought a team that includes young, high-energy MBAs to help him overhaul the state’s business climate.

Business groups, grassroots nonprofits, and private citizens are discussing economic development like never before. We have seen initiatives like actor Brad Pitt’s “Make It Right” campaign in the lower Ninth Ward, which promotes green, innovative building technologies. The project builds not only houses but new local industry.

People are back, both tourists and also residents. According to GCR & Associates, by the end of 2007 the population of New Orleans was only about 65 percent of its pre-Katrina level, but the immediate metropolitan region was back to close to 90 percent: People have just moved to different areas. So, while some businesses will have to relocate and/or change their business models, the market is still there.

Record numbers of tourists have come back to the Big Easy, where Mardi Gras, the Essence Music Festival, Sugar Bowl, BCS Championship, NBA All-Star Game, Jazz Fest, and innumerable other events continue to broaden smiles for local businesses. Consumer spending in the New Orleans region in 2008 is expected to surpass 2005 levels. In part this is being fueled by the federally funded Road Home housing program, which will pump over $10 billion into the local economy now that it has been fully funded by Washington.

Besides the billions in housing funding, New Orleans also will benefit from close to $600 million of federal Community Development Block Grant funding for infrastructure improvements, and better infrastructure means better business. Thanks to aggressive government incentives, private investment is flowing into Louisiana. For example, an entertainment incentive program has quickly made Louisiana the third most popular filming destination in the country.

The New Orleans region also benefits from commodity prices at historic highs. As I write this, oil is at $110 per barrel. While this is bad news for most of the country, it means substantial tax revenues for counter-cyclical Louisiana. In fact, there is now a $2 billion state surplus in Baton Rouge.

Life is good here. Camellia Grill has reopened, the parks are back in bloom, and a college grad can live well on $50,000 per year. This is good news for companies looking to recruit young talent. As restaurant guide publisher Tim Zagat puts it, “All the things people come to enjoy about New Orleans are back in place.”

This is not to say that New Orleans doesn’t have great challenges: It is still the best place in the United States to catch a stray bullet (world-famous chef Paul Prudhomme was grazed in the arm recently while cooking jambalaya at a fair; he continued stirring with his good arm), vital wetlands are eroding at an alarming rate, and local government is distressingly absent. For too many individuals, practical and emotional challenges persist.

But, on balance, what we are witnessing is a redemption story. Out of the destruction of Katrina, a new New Orleans is rising, and the prospects of the business community are rising with it.

Laissez le commerce rouler! 

Michael Hecht, MBA ’98, was director of Business Recovery Services for the state of Louisiana’s Economic Development department until this summer when he was named president and CEO of Greater New Orleans Inc., a public-private regional economic alliance. 

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