The presidential election of 2016 will go down in history as one of America’s most contentious. There are always disagreements between candidates. That’s the whole point of the election. The candidates state their positions and the people pick the one with whom they most agree. This year, however, there is little about which the leading candidates agree.
The debates rage on about international trade and government regulation. In my 50 years in banking I’ve seen the pendulum swing in both directions on both topics — for the expansion of trade and protectionism, for the growth of government regulation and for rolling it back.
Living on the U.S. — Mexico border, I’ve seen the peso devalued again and again for decades. Today it is worth 40 percent less than it was just two years ago. That instability reduces both the ability and incentive to trade between the two countries. People who rely on that trade are losing their livelihoods. I’ve watched as politicians at all levels of government, on both sides of the Rio Grande, use the region as a political tool to advance their short-term agendas with little regard for the long-term impact of their actions.
And I’ve come to understand why it’s important for business leaders to take an interest in politics. Decisions made in Washington, and Austin for that matter, impact every industry in the state, not just financial institutions like mine.
America’s trade agreements, like the North American Free Trade Agreement (NAFTA) and The Trans Pacific Partnership (TPP), have an enormous impact on our economy. They can mean more jobs for the service sector, agriculture and technology, or might mean fewer jobs as manufacturing moves offshore. The value of those trade agreements usually comes down to the details.
The NAFTA agreement, liberalizing trade between Canada, the United States and Mexico, has been unquestionably good for the Texas economy. Research by the Federal Reserve Bank of Dallas found “NAFTA did indeed increase Texas’ sales to Mexico—and to Canada as well. Perhaps more interesting, NAFTA also helped raise Texas exports to Asia, Europe and Latin America, making a strong case for net trade creation.” Mexico is Texas’ largest trading partner and is responsible for enormous job growth in Texas. It’s the United States’ third largest trading partner and likewise responsible for enormous job growth.
It’s almost impossible to look at trade agreements in a vacuum. For example, Texas and Mexico are both taking an economic hit as the oil industry struggles with the current surplus. On the other hand, the United States, thanks to the fracking boom in South Texas and elsewhere, is now a net energy exporter.
Because of increased trade between Mexico and Texas in goods such as textiles and microelectronics, the state’s economy is more diversified. While the boom-and-bust cycle of the oil industry may always be a factor in Texas’ economy, the busts don’t have the same impact as they once did.
The impact of the trade agreement, implemented in 1994, on Texas’ economy was dramatic and almost immediate. Trade between Texas and Mexico skyrocketed with the passage of NAFTA, and the volume of goods passing through the state increased as well. Between 1997 and 2000, Texas’ total exports to all countries rose by 36 percent and topped $100 billion for the first time. Exports from Texas to Mexico during that time jumped 66 percent to almost $48 billion.
In 2013, according to the International Trade Administration, more than 41,500 Texas businesses exported goods and 512,800 Texans were employed by foreign-controlled companies. The same study shows 95 percent of the growth in Texas exports since 2005 has been with its Free Trade Agreement partners. International trade creates jobs and is good for Texas’ economy.
Another hot topic during the campaign season is how much government regulation is enough and how much is too much. It’s one of the fundamental differences between America’s two major political parties.
But it’s not just a question of big versus small. It’s a matter of fitting the regulation to the need. When the mortgage industry was collapsing in 2008, the government response was to increase regulation on all banks. Small community banks were treated just like the big multinationals. The regulations that were created to save banks “too big to fail” are killing banks “too small to survive.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act established lending guidelines to ensure banks didn’t become overleveraged and that consumers didn’t take out loans beyond their ability to repay. While aimed at multi-billion dollar companies, it affects almost every business in America. The restrictions have killed consumer lending in America’s community banks as we have known it.
Small, family-owned businesses are no longer able to borrow the capital they need to build and grow their businesses. And community banks, the financial backbone of hundreds of large and small towns throughout Texas, are no longer able to make lending decisions based on decades of experience in their markets. They must now base their lending decisions on the same ratios imposed on global banks that have far more resources and far less local market knowledge. The ability of local bankers to use their discretion when making loans has been eliminated. Those restrictions are why America is losing a community bank every day.
Community banks and small business owners were once able to work together to build vibrant local economies based on very specific economic circumstances. Today, they are forced to operate under rules established and intended for much larger organizations with much greater capital available. The owner/operator of a taqueria in Del Rio is dealing with a very different financial reality from the board of directors of a multi-state restaurant chain headquartered in Dallas.
It’s unreasonable to expect a single-location, family-owned business to manage its finances in the same way as a global brand with thousands of outlets.
That’s why engaging in the political process, even at the local level, is one of the most important lessons I’ve learned in my career. I also urge all business leaders to instill that lesson in the young people they are mentoring to become the next generation of Texas CEOs. Only by taking an active role in making sure our political representatives know and understand our concerns can we control the destiny of our enterprises, our state and our country.
Dennis E. Nixon is Chairman & CEO of International Bancshares Corporation, which marks its 50th anniversary in 2016. IBC is a multi-bank financial holding company headquartered in Laredo on the border between the U.S. and Mexico. IBC has $11.8 billion in assets and operates a network of banks in 87 Texas and Oklahoma communities.
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