Home Shaping SuccessSM
By Christopher C. Gallagher*
for New Hampshire Business Review
Globalization, driven by info-age efficiencies has established change as the only constant — even in our local economies. Because it lowers prices while increasing consumer choice, the globalization era is here to stay. But these benefits also have their price. Salary compression and idiosyncratic job elimination take their toll at every income level, and while Wal-Mart and Target thrive, independent Main Street retailers feel the pinch. Globalization is even morphing the map. Anyone able to afford the fuel to drive across America can see our newly sprouted "ex-urbs," anchored by big box stores and office buildings swollen with globalization's beneficiaries, while elsewhere, one and two industry towns become ghost-like — their economic sustenance drained by outsourcing and technology's destructive innovation.
In such disruptive times, continued success requires constant adaptation. Survival means relentless evolution towards more competitive efficiency. These responses, however, require awareness which often comes too late, leaving no time to adjust. Since businesses lying in globalization's path must either adjust or disappear, their readiness to do so is important. Such readiness requires more than business acumen alone. Effective response also requires leverage and capital, and continued regulatory flexibility. Is New Hampshire business ready to meet the challenge?
Historically, New Hampshire business has often suffered the "peak-and-valley" stress caused by economic change. Each time it has survived and thrived. Give credit to our business community. They deserve it. But credit New Hampshire government as well. With its citizen legislature solidly grounded in the local economies of its members, New Hampshire's Legislature has kept small business nimble and responsive. Less regulation means more flexibility. Instead of reaching for laws and rules to react to every new development, New Hampshire often has watched other states become laboratories for constrictive, "feel good" regulation; the kind that attracts votes but chokes the flexibility needed to adapt to change. The New Hampshire Legislature has an "attitude" about giving its small business room to innovate, adapt and grow. That is why it has the flexibility to adapt while businesses in other states choke on regulatory constraints.
New Hampshire's banking system is another reason why we have managed change so well. New Hampshire small business cannot operate without the local leverage furnished by New Hampshire banks, especially its community banks; liquidity needed to respond effectively to changing economic environments. New Hampshire's financial institutions also have been impacted by info-age globalization. Globalized change is splitting New Hampshire's banking system into two parts: large mega-banks, offering their brand of services and products to bear on business needs with capital obtained outside the community (as long as our growth rate warrants such investment), and smaller, locally owned and managed institutions, commonly called "community banks." Both banks play key roles in our state's economy. Business borrowers need them both.
But new clouds now darken community bank horizons. And they are the banks that provide local liquidity and leverage to small business, especially when times are tough. Like other small businesses, they too have weathered and managed change in their market environments. But in addition to globalized competition, today's community banks are now forced to bear disproportionate regulatory burden. Post Enron and 9/11 Congressional directives have added costly new regulatory responsibilities to these community providers, even as they groan under the weight of state and federal regulation already in place. Justified concerns about terrorist financing have given birth to complex and costly homeland protection regulations. They require installing elaborate self-policing systems which must be integrated into the banking operations, so that such financing has no entry points into our nation's financial system. In "belt and suspenders" fashion, the new systems must themselves be systematically measured and monitored!
This is no one's fault. Homeland security is everyone's business. Added watchfulness is the inevitable result of being careful. But, unlike their larger competition, smaller banks lack the size and scale to spread the cost of these new programs over a wide array of products and services. Regulatory impact is thus felt more acutely. And the inevitable piling on without removing rules that no longer serve their purpose only makes matters worse. Should this development concern New Hampshire business? You bet it should! In the new global economy, if the community banks that now serve as local engines of economic stimulus for small business are pushed into the consolidating embrace of their larger competition, or worse, cannot compete effectively, their problem very quickly becomes everyone's problem.
Please understand. Today's community banks are doing well. With their growth and stability tied to their home communities, they continue to invest locally, pouring local deposits into area business. They still make so-called "low information" loans that otherwise would not be made, and still provide services that are critical to their communities' overall wellbeing by connecting our towns' Main Street with our nation's Wall Street. With community directed service, they also connect Mean Street with Main Street , serving "both sides of the tracks." They can handle market competition; but an unlevel playing field of regulatory burden has called their continued strength into serious question. We have to be concerned about this now. We cannot afford to wait until disproportionate regulatory costs knock out the very banks we all need to support our state's small businesses in the challenging times ahead.
The small business population on Main Street New Hampshire cannot staunch the spread of globalization. Today's information revolution is well beyond our reach. New Hampshire business, however, can and should actively support the continued vitality of its community banks. New Hampshire business men and women, who must maintain their flexibility and leverage to respond to change, will need their community banks. Here is how New Hampshire business can help. By their continued support as users of their community bank products and services, they can help these important economic partners carry the cost of the new regulation. By serving when invited as directors, trustees, and members of advisory boards, they can keep these banks connected and committed locally. By supporting those legislators who have worked so hard to keep our banks free of overlapping, overbearing, and overrated regulation that "feels good" to certain voters, they can keep government aware of its important role in the strength of local economies.
Neither community banks, the Legislature, nor smaller business by themselves deserve all the credit for our success to date. None of these alone can do the trick again. Working together as a team, however, they have kept our economy strong in history's hard times. Kept intact, this team will win again in the difficult days ahead. But the time to act is now. Then let globalization come. We'll be ready.
*Christopher C. Gallagher is admitted in New Hampshire.
You may contact
the author at