Bob Nachtmann

There's little about UTEP's College of Business Administration that's the same as it was when Bob Nachtmann became dean in 2005.

And his vision for the next five years isn't any less ambitious.

Nachtmann, 65, envisions the business school occupying an entire building in Downtown El Paso. He hopes to dramatically increase the number of tenured faculty and to add four new Ph.D. programs.

Nachtmann was born in Brooklyn, N.Y. His father was a day laborer, and the family never had much money.

"I was just a nasty little street kid," Nachtmann says, with a slight New York accent.

Nachtmann would eventually build business schools across the world, visit more than 50 countries, fight in Vietnam, and work for the National Security Agency and the Securities and Exchange Commission, but the path from street kid to dean of the business school here began with a contest.

It was a turning point, Nachtmann says.

Every year the one boy and one girl who scored highest on an elementary school test won admission to the Christian Brothers high school in New York City.

"To everyone's surprise, including all the nuns, I won," Nachtmann says. First challenge? Affording a tie.

Upon graduating, Nachtmann was offered partial scholarships to MIT and Yale. But without any money, he accepted an offer of a free education from City College of New York, where he earned a degree in applied mathematics and physics.

Nachtmann served in the U.S. Air Force during the Vietnam War, spending a year at Fort Bliss. He also worked for the NSA.

"What I learned was how much control I could take of the world, because I saw how much information we really had access to, and then how you can utilize all that information to impact outcomes," Nachtmann says.

That's when the 1973 oil crisis began and the world moved to a floating system of foreign exchange. It's also when Nachtmann decided he wanted to try to apply the modeling he learned at the NSA to big problems in finance.

So he decided to learn more about business and earned an MBA from Long Island University and then earned a doctorate from Indiana University.

In 2005, Nachtmann came to UTEP after 24 years at the University of Pittsburgh, where he served as the executive associate dean and professor at the Katz Graduate School of Business Administration.

He was recently appointed to the Federal Reserve Bank's El Paso Branch board of directors.

Nachtmann's competitive, independent streak remains today, and he doesn't shy away from challenging common knowledge.

He sat down with El Paso Inc. and discussed why half of the business school's graduates leave town, why economic development officials are wrong to try to attract specific industries like the biomedical or renewable energy sectors, and why the Dallas Fed is recommending interest rates be raised.

 


Q: Now that the entire College of Business Administration has been overhauled, what are your top two goals?

Right now, we have about 47 tenure-track faculty. We have the smallest number of tenure-track faculty for the student body and mix of programs of any business school in the United States accredited by the Association to Advance Collegiate Schools of Business, the AACSB.

We have about 60 to 70 percent what they have at NMSU, half of what they have at Texas Tech, and 25 percent of what they have at UT Dallas. So I would grow the tenure track faculty to somewhere between 65 and 70 faculty members.

The purpose is to move this college, along with this campus, to become a national research institution. But the moment I say I want to grow that faculty, implicit is how do you do that? The budget is going to have to expand. I benchmark business schools for a living. I'm in the business of building schools, and I can tell you at any national research institution, the minimum operating budget per full-time faculty member is about $400,000. We are at about $190,000.

Q: And second?

We are rapidly growing one of the largest Ph.D. programs in the state. That's ultimately the name game for a research institution.

Our Downtown Graduate Business Center is only the beginning. We want a graduate school of business Downtown. Not two floors; we want our own building. I'm shooting for five years from now.

We are running out of space on campus, and the UT System has been talking to me, asking me if I would be interested in that because they are looking at space.

To me, the graduate school of business physically being Downtown is to recognize that 25 to 35 percent of our student body in the MBA program comes from Juárez, and I think that is the future.

Q: What Ph.D. programs are in the works?

Over this decade, the business school will create four Ph.D. programs - one in finance, one in accounting, one in information systems, and one in marketing.

That's all being slowed down by state funding, but I think we are in a good position. Right now, we have a proposal moving forward for a Ph.D. in finance. Demand from people for Ph.D.s in business is very strong and the demand for people with doctorates in business is huge. So we are in a sweet spot. I think the UT System and the Texas Higher Education Coordinating Board will recognize that. We'll see.

Q: Historically, the business school has had a positive relationship with Mexico. Has that changed?

By edict now, we are not allowed in the UT System to do anything in Mexico. None of us can do anything formally in the northern seven states of Mexico, at all. I cannot spend one UTEP dollar.

Has that changed us? Absolutely. I used to go to Juárez at least once a week the first three years I was here. I did it mainly to understand what our students were experiencing.

I walked across the bridge every month and hated it. If this was any other city in the United States, you'd never see this. Let's take New York. How many people do you think come across the bridges there? Nobody cares where they're from; everybody assumes they are there to get to work - keep them moving.

What was the place that was attacked on 9/11? New York. And in New York their view is we've got to find some other way to solve the problem, but we cannot slow down mobility because that is our lifeblood.

Q: How has the erosion of those ties impacted enrollment at the business school?

It is very, very difficult for me to know what this whole thing means. I know we have lost on this campus about 25 percent of the Mexican nationals who enroll as international students.

It has also impacted our MBA students. Most of the companies in Juárez are, globally, Fortune 100 companies. Mostly, all of them have really significant education benefits, and most companies in El Paso do not. I can tell you it's becoming more and more risky for them to move back and forth from Juárez.

In the face of all this, though, we have seen very little net impact on the business school. We are almost at capacity at the Graduate Business Center in Downtown. What that signals to me is these people value education and will do anything to do this.

Q: As a member of the Federal Reserve Bank's board in El Paso, what do you do?

The Federal Reserve Bank is distributed across 12 regions. We are the Federal Reserve Bank of Dallas, which is responsible for Texas, a good chunk of Louisiana and New Mexico. Basically, the Fed facilitates banking transactions so, at the end of the day, every bank has a clear balance sheet.

The core mission of the Federal Reserve is price stability. So some people will argue, in order to manage inflation, what you really need to do is manage the ability of people to borrow. That has to do with the base interest rate. The Dallas Fed board meets monthly to provide the senior administrators of the Federal Reserve Bank with on the ground observations of how local economies are performing. Here in El Paso, each of us reports on what we observed that month, and we make a recommendation on what should happen to the base interest rate.

Q: This is all very secret?

No, I don't think it is.

Q: What is the local board's opinion on interest rates?

Our opinion is that we should be increasing interest rates. The Dallas Fed has clearly been of that opinion and is relatively alone. But it is not surprising, right? Of all the regions, what region in this economy do you think over the last two to three years has been doing the best?

Q: Well, probably Texas.

Right, so it shouldn't be a surprise if the Fed does not want this economy to get overheated and out of balance. But if you are from the Detroit area, where unemployment is very high, you are probably saying, "If we increase borrowing rates up here, we might as well all go home and close our doors."

Q: How much gold is buried in bunkers under the Federal Reserve building here?

(Laughs) I don't think we have any. Do we?

Q: Not that I know of. You mentioned you do economic forecasting as a member of the local Fed board. What are your predictions for this year?

Generally speaking, the El Paso economy is about back to where it was before the recession. Our problem is not the recession. We managed to get through it by and large because of Fort Bliss.

We have this great international product flow across the border, but where is most of it going? It's not staying here. Even though that flow is worth billions every year, the city will tell you there is not much they get out of that. The city's not exactly able to tax that flow.

It comes back to us in this region saying, "What do we want to be when we grow up?" Do we want to be a provider of low-wage labor or do we want to be an engine of high productivity labor?

Q: What should El Paso want to be when it grows up?

I think we are well along the road on this, but this region has got to come to one fundamental conclusion.

The only way you ultimately develop an economy, and certainly a regional economy, is by expanding the per capita income of that population. It does no good to bring businesses into a region if they're not going to grow the salary base.

We know we have this challenge and we have a peculiar situation where we've got a city that's amongst the top 20 in terms of size, but we've got a per capita income that is among the lowest.

El Paso is a sort of Ellis Island, a focal point of immigration, but there is one big difference. New York City is an engine. You can walk into that town as an uneducated whatever and you will have the opportunity, somehow, to drive cash flow. You cannot be in the city of New York making minimum wage; you will not survive.

Look at this community. You can't find people who work harder than in this community. I mean, look around you.

Q: So if El Pasoans are working so hard, why are they paid so much less than those in New York?

We've got to be able to figure out that it is not our mission to market the cost of labor; it is our mission to market the productivity of labor.

Q: In layman's terms?

If I want to attract a business to this town, I don't want to sell them on the region by saying wages are low. What I want to market is that we have an educated, productive workforce. Companies are looking for talent, not cheap talent, that is productive. I want to be able to walk around and see as many people with the ability to have a disposable income, which is a driver of consumption. If you increase consumption, you get more businesses being attracted here, and Downtown can grow when people have money to spend there. Then you've got people purchasing more expensive cars and housing, being able to send their kids to school.

We produce more engineers, we produce more business graduates, we produce more scientists than we can consume. So what happens? They leave.

Q: How many business graduates does the college produce?

We produce, in the business school, 400 to 500 undergraduate business students a year. We produce about 150 MBAs a year. You can look at what an accountant, marketing major, finance major makes on average nationwide and compare it to El Paso, and you can predict how many of those people are going to leave. This isn't rocket science, guys (laughs).

Q: But some wages are lower and so is the cost of living.

People keep focusing on the cost of living. You know, that argument doesn't hold water almost anywhere. People tend to say salaries are commensurate with the cost of living. The data are going to show you that when you start working, you almost get on a path-dependent track. What I tell all the students here is their first five years when they leave school is actually school.

If they aren't working their butts off, and putting in more hours than their boss, then they are making a huge mistake.

If a company in Minneapolis is going to transfer a pool of back office information system processing and we market to them that the average salary of a college graduate here is, say, 20 grand, they may look at that and go, "Eureka! We are paying 45 grand." But that company is ultimately going to be smart enough to ask the next question, "Why are these people willing to work for $20,000? If they are educated, smart and productive, they probably could apply for a job here with me."

And some of our students are working in Minneapolis where they are going to be paid 40 to 50 grand. The cost of living in Pittsburg is not higher than it is in El Paso - it's lower. People have this mindset that the cost of living is cheaper here. I don't know what that means, energy is not cheaper, housing is not cheaper, and taxes are not lower.

Q: El Paso economic development officials have decided to focus on a few sectors. Is there a specific industry that can deliver those higher wages?

I'm kind of a contrarian on this. People like to market economic development on the basis of industrial clusters. I remember doing some work in Chattanooga, Tenn., and that whole region is a focal point of carpet manufacturing.

So low and behold, you bring in some strategic consultants and they say you should focus on the carpeting industry. Okay.

I think we have moved into a world where knowledge capital is far more important. I don't know what industry cluster we need to try to attract, but we need to attract industries who need high value labor - educated labor.

I know what the region would like to promote, they would like to promote the defense, biomedical, renewable energy and automotive sectors. Why automotive? There are suppliers right across the border. Why biomedical? It's a wish. Not that it's a bad thing to do, but are we going to overtake San Diego or Boston? Unlikely. Are they going to move 9,000 research docs to El Paso? Unlikely. Is it great that we have a medical school? Of course, but I don't know if I would run around trying to figure out what sector we want.

I'd simply be running around trying to find firms that need space and need human capital and marketing the fact that we have, say, 200 business graduates leaving El Paso every year.

Q: When students graduate from the business college, where do they go?

They go all over. New York, we are now placing students at Goldman Sachs. About half stay in El Paso and half go elsewhere. Of those graduating from UTEP, business students are probably more employable in this region because of the structure. Finance, for example. What do you think all of these banks are doing here? They are facilitating cross- border business - banking is clear, accounting is clear, logistics is clear.

Q: It also appears that the retail sector continues to be a strong international component of the regional economy. Do students also go into leadership roles in the retail sector?

Marketing on the retail side. Tons of our students go to work for Target, they go to work for Dillard's and the like.

Q: With the ongoing public corruption investigation in El Paso, and the fact it takes both a corrupt public official to ask for a bribe and a businessperson to pay the bribe, how does the college teach business ethics?

First of all, we have been teaching ethics for a long time. Most recently, we've been working with the El Paso Citizens' Commission on Best Practices in Government who couldn't find anyone, anywhere, to address this issue from the public policy side.

This is amazing to me because business schools have been dealing with ethics for 30 or 40 years; it's infused in their subject matter.

The first initiator is the person who has power, and businesses never have power in this game. It is government that has the power because government has no funds at risk. Businesses have their personal equity and the equity of their shareholders at risk. A government can go to multiple suppliers for any service they want.

At UTEP, students take a core course in philosophy in ethics. We have a business law and ethics course as a required course in the business core, then we have a sort of infused experience in the other business courses to give practical examples.

Q: After the financial collapse, is the Dodd-Frank financial overhaul the right response?

Nobody knows what the Dodd-Frank overhaul is. The bottom line is there is a big difference between policy and practice. Whenever there is a hard barrier put in place that ultimately is going to impose costs, human beings will naturally find a way to bridge that. Somebody's going to create value by bridging a barrier, so, at some point, it doesn't really matter what the policies are.

Quite frankly, what matters is whether or not these regulatory bodies have any ability or will to measure what they claim they are setting policies about. Suppose you have some policy and at some point in time it makes economic sense. The likelihood that the world is going to be static around that policy statement going forward 20, 30, 40, 50 years is zero. What we need is a system that somehow enables us to confront bad behavior. Take the latest crisis, it's not like nobody knew about what was going on with mortgages. Look at the data on volumes of mortgages over time and all of a sudden you're going to see those volumes, ba da boom, go through the roof. Any undergraduate student looking at a paper on mortgage volume would say, "Oh, what happened?"

So you've got this thing that starts out seemingly as a good thing with none of the regulators, apparently, tracking it or paying attention to it. This is the problem, right? Nobody monitors the day-to-day sort of evolution of any policy.

So I don't care what Dodd-Frank does, quite frankly, because ultimately it's going to have to be practical. When that practice gets put in place, it's going to put in place a barrier. At some point, it's going to erode and the question is, "Who is tracking it then?"


E-mail El Paso Inc. reporter Robert Gray at rsgray@elpasoinc.com or call (915) 534-4422 ext. 105.

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