PROFMEX-Consorcio Mundial para la Investigación sobre México

Mexico and the World
Vol. 6, No 3 (Late Summer 2001)
http://www.profmex.org/mexicoandtheworld/volume6/3latesummer01/spirit_entrepreneurship.html

Spirit of Entrepreneurship : O.L. Longoria and the Twentieth Century Mexican Experience

Betsy L. Link, Ph.D.
UCLA

Entrepreneur: one who creates and operates a commercial or industrial business.

Table of Contents

Abstract
Preface
Introduction
Chapter I The Northeastern Frontier
Chapter II Family Origins
Chapter III The Young Entrepreneur
Chapter IV Industrias Unidas and the World War II
Chapter V Aldrete, Aleman, and Trouyet
Chapter VI Elsa's Creation and Disintegration
Chapter VII Una Señora en San Antonio
Chapter VIII The Collapse of Elsa
Chapter IX Litigation
Chapter X Epilogue
Chapter XI Conclusion
Apendix
Bibliography

Preface

In late 1975, Octaviano L. "Chito" Longoria needed legal counsel in California to assist him in forcing Bank of America to release funds which were held in his name. He was already a litigant in major Texas and Mexican law suits against his four younger brothers Federico, Shelby, Eduardo, (Wayo), and Alfredo, (hereafter to be called "The Brothers") which involved who owned how much of vast industrial, banking, and real estate assets. Chito turned to his acquaintances in California for a reference. He was referred to my husband George H. Link.

Link agreed to handle the case, which, at that time, to be seemed to be a minor matter. As time passed, the case became complex and time consuming. Link spent three years in litigation and trial for Chito and, necessarily, a great deal of time in Texas and Mexico. I often joined Link, Chito, and his second wife Jeanette and met other players as the litigation drama was unfolding.

      As a frequent house guest of the Longorias, Chito and I often passed the time playing "Spite and Malice" (a card game) and backgammon. He often reminisced about his youth and his early years as a budding entrepreneur.
     As the visits continued and our personal relationship matured, I became fascinated by the stories of Chito's life, the culture of Mexico, and the complex personal connections which aided Chito's rise as an important Mexican industrialist.

     In the midst of my travels to Mexico, I was accepted at UCLA in the graduate history department. Because of my experiences in Mexico, twentieth-century Mexican history became my logical and enthusiastic field of research. After receiving a Master of Arts in history, both Chito and the UCLA department of history acceded to my request for permission to write a dissertation on Chito's life and business career. For the next several years, Mexico and Texas were the sites of oral recordation of Chito's history.

Chito agreed to give me thirty file-drawers of business records which were stored in the basement of his Mexico City home. The actual shipment of the business archives took months. Several Mexico City moving companies refused to ship them. They were fearful that the Mexican government might not approve of shipping sensitive business documents to the United States.

Finally, Chito's wife Jeanette arranged for an official campaign bus of the PRI to pick up the archives and transport them from Mexico City to Nuevo Laredo. I arranged for a Texas moving company to pick up the archives in Nuevo Laredo and ship them to me in California. At the border, Mexican customs officials were not the least interested in the contents of the boxes. U.S. customs officers were. After extensive negotations between the moving company and United States Customs Office, the archives crossed the border. After six months, the archives reached California.

Not only did Chito give me his business archives, he also agreed to give me all of his litigation documents and waived any attorney-client and attorney work product privileges, in order that I could have access to the lawyers' work and their recollections. He then shipped to me all his remaining business and personal records and United States litigation documents. That shipment consisted of another twenty cases of documents containing not only personal correspondence, wills, property deeds, bank correspondence, loan statements credit checks, and inter-bank memos which described the expansion of Chito's businesses, and analyses of Mexico's business climate in general. The shipment also included the depositions of Chito, The Brothers relatives, and employees of the Longoria enterprises. The shipment contained annual financial statements of the Longoria enterprises for fifteen years, and the testimony of accountants from Price Waterhouse, Mexico City, who were the accountants for Empresas Longoria the principal industrial holding company. No trouble was encountered in shipping the litigation documents to California because they were stored in San Antonio, Texas, where they had been transported for Chito's United States litigation.

Now I had too much information. The next several years were spent sorting through the documents, putting them in order, and reading and translating them.

From tapes and transcriptions of Chito's oral history, which was the first phase of the project, the logical conclusion was that the collapse of Chito's industries resulted from the hostility of the Mexican government. In large part, this was Chito's position. From the thousands of other documents, it became clear that this was not necessarily the case. Rather, it became increasingly clear that the government did all it could to help, up to a certain point. But, there were many other factors involved in the disintegration of Chito's businesses.

The question may well be asked, can a personal friend write an unbiased history? The answer may well be no. Nevertheless, an important personal relationship allowed me to understand the main actor, including his prejudices, passions, candor, and obfuscations. The massive records and voluminous testimony of many others gave additional perspectives. Chito's unfortunate death, which occurred before the completion of this work, allowed me some flexibility to critique Chito's life without being forced or cajoled by Chito to a conclusion more amenable to his own point of view. But documents and interviews tell a story that does not always jibe with Chito's own oral history.

The history of O.L. Longoria is a case study in elitelore. Elitelore theory is concerned with analyzing the lore of leaders and the way leaders invent lore about themselves and their followers. The theory argues that elites exist at all levels of society and that, just as the folk have lore that helps them structure their reality, so, too, do elites have lore that serves to maintain and justify their position.1

Chito's oral history is his history as he perceived himself. It justified the manner in which he conducted his businesses and his life. One of the tenetss of elitelore is that the subject, in oral history interviews, gives selected information, albeit half consciously, to protect the ego. This was true of Chito. He was often vague or avoided mention of important events in his life. His oral history is used extensively in the description of his early years. Documents from other sources generally supported his oral history for that period. In his oral description of the litigation period, Chito was not as candid as he was in his description of his early years probably because the memories were so painful.

Conflict between documents and Chito's oral history are indicated. For the period beginning with the break up of his industries, I rely increasingly on bank and litigation documents. My conclusions are derived from a comparison of oral history documents, bank and litigation documents, my own detective work, and research.

The attempt to corroborate through others, certain significant statements which Chito made in his oral history and in his depositions was difficult if not impossible. These men were more than willing to discuss many things, but when I asked about certain sensitive events or contemporary politicians, they declined to answer, assented that they still worked or had family in Mexico, and stated that it would be impolitic to answer my questions. In these instances, Chito's statements or secondary sources remained the sole sources.

This work is a study of intricacies involved in the rise and fall of a significant twentieth-century, Mexican entrepreneur. It is also a study of traditional, yet complex, Hispanic family relationships which were destroyed by contemporary economic and political reality.

Can generalities be made from this study for all Mexican entrepreneurs during the period of 1930 to 1970? This work may give insight into the complexities of the rise of an entrepreneur from Northern Mexico. Without research from other areas of the country and from other periods, however, it is premature to generalize. During the preparation of this work, I interviewed other entrepreneurs from elsewhere in Mexico who were operating during the same period (1930-1970). Their stories those of their families and business associates had a striking similarity.

I would not have completed, or, for that matter, even started this project without the enthusiastic support of my husband George Link and our children Thomas and Christopher. George's generosity, both intellectual and financial, has been unerring. The word grateful comes to mind, but it is not adequate. James W. Wilkie, chairman of my dissertation committee and mentor, was instrumental in encouraging me at all stages. His tact, support and patience are greatly appreciated, more than words can describe.

Finally, I am indebted to Chito and his wife Jeanette for allowing me access to Chito's life and his documents. I am also grateful to the extended Longoria family, for providing me with important information.

Introduction

Spirit of Entrepreneurship describes a period of Mexican history from 1930 to the first years of the 1970's. The entrepreneurial spirit which swept Mexico for a little over forty years was magical. It was a spirit and a period of history which permeated certain sectors of the Mexican psyche with a sense that anything was possible, if one had courage, intelligence, and of course, a little capital. It was an era of enthusiasm, where the words "cannot" and "no" were not tolerated by Mexico's economic elite.

During the 1930's, industries in Mexico were burgeoning, despite the effects of the Great Depression. This is not to say that the Depression did not affect Mexico in many areas, but concurrently, many industries grew and new ones were established. With the advent of World War II, Mexican industry expanded considerably. With then normal avenues of imports and exports blocked necessarily by the war, Mexico was forced into a position of import substitution, and opportunities for increased production were legion. The United States had rationed many goods, which could be produced easily in Mexico, providing Mexican industrialists with a golden opportunity. Could it be at this juncture that Mexico began its industrial revolution?

Historians agree that Mexico did indeed industrialize but to date there is no agreement on exactly when it happened and who were the prime movers of this industrialization. Did industrialization magically occur with the advent of World War II? Or, had industrialization begun decades earlier?

Howard Cline suggests that the Industrial Revolution of Mexico began on April 21, 1941, when the first Law of Manufacturing Industries became effective. It offered tax exemptions to Mexican industries, especially new ones and those thought necessary for the further stimulation of Mexican manufactures.2 Stephen Haber dates the beginning of industrialization in Mexico in 1898.3 James Wilkie places the industrial revolution in the Cárdenas administration, when Cárdenas made serious credits available for industrial expansion.4 Raymond Vernon suggested that without demeaning the part played by the war, there were probably good enough conditions within Mexico's borders for industrialization without relying on external forces.5 Clark Reynolds in his book on the Mexican economy concurred with Vernon and found that a significant industrial base already existed at the beginning of the war which allowed manufacturing production to increase by 75% without any major new investment and that most of the growth since 1940 was attributable to private investment which in turn was protected by the public sector.6 Opinions of historians on when industrialization commenced run the gamut, not to mention the diversity of opinion as to who the men were who actually caused the industrialization to happen.

William P. Glade asserted that the industrialists emerged from "the dispossessed elite, whose younger members sought to recoup lost fortunes and land by turning to commercial, financial and industrial activities."7 Sanford Mosk insisted that a "new group" of industrialists appeared with the advent of World War II and that the war was the primary reason for a major portion of Mexico's industrialization.8

Indeed, to understand how industrialization came about one must go beyond studies of industrialization per se, and do an in depth study of the industrial efforts of one entrepreneur to shed light on the entrepreneurial spirit that permeated Mexico for forty years. Was the Mexican entrepreneur of the early twentieth century a foreign born opportunist who saw a chance to make a quick profit from World War II? Was he a member of the dispossessed elite from the Mexican revolution? Or was he an industrialist who was already in place and operating? This work proposes to look at one entrepreneur to help answer such questions. This study does not claim to represent all entrepreneurs. The twentieth century man who is the subject of this work is one of the few, if not the only entrepreneur, for which a plethora of material has been made available.

Some historians, notably Daniel James, claim that Mexico's private industrialists could not possibly act in an entrepreneurial or independent fashion because they were products of a "socialist political establishment."9 Did the Mexican government dictate to the entrepreneurs? Did the State limit industrial expansion and subordinate it to the good of the State?

For forty years the Mexican government facilitated industrial expansion, until the advent of the administrations of Luís Echeverría and José López Portillo, from 1970-1982.10 For the twelve years of their statist-oriented administrations, state-controlled enterprises grew from 84 in 1970 to 760 by 1982. The numbers speak for themselves. Prior to 1970, the Federal government basically remained aloof from private enterprise, only interfering when certain large enterprises that employed a great number of workers were in financial difficulty. In that situation, the government was often forced to take an active role. With regard to sizable, troubled, industries or businesses that employed many workers, the government took control of operations and kept them running. A perfect example of this was SOMEX.11 To depict the Mexican government as socialistic because of two statist administrations is to overstate the reality.12

The subsequent administrations of Miguel de la Madrid and Carlos Salinas de Gortari divested the government of many of the state-controlled enterprises, realizing that the Echeverría and López Portillo had done nothing but chase entrepreneurs and their needed capital out of Mexico. In fact, Salinas de Gortari in his first State of the Nation Report on November 1, 1989 declared that the statist policies of the previous decade had allowed parastate enterprises to monopolize financial resources. "As the facts show, the State concerned itself more with administering its properties than with meeting pressing social needs."13 He went on to declare that successful State intervention of the past was clouded (lately) by a tendency to make the State almost exclusively responsible for management of the entire economy, which prevented its effective regulation of the mixed economy.14

Contrary to the view of observers such as Daniel James who claims that Mexico is socialistic, and the entrepreneurs mere appendages of the Mexican government, this work will demonstrate that those entrepreneurs who appeared on the Mexican scene from 1930 to 1970 used the government to their advantage and not the reverse. The governments of Avila Camacho, Alemán, Ruiz Cortines, López Mateos, and Díaz Ordaz assisted the entrepreneurs in every way imaginable, from tax relief, to subsidies. Of course some of the administrations were more statist than others, but the overall trend was toward assisting those entrepreneurs and industrialists who were modernizing Mexico and at the same time employing thousands of Mexican workers.

This work focuses upon the life and times of Octaviano Librado Longoria who was born in Nuevo Laredo, Tamaulipas and died in Mexico City (1905-1986). Known throughout his life as Chito, he was a twentieth century entrepreneur descended from a middle-class Mexican family of Spanish descent. Located on the Río Grande border between the United States and Mexico, he took his modest assets and parlayed these circumstances into a position on the world economic and social stage.

Chito was an entrepreneur who developed his style of governmental relationships in an effort not only to survive complex and often confusing edicts from Mexico City, but to prosper and expand his industries. For forty years, the Federal government assisted such industrialists in their headlong drive for the modernization of Mexico's industries. Tax laws were liberalized to favor the industrialists. Labor laws were stretched to accommodate their unique needs, and money for expansion was often made available by the government.

By the 1970's, a new breed of bureaucrat was at the helm of the Federal government. The new bureaucrats were statists, men who believed that industry and trade could be controlled from the center and that the era of the Mexican entrepreneur was at an end. These socialistic bureaucrats believed that the industrialists had unduly profited from liberal laws, which permitted their expansion at the expense of the general population of Mexico. The rules of the game had changed but the older industrialists were too old or too tired to learn the new rules. It was difficult for them to cultivate relationships with the new bureaucrats who ran Mexico.

By the mid 1970's the majority of the entrepreneurs who had done so much to industrialize Mexico were out of favor. A few survived, but at great expense and personal risk. Most were forced by adverse political and economic circumstances during the Echeverría and López Portillo administrations (1970-1982) to remove their capital from Mexico. During those administrations, Mexican businessmen never knew from one day to the next if the peso would be devalued, their companies "nationalized", their financial assets seized, or they themselves thrown in jail.

The following episode will illustrate the attitude of the new breed of statist/socialistic bureaucrats who ruled Mexico during the 1970's. At one of the first formal gatherings after the election of Luís Echeverría, in 1970, the elite was gathered at a presidential reception at Los Pinos. As had been the tradition, the ladies and gentlemen were bejeweled and dressed in their finest. During the evening, the President's wife found a hat and started passing among the guests with it. As she greeted them she would comment on what a beautiful ring or necklace the guest was wearing, and politely ask that the guest place the piece of jewelry in her hat, "for the poor". There was no way to refuse the wife of the President, and so the hat grew heavy, filled with jewels. When news of the requisitioned jewels spread, there was a general exodus of excess cash and jewelry to the United States. The rule in Mexico for the next twelve years was one of austerity. One simple act, perhaps with good intent, had frightened away much needed capital from Mexico. Further incidents did not calm the fears of Mexican businessmen and their families, but exacerbated them.

The major goal of the new statist bureaucrats was to redistribute the wealth of Mexico. This is not a bad thing, but Echeverría had vowed redistribution even if it meant stopping economic growth.15 The irony of his program was that it never gave the general population of Mexico one extra peso, but merely chased the elites and their capital away.
It was within this framework of Mexican history that Chito developed his entrepreneurial skills. For more than forty years he and his family prospered as bankers and industrialists, only to be caught in the new wave of statist bureaucracy which began in the 1970's.

      To develop the history of Chito and his proper place in twentieth century Mexico, Chapter I is devoted to the origins of the Longoria family. Chapter II covers the early entrepreneurial endeavors of young Chito Longoria. Chapter III examines the establishment of Industrias Unidas and acquisition of a federal bank charter for Banco Longoria. Chapter IV details the accelerated industrial expansion caused by World War II. Chapter V discusses Chito's relationship with the State and various politicians and the continued expansion of his industries. Chapter VI chronicles Chito's arrangements with foreign banks that supplied the capital needed for his industries and his often acrimonious relationship with his brothers. Chapter VII describes Chito's courtship and marriage to his second wife Jeanette. Chapter VIII examines the disintegration of his relationship with his brothers, the eventual collapse of his industrial empire, and the part the Mexican government played. Chapter IX details the litigation among the Longoria family, which followed after the break up, of the industrial empire. Chapter X describes the end of the life and times of Longoria. Chapter XI contains the conclusions that can be drawn from the life of a Mexican entrepreneur.

Notes
1   David Lorey and James W. Wilkie, "I" as "We" in Elitelore: the Merging of Individual and Collective Lores," Journal of Latin American Lore, 13:1 (1987), 4.
2 Howard F. Cline, Mexico, Revolution to Evolution 1940-1960 (New York: Oxford University Press, 1963), 232.
3 Stephen Haber, "Manufacturing in an Underdeveloped Economy: The Industrialization of Mexico, 1890 to 1940," (Ph.D. diss., UCLA, 1986), 6.
4   James W. Wilkie, Mexican Revolution: Federal Expenditure and Social Change (Berkeley: University of California Press, 1970).
5   Raymond Vernon, The Dilemma of Mexico's Development (Cambridge: Harvard University Press, 1963), 155.
6   Clark Reynolds, The Mexican Economy, Twentieth Century Structure and Growth (New Haven: Yale University Press, 1970).
7    William P. Glade and Charles W. Anderson, The Political Economy of Mexico (Madison: University of Wisconsin Press, 1963), 48.
8 Sanford Mosk, Industrial Revolution in Mexico (Berkeley: University of California Press, 1950), 21.
9   Daniel James, Letters to the Editor, The Wall Street Journal, 15 Jan. 1988.
10   Roderic A. Camp, Entrepreneurs and Politics in Twentieth-Century Mexico (New York: Oxford University Press, 1989), 29.
11   SOMEX, originally a private organization, was in financial difficulty and the Mexican government was forced to intervene. After the government took control of SOMEX, it used the organization to intervene and assume leadership in other troubled businesses.
12   James W. Wilkie, ed., Society and Economy in Mexico (Los Angeles: UCLA Latin American Center, University of California, 1990), Chapter 1. "Statism is the trend toward government control of economic life, especially through nationalization of industries considered to be strategic for national development. Statism involves an expanding governmental structure and bureaucracy to carry out state planning and the execution of plans. In my view, statist systems are achieved when the public sector (central government plus parastate sector of nationalized enterprises) controls nearly half or more of a country's GDP..."
13    Carlos Salinas de Gortari, First State of the Nation Report, 1 Nov. 1989, 8.
14 Ibid, 9.
15   James W. Wilkie and Edna Monzón de Wilkie, Mexico Visto en el Siglo XX (México, Instituto Mexicano de Investigaciones Económicas, 1969).