An Implausible Notion
By Jock O’Connell
In one of the more stupefying examples of misplaced legislative priorities amidst California’s worst budget crisis ever, the state Senate easily passed a measure on May 28 allocating $150,000 for a new state trade office in Armenia — a country with an economy roughly the size of the Arden Fair Mall.
Admittedly, this particular case of misguided lawmaking may not elicit the same degree of outrage readers of this newspaper normally reserve for pedophiles, rapists and NBA referees. Still, it says so much about how perversely politicized the state’s international trade programs have become that it’s worth dissecting.
I have no issue with Armenia or even with those Armenian-Americans whose keen proprietary interest in the old country led them to lobby California officials to open a state trade office in Yerevan, Armenia’s capital. My objection is with political mendicants willing to spend taxpayer money on an inane project whose purpose has been grossly misrepresented, presumably to merit the gratitude of important constituents.
While conceding Armenia’s modest stature (its $2 billion gross domestic product is less than 1/25th that of Sacramento County), proponents of the Senate measure argued that Armenia is a “strategically important country located at a crossroads of Europe and Asia.”
This statement reflects an astonishingly arthritic grasp of geography, logistics and regional politics. Armenia is neither a crossroads nor a destination for much of anything. It is a landlocked country that suffers from limited airline service and from perfectly abysmal relations with the four nations which surround it.
On its eastern and western flanks lie Azerbaijan and Turkey, countries that seem to regard hostility toward Armenia as a patriotic obligation. Fortunately, for the moment, both are content to merely blockade shipments of goods to and from Armenia.
To the north is Georgia, a model of political strife and internal disorder with a transportation network politely described by the U.S. State Department as “unreliable and inadequate.” Rounding out the neighborhood, the largely Christian Armenia is bordered on the south by that paragon of religious tolerance, the Islamic Republic of Iran.
While legislators may or may not have known very much about Armenia before voting on this measure, there is an even more baffling question here. Namely, what exactly did they imagine a state trade office in Armenia might actually accomplish? After all, as the Legislature is periodically reminded, the dozen overseas trade offices the state already has strewn around the globe are regarded with contempt by much of California’s international business community and have been repeatedly criticized as muddled and ineffective by the state auditor and legislative analyst.
At the State Capitol, there is a long-standing conceit that the state’s overseas trade offices exist to help California firms develop exports markets and to lure foreign investment capital back to the Golden State.
In fact, since the first trade office was opened fifteen years ago, they have been treated as mystic talismans elected officials can instantly flourish to ward off any doubt that they may be insufficiently concerned with California’s competitiveness in the global economy. And since every single person employed in these overseas outposts is a gubernatorial appointee, the chief executive has an extra reason to pretend California’s trade offices are worth the millions spent to operate them.
Despite the need to gut programs benefitting the truly needy (widows, orphans and local governments), the Davis administration wants to keep open the current chain of foreign trade offices, albeit with a one-third cut in funding. For public consumption, the justification is that these offices supposedly help create jobs back home.
But if job craetion is so important, why are the governor and legislators poised to eviscerate the state’s highly-acclaimed Export Finance Office, whose loan guarantee program addresses a glaring deficiency in the private marketplace -- the reluctance of many commercial banks to finance export transactions involving small and medium-sized firms?
As the provenance of the overseas office program attests, California’s foreign trade offices have always been much more political than commercial in nature. In the 1980s, when state leaders awoke to the growing significance of world trade to the California economy, American industry seemed to be under siege.
Japan and Western Europe loomed as a post-industrial juggernauts whose industrial policies, manufacturing methods and innovative products all seemed vastly superior to anything the U.S. could muster. The soaring merchandise trade deficit had become the chief barometer of national malaise, and, as it grew steadily larger during that decade, anxiety levels increased across the country.
Not wishing to appear unresponsive, elected officials at every level of government desperately cast about for some role to play in restoring a trade surplus.
Even those political leaders closely identified with free market, laissez-faire economic doctrine came around to the view that some manner of government intervention was required to help industry parry the foreign challenge.
By 1986, all fifty states had established export promotion programs of one type or another; 31 states had gone so far as to open foreign trade offices.
Most states and many municipalities also sought to shrink demand for foreign products by enacting “Buy-American” public procurement policies.
When California opened its first overseas trade offices in Tokyo and London in early 1987, the state’s international trade community welcomed them as an indication of state government’s recognition of foreign trade’s growing contribution to California’s economy. But no one in the business world seriously thought these outposts would ever have an appreciable impact on California’s enormous export trade. After all, facilities staffed by three or four government employees or contractors could hardly be expected to represent the commercial interests of an economy as large and thoroughly diversified as California’s.
For several years thereafter, groups like the California Council for International Trade, the Foreign Trade Association of Southern California and the Export Managers Association of California repeatedly urged the state to augment the capabilities and budgets of existing offices before opening any new ones. That advice fell on deaf ears as policymakers realized that money spent on new offices had a bigger bang.
Remarkably, no concerted effort has ever been made to give these offices marching orders consistent with the paucity of resources at their disposal. Instead of being operated as specialty boutiques providing focused services to a select clientele, they have been run as retail department stores in which a handful of clerks struggle hopelessly with thousands of customers. Not surprisingly, an April 1999 study published by the Institute of Governmental Studies at UC Berkeley observed that trade offices were “so understaffed and underfunded that they are able to do little more than answer phones and faxes.”
Over time, the mission statement of the foreign trade offices became increasingly implausible. At last count, California’s $1.3 trillion economy featured nearly 45,000 companies that were engaged in export transactions. These firms produce an unimaginably broad array of goods and services, many of which involve technologies so advanced and so arcane as to be beyond the comprehension of even the best-trained generalists.
Certainly no company would dispatch salespeople who were not proficient in describing every aspect of its wares. But the state somehow blithely assumes that its overseas office personnel can easily go from aiding an agricultural exporter in the morning, to assisting a biotechnology firm at lunch, to helping a software company in the afternoon, to explaining California’s tax code to a prospective foreign investor over dinner.
For at least the past decade, there has been mounting evidence that these offices are regarded in Sacramento as politically valuable but commercially negligible enterprises. Under Governors Wilson and Davis, state trade policy has been made without much attention to the actual needs of California exporters. A November 1999 report by the California Research Bureau commented that the bureaucrats who had drafted a foreign office location study the previous year had not bothered to consult any exporters.
Similarly, in an exceptionally critical report issued last December, the state auditor noted that government trade officials seemed averse to community outreach and had been loathe to coordinate their activities with other organizations engaged in export promotion.
What makes this bureaucratic indifference all the more unforgivable is that so few of those who have been charged over the years with administering the state’s trade programs have ever shipped anything other than their own luggage overseas. One foreign office director named by former Gov. Pete Wilson was so conspicuously devoid of professional credentials that The Bee pointedly covered her appointment in the Scene section. More recently, the press release announcing Gov. Gray Davis’s choice of a foreign office director failed to cite any pertinent international business experience. It did, though, detail that individual’s duties during the preceding eleven years as a state bar association functionary.
California’s overseas trade offices may be just what the political spin doctor ordered, but they hardly merit being kept on life-support when so many vital state programs are under siege. Although the state would be well-advised to maintain a liaison office in Mexico City, it should close all the other foreign trade offices as soon as contracts and leases can be wound up.
Some may regard this as an undesirable retreat from the state’s commitment toward international trade. Given the dubious quality of that commitment, it is difficult to see what difference a retreat would make. The state has made do with trade programs that were created in the 1980s and reflect the way business was done at the time. Since then, the global trading system has changed dramatically.
The current fiscal crisis offers a unique opportunity for creative destruction of the sort that obliges state officials to rethink and retool their entire approach to export promotion.