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State Government Ventures Abroad

By

Jock O'Connell

(This articles originally appeared in the January 1990 issue of The Golden State Report.)

It was a bright but humid morning in Hong Kong, just two days before St. Patrick's Day 1985. Somewhere amid the narrow, pungent streets of the colony's bustling Central District, I was squeezed into the former broom closet the Voice of America had transformed into its broadcast studio.

Wedged in along side me was Alan Pessin, the VOA's man in Hong Kong. Pessin, who would later earn fame as the first Western journalist expelled from China following the Tiananmen Massacre last June, had just finished interviewing me about California's trade relations with the Far East.

"So where's what's-his-name been?" Pessin asked.

"Huh?," I shot back eloquently.

"Deukmejian," he said. "Look, at least a dozen governors have trooped through here in just the past three months. Last week it was Jim Thompson from Illinois. This week it's Dukakis from Massachusetts. So why hasn't George Deukmejian been here yet?"

Why, indeed?

The truth was that in 1985 the chief executive of the most prosperous and arguably the most cosmopolitan state in America not only lacked a passport, he positively scorned the notion that, as governor, he should be a travelling salesman for California.

All of this has changed considerably, of course. Almost immediately after his decisive re-election victory in November 1986, George Deukmejian, perhaps with an eye on the national political scene, hit the road. Starting with a much publicized trip in January 1987 to Tokyo, where he opened the first in a network of overseas trade and investment offices, the Governor has become absolutely peripatetic. In just the past three years, he has journeyed to fourteen nations on five continents, including a visit in the summer of 1988 to Alan Pessin's Hong Kong.

More importantly, when he steps down next January, Deukmejian will leave behind an imposing battery of international trade, investment and tourism promotion programs which were all established during his years as governor and which are among the most highly regarded and widely emulated in the nation.

As with most political leaders, Deukmejian is fond of taking credit for any accomplishments recorded during his watch, almost irrespective of the role he actually played. In this instance, though, he does merit praise for supporting, if at times belatedly, the fairly rapid expansion of the state's international programs. He also deserves recognition for getting himself more personally involving in marketing the state's products and its investment opportunities abroad. And he is to be applauded for avoiding the excesses of "Pacific Mania" by selecting sites for California's overseas trade and investment offices which reflect the actual distribution of the state's export markets and the sources of foreign investment flowing into California.

Nevertheless, serious questions have been raised regarding the state's activities in the field of international commerce. Several critics, including some of the Governor's closest political allies, charge that the state's international programs, scattered as they are over several government agencies, are inadequately coordinated. Private groups such as the California Council for International Trade and the Foreign Trade Association of Southern California have voiced concern that the survival of the state's overseas offices is too subject to gubernatorial whimsy. Doubts are also being expressed about whether state officials should be actively engaged in luring foreign investors to California. And then there is the bottom-line question that is most assuredly guaranteed to set the cat amongst the pigeons: Do all these programs, collectively funded at $15 million in the current fiscal year, really make any difference?

So as to better appreciate, if not savor, these issues, it's worth tracing the remarkable history of California's current flock of international programs back to the beginning of the modern era, 1982, when the Legislature enacted a measure authored by Assembly Speaker Willie Brown to create the California State World Trade Commission.

The CSWTC was the Legislature's response to America's steadily widening trade deficit and to the Reagan administration's cuts in export promotion efforts at the federal level. In replacing the state's moribund Office of International Trade with a new structure, the Legislature intended to elevate the stature of export promotion activities within state government. To that end, the new commission would (at least in theory) bring together prominent members of California's international business community with California's highest elected officials, namely the Governor and Lieutenant Governor and the Secretary of State. Ironically, though, while Brown's measure explicitly designated the CSWTC as the lead agency for coordinating all state programs relating to international trade and investment, other language in the bill would make it impossible for the commission to play that vital role.

For reasons which will perhaps forever remain murky, the Speaker's bill endowed the CSWTC with two masters. While the Secretary of State would be its chair, the CSWTC would be located, for administrative purposes, under the jurisdiction of the Governor's Office.

The selection of the commission's chair had everything to do with the incumbent Secretary of State, March Fong Eu, and absolutely nothing to do with the Secretary's role in state government, which is to serve as the state's chief elections officer and the keeper of various sets of official records. Historically, the job had none of the diplomatic prerogatives associated with the U.S. Secretary of State.

As a long-time exponent of world trade, the durable Mrs. Eu, a Democrat who has been Secretary of State since 1975, seemed a likely enough choice to lead an invigorated state trade effort. The possibility that Mrs. Eu's successors might not share her passion for world trade was tacitly dismissed by the Legislature as was the even more important consideration that governors, whatever their party affiliation, are normally loathe to cede power to other constitutional officers.

A Tom Bradley victory in November 1982 would have eventually tested the chair's authority. But the election of George Deukmejian definitely insured that the CSWTC, chaired by a Democratic officeholder, would have little chance to assert its statutory responsibility for supervising the trade-related activities of the in-coming Republican administration.

This decidedly odd arrangement did not at first give rise to any major problems, but only because the new Governor did not seem especially interested in trade issues during his first term. To be sure, Deukmejian regularly attended Commission meetings, but he took no active role in devising a coherent administrative framework by which to manage the new international programs that would eventually be coming on line.

For its part, the Legislature shared much of the Governor's ambivalence regarding the need for formal structures. (Not until September 1989 did the Legislature finally empanel a Joint Committee on International Trade after several years of experimenting with half-measures.) It did not, however, share the Governor's slowness to act.

Just one year after the CSWTC became operational in 1983, the Legislature took two major steps to augment the state's ability to aid exporters. To aid small and medium-sized California firms in obtaining commercial loans for export transactions, the Legislature approved a bill authored by Democratic Senator Rose Ann Vuich to create, under the auspices of the CSWTC, an Export Finance Office. It also passed a measure introduced by Democratic Assembly Member Gwen Moore to fund a study of the feasibility and desirability of re-establishing overseas trade offices. (The state's last overseas office, in Frankfurt, West Germany, had been closed down in 1967 by then Governor Ronald Reagan.)

The next year saw passage of legislation authored by Democratic Assemblyman Norm Waters to establish an Agricultural Marketing Incentive Program. Administered by the California Department of Food and Agriculture, this matching fund program enables California farmers to mount expanded sales promotion and marketing campaigns abroad. (California growers who routinely grouse about the disproportionate influence Japanese farmers seem to exert over their government might find an uncomfortable parallel here. The program is currently authorized to dispense some $5 million in grants annually or approximately half of all state funds earmarked for export promotion efforts, even though farm products account for no more than ten percent of California's $40 billion a year export trade.)

1986 proved to be a year of both expansion and consolidation in the state's international bureaucracy. In addition to the programs operated by the CSWTC and the CDFA, somewhat more modest international programs had blossomed elsewhere in state government. Over at the California Energy Commission, an innovative program had been devised to help identify overseas markets for alternative energy technologies developed by California firms. At the same time, state Department of Commerce officials continued to extend their mandate for attracting new business to encompass the solicitation of foreign investment. (DoC eventually sanctified this assumption of responsibility by formally establishing an Office of Foreign Investment in 1988.) Elsewhere within the Commerce Department, the Office of Tourism was laying the foundation for a major campaign to attract more foreign travelers to the Golden State. Finally, some reference should be made to the Office of California-Mexico Relations even though its precise role in recent years has generally defied description.

Having presumably grown weary of watching its unhappy two-headed creation, the CSWTC, lurch about Sacramento's bureaucratic landscape, the Legislature enacted a reform measure by Speaker Brown. As a result, the CSWTC was placed more directly under the Governor's control by giving him the right to appoint a majority of the commissioners and to select the chair. By then, however, too many new programs and players had entered a virtually un-refereed game, and each agency guarded its corner of the field jealously. The implications of these confused circumstances soon became starkly evident as the state set about opening overseas office.

To no one's real surprise, the study that resulted from Gwen Moore's 1984 bill concluded that such facilities were in fact desirable. With both the Legislature and the Administration in agreement on this point, the only question was where to put the overseas offices on the Administration's organization chart. Up to this juncture, the individual programs could operate in relative isolation. In any case, the absence of any formal mechanism for coordinating the state's international programs had not elicited much in the way of hand-wringing. But with the opening of the first overseas offices on the horizon, the issue had to be joined. Under whose aegis would these offices operate? The California State World Trade Commission? The state Department of Commerce? The California Department of Food and Agriculture?

Unwilling to spark a nasty bureaucratic feud by selecting one of the above, the administration was equally disinclined to embrace the option advocated and thus possibly preempted by Lieutenant Governor Leo McCarthy. At a September 1986 meeting of the CSWTC, McCarthy proposed that a cabinet-level official be designated as the state's trade "tsar" responsible for coordinating all international programs as well as supervising the overseas offices.

In the end, the Administration's solution to the problem effectively side-stepped the bureaucracy by declaring that the state's new outposts abroad would be run directly out of the Governor's Office. To insure that everything ran smoothly, the Governor would have a member of his staff act as his World Trade Coordinator.

This was a novel arrangement. As a secretariat of fewer than one hundred people, the Governor's Office was never designed to administer programs. It is more or less the chief executive's private fief, existing apart from the vast state bureaucracy and operating behind the veil of executive privilege and thus beyond the reach of legislative oversight.

Although ingenious, this arrangement gave rise to at least as many problems as it resolved. For one thing, the overseas offices exist solely at the pleasure of the governor since they were established by gubernatorial fiat and not by statute. The nightmare haunting supporters of the overseas offices features a future governor -- one less concerned about international trade -- facing a severe budget crisis. Looking for a politically dramatic gesture, that governor could find the overseas offices, which account for a quarter of the Governor's Office budget, too tempting a target for extinction.

The vulnerability of these overseas offices, together with what many regard as an excessively informal manner with which the state's international programs are now coordinated, has led to calls for further reform. In 1987, for example, the state's watchdog Little Hoover Commission chastised the administration by observing that: "California's trade activities are too dispersed among agencies to allow coordination and accountability. Furthermore, the existing structure of trade activities does little to ensure longevity."

The Little Hoover Commission report also questioned whether the individual picked by the Governor as his World Trade Coordinator had either the appropriate background or the time to also handle the considerable responsibilities of World Trade Coordinator.

More recently, a special committee of the CSWTC, headed by Robert Monagan, has offered its own plan for a more formal mechanism for coordinating (and perhaps even insuring the survival of) the state's international programs. Monagan, of course, is no renegade. Apart from being Deukmejian's choice as chairman of the CSWTC, he is among the California's most respected and well-liked public figures.

Despite such urging, however, the Governor, especially in his final year in office, is not apt to concede the existence of critical flaws in the machinery of his Administration. Even though further re-organization of the state's international bureaucracy is inevitable, it is not likely to occur until after California's next governor takes office next January.

But suppose the next chief executive is inclined toward parsimony and demands greater accountability from program managers. Such things happen. To what extent, then, can the international programs be justified as worthwhile investments of taxpayers' money? Unhappily, there is no easy or straightforward answer.

From a macroeconomic perspective, termination of the state's export promotion programs would not have a statistically significant impact on California's $40 billion a year export trade. Even assuming that a reliable method could be devised for measuring the benefits produced by these programs, the numbers would only represent shares of one-tenth of one percent of the total export trade. A half-cent shift in the value of the dollar overseas would have a much more dramatic impact.

Similarly, state government's efforts to convince foreigners to invest in California's economy have no statistically appreciable impact on the billions of dollars of foreign investment funds flowing into California each year. (In the event the public's growing apprehension about foreign investment leads some to doubt the wisdom of having an Office of Foreign Investment, that agency's best defense, ironically, may be its own relative unimportance in the broad sweep of economic life.)

But why should such relatively modest programs be expected to have a measurable influence on the international commercial relations of the world's eighth largest economic unit? A more appropriate question may be whether these programs pay their own way, so to speak, by stimulating enough new economic activity to provide taxpayers a reasonable return on their investment. Sadly, though, the economic benefits imparted by these programs resist measurement.

To what extent, for example, did an appointment arranged by the state's London office result in an export sale? How much did a briefing by an Office of Foreign Investment staffer figure into a Canadian company's decision to build a factory here? To what degree was a French couple persuaded to holiday in California by the Office of Tourism brochure they read? How critical was the trade lead provided by the CSWTC's Office of Export Development in landing a new export contract?

As these questions suggest, the problem of gauging the results of such "interventions" is really one of apportioning credit for positive outcomes. There are simply no ready formulas for doing so.

(An exception is the Export Finance Office, which makes a persuasive case that, since its inception in 1985, it has supported over $160 million in export sales that probably would not otherwise have occurred. Similar claims on behalf of other programs are generally much less convincing. Some are based on surveys characterized by ambiguous questions, outlandish assumptions and untenable conclusions, while others depend on testimonial letters and other anecdotage that gush with insincerity.)

Although program managers should not necessarily be expected to defend themselves with statistical data as though they were loan officers at an ailing S&L, neither should they neglect the importance of setting and then meeting specific objectives. Even though there may be no way of calculating the precise economic impact of the state's international programs, there should be some means of determining that the right things are being done. While there is currently a strong consensus that California's international programs have been valuable additions to the state bureaucracy in recent years, the twin dangers of complacency and self-delusion stand as challenges that future re-organization plans must overcome.

In the final analysis, the programs' greatest value may be symbolic. By emphasizing the importance of expanded exports and demonstrating the state's earnest commitment to this end, they advance a crucial public policy interest. The fact that these programs, notwithstanding the evident absence of adequate coordination, often help make a difference for a steadily growing number of California businesses and the people they employ constitutes a splendid bonus.

Copyright (c) 1989 by Jock O'Connell
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