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The Political Hijacking of California’s Foreign Trade Programs

By Jock O’Connell

Email: jockoconnell@gmail.com

Throughout the 1986 gubernatorial campaign, the Democratic candidate, Los Angeles Mayor Tom Bradley, regularly chided his Republican opponent, Governor George Deukmejian, for actually boasting about not having a U.S. passport. Apart from seeking to belittle his opponent, Bradley’s jibe was intended to highlight just how much he and Deukmejian differed over whether the governor -- and by extension state government – could play a constructive role in promoting exports and attracting foreign investment to the Golden State. (For the record, the incumbent’s usual retort was: “Tom Bradley has seen more foreign airports than a lost suitcase.”)

Today, when the word “globalization” regularly falls from politicians’ lips, it does seem a bit odd that the chief executive of California – a fabulously cosmopolitan state even then being touted as one of the world’s largest economies -- could be so proudly provincial. It now also seem self-evident that state government should play an aggressive role in promoting California’s interests in the emerging global economy.

Yet to a conservative like Deukmejian, international trade was manifestly the business of businesspeople. He was instinctively dubious of the proposition that state government should start offering services that far more experienced hands in the private sector were already providing. By contrast, a clutch of Democratic politicians including Bradley, the late state Senator Rose Ann Vuich of Dinuba, Assemblywoman Lucy Killea of San Diego, and Lt. Gov. McCarthy firmly believed that the state could play a meaningful role in helping small and medium-sized California companies find their way to new markets overseas. And much of the state’s international business community was inclined to agree with them.

In retrospect, Deukmejian should probably have listened to his instincts. If the experience of the intervening years has shown anything, it is that state government simply cannot be trusted to run international trade programs. Instead of being commercial assets, California’s foreign trade programs – most conspicuously the state’s dozen trade offices located around the world – have been cynically treated as glamorous props in a political theater where appearance trumps substance. Not surprisingly, these programs – with one notable exception – have come to be regarded with contempt by California’s international business community, the very constituency they were originally intended to serve.

How did this perverse situation come to pass? The story begins twenty-one years ago with a mischievous piece of legislation introduced by none other than Willie L. Brown, Jr.

In 1982, America’s economy seemed to be under siege from abroad. Japan and Western Europe loomed as economic juggernauts whose industrial policies, manufacturing methods, and innovative products all appeared vastly superior to anything our side could muster. A hitherto obscure economic statistic, the monthly merchandise trade deficit, became the most closely watched barometer of the nation’s plight, and, as it soared during the decade (from $19 billion in 1980 to a peak of $151 billion in 1987), the American public grew more and more anxious.

Across the nation, that rising level of anxiety drove elected officials at every level of government to cast around for some way in which they could help restore a trade surplus. Even politicians closely associated with free market, laissez-faire economic doctrine came around to the view that – if only for appearance sake -- some manner of government intervention was required to help American industry parry the foreign challenge. Even George Deukmejian belatedly joined the parade, if only because organizations like the California Chamber of Commerce and the California Manufacturers Association expected it of him.

Never mind that the deficit was the result of broad macroeconomic forces over which state and local leaders had absolutely no control. The public wanted action, and – as it altogether too common in times of crisis -- the public wasn’t all that particular about who did what so long as it seemed vaguely appropriate. So state export promotion programs (including trade offices overseas) became the rage, while county and municipal officials discovered the virtues of “Buy American” public procurement policies aimed at discouraging imports.

Among the first in California to recognize a major political issue in the making was Assembly Speaker Willie Brown. In 1982, Brown introduced legislation to replace a moribund California Office of International Trade with a high-profile California State World Trade Commission. COIT, buried deep within the bowels of the old Department of Economic and Business Development had become a halfway house for defeated legislators looking either for a glamorous new career or a reason not to spend more time with their families. By contrast, the new Commission would have genuine star-power by putting California’s governor, lieutenant governor, and secretary of state at the same table with luminaries from the state’s international business and financial community.

Brown, however, could not resist the temptation to tweak an otherwise sensible proposal to suit his political whims. While placing the new Commission under the administrative purview of the Governor’s Office, Brown’s bill named the secretary of state to chair the Commission. Brown thus endowed his creation with two political heads.

The choice of the secretary of state had 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 categories of official records. Brown’s decision was a blatant sop to the incumbent secretary, March Fong Eu, a fellow Democrat and a long-time exponent of world trade.

The very likely possibility that a future secretary of state might not share Ms. Eu’s affinity for international trade or that any governor, regardless of party, might be unwilling to share the limelight with another elected official did not deter the bill’s passage. Brown obviously had high hopes that Tom Bradley would not only win the 1982 gubernatorial race but could somehow be persuaded to work with the incomparably insufferable Ms. Eu.

But Brown had it wrong. The Republican, George Deukmejian, won, and the new Commission was off to a decidedly awkward start. (Four years later, in the so-called “Eu Coup,” Speaker Brown carried reform legislation, stripping the constitutional officers of their voting rights on the Commission and permitting the governor to appoint a majority of the Commission’s members as well as the panel’s chair. The Commission, Brown told a Sacramento Bee reporter, had “become an embarrassment.”)

Although Deukmejian was far from enthusiastic about the state taking an active role in trade promotion activities, he did not explicitly discourage the initiatives of others to establish foreign trade programs. Through the middle of the decade, there was a substantial burst of creativity envied by other states. Foremost among these was the establishment of the California Export Finance Office. The result of legislation introduced by Sen. Vuich, CEFO was unique in that it addressed a glaring deficiency in the private marketplace. For various reasons, commercial banks were notoriously skittish about financing export transactions by smaller companies. By guaranteeing hundreds of such loans to California firms since 1985, CEFO has been instrumental in securing the financing for some $1.7 billion in export sales that would most likely not have occurred otherwise.

Another measure, carried by Assemblyman Norm Waters, created an Agricultural Marketing Incentive Program, the forerunner of the current Agricultural Export Program administered by the California Department of Food and Agriculture. Meanwhile, Assemblywoman Gwen Moore sponsored a measure calling for a study of the feasibility and desirability of having state trade offices abroad.

Trade promotion initiatives were not confined to the Legislature. The California Energy Commission devised an innovative program to identify overseas markets for alternative energy technologies developed by California firms. The state Commerce Department formally established an Office of Foreign Investment, while its Office of Tourism prepared a major campaign to lure more foreign travelers to the Golden State. (A parenthetical reference should be made to the Office of California-Mexico Relations, even though its activities over the years have invariably defied description.)

What had everyone at the Capitol excited, though, was the prospect of opening state trade offices around the globe. The study commissioned by Gwen Moore’s bill predictably concluded that such offices were in fact desirable. So in January 1987, George Deukmejian – freshly minted passport in hand – flew to Tokyo to cut the ribbon of California’s first overseas trade office since Ronald Reagan closed the last one on Frankfurt in 1967. Other offices would follow.

Enthusiasm, however, does not suffice for effectiveness. The "international" bureaucracy cobbled together during the Deukmejian era was hardly a model of administrative excellence. Responsibility was fragmented and authority compartmentalized in a system that lacked clear direction. Most conspicuously lacking was a coherent strategic plan coordinating the activities of the California-based programs with the new overseas trade offices. When pressed by the legislature to provide such coordination, Deukmejian responded almost maliciously. Instead of turning over the assignment to a trade professional or one of state government’s senior executive Mandarins, he handed the job to one of his speechwriters. It was not a move geared to inspire the business community’s confidence.

Then came Pete Wilson. At first, at least, Wilson seemed a better bet to provide the missing leadership in international trade. Less conservative and certainly more cosmopolitan than Deukmejian, Wilson had also taken a keen interest in foreign trade issues during his years in the U.S. Senate. Ultimately, though, Wilson proved to be an even larger disappointment to those who hoped for a more professional attitude toward the state’s trade promotion effort.

Ostensibly to bring greater coordination and accountability to the state's disparate foreign trade programs, Wilson signed legislation in 1992 that merged the World Trade Commission and the Department of Commerce (the successor to the Department of Economic and Business Development) into a new cabinet-level Trade and Commerce Agency. It would not be a happy marriage. In its eight years in existence, the Commerce Department had earned a reputation for being a refuge for individuals more skilled at running political campaigns than managing public agencies. It was almost natural, therefore, that any moves made by trade agency personnel were first evaluated by how well they served Pete Wilson’s political objectives and only secondarily (if at all) in terms of how well they served the interests of California’s international business sector.

The practical effect was to further strain the ties between the state’s world trade community and state officials. Indeed, for the next decade, the World Trade Commission – whose fundamental purpose it was to link the two groups -- would linger in an abyss of irrelevancy as successive leaders of the Trade & Commerce Agency deliberately marginalized its role. Over the same period, Wilson, his successor Gray Davis, and the Legislature’s leadership consistently signaled their attitudes toward the state’s trade promotion effort by appointing a string of political cronies and campaign benefactors to the Commission. Well into Davis’s first term, wealthy real estate developers, financiers and restaurateurs vastly outnumbered actual world traders on the Commission.

The ascendancy of political over commercial considerations became especially manifest in 1994 when Wilson announced that California would open a trade office in Taiwan. The move raised eyebrows for a couple of reasons. For one thing, California was already shipping more merchandise to Taiwan than were Texas, New York, Washington, Michigan, Illinois and New Jersey combined.

Then there was the matter of the decision’s provenance. No feasibility study nor consultation with private trade organizations preceded Wilson’s decision. When pressed to explain the move, officials at the Trade & Commerce Agency maintained that Wilson himself had made the decision following a visit to Taiwan in late 1993.

So why Taiwan, then a nation of 21 million people with which California already enjoyed an abundance of trade? Clearly, something more than commerce was involved.

In all likelihood, the impetus for Wilson’s decision sprung from his need to shore up his tattered relations with the GOP’s rightwing during what was shaping up as a very difficult re-election campaign. Wilson’s moderate views on a wide range of social issues – especially abortion – had not sat well among the Republican Party’s more conservative elements, many of whom were also virulently anti-communists who sided with Chinese Nationalists on Taiwan ever since Chiang Kai-Shek was obliged to decamp to Formosa in 1949. For years, pro-Nationalist Chinese-Americans had been urging California politicians of both parties to open a state trade mission in Taipei. To those of us who were targeted by such lobbying, there was no question that a California trade office in Taipei would be trumpeted as a formal recognition of the diplomatically isolated nation by the largest and most prominent of the American states. There were promises to help finance the cost of such an office (Free rent for three years was frequently mentioned.). More invidiously, though, were the intimations that any California politician who might help plant California’s flag in Taipei would find campaign finance a less arduous challenge.

In 1994, Wilson was facing what looked to be a tough re-election race against Kathleen Brown. His poll numbers were depressingly low, and his desperation eventually led him to espouse an intensely controversial proposition to deny access to health, welfare and educational programs to undocumented aliens. Under the circumstances, the opening of a Taiwan office served Wilson’s immediate political interests infinitely more than it benefited California’s economy.

Indeed, the fact that Wilson never really saw the Taiwan office as a bridge to better trade relations was made abundantly clear when he appointed as the office’s first director a woman so conspicuously devoid of professional credentials that the Sacramento Bee pointedly covered her appointment in its society pages.

By then, though, serious questions were being raised about the efficacy of the state’s other overseas trade offices.

When Deukmejian opened the first offices in early 1987, the state’s international business 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.

Consider the context. The oft-repeated claim that the Golden State is the world's fifth or sixth largest economy scarcely does justice to the reality of an infinitely complex industrial dynamo that generates $1.3 trillion a year in economic activity. California’s merchandise export trade has averaged over $100 billion annually in recent years, while exports of services (always difficult to gauge) have added approximately $50 billion a year. Each day sees over 10,000 separate export shipments by the nearly 60,0000 California firms engaged in exporting. Meanwhile, some of the state's fastest-growing industries, most notably in the information technology and computer software sectors, earn billions from worldwide sales by manufacturing and selling their products overseas.

To insure that the state’s foreign trade offices were more than mere tokens, private trade groups such as California Council for International Trade and the Foreign Trade Association of Southern California and the Export Managers Association of California repeatedly pleaded that budgets for existing trade offices should be augmented and that reasonable business plans be implemented before additional offices were opened. It was advise that routinely went unheeded.

The consequences of such neglect have hardly been surprising. A study published in the spring of 1998 by the Institute of Governmental Affairs at UC Berkeley concluded that California's trade programs made a negligible contribution to the state's export trade because they were fragmented, poorly managed, and lacked even rudimentary business plans. The study's author, Robert Collier, was particularly caustic about the state's overseas outposts: "The foreign trade offices have been so poorly funded and staffed that they can do little more than answer phone calls and faxes."

Trade officials have tried to argue that the both the California-based trade programs and the overseas offices have been effective. But, with the exception of the export finance program, the evidence they have cited has convinced almost no one else. Indeed, in a 1996 report, the State Auditor faulted the trade agency for not having devised adequate tools for measuring and therefore assuring program effectiveness. Similarly, the Legislative Analyst has persistently urged the Legislature to demand harder data on the foreign trade offices before providing additional funding or opening new offices. (The Legislative Analyst’s review of the proposed 2003-04 budget recommends the elimination of all twelve of the state’s overseas trade offices because of their “questionable effectiveness.”)

But effectiveness no longer seems to be the criteria by which state trade programs are evaluated by the Legislature and the Governor. The Wall Street Journal observed that much in an October 9, 1999 article by its West Coast correspondent, Mitchel Benson. The state’s foreign trade programs, Benson wrote, are at "the dangerous intersection of two long-standing California traditions: patronage politics and the state's zeal for exports and foreign investment." It was a view echoed over a year later by Dan Walters in his March 21, 2001 column in the Sacramento Bee: "The number and location of the trade offices have been dictated by political whim rather than any rational policy."

Following Wilson’s Taiwan office precedent, legislators took to introducing bills calling for new trade offices in locations that had little to do with commercial realities but everything to do with the politics of ethnicity or personal preference. For example, no cogent explanation was ever given for a bill authorizing a state trade office in Calgary. But the bill’s author was known to be fond of duck-hunting trips to Alberta, the Canadian province of which Calgary is the capital.

The nadir was reached last year when the governor and the legislature evidently agreed that it was far more important that California have a foreign trade office in Armenia, a politically corrupt cul de sac of a nation with an economy no larger than an American suburban shopping mall, than it was to maintain the California Export Finance Office. (Even though the latter had accounted for $1.7 billion in California exports since 1985, its budget has been eviscerated and the program is effectively out of business. The moral of the Armenia story is clear: Spread around some campaign contributions ($10,000-$20,000). Promise to pick up the tab for the office in Yerevan ($150,000). Enjoy the privilege of doing business in your ancestral homeland under the auspices of the State of California (priceless).

Given these shameless shenanigans in Sacramento, it is no wonder that the state’s international business community has come to regard the state’s trade programs with the kind of scorn that professionals reserve for rank amateurs trying to pass themselves off as professionals.

By the late-1990s, the rupture between the state’s trade programs and the constituency they were originally intended to serve had become nearly complete. Since then a disrespectful distance has been observed by both sides. Organizations like the California Council for International Trade have chosen instead to focus their energies at the federal level in the hope of influencing U.S. trade policy in ways favorable to California’s often distinctive interests. For their part, as a report published in November 1999 by the California Research Bureau noted, trade agency officials tasked with preparing a Foreign Office Location Study the previous year had failed to solicit input from actual exporters. Despite a change in administrations, the indifference has persisted. In an exceptionally critical report in December 2001, the State Auditor complained that government trade officials in the Davis administration seemed averse to community outreach and had been loathe to coordinate their activities with other organizations engaged in export promotion.

What makes this official apathy 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 baggage overseas. Pete Wilson once named a San Diego socialite to run the state’s London office, the same post to which Gray Davis later reputedly tried to staff with a former girlfriend. On a subsequent occasion, the press release announcing a Davis appointment 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.

To be sure, Davis’s appointments, regardless of agency, have had much more to do with political loyalty than professional competence. Still, it was astonishing when he vetoed legislation in 2001 requiring that foreign-trade office personnel possess at least one year of international-business experience, along with minimal education and foreign-language qualifications, on the grounds that such mandates would "deprive the Trade and Commerce Agency of the flexibility it needs in hiring overseas staff."

***

Fiscal crises normally offer rare opportunities to exercise the budgetary equivalent of creative destruction. In this especially dire season of fiscal dread, the governor and the legislature have an opportunity to erase a legacy of years of worst-practice in governance. And there is something faintly immoral about preserving programs benefiting (at least in theory) profitable businesses when so many education, health, welfare and public safety programs are seeing their funding slashed.

Still, there are officials clinging to the lifeboat that is the state’s Technology, Trade & Commerce Agency who are praying for just enough funding to preserve the genetic code of the state’s trade programs for regeneration once the current fiscal storm passes. It is the same earnest but errant wish that inspires some to look forward to the day when a defrosted Ted Williams will once again patrol Fenway Park’s leftfield. After years in which the same shortcomings of the state’s foreign trade programs have been repeatedly noted and just as repeatedly ignored, there is no compelling reason to expect that the future will be any different. The foreign trade offices in particular have been a spectacular distraction – the policymaker’s equivalent of those glitzy zirconium gems that cads substitute for the real McCoy. It is time for the legislature to shutter them, although some consideration should be given to a government-to-government liaison office in Mexico City.

This is not to say that state government does not have a legitimate and useful role to play in advancing California’s economic interests in the global economy. What is needed is a new trade policy, specifically one not fixated on the delivery of retail services to individual firms but on the wholesale provision of services that benefit broad segments of the state’s international business community.

State government’s most important challenge is to help build the human and physical infrastructure needed for maintaining the state’s competitive edge in global trade. To that end, a fully independent World Trade Commission could usefully serve as a repository of advice, information and analyses to better inform the decisions of state and local officials. Altogether too much of what we think about trade is based on obsolete notions. New legislators, for example, are often surprised to learn that most of California’s exports (measured by value, not weight) go nowhere near the state’s major seaports but are instead are shipped by air. A keener awareness of such facts would immeasurably benefit state transportation planning.

A reconstituted Commission could also collaborate with the state Department of Education in devising curriculum components that would enable K-12 instructors to conduct lucid and balanced examinations of the issues posed by globalization. Similarly, the Commission could engage the state’s law and business schools to develop practical programs that would permit these professional students to focus on real-world problems being faced by actual California companies doing business abroad.

Ultimately, though, state government's most crucial role in ensuring the ability of California industry to compete successfully in the global market has nothing to do with foreign trade offices or gubernatorial trade missions. For no matter how useful export promotion activities may be, they are no substitute for sustained public investment in schools, infrastructure, and other projects geared to nurturing the long-term strengths of California’s economy.

Copyright © 2003 by J.A. O’Connell

www.jockoconnell.com