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California's State Trade Programs:
Economic Assets or Political Props?
By Jock O'Connell

Email: jockoconnell@gmail.com

This is the author's text of a commentary that appeared in the June 2000 issue of Comstock's Business magazine.

Back in the early 1980s, California's political leadership, troubled by America's ballooning foreign trade deficit, created a battery of programs and services intended to help small and medium-sized California companies exploit export opportunities. Since then, California's exports of goods and services have increased dramatically. Merchandise exports have risen from $29 billion in 1987 -- the first year state-of-origin export figures were collected -- to $108 billion last year. (Always difficult to measure exports of services amounted to $50-$60 billion last year.)

The growth of exports has been accompanied by a gradual expansion of the trade promotion programs offered by the state government. Today, the state's lead agency for international trade promotion, the California Trade & Commerce Agency (TCA), operates an Export Development Office, which coordinates California companies' participation in international trade shows and dispenses trade leads, and an Export Finance Office, which provides loan guarantees to assist small and medium-sized California firms in financing export transactions. TCA also maintains foreign trade offices in Tokyo, London, Frankfurt, Hong Kong, Mexico City, Jerusalem, Shanghai, Taipei, Johannesburg, Seoul and, most recently, Singapore. Plans are currently in the works for additional facilities in Canada, South America, the Philippines, and India. The current price tag for TCA's international trade activities comes to nearly $14 million.

Also lending a hand to California businesses searching for new foreign markets are the California Department of Food and Agriculture, which maintains separate programs to aid agricultural exporters, and the California Energy Commission, which assists small alternative energy companies sell their products and technologies abroad, chiefly in developing countries.

Now to the question that predictably sets the cat amongst pigeons: How valuable are these trade programs? The answer depends on whom you ask. To hear some state officials talk, these programs -- especially the proliferating network of foreign trade offices -- are absolutely indispensable to California industry's ability to penetrate foreign markets. That sort of political rhetoric is, of course, patently absurd. For one thing, the vast bulk of California's international trade is conducted by major corporations like Hewlett-Packard, Oracle, and Intel, which have little or no need for state government's relatively modest services. Moreover, as periodic surveys have revealed, most small and medium-sized California firms are not even aware of the state's trade promotion services.

Even with these obvious handicaps, TCA insists its programs helped generate some $1.8 billion in exports in 1998 the last year for which such data are available. This would represent a considerable return on taxpayers' investment. But almost no one outside state government gives much credence to such claims.

According to a study published last spring by the Institute of Governmental Affairs at UC Berkeley, California's trade programs make a negligible contribution to the state's export trade because they are fragmented, poorly managed, and lack 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."Similar conclusions have been reached by the California State Auditor and the bipartisan Legislative Analyst's Office. In a 1996 report, the State Auditor faulted TCA for not having devised adequate tools for measuring and therefore assuring program effectiveness. For its part, the Legislative Analyst has repeatedly urged the Legislature to demand harder data on the foreign trade offices before providing additional funding.

Over the last year, reports in the Sacramento Bee and The Wall Street Journal have raised serious questions about the quality of the state's trade promotion effort. In an article last October 9, Wall Street Journal reporter Mitchel Benson described the programs as being at "the dangerous intersection of two long-standing California traditions: patronage politics and the state's zeal for exports and foreign investment."

Benson's point is a valid one. The state's international trade programs (and again most notably, the overseas trade offices) represent a means to certain political ends which have no real bearing on California's commercial needs. Thus, even though the Legislature has regularly challenged TCA to come up with harder figures to justify existing foreign trade offices, it has not been slow to vote funds for new trade offices. The reason for this policymaking irony is that sponsoring the creation of yet another overseas trade office is the easiest way for a California politician to publicly demonstrate his or her internationalist credentials. It's also a means for appeasing specific political constituencies whose true agendas may or may not be commercial. As political writer Dan Walters observed in his Sacramento Bee column on March 21: "The number and location of the trade offices have been dictated by political whim rather than any rational policy."

The sad truth is that the state's foreign trade programs have become so thoroughly politicized over the years that the programs are now more valuable as props in political theater than as commercial assets. For evidence, one need look no further than the California State World Trade Commission, a body originally created to provide state leaders with expert advice from members of California's international business community. Yet actual traders are a distinct minority on the current commission, whose eleven private sector members include five real estate developers, two restaurateurs, and a hospital administrator.

Worse still is ample evidence that the decision-making loop for international trade programs does not extend much beyond the State Capitol. Private foreign trade associations such as the Foreign Trade Association of Southern California and the California Council for International Trade have long complained that they are seldom consulted about the suitability of the state's trade programs. A report entitled "California Trade Policy," published last November by the California Research Bureau points out that, in preparing its Foreign Office Location Study in 1998, TCA officials -- few of whom have any appreciable international business experience -- failed to solicit input from actual exporters.

With the supposed clientele having so little say, it's not surprising that the current trade programs have only slowly adapted to monumental changes in the way international business is conducted. A monthly newsletter, Clearinghouse on State International Policies, regularly showcases innovative export promotion programs. Yet it has been many years since the newsletter trumpeted a California program.

Since taking office in January 1999, the Davis administration has indicated a willingness to conduct a thorough review of the state's trade policies and programs. TCA has promised that the results of this review will be made public this spring. If so, it will be the first time members of the state's international business community will have to hear what the no longer so new administration has in mind.

Fortunately, there is reason to hope that state trade programs will become more responsive to the needs of exporters. At its April board meeting, the Sacramento-based Inland International Trade Association Inc. (IITAI) formally established a committee to determine how it might serve as a vehicle for conveying the desires and frustrations of the state's international business community to state government officials.

Founded in 1979, IITAI bills itself as a grassroots organization that provides its approximately 100 corporate and individual members a vehicle for networking and sharing information about trade opportunities. As for adding a new role as spokesorganization for the state's foreign trade interests, Nick Bartsch, its current president and a former consultant to the Assembly International Trade Committee, submits that "very simply, IITAI is uniquely situated to serve as a conduit between California's traders and key decision-makers at the State Capitol." Given the growing significance of international trade to California's economy, IITAI's initiative is a welcomed if long overdue step.

Copyright 2000 By J.A. O'Connell


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