Jerry Brown's Challenge: Promoting California's Interests in a Global Economy

By Jock O'Connell

This op-ed appeared in the Sacramento Bee on Wednesday, December 29, 2010, as part of a series on the challenges facing California and Governor-Elect Jerry Brown.

By the time the final numbers are counted, California firms will have exported some $145 billion in merchandise plus another $85 billion in services in 2010. Together, these exports account for more than 12 percent of the state’s $1.9 trillion gross state product. Apart from enriching the state’s economy with an infusion of foreign money, exporting enterprises typically pay higher wages than do most other businesses. And with the dramatic rise of China, India, Brazil and several other fast-emerging economies, more and more of the world’s consumers and wealth are going to be found overseas.

So boosting California’s already considerable export trade should be central to Gov.-elect Jerry Brown’s economic development strategy, right?

Not so fast. Policymakers at the State Capitol need to appreciate there is a vast difference between export promotion and the infinitely more consequential imperative of bolstering the competitiveness of California industry in a global economy. That the former is a much more facile undertaking than the latter regrettably seems to endear it to many elected officials.

Here’s a case in point. While testifying before a legislative hearing not long ago, I was interrupted by an Assemblyman who suddenly felt obliged to warn all present that California’s export trade was gravely imperiled because the state had no trade promotion offices in vital markets around the globe. As someone who has had more than a passing acquaintance with state trade programs over the past three decades, my dismay at his remark bordered on the apoplectic.

Perhaps, I thought, he was forgetting that the last “vital market” in which the state of California saw fit to maintain an overseas outpost was Armenia, a geopolitically-isolated country with an economy literally half the size that of the city of Modesto. Or maybe he was unmindful that newspaper reports revealing a fetid mixture of mendacity and incompetence in managing the state’s foreign trade programs had prompted the Legislature to abolish the entire Trade and Commerce Agency in 2003. Or possibly he merely regretted that there no longer were state offices scattered around the world to provide concierge service for junketing legislators.

But what struck me as most astonishing about this lawmaker’s fear was his belief that California’s commercial interests overseas could not be properly represented unless it was via an agency of state government. In effect, he was confusing the “State of California” with the “state” of California. Clearly, here was an individual who had to get out of the Capitol more often. For the fact is that the California in which the rest of us live and work is superbly represented by legions of very knowledgeable, thoroughly trained individuals who work for the tens of thousands of California businesses engaged in international trade. Few contrasts could be sharper than the one between these representatives of California and the staffers of our now shuttered state trade offices, many of whom were politically-connected souls with no experience in transporting anything other than their own luggage across borders.

Even if our impecunious state government had the funds to resurrect its former but richly unlamented trade programs, this really is a policy area where a bit of humility should trump a lump of hubris. International trade, it should be understood, is preeminently a function of macroeconomic factors and policy decisions taken by national governments and central banks. Even in a state as large as California, the chief executive simply lacks the power to influence international trade flows to a statistically appreciable extent, particularly in the near-term. As much as California politicians might like to boast that, were it a sovereign nation, the Golden State would rank as the world’s eighth largest economy, it is not. Rather, it is an integral part of a tightly woven, continent-wide marketplace whose major economic levers are pulled in Washington, D.C., and New York City. And it is increasingly being drawn into a global economy whose future seems increasingly likely to be determined by forces well beyond our shores.

While export promotion has been a dubious state enterprise, enhancing the state’s economic competitiveness in a global marketplace is an obligation not to be shirked.

In this regard, a governor’s responsibility starts at home with some less than glamorous fundamentals. In particular, he must champion efforts to build a workforce with the education and adaptive skills globally competitive companies will need to succeed in a rapidly changing competitive environment. He must also deal with a crippling under-investment in the state’s infrastructure, especially where the movement of goods is involved.

Instead of jetting off on overseas trade missions, the governor should recognize that, in furthering California’s interests in the global economy, the most important “foreign capital” is Washington, D.C. Rather than trying to pretend to be dabbling in business, this is a milieu in which a consummate politician should thrive. In particular, the governor should strive to ensure that federal trade policy better reflects the often distinctive interests of California’s diverse mix of industries. California, for example, has an enormous stake in easing existing controls on certain technology exports to America’s closest allies.

To identify and clarify other compelling international trade interests, the governor would profit from ongoing advice and guidance from executives from both the largest multinational corporations and the smallest exporters. Perhaps this advisory function could be assigned to Commission for Economic Development, chaired by the lieutenant governor.

While export promotion may not be an activity with which state government should be trusted, promoting California as a place for foreign investment is an unambiguously legitimate function state government can play.

Despite reputedly having a hostile business climate, California actually receives more foreign direct investment than any other state. Foreign-owned companies currently employ some 600,000 California workers. They tend to be concentrated in high value-added industries, they account for a disproportionately large share of our import-export trade, and their operations frequently entail transfers of valuable technology to California.

Whether because of xenophobia or an obsession with the political charade of export promotion, state policymakers have failed to devise a coherent strategy for persuading more foreign companies to establish a presence here. That is a lapse California can no longer afford in an age when more and more of the world’s supply of capital resides outside this country.

To help lay the groundwork for an investment attraction strategy, the governor might usefully form an advisory panel of foreign executives doing business in California to identify what exactly attracts foreign firms to California and equally what troubles them about doing business here. Information gained from this panel of foreign executives might even provide the governor and legislative leadership with a helpful template for broader regulatory reforms, especially since the panel’s views would apt to be less afflicted with the right-wing predispositions of pretty much every major organization that currently purports to represent the interests of business in California.