Does California Really Need Overseas Trade Offices?

By Jock O'Connell

(This article originally appeared on the Op-Ed page of the San Francisco Chronicle on May 2, 1994.)

Governor Pete Wilson wants the Legislature to appropriate $300,000 so he can open a "full service" state trade office in Taiwan. At first glance this may look like a meritorious, pro- business, internationally-minded idea. Upon closer scrutiny, however, it's difficult to see just what -- other than the generous gratitude of certain pro-Taiwanese interests -- Wilson expects to gain by this proposal. Even if this were not a time when the state has no business looking for new ways of spending money it doesn't have, the Legislature should be taking a critical look not only at the alleged necessity of a Taiwan office but also at the largely unproven value of the state's five existing trade offices in Tokyo, Hong Kong, Mexico City, London and Frankfurt.

The Taiwan proposal should raise eyebrows for a number of reasons. For one thing, California already sells more to Taiwan than do the states of Texas, New York, Washington, Michigan, Illinois and New Jersey combined. How the Wilson administration expects to improve on this remarkable record by posting a couple of state workers to an office in Taipei's World Trade Center is hard to fathom.

Then there is the matter of the proposal's odd provenance. Taxpayers hoping that their money is being wisely spent might be disappointed to learn that the administration undertook no feasibility study before determining California should have a trade office in Taiwan. Officials at the state's Trade & Commerce Agency maintain that the decision was made by the Governor himself following his visit late last year to the diplomatically isolated island nation of some 21 million people. Nor did the administration confer with the state's two principal international trade organizations, the San Francisco-based California Council for International Trade and the Los Angeles-based Foreign Trade Association of Southern California. Had it done so, it would have been politely but firmly urged to remedy a number of long-standing deficiencies in the state's overseas office program before adding yet another outpost.

Indeed, the existence of what, from a business executive's point of view, are some especially glaring problems with the management of these offices was implicitly confirmed by the California World Trade Commission when, at a meeting this past January, it established a special committee to draw up a formal business plan for the overseas offices. For reference, the first of the state's overseas offices was opened in Tokyo in January 1987. (Despite its title, the commission, now part of the Trade & Commerce Agency, has never had a direct say in running the state's foreign trade offices.)

From the time the first of the overseas offices was opened in Tokyo in January 1987, they have been operated on pretty much the same principle as the old corner Five-and-Dime store which advertised that it offered nearly everything a customer could want, so long as the customers weren't too discriminating. Although scandalously under-staffed, California's foreign offices are expected to help just about any California businessperson who telephones, writes, faxes or wanders in off the street looking for assistance in developing an export market. At the same time, overseas office personnel are charged with drumming up foreign direct investment in the Golden State, with persuading a few foreigners to include California in their vacation plans, and with catering to the needs of any politicians from Sacramento who might show up.

While there are many who believe that the overseas offices can be run more effectively and efficiently, the real issue may be whether the state is justified in maintaining an overseas office program at all. To a growing number of critics, these offices are no more useful in promoting exports or attracting foreign investment than the fetishes waved by primitive shamans are in warding off evil spirits or in summoning good fortune. Notwithstanding the sometimes surreal claims of state officials, it is preposterous to think that these offices have a statistically significant impact on California's $70 billion a year export trade or on the billions of foreign investment dollars annually channelled into the state. In the understated view of Professor Susan Friedman, an economist at Penn State University who has been studying state international trade programs, "these offices are really not very important in fostering export growth."

Not all states share California's enthusiasm for foreign trade offices. A number of them, including Texas, Pennsylvania and Maryland, have closed down some or all of their overseas offices. In one particularly intriguing case, Connecticut -- second only to Washington State in terms of its economy's dependence on manufactured exports -- pulled the plug on all of its overseas offices in 1992. The result has been ironic, to say the least. Last year, Connecticut's merchandise export trade rose by 10.8%, while California's was up a mere 2%.

And sheer ineffectiveness may not be the worst problem. Carol Conway, editor of "Clearinghouse On State International Programs," a newsletter published by the North Carolina-based Corporation for Economic Development, is irritated that politicians often try to pretend that support for foreign trade programs somehow compensates for a lack of adequate investment in education and infrastructure programs. The reason, she points out, is that "state international trade programs are very glamorous but relatively cheap; roads and schools are neither." Unfortunately, her concern seems especially pertinent here in California, where an April 1994 report by the non-partisan Center on Budget and Policy Priorities in Washington, D.C., attributed much of the state's economic and fiscal malaise to the failure of state officials for at least two decades now "to maintain adequate investments in human and physical resources that help promote economic growth."

Conway's lament may also shed some light on why most of those elected officials who champion state trade offices abroad would doubtless scoff at the notion of assigning a couple of state employees to an office in some far away place whose strange-sounding name happened to be Massachusetts. But if the state's aim is to promote economic growth and job creation in California, where the customers live is not particularly relevant. A million dollar shipment of computer chips to Singapore is as valuable as a million-dollar shipment to a firm in Boston. What makes special treatment for exporters all the more suspect is that, despite the attention lavished on global trade, most business is still conducted this side of the water's edge. California's $70 billion in merchandise exports and its estimated $30 billion in service exports last year amounted to no more than 13 percent of its gross state product.

The standard explanation for why small and medium-sized California companies need the hand from a state agency in London or Frankfurt but not in Boston or Atlanta is that these firms require all the help they can get in coping with much more opaque market conditions abroad. But this answer only skirts the real question: what specific services can the state's overseas trade offices provide that are not readily available in the private sector? If, as seems to be the prevailing judgment outside the State Capitol, these offices are at best doing a mediocre job at duplicating services obtainable elsewhere, then why are taxpayers in effect subsidizing presumably profitable companies seeking to develop a market in Japan or Germany but not those California firms looking for new business opportunities in Florida or Illinois?

California can't afford yet another bureaucratic bauble with a vaguely defined mission in a market in which California businesses already do exceptionally well. Instead of appropriating $300,000 for the proposed Taiwan facility, the Legislature should be challenging the shoddy management practices as well as the specious assumptions underlying the current overseas office program. Whether it will is an open question. But certainly the prospect of a Democratically- controlled Legislature inquiring why a Republican administration cannot concede that there may just be some things, like foreign market development, that the private sector can do better than government would be almost too ironic to contemplate.

Copyright(c) 1994 by J. A. O'Connell

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