I want to thank the committee for the opportunity to testify today on federal export promotion programs. After more than a decade of hundred billion dollar deficits, it’s refreshing to see the close scrutiny this Congress is giving to these and many other government programs.
Recently, my colleague Stephen Moore and I released a Cato Institute report entitled “Ending Corporate Welfare as We Know It.” In that report, we compiled a list of over 125 spending programs—with over $85 billion in fiscal year 1995 outlays—that in one way or another provide unique advantages to specific industries or companies. It is our recommendation that all of those programs be terminated and the money be returned to its rightful owners, the American taxpayers.
Of course, not all of those 125 programs were in the form of export promotion programs. Nevertheless, in fiscal year 1995, the total outlays for just six of the major government export promotion programs came to nearly $2 billion. It is those six programs upon which I will focus my remarks.
Perhaps the most egregious of those six export promotion programs is the Agriculture Department’s $110 million Market Promotion Program (MPP), which provides private companies with taxpayer dollars to help offset their foreign advertising costs. In 1993 the MPP budget included nearly $1.5 million to promote mink furs, over $125,000 to promote frozen bovine semen, and nearly $120,000 to promote alligator hides. Much of this money goes to America’s largest corporations. For instance, in 1993 Sunkist received $6.6 million, Ernest & Julio Gallo received $4.9 million, the Dole Company received $1.6 million, M & M Mars received $1 million, Tyson Foods received $800,000, and Campbell Soup received more than $500,000.
The rest of the $2 billion in fiscal year 1995 outlays was spread over five other export promotion programs as follows:
1) More than $900 million for the Agriculture Department’s Export Enhancement Program;
2) $70 million for the Trade Development Program in the Commerce Department’s International Trade Administration;
3) $160 million for the International Trade Administration’s U.S. and Foreign Commercial Service; 4) Over $610 million for the Export-Import Bank; and
5) $110 million for the Agriculture Department’s Foreign Agricultural Service.
If the goal is to promote economic growth, I suggest that these six programs be terminated. Private individuals know far better how to make their businesses profitable than do government bureaucrats. Thus, the health of America’s businesses would be better served by the $2 billion currently spent on these six programs being returned to the hands of private individuals, rather than leaving it in the hands of government bureaucrats. What follows is a brief description of the six export promotion programs mentioned above and a critique of the arguments made by those who support such programs.
1) The Agriculture Department’s Market Promotion Program (MPP) provides taxpayer dollars to private companies and trade associations to offset the costs of advertising U.S. agricultural commodities and products in foreign markets. The program was started in 1985 as Targeted Export Assistance (TEA). The use of TEA funds was restricted to only those commodities said to be adversely affected by unfair foreign trade practices. When MPP replaced TEA in 1990, that restriction was lifted.
2) The Agriculture Department’s Export Enhancement Program allows foreign purchasers of U.S. agricultural commodities to buy those goods at lower prices than U.S. exporters would otherwise accept. The EEP compensates U.S. exporters for the difference between those two prices. In essence, American taxpayer dollars are used to enable citizens of other nations to purchase U.S. agricultural commodities at lower prices than U.S. consumers themselves can purchase those goods.
3) The Trade Development Program in the Commerce Department’s International Trade Administration (ITA) uses taxpayer dollars to assess the competitiveness of various U.S. industries, perform trade and investment analyses in support of industry programs and trade policies, and conduct export promotion programs directed toward specific industry sectors.
4) The ITA’s U.S. and Foreign Commercial Service seeks to increase the number of U.S. firms that export and the number of foreign markets to which they export. It uses taxpayer dollars to provide counseling to U.S. businesses on exporting (through 47 district offices in the U.S. and overseas offices in 62 countries), to provide export market information, and to promote and facilitate participation of U.S. firms in trade shows.
5) The Export-Import Bank (Eximbank) uses taxpayer dollars to provide subsidized financing to foreign purchasers of U.S. goods. Eximbank makes direct loans to those buyers at below- market interest rates, it guarantees the loans of private institutions to those buyers, and it provides export credit insurance to exporters and private lenders. According to the Congressional Budget Office, in the 60 years of its existence, Eximbank has lost $8 billion on its operations—most of that in the last 15 years. In addition, the new subsidy costs for Eximbank are estimated to be about $800 million a year.
6) The Agriculture Department’s Foreign Agricultural Service (FAS) uses taxpayer dollars in an effort to increase the exports of U.S. agricultural commodities through a variety of activities. FAS maintains more than 60 overseas offices with agricultural counselors who seek to promote U.S. agricultural commodities abroad. FAS develops and maintains a voluminous database including foreign agricultural production estimates, trade data, export forecasts, economic indicators, price data, and export sales reporting. These data are made available to the U.S. farming industry directly and are used to produce over 5,000 reports a year on foreign agricultural production, supply and demand in foreign markets, and trade policy developments. According to GAO, “Much of the reporting, however, is put to little use either by USDA or the U.S. agricultural industry.” [emphasis added]
The proponents of government export promotion programs assert that these programs are good for the economy and that export promotion is a legitimate role of government. A critique of some of those arguments follows.
1) It is alleged that U.S. firms (especially small and medium-sized firms) would export more if they had better information on export markets and export opportunities, and thus that the government should collect and disseminate that information.
This argument ignores that “information” is an economic good. Like any other economic good, information can be, and is, traded in private markets. Recent technological advancements have made such transactions much less costly.
Furthermore, most trade information is beneficial only to specific companies or industries. There is no justification for using the tax dollars of the general public to serve the narrow interests of such specific groups. Government should not be in the business of collecting and disseminating trade information. The individual businesses that would benefit from such information should be willing to purchase it with their own funds. The taxpayer should not be forced to provide it for them.
2) It is alleged that the government—because of the huge amount of resources available to it—is the most efficient organization for collecting and disseminating trade information, and that private firms (especially small and medium-sized ones) may not have the resources to obtain such information on their own. Given recent technological advancements that have made obtaining information through on-line computer services, for instance, less difficult and less costly, this argument holds less and less weight. Further, if you were a businessman, and you wanted some reliable information on overseas trade opportunities, who would you go to, the federal government or a private company? If both were selling such information at the market rate, you would most likely choose a private company.
3) It is alleged that government needs to provide trade information and services because private firms are not doing so. Since government export promotion programs are funded by taxpayer dollars—rather than by private investors putting their own funds at risk—their services are often available free of charge, or at least at below-market rates. Thus, the very existence of these programs makes it more difficult for private firms—which must meet a bottom line—to compete in providing the same services. In essence, the taxpayers’ own dollars are used to help government agencies compete against private companies that seek to provide the same services. Then the reduced ability of those private companies to compete is used to justify spending even more taxpayer dollars.
4) It is alleged that if foreign buyers were made more aware of U.S. products, overseas demands for those goods would increase, and that the government should therefore seek to promote that awareness. The same could be said, however, for domestic buyers. In neither case does that justify the expenditure of taxpayer dollars. Developing product awareness is an essential element for business success in all industries. Those who directly benefit from that success, the owners and shareholders of private businesses, should be the ones responsible for achieving it. Taxpayers should not be held responsible for assuring that individual private businesses remain profitable.
5) It is alleged that, due to lack of accurate information, banks often overestimate the level of risk involved in exporting, and that as a result small and medium-sized exporting firms often have difficulty obtaining export financing, or must pay “high costs” for such financing. If the government provided “better” information about the “actual” risks, the argument goes, more financing would be available at lower costs.
This reasoning ignores the fact that banks already have a direct financial incentive to learn the actual risks involved with potential loans. If a bank were to consistently operate on truly faulty perceptions of those risks, it would lose out in the marketplace to banks which were operating on more accurate perceptions of risk.
6) It is said that small and medium-sized companies in particular need the assistance of government export promotion programs in order to succeed.
Even if that were true, most government export promotion programs currently shower their benefits disproportionately on “big”—not small—businesses. More importantly, the American workforce is the best in the world. America’s businesses, whether large or small, do not need the assistance of government programs in order to survive. What they need is for government to get out of the way.
In addition, the same principle applies to programs that would benefit small businesses as to those which benefit big businesses: taxpayer dollars should not be used to prop up the bottom line of private businesses, regardless of their size. In conclusion, government should not be in the business of using taxpayer dollars to promote exports for three simple reasons:
1) It’s unconstitutional.
Nowhere in the Constitution is the federal government granted the power to spend general taxpayer dollars to promote the welfare of specific groups, whether through export promotion programs or through any other means.
2) It’s too expensive.
The six programs I have discussed alone consume $2 billion of taxpayer money. If the goal is to promote economic growth, that money would be put to much better use by simply leaving it in the hands of its rightful owners, the American taxpayers.
3) It doesn’t work.
It’s difficult to believe that government employees somehow have a greater ability to promote the exports of private businesses than do the owners of those businesses themselves. After all, those private business owners are putting their own money at risk. All that those who run export promotion programs are putting at risk is the hard-earned tax dollars of America’s overburdened taxpayers.