By Charles H. Green
Over the past three years, there’s been some broad suggestions in high places around the idea of consolidating some of the business financing functions of several federal government agencies into one organization. The idea stems from a common political goal used to win elections by promising to trim costs and add efficiencies to the delivery of government services, which in this case would be Main Street capital. Turns out most of that talk was long in the tooth and short on the money.
The Obama administration made overtures in 2012 and as recently as their 2016 budget blueprint about merging several agencies related to international trade, including the Office of U.S. Trade Representative (USTR), Export-Import Bank (Ex-Im), Small Business Administration (SBA), Department of Commerce (DOC) and Department of Agriculture (USDA). Speculation was rampant that there was a major roll up in the offing that would have the financial elements of these agencies all disappear into the mammoth Department of Commerce.
And while it turns out that the president’s suggestion was actually much smaller in scope than was reported, Senator Richard Burr (R-NC) did introduce legislation in early 2014 to merge the Commerce Department, Labor Department and Small Business Administration into one agency. But that bill has not been heard from since.
Turns out that the big idea really focuses on coordination rather than consolidation, and in this president’s iteration, is limited strictly to international trade financing. Further, it’s not an idea that originated in 2012, but rather in 1983.
Senator William V. Roth Jr. (R-DE) introduced legislation to establish a “Department of International Trade and Industry” in January, 1983 in response to rising international trade competition American companies faced from the Japanese, which was thought to have been greatly enhanced by their Ministry of International Trade and Industry. The bill died in Congress the following year.
But many voices in the federal watchdog Government Accountability Office (GAO) and Congress perennially suggest that some of the international trade programs and related services provided by multiple agencies sometimes overlap and often not clearly coordinated in their delivery to the public. If you need convincing, visit the GAO site’s search page for government resources and type in “international trade promotion;” You get 6,152 results from Uncle Sam alone.
According to government and non-government sources who were involved, the more recent efforts of the Obama administration centered solely on international trade finance, and started in the president’s first term with a task group organized from several agencies. The group, which included political appointees and career staff levels, was convened to work out a roadmap of how to improve the federal government’s delivery of trade financing in an effort to boost American exports and support other stimulus efforts to get the economy humming again following the Great Recession.
One party in attendance reported that it was a friendly and very successful effort in developing a concept through which these various agencies would provide a single menu of well-defined trade financing products and services to different sectors of the domestic and business communities.
But it was clear to all parties involved that this would be conducted without separating any of the specific programs from their respective agencies, and without combining these agencies under one roof.
Mixed Signals on Complicated Goals
“We all thought that delivering a joint product line would be much more efficient and take much less time than trying to create a new agency,” said one source on the condition of anonymity, since he has not been separated from the government for two years and is subject to a non-communication requirement. “At the end of 2013, the work was moving ahead nicely with marketing to some banks already in process under a pilot program.”
Still, there are mixed signals that tend to aggrandize what’s really taking place, or at least that leads to a misunderstanding as to what is the intended outcome. According to news reports in February, the revamp would put the USTR, Ex-Im Bank, Overseas Private Investment Corporation, US Trade and Development Agency, SBA, parts of the DOC and rural business programs at several agencies under the same roof.
“By bringing together the core tools to expand trade and investment, grow small businesses, and support innovation, the new department would coordinate these resources to maximize the benefits for businesses and the economy,” said Commerce Deputy Secretary Bruce Andrews at the time.
But according to parties with direct knowledge of the task force, merging agencies is not in the cards. This effort has long since been trimmed to adding efficiencies to a much narrower set of programs related to trade finance.
“One way of looking at the proposal is that businesses should be able to go to one government agency for their business solutions throughout their life cycle,” said one federal agency employee not authorized to speak on behalf of the government.
Increasingly, businesses are being encouraged to sell in global markets, if only for their own survival. The opportunities are significant. In 2013, 35% of all U.S. exports were made by small firms—over $700 billion, which is significantly larger that the U.S. government procurement market, which receives much more attention.
To facilitate this proposition, the inter-agency planning group would ideally eliminate programs that overlap and reduce redundancies, and therefore the number of agencies that a business needs to touch in order to get their needs met. It sounds like a great idea on paper, but effecting that into policy is more of a challenge.
The problem is delivering on that promise means changing budgets, encroaching on turf and the raw ‘takeaways’ that many vested interests don’t really favor. Plus, there’s plenty of room for mismatched interests and missions, where the popular notion of “overlap” is actually quite small, or by design due to the different constituencies served.
Competing Priorities and Managing Headaches
Consider the USTR, which is essentially the government’s political arm for international business. Connecting them to this proposed inter-agency mishmash faced push back early on: they don’t provide direct services to U.S. citizens.
Where does the DOC fit into this mix? They don’t lend capital or guarantee financing for Main Street companies. But they do provide an enormous volume of research, market intelligence and other valuable information that can help U.S. companies fast track their entry into new markets.
The magic for the DOC courtship was trying to help get more of their marketing resources into the hands of the same business owners getting financial assistance from SBA, Ex-Im or USDA’s B&I program. But that goal was largely accomplished–twenty years ago–with the establishment of the 20-odd U.S. Export Assistance Centers, which are scattered across the county.
Still, there is plenty of interest in working out ways to streamline service delivery and work together more effectively, as the political side of the table urgently needs more exporting for the American economy. The agency side has their own headaches to manage and are searching for ways to deal with them among the working group.
Consider the Ex-Im Bank’s mandate for providing 20% of their credit guarantees to small businesses, a requirement adopted by Congress a few years ago. The agency was really developed to finance railroad locomotives, jet airplanes, hydroelectric dams and other major transportation and energy projects. But the small business requirement means that for every Boeing 747 (cost $357 million) they write credit insurance on, they must find $72 million in small business projects to back.
The SBA entered international finance only in 1980, but has been fairly adapt at that line of financing, with which they realize the lowest level of loan losses. Their underwriting and centralized servicing centers make them more efficient at dealing with smaller transactions, and after all, their mandate is small business.
Whether SBA could be given authority to manage Ex-Im’s small business transactions or not is a question well beyond this working group (not to mention that Ex-Im is presently in a fight for their existence with conservative Republicans). But it illustrates the kinds of problems that need tackling as the federal government is moving toward approval of two new trade pacts that could open up plenty of new opportunities in trade expansion for smaller American companies.
What do you think? Comment on this page or write me at Director@SBFI.org.