A single, seemingly innocent sentence in the "white paper" outlining President Carter's new "economic renewal program" illustrates the dangers inherent in sweeping together a hastily contrived reindustrialization measure in an election campaign.
The sentence I refer to says that the administration will seek to boost exports by supporting an Export Trading Company bill, which was passed by the Senate yesterday, 77-0. The bill, the White House document said, "will encourage small and mid-size business participation in export markets."
That sounds unexceptionable, especially when it comes under the rubric of making America more productive. But in fact, the bill that Carter casually supported is more complicated than that. It is a "sleeper" -- legislation that actually would legalize cartels in international trade, insulating them from antitrust safeguards.
Privately, some influential administration insiders admit that, at best, the trading company legislation would have only marginal benefits for exports. Against their better judgment, they backed the bill to go along with the new "export consciousness" touted by some American business leaders.
The bill has strong support, too, from the Commerce Department. Under the new division of responsibilities for trade matters, it wanted to show it could deliver on behalf of the business community.
But in reality, the bill -- even though watered down from the original with the considerable help of Federal Reserve Chairman Paul Volcker -- is dangerous rather than merely nonconsequential, as administration defenders would have one believe.
In an excess of zeal to stimulate American exports by adapting the Japanese and Korean versions of trading companies, a group of 55 senators sponsoring the bill -- led by Sen. Adlai Stevenson (D-Ill.) -- proposed to allow banks to invest in these trading companies. Indeed, banks could acquire controlling interests, although there would be a ceiling on the percentage of a bank's capital that could go into such trading companies.
As Sen. William Proxmire (D-Wis.) has warned, the Stevenson bill "breaks the demarcation between banking and commerce" that has been the law of the land for 100 years. When banks have a stake in economic enterprise, their credit judgments can be skewed, Proxmire pointed out.The Wisconsin senator gained support from Sens. John Tower (R-Tex.), Alan Cranston (D-Calif.) and Jake Garn (R-Utah).
The Export Trading Company bill, S2718, is a sequel to and an extension of the 1917 Webb-Pomerene Act, which was designed then to help American companies compete with European cartels. But studies show that the Webb-Promerene Act did not live up to its expectations, because the mechanics for getting the antitrust exemptions weren't made too easy.
That would all be changed by the new bill. Business would have an easy route to antitrust exemption through a Commerce Department certification process. Moreover, the exemption would be extended to the sale of services, as well as products, opening up a juicy prospect for banks.
Japan and Korea have used their giant trading companies to great advantage, performing export services for small and medium-size producers.Bank financing and participation is an integral part of the Asian schemes. They represent, in effect, an industry-banking partnership, operating with the blessing of government, with no antitrust complications.
But trading companies are hardly a panacea for American export or balance-of-payments problems. The Japanese successes are attributable less to trading companies than to a different philosophy and culture. The emphasis on quality control and price competitiveness is now a well-known story.
Moreover, the Japanese companies do their homework on consumer taste and preferences, displaying enormous skills in marketing.
So contriving a package with antitrust exemptions, and a host of tax benefits to boot, is a simplistic approach to a much more pervasive, competitive problem for American industry.
A serious shift for the better in the nation's trade deficit will depend on many other, more important things.
Already, the administration had done much to grease the export trade. Money available for the Export-Import Bank -- an effort to match U.S. subsidy with foreign -- has increased sevenfold in three years. Carter is also going along with the argument that Americans working abroad need yet a bigger tax break.
The administration did not have to join in a proposal for trading companies that it believes will -- at best -- have a small influence on exports, and -- at worse -- does violence to the American distaste for cartels. One hopes that the House of Representatives will give a more discerning look to this legislation that it has gotten in the Senate.