Do Michigan Exporters Really Need State Help?

State spending during the five years of the Engler administration in Lansing underwent some long overdue restraint. Tough decisions were made by the governor that were sometimes painful to certain groups, but Michigan's economic rebound can be partially attributed to the tax cuts that those spending cuts first made possible. Without those tax cuts, says the Senate Fiscal Agency, Michiganians would be paying an estimated $1.5 billion more this year in state and local taxes.

So, after five years of restraint, are there no more spending reductions worth making? A review of the state's budget by the Mackinac Center for Public Policy suggests another $2.1 billion can be pared, if Lansing is willing to redefine the role of government, limit its intrusion to the few things it does best, and revitalize private solutions to public problems. One corner of state spending that cries out for critical review is a kind of corporate welfare--subsidies for exporters.

Since the early 1970s, state government has actively sought to promote exports of goods and services produced here. The underlying idea, then and now, was that the government needs to do something to assist Michigan firms that wish to export goods to other countries. The prime example is the Michigan Jobs Commission's International and National Business Development (INBD) program. INBD literature states that it is "responsible for promoting exports of Michigan-produced goods and services as well as stimulating investment in the state by foreign-based firms." INBD has offices in Brussels, Toronto, Mexico City, Tokyo, Hong Kong and Zimbabwe to assist exporters.

INBD's services include business counseling (basic information about markets in specific countries, export leads, competitors, etc.), direct company support (more extensive counseling, including market research and assistance to firms participating in trade shows), agent-distributor search (identifying potential agents or distributors in foreign countries), agent-distributor importer qualification (a visit by a trade officer to a prospective agent or distributor to perform a quality check), trade data reports (an evaluation of the credit-worthiness and reputation of potential buyers), joint-venture search (identifying candidates for joint ventures or licensing agreements) and joint- venture qualification (an on-site visit by a trade officer to assess the quality of a potential joint- venture partner).

What businesses pay for the services that are not free does not come close to covering the full cost of providing them. Over $3.7 million was appropriated for INBD's international services this fiscal year, but fees are expected to amount to only $237,000. The rest of the money, over 93 percent, comes from the general fund, which is to say, the taxpayers of Michigan. Is it worth it?

Defenders say it is. According to INBD figures, in 1993-1994, 55 Michigan firms benefitted from its international trade services and sold in excess of $45 million in exports as a result of contacts made through INBD. It claims that approximately 900 jobs were created or preserved due to this export activity. State and local tax revenues collected on this volume of sales would exceed the INBD budget, so the defenders say that this a very sensible use of taxpayer funds.

Looking at the matter that way assumes that none of those sales would have been made in the absence of governmental assistance, a highly questionable assumption. Furthermore, the overwhelming majority of Michigan exporters managed to do business without turning to INBD. The total volume of Michigan exports for 1994 was $28.5 billion, so INBD's "share" amounts to a miniscule 0.16 percent. Well over 99 percent of Michigan's exports are made without the benefit of taxpayer-funded help. Obviously, the information and services necessary to export successfully are available from sources other than INBD.

Most firms bear all of the costs of their operations--as they should. A very few exporters have found that turning to the government is beneficial to them. But if INBD didn't exist, the firms that utilize it would have to obtain and pay for their information through the marketplace. If exporting is profitable without any of INBD's taxpayer-subsidized help, the sales will still be made. In the probably rare instances that exporting would not be profitable without INBD, taxpayers have to ask why it makes sense for them to pay to make it so. After all, there are almost limitless numbers of unprofitable business ventures that could be made profitable with enough of other people's money.

Unprofitable business ventures are those that consume resources more valuable than the final output. The fact that they are unprofitable is the market's way of telling people, "Don't waste resources on this--they can be put to better use elsewhere." When government steps in to artificially lower a firm's costs, it is interfering with those important market signals. Economic efficiency suffers, which translates into real people and real families becoming worse off as a result.

Why not put INBD to the test of the market? The state could offer it for sale and see if anyone thinks that profits can be earned by providing the kind of assistance that INBD provides. If so, sell it. If not, discontinue it. Either way, we would save the taxpayers some money, prod businesses to be more accountable to customers rather than to bureaucratic programs, and divert state government's attention away from where it doesn't belong.