The Golden Mean of Export Promotion

WASHINGTON – Economists sometimes describe a country as having a “Goldilocks” economy, because it has achieved moderate, sustainable growth rates that are “neither too hot nor too cold, but just right.” They might also seek Goldilocks’s views on export-promotion policy.

Export promotion might appear to be a virtuous exercise, regardless of whom it supports. Some government agencies, such as the United States’ Small Business Administration and National Export Initiative, target small firms that are most in need of help. Others, as in Brazil or South Korea, select large companies that are best placed to make profits.

There are good arguments for and against both approaches. Small firms need support, because they lack the knowledge and experience needed to operate abroad. They may not wish to invest alone in know-how that their competitors can easily replicate. Moreover, they usually lack the necessary finance, and often find that their local bankers – unable to distinguish between a realistic market-entry strategy and wishful thinking – are unwilling to lend.

But, though small companies’ needs may be great, the reasons why many remain small may have little to do with their limited export capabilities. Instead, they may suffer from low productivity, poor product quality, bad customer service, or any of a host of other internal constraints. Helping such firms to access foreign markets might do little to alleviate their fundamental weaknesses (which may have constrained their export potential in the first place). The result is that export support is often wasted.