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Ron Paul Dear Colleague on Export Promotion Job Creation: Myth vs. Fact

Ron Paul Dear Colleague on Export Promotion Job Creation: Myth vs. Fact

(J. Bradley Jansen was Ron Paul’s legislative staffer on these issues at this time)

Export Promotion Job Creation: Myth vs. Fact

Myth: Government subsidized export promotion programs create jobs and economic growth.
Fact: Government subsidized trade assistance programs kill jobs and hamper economic growth.

In fact, REAL NUMBERS:
Supporters of government-subsidized export promotion programs like to point to the easily-identifiable jobs that are created but don’t factor in the greater–though less easily-identifiable–jobs lost through the misdirection of capital investment. Here are the real numbers:

Japan USA
32% Exports subsidized* 2%
0.7% GDP growth rate** 2.0%

France USA
18% Exports subsidized* 2%
11.6% Unemployment rate** 5.6%

(source* Export-Import Bank, source** Bureau of Economic and Business Affairs: 1995 figures)

According to CRS, “There is little theoretical support or empirical evidence that supports claims that subsidizing exports or overseas investment offers a positive net gain in jobs to the U.S. economy. While overseas direct investment generally does have a positive impact on the economy, this conclusion may not hold if those investments are made as a result of a subsidy,”

“Subsidies for exports shift resources within the domestic economy toward the subsidized export sector at the expense of other sectors of the economy. This shift reduces production and efficiency overall in the economy, because the subsidy spurs a greater movement of the factors of production, primarily labor and capital, out of other sectors of the economy and into the subsidized export industries than would be warranted by market conditions. Also, national income as a whole would be reduced since all sectors of the economy would be operating sub-optimally: income gains in the subsidized sector would be achieved at the expense of all other sectors of the economy,” the Congressional Research Service added.

CONCLUSION:
Government-subsidized export promotion schemes redirect capital from its most efficient uses. This misallocation of credit reduces economic growth and hinders employment growth. The resultant change of a misdirection of investment capital away from the productive sectors of an economy though government subsidies to the less productive ones is a NET negative in terms of efficiency and total job creation. The question is not only one of jobs created but of net jobs created, seen or unseen. Cut corporate welfare, vote for the Paul amendments to the Foreign Appropriations bill. If you have any questions, please contact Bradley at 225-2831.

Sincerely,

LIMIT TAXPAYER LIABILITY

Total outstanding liability appropriation

Export-Import Bank $20 billion $632 million
Overseas Private Investment Corp. (OPIC) $ 3 billion $ 32 million
Trade Development Agency (TDA) $80 billion $ 40 million
Total $103 billion $702 million

In addition to the corporate welfare waste in each year’s appropriation, the outstanding liability to the taxpayer is of obviously greater concern.

These programs divert investment capital from the efficient producers to the politically-well connected. This misallocation of resources hinders market efficiency which ultimately cuts jobs and economic growth.

“Corporate welfare does not work anywhere in the world. It does not work because it penalizes a country’s winners with excess taxes in order to fund that country’s losers with inefficiently run government programs,” testified Dr. T.J. Rodgers, President and C.E.O. of Cypress Semiconductor Corporation, before Congress in 1995. “ ‘They’ve got subsidies; we need subsidies,’ is exactly wrong. America will be much more competitive on a relative basis if we allow the nations with whom we compete to squander their taxpayers’ money, while we encourage our companies to win without subsidies. It’s like the Olympics: there comes the day when an athlete must walk alone into the arena of competition. The government cannot lift the weights and run the miles that are required to be a champion–only an individual can.”