EXPORTS AND INNOVATION

 " Today, U.S. exports are roughly 8 percent of global trade. To balance the U.S. current account, this world market share needs to rise to 12 percent under condition of stable imports. To achieve such an increase one needs focus on what differentiates the players, and how the differences can be strengthened through innovation."

by Michael R. Czinkota

(November 24, London, Sri Lanka Guardian) Recently I participated in a conference sponsored by the National Academies of the United States, and the German Institute for Economic Research (DIW). Participants were international luminaries such as John Holdren, Science Advisor to President Obama, Klaus Scharioth, German Ambassador to the United States, Andreas Pinkwart, former Minister for Innovation, Science, Research and Technology of Nordrhein Westphalia and Klaus Zimmermann, President of the DIW.

The meeting focused on an analysis and comparison of US-German innovation policies. Research transforms money into knowledge, while innovation converts knowledge into money. Substantial discussions of the two day event centered on manufacturing and trade and the lessons for export policy.

The Germans highlighted their consistent surplus since World War II, fundamentally based on restrained consumption, high savings, and ongoing innovation. Current U.S. demands for a decrease in this export orientation were seen as a scary Halloween exercise at best. Market responsiveness and continued innovation was seen to support an ongoing strong German export emphasis.

Ron Bloom, presidential counselor for Manufacturing policy and automotive industry czar at the Treasury Department, stressed the importance of heading in the right direction – even when the specifics can only be worked out as they surface. He uses a small “p” in his planning and emphasizes the need for a strong manufacturing sector, with innovation playing to a country’s strength. Government’s role is to bridge market gaps – and to support the eventual re-emergence of market forces.

The meeting achieved some consensus, but there were also different perspectives which may lead to alternative futures for global exports:

After 50 years, the United States can no longer remain the largest market for global exports. New growth opportunities must arise elsewhere. With exchange rates driving trade, new currency theories and values will be a key policy issue. The Plaza Agreement of the 1980’s was only a start for a long adjustment of the U.S. dollar.

The U.S. policy directive is clear: President Obama wants U.S. exports to double within the next five years. But many uncertainties exist. Should trade be a public concern, or be placed in the hands of trusted specialists? Is there a wheel of internationalization, with gradual declines and rises? Who is part of the ride and how does innovation drive the wheel? Is manufacturing a diminishing component in post-industrial societies? Even flexible economies experience large displacement effects of trade on individuals and regions. How does one provide appropriate and financially prudent adjustment assistance? Exports are typically supported by either decreasing risk (e.g. through information services) or increasing rewards (e.g. through tax deferrals). How to ensure that such support will actually increase exports? Should government programs support innovations directly, or are indirect effects such as an increase in management capabilities more efficient? How to educate the public on international trade issues and the need for innovation? Should established TV programs develop episodes about the receipt of a first international order? How about a national competition for firms and managers who have overcome obstacles in international markets from which we all can learn?

Global leadership requires a strong economy supported by innovation, entrepreneurship and expansion. Forced import cutbacks can reduce trade deficits, but at a substantial cost to society. Export expansion offers more payoffs, but requires continuous excellence in innovation.

Today, U.S. exports are roughly 8 percent of global trade. To balance the U.S. current account, this world market share needs to rise to 12 percent under condition of stable imports. To achieve such an increase one needs focus on what differentiates the players, and how the differences can be strengthened through innovation. Without such efforts, global competitors appear unwilling to reduce their participation in trade. Success through strength and collaboration based on a systems perspective will raise efficiencies, lessen friction and increase the global standard of living. We have to understand variations in trade needs by country, industry, and culture. We need to accept and accommodate differences in expectations. The goal must be to make firms and managers stronger, on the corporate level through innovation, and on the individual level through rising commitment and capabilities.

  Michael Czinkota teaches international business and marketing at Georgetown University in Washington D.C. and the University of Birmingham in the UK. He served in trade policy positions in the Reagan and Bush administrations.