To Merge, or Not To Merge? A One Man’s Opinion

Yesterday’s proposal by the White House to consolidate six trade and commerce agencies provoked a very mixed reaction from my private sector colleagues and me, as for at least a decade, we have routinely and closely worked with all the agencies slated for the proposed merger.  On one hand, improving efficiency of any government agency is always a plus and despite being fairly effective, our country’s trade and commerce agencies can certainly use improvement.  On the other hand, due to the proposal’s highly political nature and its unwillingness to undertake real job cuts and streamline operations for agencies of disparate sizes and different missions, such a combination risks to undermine and destroy whatever positive results our nation’s trade and investment agencies produce.

First let’s take a cursory look at the six agencies, which the President proposes to merge.

USTDA (U.S. Trade and Development Agency) – its mission is to stimulate U.S. exports by funding feasibility studies for projects, which have significant potential for utilization of U.S. goods and services.  It also funds reverse trade missions to expose foreign buyers to the American manufacturers and service providers. It is the smallest Agency of the of the group, with a total operating budget of less than $100 million. It has less than 100 people covering the entire globe and overall is fairly effective in performing its mission. It produces $47 of exports for every dollar it expends.

OPIC (Overseas Private Investment Corporation) – a small and highly effective agency of the U.S. government whose mission is to aid international development.  OPIC provides project financing to projects with significant U.S. involvement and political risk insurance to U.S Investors setting up operations overseas.  OPIC’s staff numbers 200, covers 150 countries, and the agency provides net contributions (earnings) into the U.S. Treasury. Due to its significant foreign policy development slant, OPIC, if anything, may be better suitable for merger with the State Department and not the Department of Commerce.

U.S. Export-Import Bank – an official export credit agency of the United States, Ex-Im Bank employs 400 people and provides financing and credit insurance  for over $20 billion of U.S. exports annually.  The Agency also generates surplus and is a net contributor to the overall budget.  Ex-Im’s underlying focus is jobs and it is subject to strong Congressional oversight and OECD guidelines, which make its operating practices similar to those of other ECA’s in industrial countries.  Ex-Im’s operations could use some restructuring and streamlining to accommodate our country’s growing need for export financing, but over all it is fairly effective in performing its mission as a standalone agency.

Small Business Administration, or SBA as it is more commonly known, is a mid-size agency of about 4,000 employees focused primarily on financing domestic small businesses through its loan guarantee programs.  It is a highly bureaucratic organization, which has a wide footprint of banks across the country who act as its delegated authority domestic lenders.  The Agency has a very small and very little known program financing exports, which almost seems like an apendage to its vast domestic lending practice.  Other than the relatively unknown international program, there is virtually no intersection between the above three internationally focused agencies and the SBA.

The Office of the United States Trade Representative (USTR)  is the agency responsible for developing and recommending U.S. trade policy to the President , conducting trade negotiations at bilateral and multilateral levels, and coordinating trade policy within the government through the interagency Trade Policy Staff Committee (TPSC) and Trade Policy Review Group (TPRG). As a  small 200 person agency, it looks to level the playing field in the international trade arena.

Department of Commerce  (DOC)– an 800 pound gorilla of the proposed merger with over 43,000 employees.  This Department showcases a full force of the vast Federal bureacracy. Comprised of hundreds of departments focused on a multitude of issues from exports to imports to inward foreign investments to patent and trademark protection to standards, economic analysis and much more.  This Department is so vast that if any consolidation is not done properly, the smaller, more effective agencies will simply be swallowed into the abyss of the federal bureaucracy and become invisible departments insulated both from the constituents they serve, and from the lawmakers who provide much needed funding to help these agencies achieve their goals.

There are two fundamental problems with the proposed merger – since it is being proposed on “as is” basis with politics precluding any serious shake up and job cuts as part of the consolidation, what we risk to end up with is all the inefficiencies and complacency of each agency mixed together into an unwieldy and toxic cocktail of impotent organizational culture.  This environment not only will not produce any tangible benefits, but will stifle any existing productivity and effectiveness, which currently exists throughout all the other above mentioned agencies. Any of the so-called future savings will be negated by the lost revenues, consolidation expenses, and degraded morale of the Agency personnel.  If we want to save jobs by attrition, we do not need to merge the agencies. We can review operations of the agencies and earmark certain cuts to make operations more cost-effective. In the process, each agency can induce  people whose performance is not up to par to retire or leave, thus producing tangible  attrition related savings even without benefits of consolidation.

The second problem is focus. Agencies focused on international trade and development have totally different mission, organizational culture and work methodology than those focused on domestic issues. Thus there is zero benefit of lumping together say USTDA with USPTO.  What may make sense is reorganizing the agencies according to their business focus. The Department of Commerce may absorb SBA, which should shed its lone international program and focus solely on domestic operations.  In order to compete in a rapidly changing global environment,  U.S. Commercial Service should be spun out as a cornerstone of the Government’s International Trade and Investment policy.  Then a very thorough analysis performed on whether U.S. Ex-Im, USTDA, OPIC and USTR would benefit from being combined into a single entity under the umbrella of the U.S. Commercial Service, or maybe they should just be left alone or combined by themselves, as has been done in numerous countries. Yet again, any such combination must take place only after the operations of each agency have been carefully reviewed and streamlined to make them lean and more efficient. Otherwise we risk to end up with what computer programmers call GIGO (garbage in, garbage out).

It is unfortunate that political rhetoric and election year strategies hastily try to offer populist fixes aimed at garnering votes, but fail to offer substantive, courageous restructuring steps designed to really improve the way our nation’s domestic and international commerce functions and  our country competes in the global economy.

The article below provides some additional background on the issue. Please enjoy and I welcome your comments.

White House Seeks to Merge Agencies

By LAURA MECKLER, The Wall Street Journal, January 15th, 2012

WASHINGTON—President Barack Obama proposed consolidating six trade and commerce agencies, drawing cautious praise from congressional Republicans and business groups, though business expressed concern that some of their favored advocates in Washington would lose clout.

WSJ’s Laura Meckler reports President Obama will propose the consolidation of six Federal agencies that focus on trade and commerce into one. AP Photo/Carolyn Kaster

Read More

• SBA to Become Cabinet-Level Agency
• Text of Obama’s January 2011 State of the Union Address

As part of his proposal, which requires congressional approval, Mr. Obama would merge the Commerce Department’s core business-related functions with five smaller agencies: the Small Business Administration, the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation and the Trade and Development Agency.

Mr. Obama said the consolidation would make it easier for business to navigate the federal bureaucracy, putting several agencies whose primary goal is the promotion of U.S. business, both at home and abroad, under one roof. In this case, “six isn’t better than one,” Mr. Obama said at the White House.

Congressional GOP leaders said the proposal had potential.

“Eliminating duplicative programs and making the federal government more simple, streamlined and business-friendly is always an idea worth exploring,” said Brendan Buck, spokesman for House Speaker John Boehner, an Ohio Republican.

Bloomberg NewsPresident Obama speaking about the size of government on Friday.

But others in Congress and major business groups said they had particular concerns about folding the U.S. trade representative into a larger department, on the grounds that it would lose the clout and freedom that comes with an independent agency. The USTR negotiates trade deals and eases the way for U.S. commerce overseas.

“Taking USTR, one of the most efficient agencies that is a model of how government can and should work, and making it just another corner of a new bureaucratic behemoth would hurt American exports and hinder American job creation,” House Ways and Means Chairman Dave Camp (R., Mich.) and Senate Finance Committee Chairman Max Baucus (D., Mont.) said in a joint written statement.

John Murphy, vice president for international affairs at the U.S. Chamber of Commerce, echoed that sentiment, saying the consolidation “makes sense” while questioning whether the USTR should be included in the shuffle.

In an effort to answer those concerns, the White House said the trade representative would stay a Cabinet-level post. Officials pointed to a similar arrangement whereby the U.S. ambassador to the United Nations reports to both the Secretary of State and to the president. The White House argued that the USTR will have access to more government resources and expertise by being housed with similar agencies and that the change will create a more effective agency.

The move also gives Mr. Obama room to argue he is tackling a core concern of voters—the size of the federal government—as well as focusing on jobs. It fixes a bureaucratic oddity Mr. Obama cited when he first suggested the change in his 2011 State of the Union speech. Salmon, he noted, was regulated in one agency when in salt water and another when in fresh water. The reorganization would put all federal salmon regulation into the Interior Department.

President Barack Obama said Friday that he will exercise his executive authority to elevate the head of the U.S. Small Business Administration to a cabinet-level position, Emily Maltby reports on Lunch Break. Photo: Getty Images.

Todd McCracken, president of National Small Business Association, a trade group in Washington, D.C., said some programs used by smaller companies, such as targeted lending programs, might be less responsive as part of a larger bureaucracy. “It really needs to have regular small business input and the bigger the bureaucracy, the harder that is to accomplish,” he said.

Environmental groups objected to shifting the National Oceanic and Atmospheric Administration from the Commerce Department to the Interior Department, on the grounds that Interior is focused mostly on extracting natural resources. NOAA, the largest part of the Commerce Department, houses the National Weather Service among other functions. The debate about where it should go was one cause of the yearlong delay in completing the proposal.

In his 2011 State of the Union Address President Obama addressed the issue of making the government more competent and efficient by listing targets for an overhaul of federal bureaucracy pointing out that a dozen different agencies deal with exports and at least five with housing.

David Goldston, director of government affairs at the Natural Resources Defense Council, said his group would lobby against the change for fear that Interior’s culture would overwhelm NOAA’s.

The president requested that Congress guarantee an up-or-down vote within 90 days on any consolidation he proposes that would save money and reduce the size of government. He said he would use the authority for a series of consolidations starting with the trade agencies. The plan is based on authority in place for decades until it lapsed in 1984.

Some lawmakers and congressional aides signaled they were uncomfortable with the fast-track authority. Congress is traditionally unwilling to cede the power to shape details of important legislation.

With the overall proposal pending, Mr. Obama said he would immediately elevate the head of the Small Business Administration to a Cabinet-level post. He can do this without congressional approval.

Officials said that in the merger 1,000 to 2,000 jobs would be cut through attrition. They estimated it would save $3 billion over a decade.