Winning at Economic Growth - Part 1

Trade Finance, ECI and ECAs

In the U.S., an important but little recognized role in enterprise formation and economic growth?is played by the SBA, by U.S. Ex-Im Bank (the U.S. Export Credit Agency) or ECA, and DFC, the International Development Finance Corporation

The Challenge?

The Challenge is how to drive innovation in economies to the benefit of a broad spectrum of persons - not only the wealthy and well educated.

The role of ECIs and ECAs is part of a false debate. Robert Reich in his latest book, Saving Capitalism, vigorously points to the issue that raged during?the five-month period during which the U.S. Ex-Im Bank was not re-authorized. It is part of a false global debate. The central issue regarding political economy is not whether government or the private sector does a better job of managing an economy. Government creates the market and is part of the ecosystem whereby a nation engages in the global economy. The principal instruments of this engagement are ECI, Export Credit Insurance and ECA, Export Credit Agency guarantees.

Political Economy?

Political economy is the study of how a society's laws and political institutions relate to a set of moral ideals, centra to which is the fair distribution of wealth. After WWII, as Robert Reich relates, the focus shifted to Keynesian economics, towards government taxes and transfers as a means of both stabilizing the business cycle and helping the poor. For a while this worked. Rapid economic growth created widespread prosperity, which in turn created a buoyant middle class.?

Those who argue for less government and hold the prevailing view??that government intrudes on the market, make a false argument. Government doesn't intrude on the market. It creates the market. The principal opponents to the re-authorization of the U.S. Ex-Im Bank promoted Apple as a world-leading corporation that was started in a garage without any help from government. An examination of this premise finds it to be patently false.?

Steve Jobs obtained an SBA-guarantied loan during the infancy of what was to become Apple. Reich used Karl Polyani, a noted economic historian to make the case for the conflation of politics and political influence on economics. Those who argue for "less government" as Reich quotes Polyani, are actually arguing for a different government - often one that favors them or their patrons. Mariana Mazzuetta has written convincingly in two books that government plays a central role in driving economic growth by financing R&D.??DARPA is prominent among the evidence used to support this assertion.?

American Innovation

Contrary to the conventional view of an American economy bubbling with innovative small companies, is the reality facing U.S. SMEs. Misuse of Intellectual property, network effects, monopolies, oligopolies and expensive R&D, fleets of lawyers to litigate against potential rivals, and armies of lobbyists have created formidable barriers to new entrants to the U.S. and global economies and to their scaling globally.?

These are major reasons why the rate at which new businesses have formed in the U.S. has slowed markedly in recent years.???Between 1978 and 2011, as the new giants gained control, that rate of growth was halved, according to a Brookings Institution study released in May, 2014.?

ECAs

In order to understand the role ECAs play in the global scaling of American innovation and engagement in global trade flows, it is necessary to first understand what are the five building blocks of capitalism. They are:

? Property - what can be owned

? Monopoly - what degree of market power is permissible

? Contract - what can be bought and sold and under what terms

? Bankruptcy - what happens when purchasers can't pay up

? Enforcement - how to be sure that no one cheats on any of these rules

In 2012, it was noted that Apple and Google were spending more money on acquisitions and litigating over patents than in doing R&D.

Platforms, Network Effects and Lobbies

A platform is a layer of software that combines different kinds of devices, data and services, on top of which other firms can build their offerings.?

In industrial society, the old monopolists and oligopolies controlled production. Now they control networks. Whether it is Amazon's shopping platform or Alibaba's shopping exchange, huge profits come from owning an e-commerce and hybrid platform. The real power and profits lie with the owners of the platform rather than with the inventors who make use of it. As this power and these profits increase, the inventors who depend on it have less and less bargaining leverage to negotiate good??prices for their contributions. Since it costs almost nothing to sell more units, these new monopolies can keep out (or buy out) potential competitors and gain almost complete control along with the profits and the legal and the political control this leverage brings.

A handful of giant corporations are reaping the rewards of such network effects. The larger their networks, the more powerful and effective they become. Consumers may be satisfied with the result but they will never know what innovations have been squelched or stymied, how much more they are paying than they would otherwise and the degree to which the rules are being changed to the advantage of the owners of the platform.

Lobbying

It is naive not to consider the role of lobbying and political contributions in considering the influence of various factors on the political influence, network effects and economic power wielded by platforms. In 2008, Amazon's lobbying budget was $1.3 million. By end of 2014, this budget had climbed to $4 million. The recent disasters of FTX and Celsius are applicable.

ECI, the ECA and??Engagement in Global Trade?

Export Credit Insurance and ECAs are critical to SME engagement in global trade. Jobs are how people share in or are left out of economic growth. All of this is explained on our website: https://TheFollowingSea.com/.

Provided with the proper support. entrepreneurs and SMEs (small and medium sized enterprises) are able to “internationalize”, whether by exporting or importing. They demonstrate particularly high productivity, wage, and employment gains. Improving SME productivity and boosting SME competitiveness translates into more and better paying jobs. SMEs now account for nearly 70% of global employment.

Bilateral, regional and multilateral trade creates jobs and wealth in the United States and helps developing countries create industries that can drive economic growth throughout entire regions. Capital is critical to the development of domestic and SMEs into cross-border traders and micromultinationals—SMEs that engage in cross-border trade. They vitally impact total flows in goods, services, and foreign direct investment (FDI) that are expected to total $85 trillion by 2025.?

The inability to participate in these trade flows due to lack of capital has enormous consequences and unfortunately, “what growth there has been in recent years "has been skewed disproportionately to the relatively wealthy, leading to rising inequality and social tension,” according to the World Economic Forum.

Commercial banks and bankers are increasingly being shoved aside from the international trade finance space, upholding that which Bill Gates said, namely that with the Internet, we need financing, but we don't need banks.?

International Trade and Finance

International trade and finance are a complex web of laws, regulations, practices and procedures which have grown ever more complicated since Marco Polo returned from China at the end of the Thirteenth Century. Today, multinational corporations and the large international commercial banks which support them have lawyers and other experts to help them navigate the labyrinth of international trade and finance. Individual entrepreneurs, “mom-and-pops,” and SMEs have no access to those lawyers and other experts and are effectively barred from international trade and finance.

Cross-border trade is a process of buying, selling and foreign direct investment (FDI) that requires knowledge of the laws, regulations, disciplines, and practices of many countries. Successful cross-border trade requires coordination of export and target country regulations, Incoterms, export controls, “know your customer” (KYC), trade finance and settlement techniques are among the many disciplines that are used to achieve global trade success.

Growing and Sustaining the Micromultinational

The transformation of SMEs into micromultinationals in the arena of world trade requires the following:

? Access to international trade opportunities in goods, services and investments

? Sales agreement expertise: how to structure sales agreements and interpret trade terms and techniques

? Trade finance for short-term transactions

? Project finance

? Pre and post-export working capital?

? Bid and performance bonds?

? Management of political and commercial risk with export credit insurance (ECI)

? Cybersecure trading platforms

? Global IP protection for intellectual property and the ability to enforce these rights globally.?

? Currency management

? In the U.S., access to the programs of the US Ex-ImBank, the US Small Business Administration (SBA) and access to what was once the Overseas Private Investment Corporation (OPIC), now called the International Development Finance Corporation or DFC, is key.

Layers of Financial Support Coordination

The advancement to micromultinational and then multinational requires protagonists and layers of financial support services. These layers consist of an inverse pyramid of:

Commercial Banks

?Community Banks

???Credit Unions?

?????Exporters

?????Investors

These layers are in turn supported by government guaranties, export credit insurance and credit information about the seller, the buyer, the financial institution, investors, other credit unions and PEFCO. PEFCO, the Private Export Funding Corporation provides a secondary market for the sale of U.S. government-guarantied loans. U.S. Government guaranties not only add a measure of protection for the financial institution or investor buying the loan but also provides a higher guarantied return to the investors or financial institutions that purchase these loans.

?A one click portal

Expertise and experience in international trade is critical to the economic success of entrepreneurs and SMEs.?What entrepreneurs and SMEs need is a one click portal that opens the world of international trade and finance to them so that all they have to concentrate on is producing goods and services that can enter the stream of international commerce.

Cybersecurity and the Portal

Cyberattacks are increasingly representing the most serious threats to homeland security and in the next decade, will likely eclipse the risk posed by traditional international terror organizations.

Globally, the combination of??high unemployment of youth, lack of education, computer skills and talent have resulted in unprecedented levels of security breaches and theft and pilferage of bank accounts, intellectual property and industrial secrets.?The purpose of a secure portal is to organize and provide structure to the process of obtaining the services necessary to engage in cross-border transactions. The portal is a secure?system?that enables buyers and sellers of goods and services to purchase and sell as counterparties and to engage the support services of service providers, in order to successfully conclude international trade purchases, sales and investments. The portal brings discipline and organization to international trade.?

International trade is not a place for those who do not possess a deep knowledge of all these areas. The secure portal facilitates entrepreneurs and SMEs taking advantage of this requisite knowledge without the need to build staff and the ability to successfully conduct and conclude international trade transactions profitably. International trade is fraught with fraud and risk, with misconceptions about the fundamentals of how international trade is conducted. The secure service platform permits cross-border transactions to be conducted in a private, safe and secure manner. A secure trade portal is as much an educational and compliance resource as it is a means of executing cross-border transactions.

Expertise and extensive experience with every aspect of international trade provide the ideal home to manage and support a secure trade platform for entrepreneurs and SMEs. The benefit is not only creation of well-paying jobs in the country where the platform and portal are based but also the stimulus for bilateral trade and the creation of connected industries in sub-Saharan Africa, Latin America and Asia.

The most surprising thing about the secure portal and platform is that it hasn't been built yet. Apple, Microsoft, Amazon, Alibaba, none have built a secure trade portal that drives the global scaling and financing of the SME in the world’s largest enterprise. This process ands education in this process is what The Following Sea provides.