Kellogg School of Management
As prepared for delivery
Chairman Fred P. Hochberg
Mar 31, 2015 – Evanston, IL
Thank you all for taking time out of your schedules to be here. And I know you actually want to be here, since you’re not getting credit for this.
I love having the opportunity to speak with students—particularly those who are interested in business, finance, and the global economy. In fact, before I joined the Obama Administration, I was the Dean of the graduate school of management and urban policy at the New School in New York, where David Van Zant—formerly a dean of the law school here—is now the president.
So it’s good to be on campus, speaking with students again. Because if there is one audience I can rely upon to ask the challenging, the tough, the impolite questions—it’s you. Of course there’s also Congress, but they’re on recess this week.
And today I’ll be talking about your economy: the one you will inherit and shape over the next 40 to 50 years—the world you’re going to live and work in, the world you’ll run businesses and raise families in, the world in which your kids will go to school and seek out meaningful work.
Exports aren’t about the past—they’re all about our shared future. The global middle class is poised to grow by 200 million people each year for the next five years. Think about that—that’s the entire adult population of the United States being added, year after year after year.
There will be unprecedented demand for highways, power plants, airports, bridges, satellite communications, and consumer goods: in fact, every good or service you can imagine. And the reward for whichever country’s businesses step up to meet that demand will be economic durability and the hundreds of thousands of good-paying jobs that come with it.
You simply can’t afford to sit this race out. America needs you to make use of every tool in our toolkit to ensure that U.S. companies can get in the game. The trade agreements the President is pursuing overseas, including the Trans-Pacific Partnership, are one of those tools. The agency I represent, Ex-Im, is another.
Some of you probably aren’t familiar with Ex-Im. In fact, be brave. Raise your hand if you’d heard of Ex-Im before reading about this event. We are the official export credit agency of the United States. And we work with companies, large and small (but mostly small), to equip them with financing they need to win global sales.
Just like fire or theft insurance, companies frequently need what’s called export credit insurance to protect their overseas sales. They need working capital to stay competitive and keep innovating. Sometimes their overseas buyers need loans or loan guarantees in order to buy American. And in a lot of cases—particularly when we’re talking about small businesses, or when U.S. companies want to sell to the developing world—the private sector isn’t able to offer financing on economically competitive terms.
That’s when Ex-Im steps in—we’re the backstop. And we do it because when an American company has financing that allows it to go toe-to-toe with a foreign rival, the U.S. frequently wins. That’s because we produce some of the highest quality, most innovative goods and services in the world. And the end result of that is that more good-paying jobs end up in cities and towns here in America, rather than thousands of miles away. By the way, some of those jobs at American exporters might literally be your jobs someday—or those of a family member or friend.
To give you an example of what that looks like, let me tell you about a small business we work with right here in Chicago.
In Wicker Park, Mary Howe runs the flake-ice machine company her great-grandfather opened more than a century ago. Anyone here enjoy fresh fish? Then you may have Mary’s company to thank. You’ll find her ice making equipment in Whole Foods, supermarkets, fishing boats—anywhere you need to keep foods cold and fresh. However, with the onset of the recession of 2007-8, Mary realized that her company was in jeopardy. In order to stay in business and keep her employees, she needed to start selling to the 95 percent of the world’s customers who live outside of the 50 states.
But even if you’re able to win sales abroad, sometimes the risk can be too great. It’s one thing to sell to Ohio and Iowa—it’s another story when sales are overseas. If your customer doesn’t pay, collections are a lot harder to bring in when they’re 5000 miles away. So Mary needed support to keep her workers on the job while shipping her products around the world. And given the size of her business, commercial insurance brokers just weren’t interested.
That’s why Mary approached Ex-Im. We equipped her with an insurance package that gave her the confidence and financial muscle to reach out into new markets and grow her business. And today, exports have fueled Howe Corp.’s growth to 40 employees in Chicago—and you can find Mary’s ice machines in nearly 100 countries.
You see, Mary likes to hire people—not fire them. I’ve found that to be true in small business after small business. Owners want to keep their employees on their payroll; they don’t like to do layoffs. Their employees are in many ways a part of the family.
I’ve had the opportunity to visit with Mary several times here in Chicago. Mary’s story is why Ex-Im exists: to support her growth, which in turn keeps the 40 people who work at the Howe Corporation on the job.
So now you might be asking: this is all very nice, a small business right here in Chicago, but where is he going? So let me offer a brief outline, or the “Cliffs Notes” version—do those still exist?—of the global economy and our part in it, and how Mary fits in.
Back in 2002, the U.S. was the world’s number one exporter. Germany passed us that year, and China has since passed us as well. Since then, we’ve climbed back up from number three to number two. And there’s no reason we can’t be number one again.
The thing is, exports account for 52 percent of Germany’s GDP. In Korea, it’s 57 percent. In China, it’s 27. Even Great Britain, where I just returned from on Sunday—let’s face it, they aren’t known for making a lot of things—it’s about 30 percent.
And where is America? Exports are about 14 percent of our GDP. Fourteen percent—and that’s an all-time high for us. We have never done better. Just to give you an idea of where that puts us on the list of countries, we’re in about 144th place—right in between Haiti and Rwanda. That’s our peer group. You heard that right: Haiti and Rwanda.
Can you imagine what a difference it would make for jobs and for the strength of our economy if we could bump that number up even just a little bit, to 15 or 16 percent?
So what’s stopping us? Well, number one is focus—we need to focus on seizing the opportunities that are out there to serve that 95 percent. We need more companies exporting—Mary’s sales are now up to 40 percent exports. We need more of that from businesses of all sizes. We need smart trade deals like the Trans-Pacific Partnership to open more doors for our exporters. We need better infrastructure to bring our goods to market—that’s something Chicago does a great job of already. And we need the Export-Import Bank.
Today, there are 59 other versions of the Export-Import Bank around the world competing to win deals. Russia, China, and other countries frequently offer financing to their domestic exporters that is so aggressive, free market factors like quality and price become afterthoughts.
When China comes to the table, it plays to win. And attractive financing is an integral part of winning the deal. The only question is what are the terms: “Do you want a 10-year, 15-year, or 20-year subsidized loan. How about a grace period? What will it take?”
American businesses can compete and win against any other business in the world—but they can’t compete against ‘China, Inc.’ And they shouldn’t have to. More and more, that uneven playing field is what our businesses are facing.
I want you to think about a number: $600 billion. Over the course of our 81-year history, way back to 1934, that’s how much Ex-Im has authorized to support U.S. exports—a little under $600 billion.
Well, I took a look at what China has done. And it’s a minimum—and this is just what we know about—of about $670 billion… in the last two years alone. That’s right: the Chinese government has done more export financing since 2012 than we’ve done in 80 years. And frankly, because there isn’t a lot of transparency there, that number could very well be as high as a trillion.
Like I said, the U.S. is perfectly capable of becoming number one again—by the time that many of you in this room are out there running businesses, we could very easily be leading the global export economy once more. But it won’t happen if the playing field is tilted.
Leveling that playing field by providing responsible, competitive, transparent, above-board financing to American exporters is one of the key ways that Ex-Im supports U.S. job growth. Just last year, in fact, Ex-Im authorizations supported 164,000 American jobs—many of them at small businesses.
And we did it once again at no cost to the taxpayers. That’s right—because we charge fees and interest on our products, we actually run a profit. Of course, back in Washington they don’t use the word profit—they prefer to call it a “negative subsidy.” Well, last year, Ex-Im generated a ‘negative subsidy’ of $675 million… Money that went back to the U.S. Treasury to help pay down the deficit. I was so proud of that number, I made “0-6-7-5” the password to my iPhone.
Thousands of entrepreneurs across the country are trying to make plans right now: plans to grow their businesses, to invest in innovation, to export, to hire more American workers. They need some certainty in an uncertain world—that’s what Ex-Im is for.
We need to break down every barrier we can for our businesses to reach the growing middle class. Because every sale a U.S. company loses out on—simply because its foreign competitor was able to bring off-market financing to the table—means that good jobs that might otherwise have landed here in Chicago will instead wind up thousands of miles away in China, Germany, Japan, or Korea, to name just a few.
On Monday, President Obama spoke at the dedication of the new Edward Kennedy Institute in Boston. I attended the event, and was struck by something the President said about Senator Kennedy—something that’s an enormous part of the Senator’s legacy.
The President reminded us that “we can fight on almost everything. But we can come together on some things. And those ‘somethings’ can mean everything to a whole lot of people.”
He recounted how Ted Kennedy worked with Orrin Hatch to deliver health coverage to millions of kids. How he worked with Chuck Grassley to cover children with disabilities. How he worked with Pete Domenici to push for rights for those living with mental illness. And so on down the line—both parties, working together.
I was struck by that because Ex-Im is one of those issues—it’s one of those ‘somethings’ that even people who disagree on everything can come together to agree on. And it will make a difference in the economic security of millions of Americans—especially your generation and those to come.
Some of you in this room are going to play a big role in ensuring that America will lead in the economy of tomorrow. For many of you, that will mean leadership of companies. For some, it could mean leadership in the public sector. I suspect that for a number of you, like me, it could mean both—I ran a small business for many years before getting involved in public service.
We need more bright young people—people who speak the language of business—to involve themselves in the public sector. That’s where policy is shaped; that’s where the rules of the road are written. And, let me tell you, the rules of the road are only going to become more and more vital to determining whether America will lead or follow in the years to come.
So as you advance in your careers, I do hope that you’ll consider public service as a way you can contribute to the bigger picture of American success. Because the world you inherit won’t be getting any larger or less interconnected. It’s going to be driven more than ever not only by who makes the highest quality, most innovative products, but also by who is able to lead most effectively on the global stage.
Thank you—and now I’m happy to take some of your questions.