• William Laraque , Managing Director at US-International Trade Services


• 22.10.2015 01:00 am
undisclosed

Solutions

The prevailing geopolitical and geostrategic models of investment in economic growth and job development fail to meet the objectives of peace through trade, attainment of a higher quality of life in a collaborative model of trade, and continuous improvement in the pursuit of happiness. Trade is the alternative to violence, to hunger, to suffering, to apathy, to financial neglect, unemployment and “under-service”everywhere. 

Collaborative global trade provides rich opportunities for ROI and jobs that pay higher salaries. As the world becomes more productive, more technologically sophisticated, more and more jobs are required, everywhere. 

Too often, government debt is issued in order to drive economic and job growth. It does not have to be that way! All that is needed are Government guaranties so that credit unions and small banks will be motivated to provide pre and post export financing to entrepreneurs.

A model for global economic transformation

The World Bank Group recognizes that a “thriving private sector with new firms entering the market and creating jobs and developing innovative products, contribute to a more prosperous society” and that Governments set the rules that establish and clarify property rights, reduce the cost of resolving disputes and increase the predictability of economic transactions." 

Economic growth and job development depend upon providing pre-export working capital at every stratum of the economy from the entrepreneur, to the mom and pop, to micromultinationals. The job of stoking the fires of economic growth has been relegated to government in general and their central banks. The result is a misdirection of investment principally toward multinationals with underinvestment in everything from infrastructure to health, education and most crucially, R&D. 

Economic egalitarianism is based on the premise that all humans are equal in fundamental worth and social status; however, inequalities of income, wealth, and opportunity—the Inequality Trifecta—reinforce one another, with far-reaching consequences. Instead of creating incentives for hard work and innovation, inequality undermines economic dynamism, investment, employment, and prosperity.

U.S. and European capitalism, the Chinese Resource for Infrastructure Investment (R4I)program and the Saudi profit sharing models are neither egalitarian nor are they democratic.  

Investors and Entrepreneurs: Credit Unions and Entrepreneurship

Start-ups and mom and pops do not get the benefit of equity investment except through friends, family and angel investors. Crowd funding and venture capital do not provide a growing company what it needs most, working capital and cash for growth with no dilution of ownership. Credit Unions do. Credit unions are essential in providing capital to the entrepreneur during their early stages of growth. A credit union loan helps the entrepreneur to move from the mom and pop stage to the micromultinational stage.

Using donated funds and their capital reserves,credit unions are able to fund small business, particularly the “culturally-linked entrepreneur”who have a direct connection to foreign markets, either by culture or by business operations. 

Culture, Enterprise and the Micromultinational 

Entrepreneurs who use their cultural connection to foreign markets can quickly move from the entrepreneurial, mom and pop stage financed by credit unions to expand overseas operations. Small business enterprises benefit as micromultinationals from additional investment supported by government guaranties to their lenders as well as export credit insurance.

In the U.S., the NCUA, the National Credit Union Association has a working relationship with both the Small Business Administration (SBA) and the U.S. Ex-Im Bank. These independent federal government agencies provide guaranties to financial institutions or lenders, in order to encourage their export-related, job creating loans. Both SBA and Ex-Im Bank have working capital guaranty facilities whereby pre-export working capital is provided to the enterprise in support of exports. 

The Transition to Micromultinational 

Moving from domestic entrepreneurship financed by investors in credit unions and credit union loans, to a micromultinational requires support from financial institutions that in the U.S. have the protection of SBA, Ex-Im Bank , and ECA guaranties. Every major and many smaller economies have export credit agencies (ECAs) that provide these guaranties which permit the small entrepreneur to advance to the micromultinational.

The transitional steps from domestic entrepreneur to micromultinational require:

Eventually the micromultinational develops more sophisticated needs than can be provided by small community or commercial banks. At this point the Export Working Capital Guarantee facilities (EWCG) of SBA and Working Capital Guarantee facilities (WCG) of Ex-Im Bank are needed to provide pre-export and post-export working capital financing to the micromultinational. With such financing and guarantees, the micromultinational can fully participate in global trade opportunities—the trade flows in goods, services, financing, data, communications and FDI that are projected by the McKinsey Global Institute to total $85 trillion by 2025.

As the micromultinationals succeed, they create jobs and grow the economy

Growing The Micromultinational

In order to continue growing, micromultinationals need additional working capital or cash. One of the investment vehicles for this transitional stage is the convertible bond IPO.

The usual IPO or Initial Public Offering involves an underwriter offering stock in a private company for sale to the public. The sale of stock through an IPO generally dilutes the ownership and control of the company to such an extent that the original vision of the founder is often obscured or even totally lost. Bonds provide a means of borrowing from an investor or from multiple investors. The bond is a debt instrument rather than a means of equity participation in the company. 

A convertible bond is a bond that gives the holder the right to trade the bond back to the issuer for a fixed number of equity shares in the company at some later time or upon the occurrence of a particular event in the growth of the company. Bond issues result in a larger amount of working capital and a smaller amount of equity dilution.

Sustaining the Micromultinational

To sustain the growth of micromultinationals in the arena of world trade there are certain assurances which must be provided: