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Ad hawk; how Paul Newman and McDonald's get the U.S. government to push their products abroad.

All in all, Paul Newman seems like a straight-up guy-the liberal causes, the lasting marriage, those sporty little cars. It's his salad dressing and spaghetti sauce that have got us wondering. Here's an entrepreneur who commands multimillion-dollar salaries for his films, and his gourmet goodies are on the dole. Over the past three years, Newman's Own has received more than $100,000 from the U.S. government to help it hawk its products overseas.

In the world of government-subsidized advertising, of course, $100,000 to Newman's Own is barely a crouton. Through a little-known U.S. Department of Agriculture (USDA) enterprise called the Market Promotion Program, some of the biggest private corporations in the country receive millions each year in public money to fund ads, billboards, and supermarket displays abroad.

If it seems odd to you that the U.S. government would subsidize wine tastings in Tokyo or radio campaigns in Turkey, it's even odder which companies it chooses to fund. Despite the rhetoric with which the program was founded, many of the beneficiaries of this government giveaway aren't companies squeezed out by the unfair trade practices of competitor nations or even struggling enterprises whose survival might depend on U.S. government largess. Rather, they're some of the most powerful and profitable multinational conglomerates around-companies that don't need anyone's help (let alone taxpayers') when it comes to peddling their wares.

Take McDonald's. In the past five years it has spent more on advertising than virtually any other U.S. company. It boasts 70 billion served worldwide; in Paris, Rome, and Tokyo, young people flock to the golden arches to be seen and to drink milkshakes. Yet in 1989, Mcnational conglomerate Castle and Cook, whose fruit farms in Costa Rica, Honduras, and the Philippines are often blamed for undercutting the U.S.'s own citrus farmers.

But perhaps the most disturbing beneficiaries of the Marketing Promotion Program are those industries that, instead of facing unfair trade practices abroad, are legendary for promoting them at home-like U.S. peanut farmers. For some 50 years, those farmers have enjoyed both lucrative government price supports and strict quotas on peanuts imports-the same kind of trade practices we label unfair when imposed by other nations. You actually need a license to join the elite group that comprises the nation's peanut farmers. These protections hit taxpayers twice-in the public treasury and in the private purse. (Bought an $8 jar of Skippy lately?) But to make the public shelling complete, the farmers' trade association, the National Peanut Council, has received more than $27 million over the past six years from its friend, the Marketing Promotions Program.

At least the peanut farmers will tell the public where their money goes-to market Skippy in Korea and Taiwan and to sell honey roasted peanuts to the French. Many companies on USDA's dole won't.

William Quarles, a vice president with Sunkist, gets testy when asked how he spends the federal money. And even Ursula Hotchner of that nice Newman's Own (whose profits, she notes, go to Paul's favorite charities) refuses to discuss any specifics of the overseas advertising efforts her company undertakes with federal dollars. "They certainly don't cover cocktail parties or flights," she says helpfully.

The reluctance of company executives to talk about how they spend their federal subsidies, or even how much of their advertising budgets are composed of public dollars, might make you forget that you're paying for their ads. Some executives even make it sound as if they're performing a patriotic duty by marketing their wares overseas. "We're exporting something of our culture," effuses Nancy Light of the Wine Institute, an industry trade group that's divided some $10 million in federal money among California wine groups since the marketing program began.

Even USDA is reluctant to talk turkey about how all that money is spent, providing only general information. Still, one example of what our tax dollars are buying can be excavated from documents provided by the USDA. Blue Diamond, the California almond company, used some of its millions in subsidies to insert advertisements on wrestling videotapes shown in Kuwait. Not exactly top secret stuff, but you can see why company ad directors and government officials aren't bragging.

Since its creation in 1985 (under the name Targeted Export Assistance Program) the quiet Marketing Promotion Program has become the biggest federal export assistance program in the entire U.S. government. But amazingly, as it's grown, it's managed to sell out its original purpose-to rectify foreign wrongs-altogether. In the past Congress, while allocating $1 billion to the program over the next five years, legislators also made one minor change to the program's mandate. Participants no longer have to prove their products faced unfair trade practices to get government money.

As we've seen, and the GAO recently speculated, that law simply put into writing what had been fact since the program's inception. New York Rep. Charles Schumer, a longtime opponent of the subsidies, claims the original impetus came not from a congressional concern with countering unfair tariffs and restrictions but from a desire to appease powerful agricultural constituents who claimed that their products were left out of the nation's hefty farm subsidy programs, which give special subsidies to commodities like honey, sugar, wool, dairy products, and mohair.

While the USDA perpetually invokes small farmers in desperate need, the bulk of its subsidies often wind up in the pockets of the biggest producers; according to USDA data, the largest farm payments in 1988 went to people with average net incomes of $96,000. The Market Promotion Program is no different. In fact, by giving weight to a company's international sales history the program is structured to ensure that the biggest companies will get the most money. "The bottom line with the program is that it's a corporate welfare program," Schumer charges. And the bigger the corporation, the bigger the check.

In 1989 the Wine Institute received $7 million from the promotion program for "tasting shows" and store promotions in Japan and Europe. More than six dozen companies were granted subsidies by the institute, including tiny vintners like Stag's Leap, Valley of the Moon, and Hacienda, which got $5,000 each. That sounds equitable and democratic-until you look at all the numbers. The biggest award went to the biggest winery in the United States-Gallo-which received $2.2 million, or nearly one-third of all the money set aside for the industry. For what? Gallo refuses to answer any questions regarding its marketing.

Joe Rollo, director of the Wine Institute's international department, says the trade group parcels out the money based on such criteria as each winery's "history and experience in export," as well as previous sales and the size of the administrative staff (to ensure the ability to process orders). This means that the biggest wineries, many of which have been exporting for years and are the most capable of carrying out promotion campaigns without public assistance, gamer most of the support.

Despite the USDA program's supposedly essential role in upping overseas sales, GAO notes that government program officials haven't demonstrated that, in the absence of public subsidies, overseas promotional activities could not have taken place (or, in fact, were not already taking place). But Ken Howland, USDA's deputy assistant administrator, is quick to defend the practice of giving the most to the biggest.

Let's say the USDA wants to boost sales of french fries in Hong Kong as a means of increasing the export of Idaho potatoes. Howland says the USDA or the trade association handling the federal allocations will look to the biggest seller in that market-say, McDonald's-and offer promotion subsidies. What if McDonald's doesn't need the money? Couldn't you spend it on a "Buy Idaho Spuds" campaign? "Consumers buy by brands of products," Howland explains, "not by generics."

While USDA's theory is that bigger companies can get more bang for their advertising buck, GAO claims that theory is remarkably untested. In its 1990 report, it charges that the USDA makes virtually no effort to evaluate whether the program works at all-whether U.S. money to corporate ad execs boosts foreign purchases of specific goods or not.

To rebut this charge, the USDA offers an impressive list of "success stories"-examples of rising foreign sales in conjunction with the advertising and promotion subsidies. More soybean margarine sold in Britain, more Italians eating California prunes, more Norwegians cracking Georgia peanuts. Of course, millions of dollars in targeted advertising does tend to increase sales. The question is, was U.S. money necessary to make Gallo, McDonald's, and Sunkist successful overseas? Buying the farm

Given the broad array of criticisms of the export subsidy program, the poor USDA oversight, and the massive federal deficit, why does Congress allow major corporations to continue dining at public expense? Part of the reason is that there's precious little debate over national farm policy. Forget labels like Democrat and Republican, liberal and conservative. When it comes to farm policy, Congress is generally one big team-perhaps because farm-belt legislators are so skilled at calling in favors when farm bills hit the floor.

At a budget committee task force hearing last year, Kansas Rep. Dan Glickman was one of several agriculture committee members to punctuate his defense of subsidies like the export program with a stark threat to his urban peers. "I have supported food stamps, urban programs," Glickman reminded them. "I would hate to see a lot of programs jeopardized because of an attempt to drive a train through agriculture programs."

While some congressmen inevitably prefer pork barrel politics to policy debates, there are some serious questions here. Let's assume that the export subsidy program aims to help U.S. agricultural businesses overcome unfair trade practices. Is funneling USDA money into the advertising budgets of our biggest corporations really the best way to achieve that?

Last year's $200 million Marketing Promotion Program budget was bigger than that of the Department of Commerce's entire International Trade Administration (ITA), which provides marketing assistance for all U.S. goods and services except agricultural products-that is, everything from software to underwear. But ITA doesn't line the pockets of Microsoft and Maidenform. "Our money never goes to private corporations," says an ITA spokesman. Rather, it goes for technical assistance to various industries attempting to develop their markets overseas. Instead of buying brand-name billboards, ITA runs programs that try to link U.S. companies to foreign distributors, prints a monthly promotional magazine, and sponsors pavilions at overseas trade shows.

And unlike USDA, ITA still devotes most of its energies to helping American industries blocked by foreign trade bans-telecommunications and computer companies in Korea and Japan; footwear manufacturers in Europe; and car makers in Indonesia, where the car tariff ranges from 100 to 200 percent.

ITA has the right idea. Where the playing field is truly tilted, industries-although not private companies-deserve special help. But building that level field involves taking a hard look at the home team, too. Instead of just arguing for relaxed trade barriers at GATT talks, the U.S. government might consider revising its own, more subtle industrial policy by eliminating U.S. import restrictions or price supports on commodities like wool and peanuts-instead of funneling even more money into international ad departments.

When the nation faces a $3 trillion deficit, the $68 million spent last year to subsidize the overseas advertising of U.S. agricultural firms may seem like small potatoes. But the bottom line is this: Do you really think Paul Newman and the Jolly Green Giant need your help? Doug Turetsky is a New York writer Research assistance was provided by James Lee.
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Author:Turetsky, Doug
Publication:Washington Monthly
Date:Jul 1, 1991
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