As a Trading Region, We're Starting From Scratch

Where did the vision of San Diego/Tijuana as a global trading region go astray?

One big mistake was in getting overly excited about East Asian investment in assembly and manufacturing plants in Tijuana. Of course, it was hard not to be enthusiastic.

All the Japanese giants of consumer electronics, followed by the Korean giants, were investing hundreds of millions of dollars, first in Tijuana, then in Mexicali and, most recently, in Rosarito. South of the border was being transformed into a huge manufacturing platform at the very time that San Diego was losing manufacturing.

It was enchanting to let the company names roll off one's tongue - Sony, Sanyo, Hitachi, Matshusita, Samsung, Lucky Goldstar, and on and on. It felt like a roll-call of the gods. Globalization had arrived on our doorstep. The place that had been the end-of-the-line, the ultimate cul-de-sac, would become a global crossroads for trade and investment.

It was a grand illusion. In fact, these companies - through no fault of their own have proved to be a very poor foundation for trading with the rest of the world. They are here at the border mainly for relatively low-wage labor and easy access into the huge U.S. market. And since they distribute their products mainly by truck, improving the region's air, rail and port capacities has not been a priority for them.

They are concentrated in Tijuana because the components they need can be imported easily through Los Angeles ports and trucked south, and because company executives can live in San Diego, play golf, and send their children to San Diego schools. The San Diego economy itself is largely irrelevant for them, just as they are largely irrelevant to San Diego's high-tech companies. TVs, video players and computer monitors are hardly technology's cutting edge.

There were other miscalculations. San Diego's high-tech companies have been slower than expected to enter into a manufacturing phase, and when ready to do so, reluctant in many cases to set up operations south of the border. At the same time, Mexico's financial crises have kept interest rates high and capital unavailable for start-up manufacturing operations.

None of this might have mattered so much if the big consumer electronics companies had been a better building block. They weren't, however, and that has meant the region has basically been starting from scratch without major economic or political interests leading the way to pro-trade policies and a more favorable trade environment.

Thus we have the strange phenomenon in San Diego - a city sitting at the intersection of the Pacific Ocean and the Mexican border - of a popular new mayor who almost never speaks of trade and has no senior-level policy staff assigned to cross-border or international affairs.

Which brings us to the biggest miscalculation of all. A cross-border cul-de-sac that dreams of transforming itself into a trading region has many obstacles to overcome, beginning with the absence of a trading history and culture and the many difficulties inherent in partnering across an international border. To compensate, there better be strong, supportive governmental leadership, preferably from both sides of the border at the highest levels and accompanied by generous amounts of public investment.

When that leadership isn't there, the vision is likely to become sheer fantasy.