Richmond Times-Dispatch Op-Ed: Taxpayers Fund Crony Capitalism
By Chris Chocola
Richmond Times-Dispatch (Richmond, VA)
April 8, 2012
We have always been a nation of free enterprise. It has set us apart from most others and allowed us to lead the world in innovation and entrepreneurialism. But today, those underpinnings of our success are under threat. Government has become a behemoth that is overtaking industries and distorting markets in such a way that competition and self-reliance as we know it are barely recognizable.
The reauthorization of the Export-Import Bank is a case study in Washington bureaucrats picking winners and losers and interfering with the free market. It's corporate welfare that is hurting economic growth and costing our nation jobs in one of the most stagnant economies in American history.
The Ex-Im Bank was a New Deal program founded in the mid-1930s to assist with the export of American goods. Among other things, it provides loans using funds backed by the full faith and credit of the American people. This means Joe and Jane Taxpayer are responsible for the bank's activities.
After the housing meltdown caused in part by the government bankrolling Freddie Mac and Fannie Mae, one would think Uncle Sam had learned its lesson about market-distorting subsidies, but nothing could be further from the truth.
The Ex-Im Bank is seeking to be reauthorized by Congress and have its lending cap raised by tens of billions of dollars. This would allow it to "lend" more money to U.S. companies exporting goods to foreign entities that compete with American businesses.
Yes, unbelievably, we are subsidizing foreign companies so they are in a better position to compete against our own. This, in spite of the fact that Ex-Im's own charter clearly states it can only grant loans to credit-worthy entities and must never undermine American companies.
Yet, political inattentiveness and failure to conduct proper oversight has allowed Ex-Im subsidies to flow into the coffers of a handful of questionable businesses, exposing the American people to potential losses. The beneficiaries include Solyndra, the now-bankrupt solar panel company intended to lay the groundwork for President Obama's "green jobs" initiative. Another well-known recipient of Ex-Im's generosity was Enron, and we all know how that turned out.
But maybe the most egregious example of how dysfunctional and misguided the Ex-Im Bank's actions really are is present in the airline industry. The bank provides financing to foreign airlines that in turn purchase American aircraft, allowing them to compete against U.S.-based carriers. These foreign companies use our subsidy to offer lower prices since American companies cannot qualify for this corporate welfare, and they, in turn, lose business.
When people talk about crony capitalism, this is an example in its purest form.
Why is taxpayer-backed money being wasted on companies that should be able to seek capital from private lending institutions? And if banks decide against providing some of these companies with loans, shouldn't that tell us something?
Over the past several years, the American government has grown and expanded like a plague; the wrath of which has left hundreds of thousands out of work, and placed an unfair burden on future generations.
We are $15 trillion in debt due to huge overspending. And it is no time for Washington to reauthorize the Ex-Im Bank and give it more money. The market should dictate trade flows, not bureaucrats and politicians.
Washington has turned a blind eye to the unintended consequences of such loans, but we have not. No one who calls themselves fiscal conservatives should support reauthorization of the Ex-Im Bank.
Washington Post Editorial: Impasse Over The Ex-Im
April 8, 2012
CREATED IN 1934, the Export-Import Bank of the United States provides direct loans, loan guarantees and credit insurance to enable foreign purchases of U.S. products that private-sector banks might not finance. When trade credit dried up after the financial panic of 2008, Ex-Im’s lending soared from $14.4 billion in fiscal 2008 to $32.7 billion in fiscal 2011. As a result, the bank will hit its portfolio limit of $100 billion soon, perhaps before the agency’s legal mandate expires May 31.
A bipartisan Senate bill, supported by the Obama administration, would reauthorize Ex-Im through 2015 and increase its allowable portfolio to $140 billion. Backers say that Ex-Im sustains hundreds of thousands of jobs — while returning $1.9 billion in fees and interest to the Treasury in the past five years. But House Republicans are resisting, arguing that Ex-Im distorts markets and risks taxpayer money to aid big business.
Mere Tea Party ranting? Well, then-Sen. Barack Obama called Ex-Im “little more than a fund for corporate welfare” during his presidential campaign. He had a point: In fiscal 2011, more than half of Ex-Im’s loans and guarantees supported oil and gas or aerospace companies. For many years, Boeing has been Ex-Im’s leading customer.
Why can’t a blue-chip giant like Boeing sell planes without Washington’s help? Ex-Im supporters argue that even in normal economic times banks hesitate to extend long-term credit in emerging markets such as Vietnam and Colombia. Maybe so, but that contradicts another argument in favor of the bank — that it exposes taxpayers to little or no risk. Historically, Ex-Im’s default has been low — less than 2 percent. But it developed that record on the basis of a much smaller portfolio. To the extent that Ex-Im substitutes the U.S. government’s judgment for the market’s, it encourages emerging countries to over-invest in new aircraft and the United States to over-produce them. And that’s inherently risky.
What about job creation through export promotion, the rationale that converted Mr. Obama? Ex-Im surely creates jobs at Boeing, but whether it increases employment overall is another question. Delta Airlines has complained, with justification, that Ex-Im-backed jet sales to competing airlines abroad put Delta at a disadvantage (though a new Ex-Im loan will help a Brazilian airliner send planes to Delta for maintenance). Nor does Ex-Im necessarily increase net exports. Currency fluctuations, tax rates and other competitive factors probably swamp Ex-Im’s impact; it backed a mere 2 percent of U.S. exports last year. And if not channeled to Ex-Im’s clientele, those resources might well have paid for other U.S.-made goods.
There is one hard-to-refute argument for Ex-Im: Everyone else does it. Europe and Japan have long subsidized big-ticket exports. In recent decades, the United States and other developed nations have negotiated mutual reductions in export subsidies — but now China, Brazil and India are getting into the act.
Probably the United States ought not to disarm unilaterally. But in the short term Congress should reform Ex-Im, by abolishing the well-intentioned but impractical requirement that it devote 10 percent of its resources to renewable energy exports and by ending the protectionist requirement that Ex-Im-financed goods travel on U.S.-flagged ships. In the medium term, the United States needs to lead a redoubled global diplomatic effort to phase out these market-distorting practices.