When they hear the words “U.S. Export-Import Bank,” many Americans might be led to believe this federal lending agency is all about giving struggling U.S. companies a better shot at competing on the world business stage. If they look behind its moniker, though, they just might find a less attractive description that better fits the Bank’s activities: rewards for the politically influential as well as risks for the nation’s taxpayers, all with less benefit to the economy than its supporters tout. But will Members of Congress, who are now debating a reauthorization of funds for Ex-Im Bank, recognize this problem?
This question is not academic; it rests on $100 billion of current lending authority, backed by U.S. taxpayers, which some lawmakers hope to boost to $140 billion. Supporters of Ex-Im say that the whole operation is safe and sound, offsetting any losses with income from fees and other operations. That argument only goes so far with taxpayers, who are now on the hook for a net of over $120 billion due to bad bets from the mortgage giants Fannie Mae and Freddie Mac – two entities which supposedly didn’t even have an explicit government backstop. And while just about everyone can recall Enron’s flame-out, few remember that some of the firm’s fuel consisted of a $132 million loan from Ex-Im. More recently First Solar Inc., which just announced a 30 percent workforce cut, also received millions in loan guarantees from Ex-Im. If the Bank’s portfolio increasingly sours in the future, taxpayers could be in line to underwrite a bailout.
Are these potential breakdowns worth the bump-ups for businesses that Ex-Im claims to provide? While the Bank approved an impressive $32.7 billion in loans during 2011, this is equivalent to about 1.5 percent of all U.S. exports that same year. Ironically though, even this economic impact may be further offset by Ex-Im’s own market distortions.
For example, as a result of Ex-Im loans to aircraft manufacturer Boeing, foreign airlines pay roughly $5 million less than American ones per wide-body aircraft, which could put our own carriers at a disadvantage. Furthermore, important principles are at stake. Companies like Boeing are reaping subsidies, which they don’t need because they could qualify for private loans; and those that might have difficulty receiving private financing like Air India due to the fact they are less than creditworthy shouldn’t get loans that expose American taxpayers.
If the federal government wants to “help” the aviation industry, reducing corporate tax burdens and cutting the tax bite on air travel (which can exceed 20 percent on a typical ticket) is a better approach than more loan guarantees.
But Washington’s pick-winners-and-losers habit stretches across many industries. In addition to Boeing, profitable companies like GE and Caterpillar also got in on the money. Not surprisingly, some of the firms have connections to the policy agenda of the current Administration. Boeing’s CEO is Chair of the President’s Exports Council. GE is a proud beneficiary of federal “green energy” policies and is a participant in the United States Climate Action Partnership – a big business/big government alliance that has promoted a cap-and-trade national energy tax.
This type of crony capitalism has no place in our free-market economy. Members of Congress have the opportunity to take a positive step toward smaller and smarter government by opposing reauthorization of the Export-Import Bank. They’d join organizations like National Taxpayers Union and U.S. Public Interest Research Group – both of whom differ on the desirable size and scope of the federal budget, but who are united in the belief that the Ex-Im Bank is an unnecessary program.
In a Washington Post column entitled, “Export-Import Bank’s Damage to American Firms,” George Will noted, the bank claims “it helps ‘to level the playing field for U.S. exporters by matching the financing that other governments provide their exports.’” But as Will cautioned, “ … a leveler’s work is never done.” That’s why the best course is to shut down Ex-Im and let our free-market system do the “work” of efficiently allocating investment capital instead.