Crony Capitalism

Export-Import Bank: Too Dumb to Fail?

Crony capitalism run amok.

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If you want a pluperfect example to epitomize the stupidity of America's team-sports approach to politics, look no further than the Export-Import Bank, which Virginia's two senators—Mark Warner and Tim Kaine—recently endorsed.

Once upon a time, liberals condemned Ex-Im. It was "little more than a fund for corporate welfare," candidate Barack Obama said in 2008. Left-wingers routinely deplored the way the bank did big favors for big businesses such as Boeing and Enron, at the expense of the little guy both at home and abroad. Although the bank was created by FDR, its biggest friends long have been Chamber-of-Commerce Republicans who think government's principal business should be helping the business community.

Lately, the bank—it's actually a government agency—has come under fire from tea party populists, too. They oppose it for many of the reasons liberals did, plus one more: its distortion of the free market. Government, they say, should not be picking winners and losers.

Lo and behold, suddenly Ex-Im is becoming a cause célèbre on the left. While principled liberals such as Vermont socialist Sen. Bernie Sanders still oppose it, many so-called progressives have come to its defense (Sen. Elizabeth Warren, for example). Apparently, some folks would rather think the other side is wrong than be right themselves—even if that means passing up what everybody in Washington claims to want: bipartisan cooperation on an issue of substance.

Of course, Ex-Im's supporters might have another motive as well: campaign contributions. Some of America's biggest companies reap the benefits of Ex-Im, and they can be mighty generous around campaign time.

The support can't have much to do with genuine substance. Not every argument made by the bank's critics is equally strong. But every argument made by the bank's supporters is astoundingly weak.

For instance: They routinely concede that the critics have the moral high ground. As former Sen. Judd Gregg put it not long ago, the critics object to Ex-Im "picking winners and losers, and supporting the big boys with influence. To be fair, this is basically true." In an ideal world, the bank's defenders agree, Ex-Im would not exist. They say the only reason we provide export subsidies to our guys is that other countries provide export subsidies to theirs. "We live in the real world, not the theoretical world," Mark Warner said late last month.

Boy, that's some defense: "We know what's right—but what's right is not expedient."

Warner also insists failure to reauthorize the bank "would cost us thousands of American jobs." But the studies a spokesman provided as proof said something very different: e.g., that Ex-Im "help[s] to sustain" jobs or that last year the bank "supported over 200,000 jobs." Well. When you buy your daily cup of coffee at a convenience store, you, too, are helping to sustain jobs. That doesn't mean any jobs would disappear if you stopped.

As Veronique de Rugy, a scholar at George Mason University's Mercatus Center, pointed out not long ago: According to the Government Accountability Office, "the bank doesn't actually count jobs related to its projects; it simply extrapolates" from statistics used by the Bureau of Labor Statistics. In plainer language: It guesses.

Here's another reason to suspect the jobs claim is overblown: Supposedly, the bank creates U.S. jobs by lending foreign companies the money to buy American products. This means it is creating (or at least steering) demand. Yet, one-fifth of the bank's funding goes to export credit insurance, which buffers exporters against the possibility that an overseas customer might not pay. That doesn't generate any demand at all.

Moreover, the bank's defenders ignore another big Ex-Im effect. If, say, a foreign company uses Ex-Im financing to place a big order for American-made construction machines, that's a great deal for Acme Construction Equipment. But it's not such a great deal for other companies—including American ones—that also buy from Acme. All of a sudden, U.S. companies are bidding against foreign ones that are, through Ex-Im, using the American government as leverage against them. (Something just like that happened in 2013, de Rugy notes, causing a Cleveland mining company to protest an Ex-Im subsidy that helped an Australian mining company buy heavy gear from Caterpillar.)

When Ex-Im supporters talk about "leveling the playing field," they never bring that up. There's something else they don't do, either: They don't answer, specifically, "level for whom?"

The U.S. aerospace industry is one of the biggest beneficiaries of Ex-Im financing. In that sector, at least, it's pretty clear who the competitors are: Boeing is going up against Airbus, which gets hefty European subsidies. Virginia-based Orbital Sciences Corp. is going up against the subsidized French satellite maker Thales—as well as Russian and Chinese satellite enterprises. So you can argue that any Ex-Im support on behalf of Orbital simply levels the playing field.

In many other cases, however, the ostensible leveling of the playing field might not occur at all. That's because, for a great many of the Ex-Im Bank's deals, the U.S. company is not competing against a subsidized foreign competitor. A U.S. supplier could be competing against a company that receives no subsidies at all. In that case, the Ex-Im subsidy would actually create an unlevel playing field, not a level one.

But wait, it gets worse.

Suppose Procter & Gamble reaches out to Ex-Im so a foreign company can buy a few million rolls of paper towels. In that case, Procter & Gamble isn't competing just against Chinese paper-towel companies. It's also competing against Kimberly-Clark and other U.S. companies that didn't get a subsidy. How level is that?

Ex-Im supporters admit they have no principled argument. Their practical argument is full of gaping holes. It will be interesting to see what they come up with next to avoid admitting the opposing team might actually be right about something. Please, anything but that.