End the Export-Import Bank
It's time to let this crony capitalist institution expire.
On June 30, the Export-Import Bank of the United States—an agency that mostly extends loans and loan guarantees to large foreign companies to buy U.S. products—will most likely see its charter expire for the first time in 81 years. This state of affairs is nothing short of remarkable, considering that for years, Ex-Im's charter has been reauthorized by Congress without any debates or even formal votes. The change is the result of an intense fight between the people who oppose corporate welfare and those who will support it at any cost.
However, it would be a mistake to see this battle against Ex-Im as an end in and of itself. It is not. The battle is better-understood in the context of a broader rejection of government-funded privileges for a handful of connected actors. Indeed, everywhere we look, big business is teaming up with big government, and that's causing big problems. People know this, and they're sick of it.
Ex-Im is the epitome of that cronyism and has a charter that is set to expire, which is why it became such a great target. For instance, in recent years, some 60 percent of the bank's activities have benefited 10 giant U.S. corporations, with 40 percent benefiting one company alone: Boeing. On the foreign side, the cheap loans are extended to giant state-owned companies such as Mexico's petroleum company, Pemex, and the United Arab Emirates' airline, Emirates. When the Ex-Im financing isn't benefiting a state-owned firm, it is often flowing to very successful private firms with plenty of access to capital, such as the loan extended to the richest woman in Australia to finance her iron ore project at the expense of its U.S competitors.
These Ex-Im companies may enjoy the perks of cheap financing and artificially inflated profits, but it's not fair for the 98 percent of U.S. exports generated without special treatment from the federal government. That's especially outrageous when the program has taxpayers on the hook for $140 billion.
The Department of Energy's 1705 loan program falls squarely in that category. A few years ago, it received a lot of media and political attention when one of its recipients, a solar company named Solyndra, defaulted on its $538 million loan guarantee, leaving taxpayers with the tab.
The overlooked scandal of the 1705, however, is that—as with the Ex-Im Bank—most of its beneficiaries are green energy projects backed by gigantic companies with plenty of access to capital, such as Goldman Sachs and NRG Energy.
But cronyism goes beyond loan guarantees. A 2012 paper by budget analyst Tad DeHaven calculated that subsidies to businesses alone cost taxpayers almost $100 billion each year. The subsidies flow to air carriers, community developers, fisheries and wineries. There are also billions in subsidies to rich farmers, on top of such things as the bailout of the automobile industry, which ended up costing $9.26 billion.
Whatever form it takes, this cronyism is harmful. As my colleague Matt Mitchell explains, "whatever its guise, government-granted privilege is an extraordinarily destructive force. It misdirects resources, impedes genuine economic progress, breeds corruption, and undermines the legitimacy of both the government and the private sector."
The American people are awakening to this reality, and many are demanding change. And they now have champions in Washington to make their voices heard. It's in that broader context that we should understand the battle against the Export-Import Bank. Indeed, I predict that lawmakers and lobbyists defending the many crony programs that exist today will soon find out that the opposition to the Ex-Im Bank is just the beginning.
