Beyond the Export-Import Bank: This Is the Next Corporate Welfare Program We Should Cut
The Overseas Private Investment Corporation is ripe for termination.
Now that the Export-Import Bank's charter has expired, it's time to examine other programs that should follow in Ex-Im's footsteps. The Overseas Private Investment Corporation (OPIC), a federal agency that subsidizes U.S.-owned overseas businesses with taxpayer-backed financing, is ripe for termination when its charter expires on September 30.
Immediately focusing on a new target on the heels of Ex-Im's expiration is important. As Heritage Foundation's analyst Diane Katz expressed to me in an email, "We should certainly celebrate the success of blocking Ex-Im from doling out yet more subsidies, but the victory may be temporary and is certainly incomplete. Ex-Im is only one of dozens of corporate welfare programs, such as OPIC, that must be ended."
In the Washington Examiner, Timothy Carney explains what OPIC does and why it should go. "Want to set up a factory in a different country? OPIC can make it cheaper for you. For instance, a Brazilian granite business gets an OPIC subsidy, even though that hurts its U.S. competitors."
The parallels between OPIC and Ex-Im are chilling: two government agencies that focus on artificially propping up U.S. companies in the name of economic growth and job creation by providing cheap financing to companies that could find capital on their own. In the process, both agencies transfer large risk to taxpayers.
Both claim to serve small businesses—a claim that should be taken with a grain of salt. Both fund politically favored projects like the now-defunct solar company Solyndra. OPIC is also known to fund questionable projects like the construction of a luxury Ritz-Carlton hotel in Turkey.
While OPIC focuses on developing and emerging markets and U.S. operations abroad (as opposed to Ex-Im, which tried to sell as many Boeing airplanes abroad as possible), both agencies' activities create similar market distortions by shifting resources, jobs, and exports away from non-subsidized companies toward subsidized ones.
By propping up foreign and U.S. companies that invest abroad with cheap loans, both agencies hurt domestic competitors. That's right; in both cases, our government is directly responsible for hurting American companies by lending support to a few lucky projects abroad.
Take Carney's example of the Brazilian granite project. In 2012, OPIC approved a $6 million taxpayer-backed loan to support a U.S. company called Wisenbaker Building Supply to expand its granite extraction operations in Brazil. Once extracted, the granite is cut it into slabs for countertops and sold outside of Brazil, including the United States. Obviously, the recipient of OPIC's largess, Wisenbaker, loves cheap loans. This gives it an edge over its competitors. However, these competitors also include other U.S. companies in the same industry.
One of the most overlooked similarities between Ex-Im and OPIC, however, is that they are the poster children for programs that privilege big lenders. Indeed, both programs extend loan guarantees allowing lenders—including many large banks such as JP Morgan, Citibank, or Wells Fargo—to transfer most of the risk of doing business to U.S. taxpayers while cashing in large fees and interest payments (albeit at lower rates than commercial loans) from the borrowers.
In 1996, Nobel Laureate Milton Friedman wrote a letter to the then-House Budget Chairman John Kasich (R-Ohio) that stated: "I cannot see any redeeming aspect in the existence of OPIC. It is special interest legislation of the worst kind, legislation that makes the problem it is intended to deal with worse rather than better. …OPIC has no business existing."
Friedman's analysis was correct in 1996, and it still is today. Letting OPIC's charter expire on September 30—just as Ex-Im's charter expired on June 30—would deal another needed blow to special interests.
