January 8, 2020 at 5:00 am ET
Congress has a perennial inability to pass an actual budget, but it has yet again passed a massive spending package, this time disguised as two separate bills. Keeping with tradition, these include a slew of corporate handouts, including the reauthorization of the infamous Export-Import (Ex-Im) Bank.
After years of debate over the New Deal-era relic, you’d think Congress would have listened to the many suggested reforms from across the political spectrum. You’d be wrong.
Ex-Im extends financial products backed by American taxpayers to foreign companies to buy American goods. It’s long been labelled a “crony” program because a vast majority of its activities serve well-connected corporate interests. The bank will now remain this way for the next seven years.
The reauthorization essentially sets us back to 2014, the last year Ex-Im was able to function fully before policymakers stripped it of the quorum required to support very expensive deals. It comes with none of the needed reforms and grants even more authority to put taxpayers on the hook for mega-corporations’ risks.
That, first and foremost, reopens the door for one embattled company — Boeing — to shift billions of dollars in risk onto us taxpayers. In 2014, 40 percent of Ex-Im’s activities benefited Boeing, earning it the label “The Boeing Bank.” It’s stunning that Congress would work so hard to reopen the door for a company that was arguably the biggest corporate disaster of the past two years, after two devastating crashes that killed 346 people caused its stock to plummet. Renewing Boeing’s subsidies won’t help the company because the problem was quality, not financing.
Despite claims to the contrary, Ex-Im does not exist to help small businesses. In 2014, only 25 percent of its guarantees went to “small businesses,” a categorization that somehow included some support for Boeing and General Electric. After four years of functioning with severely reduced capacity, 63 percent went to small businesses, during which time Boeing and General Electric received no small business aid (and less than 1 percent of all Ex-Im benefits). Returning to a pre-2014 version of Ex-Im means a return to larger-scale corporate welfare.
Claims that the Ex-Im Bank fills a private-market lending void are similarly off base. The majority of Ex-Im Bank aid is directed toward exports to high-income nations — the ones in which private financing is available. Exports to lower-income nations — where financing is actually difficult to find — are an afterthought. When Ex-Im lacked a quorum, companies did not struggle to buy U.S. exports.
What about the frequent claim that without the Ex-Im Bank, foreign companies would turn to foreign goods subsidized by foreign governments? That argument also doesn’t stand up to examination. When Ex-Im was mostly out of commission, U.S. exports remained stable. In fact, prior to its 2019 struggles, Boeing continued business as usual with a higher stock value and larger revenues. In one telling example, even after Ex-Im guarantees on Boeing sales to El Al Israel Airlines were no longer available, El Al continued to run an all-Boeing fleet.
How, then, was this crony institution that funnels big business risks onto American taxpayers reauthorized?
Public Choice economics offers a clear answer: concentrated benefits and diffuse costs. The few big businesses that get large benefits from Ex-Im have every incentive to lobby for the agency and its billions of dollars in guarantees. Meanwhile, the costs are spread across millions of Americans. Individually, we each pay a real cost — but it’s small enough to escape our attention.
That means we’re still waiting for significant Ex-Im reform. Mega corporations, which are perfectly capable of getting private financing for their own deals, should not be getting taxpayer-subsidized guarantees. If financing gaps are a real justification for Ex-Im Bank guarantees, applicants should need to demonstrate that private loans are unavailable.
Another improvement would be forcing Ex-Im to stop using vague terms. Large portions of Ex-Im aid go to “multiple borrowers” in “multiple countries.” It has ambiguous terms regarding the primary source of repayment, borrower, nation of the borrower, exporter, exporter’s location, product and lender. Most people wouldn’t choose to guarantee a loan when they don’t know who was involved or what it was for. Would you? Yet that’s exactly what we’re all doing.
The reauthorization of this crony-capitalist institution is a loss for American citizens and for good governance.
Veronique de Rugy is a senior research fellow with the Mercatus Center at George Mason University. Justin Leventhal is a Mercatus Center research associate.
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