WASHINGTON, July 29, 2014 – The Export-Import Bank is seeking a five-year re-authorization and an extra $20 billion in permitted lending this year. Republicans and Democrats joined together in 2012 to win bipartisan support for the bank’s last re-authorization that also rose the bank’s lending cap to $140 billion.
The bank must be re-authorized by September 30 or its charter will expire. The new Republican majority leader, Rep. Kevin McCarthy (R-CA) said that he opposes re-authorization, a sharp break with support for the bank by defeated outgoing majority leader Rep. Eric Cantor (R-VA), who was close to Wall Street and big business interests. Cantor’s victorious opponent in the June 10 Republican primary was Dave Brat, an economics professor who was a sharp critic of what he called corporate welfare, including the Ex-Im Bank, which provides financing to foreign consumers seeking to purchase American goods and services.
The bank, formed during the Great Depression, enjoys support from leading business lobbies such as the U.S. Chamber if Commerce and the National Association of Manufacturers. Many conservatives oppose it. The Heritage Foundation calls it a form of “corporate welfare.”
Americans for Tax Reform is one of thirty groups that recently signed a letter to Congress opposing re-authorization. John Kartch, a spokesman for Americans for Tax Reform, says:
“The Export-Import Bank gives politically-backed corporations billions in taxpayer-subsidized loans, distorting global markets and making us less competitive at home.”
Rep. Jeb Hensarling (R-TX), who heads the House Financial Services Committee, calls the bank “the face of cronyism.” In recent testimony before Mr. Hensarling’s committee, Veronique de Rugby of the Mercatus Center at George Mason University pointed out that, contrary to the claim that the Ex-Im Bank loans and loan guarantees go to support small business against subsidized foreign competitors, Ex-Im bank funds go mainly to huge U.S. and foreign firms and investors such as Boeing, General Electric, Caterpillar, Ethiopian Airlines and Russia’s oligarchs while destroying jobs in some U.S. industries as it favors others.
In her view, the bank is little more than an example of “naked corporate cronyism.”
Barney Keller, a spokesman for the conservative Club for Growth, says:
“The Export-Import Bank picks winners and losers in the free market, and it should be eliminated completely.”
Business columnist Larry Kudlow argues:
“If the Republican Party truly wants to change its image of bailing out big banks and businesses, now is the time.”
Washington Post columnist Charles Lane notes:
“Of all the purposes for which you might put U.S. taxpayer dollars at risk, helping wealthy petro-states borrow millions to buy Boeing jets would not rank among the most urgent. Yet that is what the Export-Import Bank does. In fiscal year 2013, Ex-Im backed $8.3 billion in aircraft and related sales, including a $117.5 million loan guarantee to support Boeing 737 purchases by Dubai—a typical transaction for an agency that has, over the years, earned the sobriquet ‘Bank of Boeing,’ although it does also support Caterpillar, General Electric and other companies.”
The rise of Persian Gulf airlines has been a boon to Boeing, as they buy its large jets, often with the assistance of the Ex-Im Bank. Now, one of Boeing’s oldest customers, Delta Air Lines, is attacking that financing, saying the government is subsidizing foreign competition that could cause trouble for US carriers.
As Emirates, the largest of the Gulf airlines, expands its flights to the U.S., aviation analysts say Delta’s arguments are gaining support. “This is a legitimate complaint,” says Richard L. Aboulafia, an aviation consultant with the Teal Group in Fairfax, Virginia.
Delta’s chief executive, Richard Anderson, testified before Congress in June. He said that the rapid growth of the Gulf carriers, which benefit from low airport fees and wages in their home countries, was starting to change the dynamics of the airline industry and would make it harder for American carriers to hold onto lucrative international routes.
The competition, Anderson says, “is heavily tilted in favor of foreign airlines receiving government subsidies, both from those airlines’ home governments and, amazingly, from our own.”
He noted that Delta grew concerned in 2008, when it had to cancel service between New York and Mumbai, India, after Air India placed Boeing 777s, financed with Ex-Im bank guarantees, on that route.
The Ex-Im bank is, critics charge, essentially a form of corporate welfare for giant corporations. The Wall Street Journal writes:
“If a private bank won’t do an export-financing deal, why should Congress put taxpayer money at risk to clinch the deal? In today’s global financial markets, companies large and small, can access trade financing either in capital markets or from lenders.”
Standard and Poor reports that Boeing made up more than one-third of the bank’s loan portfolio from 2007 to 2013, and that it would do fine without the bank. S&P analysts wrote:
“We don’t believe that the expiration of Ex-Im’s authorization in September would hurt Boeing’s credit quality or ability to make planned deliveries in 2014 or 2015.”
Business groups are launching a major campaign for reauthorization of the Ex-Im Bank. The power of lobbying and large campaign contributions have worked in the past, making crony capitalism a part of our system, no matter which party was in power, After an era of economic collapse, followed by the taxpayer bailout of failed banks and industries, the support for such corporate welfare appears to be in decline.
Ironically, when he was running for president in 2008, Barack Obama singled out the Ex-Im bank as an example of “corporate welfare.” Now, Democrats, including outspoken liberals such as Senators Elizabeth Warren (D-MA) and Sherrid Brown (D-OH) are Ex Im bank supporters.
The Hill, the Capitol Hill newspaper, reports that Democrats “see a chance to cozy up to the business community.”
Pushing for Ex-Im bank renewal, Sen. Charles Schumer (D-NY) says:
“We are hoping our Republican colleagues will not stand in our way. We can’t take no for an answer.”
Conservative commentator Timothy Carney states:
“There’s nothing like a good fight over corporate welfare to bring out the Left’s love of Big Business. In the current battle over the Export Import Bank, Democratic politicians and liberal journalists have dropped their populist pretensions and openly embraced the corporate-federal collusion that Ex-Im embodies. For some, it’s largely partisanship or disdain for the Tea Partiers who want Ex-Im dead. For others, it’s that increasing government’s role in the economy takes precedence over railing against Big Business. And for a shrewd few, it’s about raising money from K Street and Wall Street. “
Liberals are eagerly joining corporate America in defending corporate welfare. Rep. Steve Israel (D-NY), chairman of the Democratic Congressional Campaign Committee, told Politico that Republican resistance to Ex-Im “enforces the intuition that the American people have that Republicans are willing to inflict damage on the economy to protect their politics.”
Politico’s MJ Lee explains:
“Democrats have formed a united front in support of the bank, seizing on an opening to appeal to the hearts and wallets of the business community ahead of the November elections.”
Timothy Carney notes:
“Israel and Schumer both come from New York, highlighting one of Ex-Im’s other big clients besides Boeing and the big exporters–Wall Street. Ex-Im mostly subsidizes exports through loan guarantees. That means JPMorganChase lends money to a foreign airline, and if the foreign airline…fails, the U.S. taxpayers eat JPMorgan’s loss. There’s nothing new about the Left favoring corporate welfare in general, and Ex-Im in particular. Even under President George W. Bush, many more Republicans than Democrats opposed Ex-Im renewal in Congress…What’s new are that there is a strong anti-corporatist streak on the Right and even within the upper reaches of the GOP.”
The kind of bipartisan cooperation for crony capitalism in the past, says John Fund in National Review:
“It is what’s gotten us into our current economic mess, as special interests co-opt both political parties, blur the ideological differences between the two and create an ever-expanding government that chokes off economic opportunities for the middle class and those who aspire to it.”
The Ex-Im bank and its supporters in the business community and labor unions report that in 2013, 205,000 U.S. workers owed their employment to bank-supported exports. In fact, this does not show job creation but, instead, illustrates governmentally assisted job allocation. Resources steered to Boeing, for example, might have created the same number of jobs, or more, elsewhere. Clearly, the government is picking winners and losers, the opposite of genuine free enterprise, in which the market, not politicians allocate resources.
Whether opponents of the bank can succeed in shuttering the bank is not clear. The National Association of Manufacturers has employed former Democratic House leader Richard Gephardt and former Republican National Committee chairman Haley Barbour as its leading lobbyists on the issue. That a healthy debate is good for the country is certain. One reform worth considering is pushing for tougher international rules against export subsidies, so companies in every country can compete on their merits, not on the basis of subsidization by the taxpayers.
That would eliminate the argument of bank supporters that ending subsidies in the U.S. while competing countries maintain theirs puts U.S. business at a disadvantage.
In a system of genuine competition, without government interference in the market, consumers and taxpayers would be the winners. Sadly, too many powerful special interests have a vested interest in keeping things the way they are.
But things do seem to be changing, as the current debate about the bank makes clear.