The federal government is full of programs designed to
benefit one or another special interest. Like the Export-Import Bank.
The Bank, which provides loans, loan guarantees, and
loan insurance for the purchase of American goods, has long been known
as Boeing's Bank, given its support for Boeing aircraft sales. But most
major U.S. exporters share in the windfall. In fact, ExIm beneficiaries
are a Who's Who of the Fortune 500: 80 percent of its subsidies go to
medium and large companies, with about half of those benefits collected
by just 15 big firms. Like Boeing, which, after its merger with
McDonnell Douglas, will have total sales of $48 billion.
And those firms are not shy about showing their
support. When the Senate Subcommittee on International Finance of the
Committee on Banking, Housing and Urban Affairs held hearings earlier
this year on re-authorizing the Bank, eight of nine witnesses endorsed
more money for the institution. Half of them represented companies
supping at the federal trough. Business organizations like the National
Association of Manufacturers, which always extoll their commitment to
free enterprise, devote almost as much energy to increasing benefits to
business as to battling regulations on business.
Of course, none of the firms admits that self--interest
animates its lobbying on behalf of ExIm, which has spent $3.7 billion
over the last five years. Bank supporters argue that if the U.S.
government doesn't provide cheap credit, American companies will lose
out to foreign firms, many of which are subsidized by their home
governments. The result would be lost jobs. Thus, ExIm advocates
contend, their fight for subsidies for their firms is actually a fight
for jobs for America.
A Flawed Argument
There are two major flaws with this argument. The first
is the belief that government can provide a free lunch, that the money
channeled to the purchasers of U.S. exports is somehow cost-less. But it
isn't. When the Bank makes a loan, or uses guarantees or insurance to
direct someone else's loan, less credit is available for use by other
firms and individuals. University of Arizona economist Herbert Kaufman
estimates that every $1 billion in federal loan guarantees crowds out
between $736 million and $1.32 billion in private investment. That means
fewer deals and lost jobs. As the General Accounting Office
acknowledges, "Government export finance assistance programs may largely
shift production among sectors within the economy rather than raise the
overall level of employment in the economy." The ExIm Bank, then,
redistributes rather than creates jobs - after exacting an
administrative charge.
There's neither moral nor economic reason to enrich
those companies lucky enough to benefit from Bank activities at the
expense of the rest. Rather, the institution offers lawmakers political
benefits: visible subsidies to companies that reciprocate with campaign
support and invisible costs to the public, who remains inert.
The second misleading claim made by Exlm enthusiasts is
that the Bank under-girds U.S. exports. In fact, the vast bulk of export
financing comes from the private sector. Bank deals account for but 2
percent of total exports. And the $16.5 billion in subsidized trade this
year, a record, is a mere blip for a $7 trillion economy.
Equally important, it is virtually impossible to assess
which deals are dependent on Exlm subsidies. Undoubtedly some are, but
every participant in the process- borrower, banker, exporter,
bureaucrat-has an incentive to claim that the subsidy clinched every
transaction. Yet surveys have long shown credit to be but one of many
factors in making a purchase; one review of aircraft sales ranked credit
terms eighth of twelve. And that is America's experience in practice.
Last year ExIm dropped any financing of work for China's massive Three
Gorges Dam project (allegedly for environmental reasons). That hasn't
stopped several American firms from providing as much as $100 million
worth of equipment and services so far. Thus, in many cases the buyer
does what he would have done anyway and simply pockets Exlm's gift.
Underwriting Brutality
The Bank, created in 1934 to help underwrite trade with
the Soviet Union, has never found a government too brutal to subsidize.
Today China is a leading beneficiary, having borrowed some $5 billion.
Nevertheless, Exlm supporters complain about the Bank's withdrawal from
the Three Gorges Dam project, as if $5 billion was not enough taxpayer
support for the globe's last major communist state.
Nor is China the only thuggish recipient of the forced
largesse of American taxpayers. Indonesia is another major Bank client.
Over the years ExIm handed out cash to Nicolae Ceausescu's Romania, a
regime bizarre even by communist standards, and Saddam Hussein's Iraq.
Haiti, Nigeria, the Soviet Union, Sudan, and Yugoslavia have also been
beneficiaries of Bank aid.
As for the argument that foreign countries and
companies couldn't purchase U.S. products without Exlm subsidies, Ian
Vásquez of the Cato Institute points out that "44 percent of the Bank's
guarantees in FY 1996 went to Argentina, Brazil, China, Indonesia,
Korea, Mexico, Singapore, and Thailand-all emerging economies that have
no problem obtaining investment from the private markets." Other nations
have more trouble raising funds and paying their debts, of course, but
that is a reason to deny them Bank credit.
ExIm has also interfered with markets at home and
abroad. For instance, by subsidizing Boeing sales to foreign airlines,
the agency has effectively used taxpayer dollars to put American
airlines at a competitive disadvantage. The Bank has had the same
deleterious effect in foreign nations, routinely underwriting failing
state enterprises that should have been privatized rather than
subsidized. Mexican economist Roberto Salinas--León points to the Bank's
$5.6 billion loan to Pemex, the oil monopoly, a decade ago. More recent
has been Exlm support for Gazprom, the Russian gas monopoly.
But let's assume the theoretical case for the Bank.
Other nations are subsidizing their exporters and there are some deals
that, all other things being equal, should go to American firms. Exlm
can restore "balance" and shift the work back to America. It all sounds
very nice, but what evidence is there that federal officials have
special commercial or political knowledge that justifies turning them
into international loan officers? Surely Washington has had enough
experience with grant and loan programs to demonstrate that they always
operate to fulfill political, not economic, objectives. There is not the
slightest chance that Exlm, provides money only when it is "efficient"
to do so.
More basic still is the issue of principle. What
justifies mulcting Americans to enhance corporate profits? The fact that
other governments loot their citizens to boost exports is no argument.
The fact that some U.S. firms suffer when other nations do so is no
argument. The money being spent and lent by ExIm does not belong to it
or to Washington. Rather, it is the taxpayers' funds. Businesses have no
moral claim to seize that money for their own benefit.
There is perhaps no better example of corporate welfare
than the ExIm Bank. The deal is simple: taxpayers provide the cash,
exporters collect the profit. That's neither fair nor efficient. It's
time for legislators to acknowledge that 60 years of corporate welfare
is enough and to dismantle the Export-Import Bank.
At the time of the original publication, Doug Bandow,
a nationally syndicated columnist, was a senior fellow at the Cato
Institute and the author and editor of several books, including Tripwire:
Korea and U.S. Foreign Policy in a Changed World.
Reprinted with permission from The
Freeman, a publication of the Foundation for Economic Education, Inc.,
December 1997, Vol. 47, No. 12.
Yourname@libertyhaven.com
