Politicians are known for playing loose with the truth which is why the old line that you know when politicians are lying when they move their lips persists. So, when a politician speaks the unvarnished truth it is worthy of note and Unicorn award. Recently, the senator from North Dakota, Michael Rounds,did just that . In voting to reject the nominee to head the Export-Import Bank, Senator Rounds said, “that the nominee’s desire to see the (Ex-Im) abolished as an example of crony capitalism would not have worked in the operation of the bank.”
That certainly reads like acknowledgement that the Ex-Im bank thrives on crony capitalism, which involves businesses getting ahead by way of political influence rather than market place competition.
The Ex-Im Bank has been inexistence since 1934 and is supposed to promote exports by providing loan guarantees, insurance, and direct loans when there is evidence of market failure. Its charter must be regularly renewed or else it ceases to operate. In 2015, its charter lapsed because its activities had become highly politicized and controversial. After a lapse of five months, it was reauthorized until 2019 but it has not been able to completely function because it lacks the required three-member quorum.
Supporters of the bank claim that its activities counter the unfair practices that other governments give to their domestic industries. This is an argument that is widely rejected by the economics community. If other countries choose to take money from their tax payers and give it to industries that sell to us at lower prices, why should we complain? Competing industries here might complain about unfairness but their competitors lower prices create an incentive for them to become more efficient and competitive. The reality, however, is that this argument about countering unfairness is suspect. And, to the extent that it has any validity charges of dumping can be taken to the WTO.
The primary beneficiaries of the EX-IM financing are not small struggling businesses but firms like Boeing, General Electric, and Caterpillar. Several years ago, Delta Airlines opposed the bank’s reauthorization, absent major reforms, because its below market loans were unfairly helping foreign competitors compete against Delta. In testimony before Congress, Delta’s CEO cited the example of United Emirates Airline, “Export-Import Bank loan guarantees to Emirates are equivalent to $20 million per plane, effectively giving the carrier one free plane for every eight new planes it buys.” It is fairly obvious that a wealthy country like the United Emirates does not need US loan guarantees at below market rates. Major beneficiaries have come to expect increased export sales because of bank loans or guarantees that are then used to purchase US made equipment as an entitlement. That is exactly what one of the leading crony-capitalists, Jeffrey Immelt the former CEO of the old GE argued. He considered it outrageous that the government wouldn’t finance his buyers’ loans.
If a company is not sufficiently solvent to go into the market for a competitive loan, why should US taxpayers be subsidizing them by becoming the lender of last resort?
Unfortunately, most in Congress support the Ex-Im bank, probably because members can get credit for how benefits are distributed to supporters even though research shows that Ex-Im loans merely redistribute jobs rather than creating them. At a minimum, Congress should require reforms to correct the worst abuses. Vernique De Rugy of the Mercatus Center has identified some important ones—take steps to end corrupt practices, limit financial support to small businesses, prohibit loans to state-owned companies, prohibit loans to companies that can get credit elsewhere, and increase transparency.