Congress is back in session, and will likely vote soon on one of the most contentious issues leading into the midterm elections: the Export-Import Bank. The 80-year-old bank, called Ex-Im Bank for short, subsidizes financing for U.S. exporters and their foreign customers. Unlike most federal agencies, the Ex-Im Bank’s charter automatically expires unless Congress votes to reauthorize it periodically. The next due date is Sept. 30. For years, Ex-Im Bank reauthorization was a matter of routine. This year, though, fighting has been fierce on both sides. Ex-Im Bank’s very existence is at stake.
Why has this obscure agency become such a flashpoint issue? Because the Ex-Im Bank debate pits two very different philosophies in clear opposition: pro-business and pro-market. In a pro-business environment, government can participate in the game, whereas pro-market policies enjoin government to act more like an umpire, who makes sure the players are playing by the rules.
Pro-business politicians like to help specific businesses, as with the General Motors bailout, or subsidies to renewable-energy firms. Pro-market policymakers aren’t concerned so much with individual firms, but with maintaining an open and fair competitive process, whereby companies succeed or fail on their merits.
The Export-Import Bank is the result of classic pro-business policy. Ex-Im Bank is very helpful to certain businesses, to the point of being nicknamed “Boeing’s Bank.” In most years, Boeing alone accounts for more than 40 percent of Ex-Im Bank’s business. Ex-Im Bank’s top 10 beneficiaries accounted for 76 percent of its business in 2013, benefiting other large businesses, such as Caterpillar and General Electric. That’s a lot of money. Ex-Im Bank played a role in financing projects to the tune of $27 billion last year, and has a total portfolio of nearly $140 billion.
Ex-Im Bank has a long history of giving special treatment to politically favored sectors, such as renewable energy and other green industries. In fact, 10 percent of Ex-Im Bank’s authorizations are required to go to renewable-energy projects, and there are tight restrictions on financing “high-carbon intensity” projects, regardless of economic merit. That’s wonderful for those individual green businesses, but terrible for the economy at large.
This kind of favoritism erodes the competitive market process. There is only so much investment capital to go around. Every time Ex-Im Bank secures favorable terms for one of its beneficiaries, another company elsewhere has to pay more to attract scarce financing — or may lose access to it entirely. Worse, over the years, Ex-Im Bank has helped secure financing for politically connected companies, such as Enron and Solyndra. Imagine what other uses that wasted capital could have been put to instead, if only pro-business politics had stayed out of financing decisions.
Ex-Im Bank also encourages companies to focus on political access at the expense of customer service. Time spent competing in Washington is time not spent competing in the marketplace.
It is also a direct invitation to corruption. Over the past five years, 74 allegations of bribery and other forms of corruption have become public. For an agency with only 400 employees, this is a serious problem. At a recent congressional hearing, former Ex-Im Bank employee Johnny Gutierrez pleaded the Fifth Amendment rather than confirm or deny allegations that he accepted improper payments from Impex Associates, a Florida construction-equipment maker and frequent Ex-Im Bank beneficiary.
In 2010, Bloomberg News reported that Exxon Mobil paid nearly $100,000 in travel expenses for Ex-Im Bank employees to locales including London, the South Pacific and Tokyo. The company was seeking $3 billion in financing from Ex-Im Bank at the time, and received it 11 months later.
While Ex-Im Bank is pro-business, it is anti-market and anti-consumer. Its upcoming reauthorization vote will tell voters which philosophy prevails among our elected representatives. That will determine whether the U.S. economy will continue to be built on innovation and competition or will stagnate in cronyism and political clout.
Ryan Young is a fellow at the Competitive Enterprise Institute.