Today at midnight, for the first time in 81 years, the charter of the Export-Import Bank will expire. This government bank claims to promote U.S. exporters by lending cheap, taxpayer-backed loans to foreign and domestic corporations. However, in the process, Ex-Im Bank puts millions of consumers, firms and workers at a disadvantage. As such, closing it down is an important first step in the battle against the unhealthy marriage between the government and corporate America.
Ex-Im Bank’s corporate beneficiaries say much to defend their government privileges. They argue that the bank promotes small business, improves exports, is indispensable to countervail foreign export subsidies, and supports jobs. Their claims are either misleading or simply wrong—and are tailored to protect the corporatist status quo. Meanwhile, the many unseen victims of Ex-Im Bank subsidies are ignored.
Contrary to lobbyist talking points, the Ex-Im Bank is firmly in the “big business” business. On the domestic side, 40 percent of its activities benefit one giant company: Boeing. Over 60 percent of the bank’s financing aids 10 giant beneficiaries, like Caterpillar, Bechtel, and General Electric. On the foreign side, the cheap loans go to state-owned companies like Pemex, the Mexican government’s oil and gas giant, or Air Emirates, the airline of the wealthy United Arab Emirates.
The Ex-Im Bank’s effect on small businesses is negligible. Its records suggest that less than 0.3 percent of small business employees and less than 0.04 percent of small business establishments benefit from the Ex-Im Bank annually.
Americans should also be skeptical of fear-mongering about the catastrophes that will befall U.S. exports without the bank. More than 98 percent of all U.S. exports occur with no Ex-Im Bank subsidies at all. And considering who the beneficiaries of Ex-Im on the domestic and foreign sides are, there’s no chance that all Ex-Im supported exports will disappear.
The bank claims that if its charter expires jobs will disappear. It takes credit for supporting 164,000 jobs in 2014. But the Government Accounting Office criticized the bank’s job calculation methodology for failing to consider how many jobs would have been created without Ex-Im, among other flaws.
Yet even if we accept the bank’s questionable job claims, failing to reauthorize Ex-Im won’t disturb existing loans and, hence, the jobs they support. It will simply prevent the bank from asking taxpayers to make new loans.
Also, top Ex-Im beneficiaries have billions of dollars in backorders, which will keep their workers and small business suppliers busy for years to come. Boeing, for instance, has a backlog of $441 billion, meaning it will have years to arrange alternative, private, financing (as, of course, small and large borrowers do every day).
Now, I am not saying that Ex-Im beneficiaries don’t enjoy the government perks. Yes, Ex-Im loans allowed some smaller domestic recipients to expand their export reach. However, what’s beneficial for them isn’t good for the economy as a whole.
Economists have shown that while export subsidies boost the profits of the recipients, it tends to have a negative impact on economy as a whole by shifting capital, economic growth, jobs and profits from unsubsidized firms to subsidized ones.
In the end, this is what the fight against Ex-Im is all about. While firms that capture Ex-Im’s benefits have every incentive to make sure their voices are heard so they can continue to boost their own exports, jobs, and profits, it is critical that we consider the unseen victims of political privilege who pay for these benefits.
These victims are taxpayers who now bear the risk for $140 billion in liabilities. These victims are consumers who pay higher prices for the purchase of subsidized goods. These victims are unsubsidized firms competing with subsidized ones. They not only pay higher financing costs but also lose out when private capital flows to politically privileged firms regardless of the merits of their projects.
Some are even victimized multiple times: first as taxpayers, then as consumers, then as competitors, and finally as borrowers. Unfortunately, we will never see the businesses that could have been. We will never hear from the workers whose wages weren’t raised or whose jobs disappeared because of unfair competition from Ex-Im-backed firms. These victims matter. Also, economists tell us that the cost to them is bigger than the benefits to the winners.
With that in mind, let’s look at the claim that since other countries offer export subsidies, the United States should, too. Why on earth would we do something that hurt our overall economy just because other countries are doing it? China and France are free to hurt their economy by offering export subsidies to a few and well-connected companies. The United States shouldn’t copy them.
The Export-Import Bank is the epitome of corporatism. Shutting it down is the right thing to do. This is why June 30th will be remembered as the day America stood up for average Americans and the victims of corporate welfare.
Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.