Why Congress Should Dispense With the Export-Import Bank | Commentary
Myron Brilliant, head of International Affairs for the U.S. Chamber of Commerce, recently graced these pages with a stirring defense of how the taxpayer-funded Export-Import Bank is “indispensable.” He provided several anecdotes to demonstrate how the Ex-Im’s taxpayer-subsidized loans help “small businesses” that just couldn’t survive without the government financing their exports.
Unfortunately for Ex-Im, the plural of “anecdote” is not “data.” Heritage Foundation expert Diane Katz has been reporting the real data for quite some time, however, and her findings are much more objective and illuminating than a few anecdotal stories. Katz has also reported extensively on the many cases of fraud at the Ex-Im bank that Mr. Brilliant failed to include in his stories.
Out of $2.2 trillion in American exports last year, less than 2 percent of them benefitted from Ex-Im financing. Of this 2 percent, 75 percent went to help a mere 10 companies, including giants such as Boeing and General Electric, all of which could easily access private financing. The chamber plays the small-business card to cover the fact that the overwhelming majority of Ex-Im subsidies benefit very, very large corporations.
Moreover, the bank supports less than half of 1 percent of U.S. “small businesses” —which in many cases aren’t so small. (The bank’s definition of “small business” includes manufacturers with as many as 1,500 employees and service firms and retailers with as much as $20.5 million in annual revenues.) This is hardly the mom-and-pop businesses the chamber makes it out to be.
By the chamber’s logic, taxpayers should subsidize every “small business” for any deal anywhere to improve their competitive position. Ex-Im Bank President Fred Hochberg promotes it as “socialized capitalism.” But America doesn’t get stronger by becoming more socialistic and making businesses dependent on the government.
Anecdotes make for heart-tugging propaganda, but again, hard data tells the real story. Former congressman and Office of Management and Budget Director David Stockman recently dismissed the boogeyman of lost sales if Ex-Im is killed: “We are talking about 0.6 percent of exports and 0.1 percent of [gross domestic product]. That is, we are talking about economic ‘noise’ that is so faint that even Janet Yellen could not detect it!”
Even Stockman’s estimate assumes that every competitive overseas bid by U.S. companies is lost, which he recognizes as completely unrealistic.
Brilliant implies that the small businesses he profiles would be forced to cut production and lay off workers without export financing from Ex-Im. This is ludicrous. Banks currently demand Ex-Im guarantees for loans because Ex-Im offers it. In the absence of taxpayer subsidies, Wells Fargo and other banks adjust their lending criteria, or other investment options are tapped. That’s what happens with 98 percent of all U.S. exports.
Furthermore, if these exporters have sound business propositions — sound enough for taxpayer guarantees — why wouldn’t private investors step up? What were these companies doing before they received government assistance? If their business plans are built around dependence on Ex-Im, they need new business plans.
The chamber wants America to balance out the help China gives to its own companies, but it would take a massive increase in subsidies to match the state “investment” of a communist country. The problem with China is not its export credit agency. The problem is that’s it’s a communist country that manipulates its currency and dumps the products of its state-controlled industries on the world market. And if Chinese government-backed competition is such a problem, why is Ex-Im providing subsidies to its state-controlled industries in the first place?
For massive projects like that of Saudi Arabia’s Sadara Chemical Company, the chamber would have us believe that their “vast scale” necessitates Ex-Im involvement so that American goods will be purchased. But scale is precisely what American multinationals bring to the table.
This business army did not emerge as a result of Ex-Im. Export subsidy is only one of many factors that go into the selection of a supplier — and hardly the most important. On a project such as Sadara, the ability to reliably deliver quality products at a competitive price would be far more important than whether Ex-Im backed the deal. And again, if it was such a good deal for U.S. companies, private investors would have lined up for a piece of the action.
I think it’s a good thing for business owners to cooperate to benefit themselves, their employees, and their communities. I was on the board of the local Greenville Chamber of Commerce for even longer than I was in Congress. If the U.S. Chamber here in Washington, D.C., reflected the concerns of its local chapters instead of a few big players, it might not have fallen on the wrong side of this issue.
Using “small business” as a fig leaf for corporate welfare is as dishonest as it is unconvincing. Washington should be dedicated to creating a level playing field for all American businesses — not picking winners and losers in the marketplace. As a former small businessman myself, I’m certain every business would love to have the government give their customers low interest loans to by their products. But that’s not capitalism, it’s crony capitalism.
America’s entrepreneurs and job providers, large and small, are vital to a free and prosperous society. I invite the Chamber of Commerce to join Heritage in calling for tax and regulatory reforms that benefit all businesses, instead of lobbying for government handouts for a chosen few. If businesses of all sizes join with the majority of Americans who want smaller government and freer markets instead of corporate welfare, the Export-Import Bank can be dispensed with as another big government mistake.
Jim DeMint is president of The Heritage Foundation and a former Republican senator from South Carolina.