The best-known examples of crony capitalism in the Obama era have been politically connected green-energy failures. But at least those flawed programs, some of which were initiated under the Bush administration, were more or less intended to promote frontier technology. The Export-Import Bank, on the other hand, is a taxpayer-funded institution devoted to supporting something America did just fine for the 150 years preceding the bank’s birth: exporting goods. The bank offers subsidized loans and credit insurance to companies that wish to buy products made by U.S. firms, on the assumption that boosting U.S. exports can’t be accomplished without picking winners and losers. It’s cronyism concentrate.
The idea behind Ex-Im is that some U.S. manufacturers that could succeed in overseas markets don’t have the financing and marketing resources to reach them, so the U.S. government ought to give them a boost. This makes a good deal less sense when most of the dollar value of Ex-Im benefits goes to subsidize the purchase of products from huge U.S. corporations, such as Boeing and Caterpillar — not mom-and-pop manufacturers. It wouldn’t make sense to have an agency devoted just to fledgling exporters, either, but Ex-Im is an incumbent protector, not an incubator. (It’s also not clear why, without Ex-Im, large foreign customers wouldn’t buy high-quality U.S. products unless they get a subsidy. Russian oligarchs have taken an interest in using Ex-Im to finance large aircraft purchases, but we suspect they know a Gulfstream from a Tupolev.)
Proponents argue that Ex-Im wins business for American companies at no cost to taxpayers; sometimes it even makes a profit. But this is true only as a first-order matter. Picking winners and losers, as the bank does (often with a little help from Patton Boggs), is not just a principle unacceptable in a free economy; it always carries hidden costs.
Its accounting is a mess, too: Rather than reporting its loans’ default rates every year, Ex-Im just ballparks the numbers using industry figures. The bank’s balance sheet, which has grown substantially in recent years, is more befitting a Chinese property developer than a taxpayer-funded institution.
If Congress and President Obama, who together reauthorized the bank in 2012 and will have to do so again this year, really wanted to promote American exports, they’d be more intently focused on free-trade agreements and bilateral trade treaties, rather than aping the worst mercantilist thinking of our socialist competitors.
Conservative senators, including Mike Lee (R., Utah) and Pat Toomey (R., Pa.), are going to oppose reauthorization this summer, and they’re already asking useful questions about the bank’s opaque accounting. Senator Lee is pushing for a debate within the GOP about crony capitalism more generally — he recognizes the corruption it represents within the party and our government. Of course, tearing down corporate privilege is far from a sufficient answer — or even a primary one — to the problems that plague America’s economy. To win the trust of American voters, the GOP needs more ideas on how to boost middle-class wages and restore economic growth and security. But winning that battle won’t be easy when Americans have an ample number of reasons to believe that Republicans favor big business over the working class. It’s time to end one of them.