Yesterday, I testified before the House Financial Services Committee about the Export-Import Bank, an obscure federal export-credit corporation whose charter is set to expire on September 30. I argued that the bank is naked corporate cronyism in its most indefensible form. You can read my written testimony here and watch the oral testimonies here.
As I have pointed out before, the Ex-Im Bank overwhelmingly benefits some of the biggest, most politically connected firms in America, like Boeing, General Electric, and Caterpillar. In the process, the bank subsidizes wealthy foreign borrowers — like Australia’s richest woman, mining heiress Gina Rinehart, owner of the Ex-Im-financed Roy Hill Iron Ore Mine — who who could easily find private capital without government privileges. The bank also subsidizes cash-poor foreign borrowers — like the government-owned Ethiopian Airlines — who are pushed to borrow beyond their means and expose U.S. taxpayers to their substantial default risk in the process. Finally, lenders benefit from Ex-Im finance by earning interest on loans whose risk is borne by American taxpayers. In the candid words of one JP Morgan banker (whose firm just happens to be the biggest private lender that benefits from Ex-Im), the bank is “free money” — that is, for the firms who know the right people.
As expected, Chairman Hensarling was a great spokesman for why the bank’s charter shouldn’t be reauthorized. He also invited testimony from two witnesses who gave voice to the ranks of Ex-Im’s many victims for the first time: Mr. Richard Anderson, CEO of Delta Airlines, and Captain Lee Moak, President of the Air Line Pilots Association. They gave concrete examples of how Ex-Im directly hurts the American firms and employees they represent — tragically, some people have lost their jobs due to Ex-Im activities.
And yet, Democrats seemed mostly unmoved. Apparently unconcerned by the plight of the victims of Ex-Im subsidies right in front of them, the representatives sitting to the left of the room were full of stories about small businesses that would be hurt if the bank’s charter didn’t get reauthorized. They seemed to take for granted that it was normal for a government to lend money to wealthy buyers in foreign countries so they can purchase a handful of U.S. mega-manufacturers’ products.
There was little to no recognition that most companies in the U.S., even small ones, would be fine without the bank, even if they would prefer continue receiving the help. Democrats did not blink an eye at the prudent suggestion that it might not be wise or fair to expose taxpayers to risky loans that private banks extend to cash-poor borrowers. With rare exceptions, there was not much concern about the many businesses that are actually harmed by Ex-Im.
But maybe most surprisingly, Democratic members didn’t seem bothered by the fact that a vote for Ex-Im’s reauthorization is a vote for K Street at the expense of Main Street, as Chairman Hensarling noted.
This should seem a little odd.
Representatives from the left eagerly defended this unjustifiable corporatist body. Representative Maxine Waters, the ranking member of the committee, blasted attempts to end one of the most obvious examples of D.C. cronyism. To Waters, the corporate beneficiaries of Ex-Im privilege are not “crony capitalists” but average Joe Americans. In Waters’s world, apparently, you and I have just as much of a shot at Ex-Im assistance as, say, Boeing. She didn’t elucidate exactly how that’s the case when the majority of Ex-Im’s loan-guarantee portfolio went to the aerospace giant last year. It’s definitely not because of crony capitalism, she seemed sure.
Later that day, Senator Chuck Shumer put a finer point on this political shift, telling the Wall Street Journal,“I would say to my dear friends at the Chamber of Commerce that it doesn’t make sense for you to support the whole Republican ticket,” because of their skepticism over Ex-Im. “You ought to look at how far over hard-right tea party Republicanism, which often gets sway, is dominating,” he warned. This is the party of Occupy Wall Street?
Why have Democrats become such fervent defenders of big corporations?
David Dayen over at Salon explains that it hasn’t always been the case. In fact, he recounts the history of a solid progressive opposition to the Ex-Im Bank — staring in the 80s and continuing through recently:
But pre-Internet liberals might want to get out their back issues of the Nation and Mother Jones at this point to jog their memory, for they will see article after article condemning the 80-year-old institution as a slush fund that allows the government to fund a series of nasty activities. Here’s one from 1981 (“The Ex-Im helps sell nuclear reactors to dictatorships like the Philippines”). Here’s another from 1992, about the Reagan administration using Ex-Im to funnel loans to Saddam Hussein’s Iraq during their war with Iran. Even more recently, in 2011, Mother Jones reported on how Ex-Im loan guarantees helped build one of the largest coal plants in the world, in South Africa. (Ex-Im subsequently announced it would stop facilitating coal plant production – but only in December of last year.)
Ex-Im wasn’t just a minor annoyance, but a lefty cause célébre. Here’s Sen. Bernie Sanders, back when he served in the House, eviscerating Ex-Im on the floor in 2002, when it came up for reauthorization then. Sanders asked why American taxpayers would provide “huge subsidies and loans to the largest multinational corporations in the world, who pay their CEOs huge salaries … and companies take this money from the taxpayers and say, thank you very much, and oh by the way, we are laying you off because we are going to China and hiring somebody at 20 cents an hour.”
Sanders crafted bipartisan legislation to reform Ex-Im to better protect manufacturing workers, but the bill’s markup got canceled at the last minute. “My suspicion is that the moneyed interests who like the Export-Import Bank as it is right now sent down the word from the top that that markup never take place,” he told his House colleagues.
Back then, liberals highlighted how Enron, the failed energy giant, benefited from $675 million in Ex-Im loans. In 2002, Sanders also pointed out that Ex-Im gave an $18 million loan to a Chinese steel mill, which was later on accused of dumping steel into U.S. markets and hurting U.S. workers. And it was common just a decade or so ago for lefties to call Ex-Im the “Bank of Boeing,” because close to 60 percent of all Ex-Im loans facilitated their aircraft sales. Sanders in particular pointed out that Ex-Im aid for a Boeing sale to the Chinese military ended up displacing workers, as some manufacturing for the aircraft moved from Wichita to China. “The Export-Import Bank is helping General Electric ship jobs to Mexico … helping AT&T ship jobs to China. And on and on it goes,” Sanders concluded.
And Sanders certainly did not believe that financing for multinational trade deals would dry up without Ex-Im. He questioned the head of the bank in 2004, asking, “General Electric, which itself is one of the largest financial institutions in America, cannot get loans anyplace else but from the taxpayers and the workers of America? Are you going to tell me with a straight face that GE is a struggling small business, a minority business in the barrio of New York, and they just cannot find financing?”
Now, not everyone on the left has changed their positions on Ex-Im. As the article points out, economist Dean Baker is and remained “a stalwart opponent to Ex-Im on the left.” He told Salon: “It is just one more example of how the rich and powerful have no interest in the free market when circumventing how the market works to their benefit.”
On Tuesday, an article by Danny Vinik in The New Republic noted that former Biden adviser Jared Bernstein wasn’t too sure about his support for the bank. It is true, Bernstein says, that the bank picks winners and losers and is inconsistent with a free-trade stance. He pointed out the hypocrisy of pro-Ex-Im Republicans (and he is right), but the argument equally applies to allegedly pro-free-trade and anti-corporatist Democrats, too.
Referencing the recent revelations about alleged corruption, bribery, and kickbacks at Ex-Im, Vinik concludes that political allocation of capital may not be all that supporters claim it’s cracked up to be. If the allegations are confirmed, Vinik thinks it should be curtains for Ex-Im:
That’s where the investigations reported by the Wall Street Journal become so damaging: If they prove true, then officials are choosing winners and losers based on kickbacks. And that should make the decision easy for liberals: Join with conservatives and oppose the reauthorization of the Export-Import bank.
Finally, the Huffington Post noted today that the Democrats’ big push to reauthorize Ex-Im could backfire. Their constituents may be disgusted by Democrats’ new embrace of big business, the piece says (and rightly so). After the dramatic spectacles of the financial bailouts and the popularity of Occupy Wall Street, this seems like a risky move for Dems. The article notes that some Democrats in Congress have actually come out against the bank:
But the Democratic strategy could easily backfire. In the wake of the 2008 bank bailouts, voters in both parties are wary of corporate favors bestowed by Washington. An Ex-Im-inspired government shutdown could paint Democrats as ardent defenders of big business in a time of middle-class hardship. And some of the most prominent liberals in Washington are opposed to Pelosi’s strategy.
“The Export-Import Bank is corporate welfare at its worst,” Rep. Alan Grayson (D-Fla.) told HuffPost.
Who will win this battle for the soul of the Democrat party: power-hungry partisans or principled public stewards? We’ll have to stay tuned to find out. Now we know corporatism is not a red vs. blue issue. But, of course, that doesn’t make it any less important.
The one and only.