The Export-Import Bank’s charter expires on June 30. Unless Congress votes to reauthorize that charter, Ex-Im will soon cease to exist. This would be a major victory in the fight against corporate welfare. Ex-Im’s beneficiaries often tar their opponents as anti-American, anti-business, and anti-jobs. This series of posts will instead stick to the merits of the issue, which overwhelmingly favor closing Ex-Im, one argument at a time. For more arguments, see my recent paper.
The upcoming Ex-Im reauthorization vote provides the perfect litmus test for which members of Congress are pro-business, and which are pro-market. The distinction is an important one. Pro-business thinkers are concerned with the fates of particular firms. The General Motors bailout is an example of a pro-business policy aimed at helping a specific business. Pro-market thinkers are less concerned with which firms prosper, focusing instead on maintaining an open and fair competitive market process, under which companies succeed or fail on their merits. Pro-market thinking is neither pro-business nor anti-business.
Ex-Im is a classic example of pro-business policy. In most years, a ingle business, Boeing, alone accounts for more than 40 percent of the Ex-Im Bank’s business. A literal top-ten list of Ex-Im beneficiaries accounted for 76 percent of its business in 2013.While Ex-Im clearly helps certain businesses, it is harmful to the competitive market process as a whole.
Because there is only so much investment capital to go around, every time the Ex-Im Bank secures favorable terms for one of its beneficiaries, another company elsewhere in the economy has to pay more for financing, or may lose access to it entirely. The best possible economic result is a wash. But more likely, the Export-Import Bank causes real economic harm on net. Its politically-directed financing decisions are not subject to market discipline. Over the years, Ex-Im has secured financing for companies such as Enron and Solyndra. It also has a policy of giving special treatment to politically favored sectors, such as renewable energy and other green industries. In fact, 10 percent of Ex-Im’s authorizations are required to go to renewable energy projects, and has restrictions on financing “High-Carbon Intensity” projects.
Another merit-unrelated variable is political access. It is difficult for companies to get Ex-Im financing unless they invest in political connections. This creates an additional deadweight loss, diverting activity away from entrepreneurship and towards lobbying.
Businesses and consumers are better served by pro-market policies. Politics should be left out of financial decisions. Investors would get higher returns, and deserving companies would have easier access to capital. Consumers would be the ultimate beneficiaries of a financial system that rewards value creation over political connections. Such a financial system would not include an Export-Import Bank.