This fall, Congress will decide whether to reauthorize the charter of one of the federal government’s most inexcusable boondoggles: the Export-Import Bank. The bank gives handouts to U.S. exporters: loan guarantees, insurance and direct loans. Its official rationale is to aid exporters when “market failure” makes those services unavailable or when foreign governments’ export subsidies benefit firms that compete against U.S. exporters.
While the bank does help a few businesses — only about 2 percent of all exports of U.S. goods and services are backed by Ex-Im Bank — it does so only by draining resources from the rest of the economy.
As one Congressional Research Service study noted, “Most economists doubt … that a nation can improve its welfare over the long run by subsidizing exports. Internal economic policies ultimately determine the overall level of a nation’s exports… . By providing financing or insurance for exporters, Ex-Im Bank’s activities draw from the financial resources within the economy that would be available for other uses. Such opportunity costs, while impossible to estimate, potentially could be significant.”
Put another way, the Export-Import Bank is corporate welfare. It benefits a small number of private businesses at the expense of other businesses and taxpaying citizens.
One of Ex-Im Bank’s aims is to provide services where the private market does not because of perceptions of excessive political or commercial risk. Yet 44 percent of the bank’s guarantees in fiscal year 1996 went to Argentina, Brazil, China, Indonesia, Korea, Mexico, Singapore and Thailand — growing economies that have no problem obtaining investment from the private markets.
Some countries or projects do have difficulty attracting foreign investment, but there are usually good reasons for that. The ability to attract capital is determined by the types of policies and institutions a country embraces. Nations that have done the most to reform have succeeded in voluntarily attracting private investors who want a good rate of return, while those that have been unwilling to change have failed to attract them.
That is not an example of market failure; instead, it is an example of the market’s providing important signals of how worthwhile foreign investments are. Where private money is not invested, unfortunately, Ex-Im Bank’s subsidized lending and guarantees reward bad economic policies because they relieve host governments of the need to create an investment environment that genuinely attracts foreign capital.
Worse, the U.S. agency sometimes supports governmental or quasi-governmental entities abroad. David Kramer of the Carnegie Endowment for International Peace, for instance, has criticized Ex-Im Bank’s support of Gazprom, the Russian gas monopoly, and Ukragroprombirzha, a state-run agricultural enterprise in Ukraine. Such endeavors do little more than undercut the U.S. policy of encouraging economic liberalization abroad.
The bank’s proponents still reason that the agency is needed because foreign governments are subsidizing firms that compete with U.S. companies. Free trade, it is said, is the correct policy for an ideal world, but since “unfair competition” exists, so must the Export-Import Bank. That argument still ignores the high costs of export subsidies. It is unfortunate that foreign governments subsidize their exports, but even so, Ex-Im Bank distorts the U.S. economy by pulling resources out of it to benefit favored corporations.
As a matter of U.S. policy, Congress’s decision about the future of the Export-Import Bank should, of course, be consistent with the goal of promoting a prosperous domestic economy. We would do well to take a lesson from the Europeans, who have long given their exports more official support than does the United States and impeded their own economies in the process. The Western European countries suffer from persistent unemployment (now averaging more than twice the U.S. rate), low growth, and a variety of other problems related to their large welfare-regulatory states, of which their generous export-finance programs are a part. Even Japan, only recently emerging from years of stagnation, is reviewing its burdensome regulatory state.
The fact that foreign countries are harming themselves with an array of wrong-headed policies, which include export-finance programs, does not justify the United States’ doing the same. The Export-Import Bank is a New Deal-era agency with no relevance in an increasingly free world economy.
The most important reason that the Export-Import Bank’s charter should not be reauthorized, however, is not that the bank is ineffective. Rather, it is neither morally nor constitutionally appropriate for the federal government to hand out taxpayers’ money to special interests.