One of the policy fissures in the Republican Party is over business subsidies, and the current debate about the Export-Import Bank illustrates the conflict. The Ex-Im Bank is one of many corporate welfare or crony capitalist programs that litter the federal budget. The Bank’s authorization runs out in September, and so Congress must act if it wants to extend the operations of this business subsidy machine.

Veronique de Rugy at Mercatus and Sallie James at Downsizing Government have looked at the Bank’s operations and discussed why the economics of the Bank do not make sense. Veronique says, “the Export-Import Bank is one of the least defensible corporatist boondoggles that taxpayers are forced to subsidize.”

The main problem with corporate welfare programs like Ex-Im is often overlooked. It is that they undermine American capitalism by weakening the recipient businesses. All subsidies can change the behavior of recipients, and nearly always in a negative way. Just like individual welfare programs reduce work incentives, corporate welfare dulls the competitiveness of recipient companies.

Corporate welfare focuses the energy of business executives on Washington and away from the marketplace. It gives companies a crutch, an incentive not to make the innovations needed to remain on the leading edge. It induces recipient businesses to make foolhardy decisions, as we saw with export subsidies for Enron. And corporate welfare often steers business capital into dead-end markets favored by politicians, and away from uses that would be more productive and profitable in the long run.

Here are some of the points made by Veronique and Sallie about Ex-Im:

• Veronique: The Bank backs less than 2 percent of the value of total U.S. exports.
• Veronique: The Bank mainly subsidies very large businesses, not small businesses.      
• Veronique: Taxpayer exposure to possible Bank losses is rising.
• Sallie: Export subsidies cannot substantially change the U.S. trade balance, even if that were a good idea.
• Sallie: The Bank’s activities may slightly shift the U.S. employment mix, but they do not raise overall employment.
• Sallie: The Bank’s aid to some foreign businesses—such as foreign airlines—comes at the expense of U.S. businesses.

For more on the problems with corporate welfare, see my 2012 congressional testimony on Corporate Welfare Spending vs. the Entrepreneurial Economy.