The Export‐Import Bank
The Export‐Import Bank’s main functions of providing loan guarantees, insurance, and direct loans that benefit U.S. exporters are typically justified by Ex‐Im Bank’s mission of providing that support when there are instances of “market failure”–i.e., when the private market does not provide those services on its own–or subsidized export finance that benefits foreign competitors. I hope to show that in neither instance is the Ex‐Im Bank’s support called for.
Proponents of continued funding for the Ex‐Im Bank often cite figures of export‐related jobs created by Ex-Im’s finance to claim that the agency benefits the U.S. economy. The opportunity costs, or costs to the rest of the economy, of funding Ex‐Im Bank’s activities are, however, never cited. By this logic, we are led to believe that the government export program is virtually cost‐free or even provides a net economic gain.
The reality is much different, particularly since the market is a far more efficient allocator of resources than government. While it may be true that the export agency helps a few businesses–only about 2 percent of all U.S. goods and services exports are backed by the Ex‐Im Bank–it is highly doubtful that the agency helps the U.S. economy. Indeed, 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 an example of corporate welfare. It benefits a small number of private businesses at the expense of other businesses and taxpaying citizens. That is true even if the agency does not lose money. Unfortunately, the government’s exposure to risky Ex‐Im Bank investments may be increasing the possibility that taxpayers pay an even higher price by bailing out failed ventures–a concern expressed recently by some observers, including David Kramer of the Carnegie Endowment for International Peace. 
One rationale for Ex‐Im Bank’s existence is that it provides its services where the private market does not due to perceptions of excessive political or commercial risk. Yet 44 percent of the Bank’s guarantees in FY 1996 went to Argentina, Brazil, China, Indonesia, Korea, Mexico, Singapore, and Thailand–all emerging economies that have no problem obtaining investment from the private markets.
Some countries or projects do indeed have difficulty in attracting foreign investment, but there are usually good reasons why the market will not provide loans or guarantees in such cases. 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 attracting voluntary, private money, while those that have been unwilling to change have not succeeded in doing so. That is not an example of market failure; it is instead an example of the market providing important signals about a country’s investment regime. Under those conditions, unfortunately, the Ex‐Im Bank’s subsidized lending and guarantees present serious moral hazard problems because they relieve host governments of the need to adopt an investment environment that would genuinely attract foreign capital.
Moreover, there is simply no reason to believe that officials at the Export‐Import Bank have superior knowledge or superior capacity to judge the prospects of particular ventures or country economic conditions than do private entrepreneurs who have no shortage of capital. Nor can the Export‐Import Bank make special claims about its accumulated experience. Shortage of experience in certain markets may initially moderate foreign investment, but technical expertise and even specialized knowledge or “information”, as my colleague Dean Stansel has pointed out, is itself an economic good that is already traded in private markets. The Ex‐Im Bank’s subsidized activities in those areas merely undermine the private sector’s provision of such goods.
A related area where the market is said to fail pertains to the provision of political risk insurance. The private sector may provide insurance that covers commercial risks, but it often does not cover the political kind, thus precluding the export of some U.S. products. The Ex‐Im Bank provides that insurance that often makes deals go through. However, there is no reason why insurance against political risk should be necessarily separated from commercial risk as a cost of doing business. Again, both services require a judgement about current and future conditions that is already provided by the private market and is not something in which agency officials have superior capabilities.
Another indication that it is not market failure, but rather the lack of an appropriate investment environment that makes seemingly profitable ventures stall without Ex‐Im Bank aid is the presence of agency support that has gone to oil, diamond, and other of the most profitable industries in the world. This year, for example, the Bank approved a half‐billion dollars worth of financing for gas field development projects in Qatar that would benefit Mobil Corporation and other U.S. contractors.  When the wealthiest corporations in the world are unwilling to commit their own vast resources to ventures that could have potentially high returns, the problem cannot be one of a lack of resources.
Ex‐Im Bank activities have often worked at cross purposes with the important U.S. policy goal of encouraging the spread of free markets. It has done so not only by creating moral hazard problems, but also by directly supporting government‐owned and quasi‐government enterprises abroad. Mexican economist Roberto Salinas‐León, for example, has decried the Bank’s approval of a $5.6 billion loan in the early 1990s to his country’s state‐owned oil monopoly, which the government has been reluctant to privatize.  David Kramer has likewise identified Ex‐Im Bank’s support of Gazprom, the Russian gas monopoly, and Ukragroprombirzha, a state‐run agricultural enterprise in Ukraine, as examples of dubious companies for a U.S. government agency to support.  Once again, Ex‐Im Bank finance tends to delay, rather than promote, necessary market reforms.
Not all Ex‐Im Bank finance supports projects deemed unsuitable by the private sector. In many cases when the Ex‐Im Bank does not fund ventures that otherwise would not take place, its finance merely displaces private investment. That reality was implicitly acknowledged when the Bank decided in 1996 not to support U.S. exports to the Three Gorges Dam project in China based on environmental considerations. Martin Kamarck, then‐President of the Ex‐Im Bank, stated that “This decision does not in any way limit or impede U.S. companies from doing business in the Three Gorges project on private terms and with financing from other sources. Already, several U.S. companies have sold between $60 million and $100 million worth of equipment and services to this project without Ex‐Im Bank support. And today’s decision in no way affects their ability to continue to do business in that manner, privately, with this project.” 
Leveling the Playing Field
The other rationale, one that is superficially appealing, for continued support of the Export‐Import Bank is that foreign governments are subsidizing the competition of U.S. companies. Free trade, it is said, is the correct policy for an ideal world, but since “unfair competition” exists, so must the U.S. export agency.
Again, this argument does not take into account the very real issue of opportunity costs. It is unfortunate that foreign governments subsidize their exports, but even under those conditions, the Ex‐Im Bank still distorts the U.S. economy by pulling resources out of it to benefit its favored corporations.
As a matter of U.S. policy, whether or not to maintain the Export‐Import Bank should of course be consistent with the goal of promoting a prosperous U.S. economy. Measured by that standard, we should indeed take a lesson from the Europeans, who have long officially supported their exports at levels higher than that of the United States. The Western European countries suffer from an average unemployment rate that is more than twice as high as in this country and are experiencing the structural problems related to their regulatory and welfare states, of which their “generous” export‐finance programs are a part. Indeed, while the United States has created more jobs in the past decade than have been created in all other major industrial countries combined, the far lower job growth rates in the European Community countries have occurred–unlike in the United States–largely in the public sector.  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 by imposing similar policies.
That the bulk of Ex‐Im Bank’s finance benefits large corporations with annual sales in the tens of billions of dollars makes it difficult to justify taxpayer support even when those corporations feel discriminated against in the international market. Companies like Motorola, with sales of about $28 billion, or the $52 billion AT&T, do not lack resources to export their products even in the face of fierce competition. (For a random sample of large U.S. corporations assisted by the Export‐Import Bank, see the attached table).
Small business, naturally, cannot rely on the same type of resources as the Boeings or AT&T’s of the world. That is one of the reasons the Ex‐Im Bank cites when claiming that its support is critical to the small business community. About 80 percent of the Bank’s transactions support such businesses.
Sample of Companies Assisted by the U.S. Export‐Import Bank 
|Level of Support in
Loans and/or Guarantees
|Gulfstream Aerospace Corporation||$1,220||$48|
|Boeing Company, Inc. ||22,681||763|
|Westinghouse Electric ||8,449||36|
|McDonnell Douglas Corporation||13,834||101|
|General Electric ||79,179||30|
|Motorola, Inc. ||27,973||44|
|Deere & Company ||11,229||98|
|Various Countries Unallocable|
|Source: 1996 Annual Report of the Export‐Import Bank of the United States
 All table figures in millions of 1996 US$.Footnote figures are in 1996 US$.
Yet while a small number of small businesses benefit from the Ex‐Im Bank, the vast majority do not. Nor do they appear to consider exporting their products a major problem or priority. In fact, the National Federation of Independent Business recently surveyed 3,471 small businesses and asked them to rank 75 potential problems. The category of “Exporting My Goods/Services” ranked last, with the majority of the respondents indicating that that was not a problem for them. Only 2 percent considered exporting a critical problem. The exporting category has ranked in last place in repeated surveys since 1986.
The NFIB concluded that “The reason exporting appears at the bottom of the list of small business priorities seems obvious. Interest in exporting is modest; the American market has not been fully exploited in most instances.” The business group went on to consider that “The counter‐argument is future sales and the growth of markets around the world. But if the American market has not yet been fully exploited, why is new market development abroad more attractive than new market development at home?” 
If the goal is to help small businesses in the United States, then the Ex‐Im Bank is not an appropriate vehicle. Other issues, such as taxation levels and regulation, appear to be top priorities for small businesses. In that regard, there is much Congress can do to help that business sector. The elimination of corporate welfare programs, of which the Export‐Import Bank is a part, would go a long way to providing such relief. My colleagues Stephen Moore and Dean Stansel recently identified $65 billion worth of corporate welfare spending and found that elimination of those subsidies “would generate enough savings to entirely eliminate the capital gains tax and the federal estate tax.”  I suggest Congress begin helping in that way by ending its support of the Export‐Import Bank.
The Export‐Import Bank is a New Deal era agency with no relevance in a liberal global economy. It has not helped cause U.S. prosperity, but has certainly imposed opportunity costs larger than any alleged benefits; it has not corrected so‐called market failures, but has rewarded foreign countries for failing to adopt market‐oriented policies and institutions; and it affects such a small percentage of U.S. exports that even in the face of foreign nations’ wrong‐headed, export‐finance programs, the “playing field” already seems to favor U.S. businesses. The most important reason, however, that the Export‐Import Bank’s charter should not be reauthorized is that it is neither morally correct nor constitutional for the federal government to use general taxpayer money to promote the economic welfare of specific groups.
. Cited in “Targeting Eximbank Subsidies,” Foreign Policy In Focus, Interhemispheric Resource Center, vol. 1, no. 2, October 1996, p. 3.
. David Kramer, “The Risks of Risk‐Free Loans,” Washington Post, May 25, 1997.
. “Ex‐Im Bank Finances Half‐Billion‐Dollar U.S. Export to Qatar,” Ex‐Im Bank Press Release, January 17, 1997. See also “Ex‐Im Bank Finances $60 Million in U.S. Exports to Russian Oil Sector,” Ex‐Im Bank Press Release, June 4, 1996.
. Roberto Salinas‐León, “Mexico, Markets, and Multilateral Aid,” in Doug Bandow and Ian Vásquez, eds. Perpetuating Poverty: The World Bank, the IMF, and the Developing World (Washington: Cato Institute, 1994), p. 173.
. “The Risks of Risk‐Free Loans.”
. Export‐Import Bank Press Conference Transcript, May 30, 1996.
. Edward L. Hudgins, “The Myth of the Race to the Bottom,” in Edward L. Hudgins, ed., Freedom to Trade: Refuting the New Protectionism (Washington: Cato Institute, forthcoming), p. 24.
. William J. Dennis, Jr., Small Business Problems and Priorities (Washington: National Federation of Independent Business, 1996), pp. 11–12.
. Dean Stansel and Stephen Moore, “Federal Aid to Dependent Corporations: Clinton and Congress Fail To Eliminate Business Subsidies,” Cato Policy Briefing no. 28, May 1, 1997, p. 1.