The authorization of the U.S. Export-Import (Ex-Im) Bank expired on June 30. Taxpayers can thus celebrate the demise of one of our most offensive corporate welfare programs. Unfortunately corporate welfare programs often prove as hard to kill as Jason from the Friday the 13th movies. Washington politicians are currently working to bring the Ex-Im back to life for a sequel.
The Ex-Im Bank was created during the Great Depression to boost our exports. The Bank does so primarily through loans and loan guarantees to foreign companies to use to purchase American products. Many groups, including the U.S. Chamber of Commerce, claim that the Ex-Im Bank is good for business.
The evidence, however, demonstrates otherwise. The Cato Institute and Mercatus Center at George Mason University have done great work documenting the Bank’s negligible impact on U.S. exports and its role as corporate welfare. Here are some of details, mostly from the Bank’s own data.
The $27 billion spent by the Ex-Im Bank in 2013 financed less than 2% of our exports. The Bank directly assisted less than one out of every 200 U.S. exporting firms between 2009 and 2014. In other words, more than 98% of our exports do not require the Bank’s help. And locally, the Ex-Im supported less than 1% of Alabama’s exports.
A handful of politically influential corporations receive the lion’s share of benefits: ten companies, led by Boeing and General Electric, received 51% of the Bank’s spending between 2007 and 2014. Some critics refer to the Ex-Im as “Boeing’s Bank,” since the aircraft manufacturer benefits from 35% to 40% of its spending. Many subsidized loans go to large foreign companies that could easily finance purchases from U.S. companies on their own.
Proponents like to point to the thousands of small businesses helped by the Bank, but America has over a million small businesses. Over a recent five year span, the Ex-Im directly supported less than half of one percent of U.S. small businesses.
Undoubtedly billions of dollars of loans support jobs at Boeing, G.E., and other beneficiary companies. But the Bank hurts employment in other ways. Some of the exports financed by Ex-Im loans are likely diverted from other U.S. firms and do not produce net job growth. Ex-Im Bank loans have harmed some American businesses. U.S. airlines have faced competition from international carriers who charge artificially low fares thanks to their subsidized loans to buy aircraft from Boeing. Delta Airlines attributed a loss of 7,500 jobs to competition funded by American tax dollars. Finally, the taxes to pay for the Ex-Im cost our economy jobs.
Programs like the Ex-Im Bank must ultimately prove futile in growing our economy. Taxing Americans to subsidize foreigners to buy our products can only provide a façade of prosperity. Real prosperity occurs when businesses produce goods and services which people, including foreigners, willingly purchase with their own money, and is generated by the 99.5% of U.S. exporters who sell without assistance.
The Ex-Im Bank is one of the worst examples of corporate welfare, or crony capitalism. Crony capitalism retains the trappings of competition, with politicians bestowing advantages on favored businesses. A market economy is like a track meet, with firms competing to provide the best goods and services to customers. Crony capitalism is a track meet where the government makes all of the runners – except their favorites – wear fifty pound back packs and combat boots.
As costly as corporate welfare is for our economy, the greatest harm may stem from distorting what people believe constitutes free enterprise. If people think that free enterprise necessarily involves favors to enrich businesses, they will reasonably seek government control to reign in business and benefit consumers and workers. The idea of markets entirely free from government intervention may disappear.
Our prosperity results from economic freedom, meaning limited government involvement in the economy. Government should create an institutional environment supporting free enterprise, not enrich specific enterprises. Although our nation has never fully lived up to this ideal, the demise of the Export-Import Bank is a step in the right direction, provided that the Bank remains dead.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision.