Congress's Chance to Take on Corporate Welfare

This article originally appeared in The Washington Examiner

There is a battle going on in Washington right now over the re-authorization of the Export-Import Bank (known as "Ex-Im") an outfit that finances and guarantees U.S. export transactions. The Bank provides working capital, loans and loan guarantees for foreign companies, like Air China, to buy products from U.S. exporters like Boeing.

Ex-Im's charter is set to expire at the end of May. The program's cheerleaders, with the support of President Obama, have introduced a bipartisan bill in the Senate that would reauthorize it through 2015 with an unprecedented increase of the bank's portfolio (and taxpayers' exposure) to $140 billion from its current $100 billion limit. This increase follows a four-year expansion of the Bank's lending from $12.6 billion in 2007 to $32.7 in 2011.

House Republicans are fighting the reauthorization. They argue that Ex-Im represents an unjustified and wasteful subsidy. As a senator, even Obama denounced the program as "little more than a fund for corporate welfare." He was right. Ex-Im data shows that Bank activity is highly concentrated in certain industries -- primarily aviation, gas and oil exploration and manufacturing. The aircraft industry alone benefited from 78 loans and guarantees worth $12.6 billion, or 39 percent of all transactions in 2011.

Also, 82 percent of Bank funds go to a handful of America's largest exporters. Of the $32.7 billion in fiscal 2011 appropriations, Boeing alone benefited from 49 separate Ex-Im Bank deals worth $10.8 billion.

This has been the case for decades. Back in 1981 when Reagan's budget director was fighting to get rid of the Bank, he noted that two-thirds of its subsidies went to a few giant manufacturers, including Boeing and General Electric.

What does this say about Boeing and its ability to fly on its own? Advocates of Ex-Im argue the program provides capital to companies operating in a hostile environment that the private sector is unable or unwilling to accept. This explanation flies in the face of their claim that the bank's default rates are extremely low.

Leaving aside the fact that it's not the federal government's role to help private companies make money, it is worth asking why private lenders haven't realized that there is a profit opportunity in underwriting the export of American goods and services, even to high-risk countries. And the answer is: They have.

As it turns out, very few U.S. exports are supported through Ex-Im Bank activities. According to Sallie James, a Cato Institute trade policy analyst, "the $34.4 billion of U.S. exports supported by the Ex-Im Bank in FY2010 represents less than 2 percent of the $1.8 trillion worth of all U.S. goods and services exports in calendar year 2010." The Ex-Im Bank is a mere footnote in the overall export market.

If Boeing can survive on its own -- it is the largest U.S. exporter, after all -- what justification is there for Ex-Im aside from a desire for corporate subsidies? Boeing isn't alone in understanding the benefits of corporate welfare. In recent years, the number of clients lobbying Ex-Im increased from 23 in 2008 to 57 in 2011. This lobbying has worked: the number of companies whose products were purchased with borrowed funds guaranteed by the Bank has grown from 647 in 2007 to 789 in 2011 -- a 22 percent increase.

What does it say about the American capitalist system that a growing number of companies get propped up by the government? Some companies benefit from this unhealthy marriage between private companies and government, but many others don't, and still others actually suffer from it. Such special-interest policies create bad incentives, moral hazards and often inefficient outcomes (think about "too big to fail" or the Solyndra scandal). This is highly unfair because companies like Boeing and Delta Airlines benefit from subsidies in good times, and taxpayers pick up the tab in bad ones.

Ex-Im subsidies are small in the grander scheme of corporate welfare, but it is one piece of the puzzle that Congress can do something about now. It should abolish the Ex-Im Bank.