August 13, 2014

Small Pennsylvania Firms Don't Need Ex-Im Bank

Veronique de Rugy

Senior Research Fellow

Andrea O'Sullivan

Feature Writer
Summary

Subsidized businesses should not matter more than unsubsidized firms in the Keystone State merely because they happen to have friends in Washington. We must end the Export-Import Bank to help the 99 percent.

Contact us
To speak with a scholar or learn more on this topic, visit our contact page.

Letting the New Deal-era corporate welfare program known as the Export-Import Bank of the United States expire is good economics for Pennsylvanians. There are plenty of bad arguments to reauthorize the Ex-Im Bank's charter, but none is more misleading than the claim that this government bank serves small businesses.

First, more than 80 percent of the bank's portfolio primarily benefits huge corporations. This leaves less than 20 percent of Ex-Im Bank's portfolio for small firms - which is in violation of its own charter.

But even this is misleading, since the Ex-Im Bank's definition of a "small business" isn't exactly "small." Most government bodies set the threshold at firms with fewer than 500 employees. However, Ex-Im Bank will consider "small businesses" that are three times that large and can earn up to $21 million in annual revenues.

For example, the Ex-Im Bank considers Pennsylvania company CyOptics Inc. a small business. While public records suggest the firm "employs a staff of approximately 100 to 249," it reportedly earns annual revenue of $50 million to $100 million. CyOptics should be proud of its success, but it is not "small" to most Americans and could be just as prosperous without the Ex-Im Bank.

This kind of disingenuous labeling is typical of the Ex-Im Bank. Heritage Foundation economist Diane Katz documents many instances of the Ex-Im Bank touting such large corporations as great success stories of the bank's small-business outreach.

Even if we were to accept the bank's questionable definition of small business, the data show that the Ex-Im Bank benefits a minuscule percent of small businesses and their employees in Pennsylvania and the rest of the country.

Data from the Census Bureau's Statistics of U.S. Small Businesses and from the Ex-Im Bank's records show that only 0.3 percent of all small-business jobs received assistance from the bank in 2007, which is the most recent year for which the full Census dataset is available.

If we make the unrealistic assumption that each small-business transaction through the Ex-Im Bank went to a unique small business, then only 0.04 percent of all small-business establishments were supported by Ex-Im Bank that year.

Let those numbers sink in: More than 99.6 percent of American small-business jobs exist without any Ex-Im Bank assistance at all.

What's more, when Ex-Im Bank subsidizes competitors, it comes at the expense of the vast swath of other U.S. small businesses and their employees. Indeed, when a company gets a cheap loan from the bank, it enjoys lower costs and a clear edge over the competition. Unsubsidized firms, on the other hand, may attract less capital as a result, incur higher costs, cut back on hiring, and grow less than they would have on a level playing field.

These subsidies might be a good deal for those who get them, but most Pennsylvanians will find it unfair that the profits of the winners of this arbitrary government selection come at the expense of the hundreds of thousands of unsubsidized firms, employees, and consumers.

Subsidized businesses should not matter more than unsubsidized firms in the Keystone State merely because they happen to have friends in Washington. We must end the Export-Import Bank to help the 99 percent.