EXPORT IMPORT BANK RE-AUTHORIZATION

EXPORT IMPORT BANK RE-AUTHORIZATION

PRINCIPLED ARGUMENTS OR POLITICAL PRINCIPLES?

The current Congress has before it yet another difficult and very important decision – whether or not to re-authorize the Export-Import Bank for another 2 (or more) year period of operations, and if so, under what conditions. Authority for the Bank to operate expires June 30th, and if not re-authorized it will lapse and will, for better or worse, have far ranging effects for both domestic and international business and trade.  

Positions have been staked-out, and sides chosen.  And, as with every Congressional issue, positions often, unfortunately, reflect their base political and ideological reality rather than addressing the actual constituent issues.  Political principles, however, have principle consequences.

While the positions posited to date on both sides of the issue are well argued, this article will address certain arguments opposing re-authorization. Most of the proponents of letting the EXIM lapse reside squarely in the fiscal conservative camp.  The arguments opposing EXIM are reduced to certain basic conservative political principles. [1]

  • Free-market principles (“private sector”) are better suited to control and resolve the issue of international trade competition
  • Taxpayer monies should not be used to benefit U.S.’s largest corporations (“corporate welfare”)
  • The government should not be picking “winners and losers” via providing taxpayer funded subsidies
  • Taxpayer monies should not be used to promote (required) political agendas (which business sectors should be promoted via subsidies)
  • The government should be targeting those small and medium size corporations that are not able to obtain private sector financing like large corporations can
  • EXIM actually harms U.S. international trade, creates international competition and does not create U.S. jobs
  • EXIM is infected with mismanagement, fraud, waste and abuse.

If EXIM is fatally flawed or ineffective (or even harmful) for U.S. (domestic and) international trade, then what is the correct approach?  The expressed (Conservative) solution to these real challenges is to simply revert to and rely on fundamental Conservative principles:  less government involvement; remove taxpayer monies; reduce government regulation; reduce corporate tax rates; remove trade barriers and allow free-market mechanics to control. 

While these Conservative principles are and should be the underlying foundation upon which to build a solid approach to (domestic and) international trade, they cannot be relied on, solely in and of themselves, as the panacea to all challenges which exist.  Nor are the objections to EXIM – as valid as some may be – conclusively dismissive of EXIM’s purpose or validity. 

Conservatives in Congress oft-times react to complex issues with their base autonomic response of its individual and collective nature – if it’s a government program, dissolve it;  if it’s a business matter, let the private sector solve it; if it’s taxpayer money, stop it.  While fundamental principles are the starting point in any analysis, stopping there in a factual, legal and practical analysis is a dangerous game of “rolling the dice”.  Taxpayers deserve better than blind faith, or “betting on the come”.

While the many issues surrounding whether to re-authorize EXIM are very complex and have countervailing good points, let’s do a quick analysis of some of the major objections to EXIM. 

It is alleged that EXIM engages in “corporate welfare” and benefits only the U.S.’ largest corporations.  The EXIM’s corporate report[2] shows that only 24.7% of the Amount Authorized was spent on small businesses.[3] Thus, it is true that the majority of its funds authorized (with taxpayer monies) were, in fact, spent on large corporations. However, EXIM’s charter is to assist in the promotion and financing of U.S. exports of goods and services and to support U.S. employment – which includes both large and small business.  Whether large corporations have the independent capability to obtain private sector financing (and thus do not need EXIM help) may be a legitimate debate, but assuming the EXIM action helps maintain/create US jobs, the purpose and benefit of the legislation is achieved.[4]

The problem with either party’s blind adherence to political principle or a party’s “talking points”, is that, while it sounds good, and serves an expedient political need, it sometimes creates a false façade and may not withstand close scrutiny.

The argument that EXIM creates ‘corporate welfare’ is somewhat hypocritical, and is best traversed carefully.  EXIM loans or guarantees are not “grants”.  Those (taxpayer) monies are repaid – with interest (and fees that cover administrative costs).[5] Let’s explore some other well-known “government largess” to see if EXIM has a “close cousin”.  The government runs two long known “largess” programs – Foreign Military Sales (“FMS”) and Foreign Military Funds (“FMF”)[6].  Both of these programs use taxpayer monies to serve two purposes: provide foreign aid and promote, enhance and maintain the U.S. domestic and international military defense industrial base. In 2014, there was a $30b budget for FMS purchases and $5.6b for FMF sales.  These programs, like EXIM, provide U.S. (taxpayer) funds to foreign entities (governments) to be used to purchase U.S. military goods and services.  In both of these programs, there is no “re-payment” to the taxpayers by the recipients of these “corporate welfare” programs.[7]  Additionally, the corporate recipients of this (indirect) “largess” are the same names that opponents of EXIM decry as receiving “corporate welfare”:  Boeing, Northrup Grumman, Lockheed Martin, General Dynamics, United Technologies, Raytheon, General Electric, British Aerospace, L3, etc.   Why is receipt of EXIM loans or guarantees for corporate giants unacceptable, while direct “taxpayer subsidies” (via FMF) acceptable government expenditures. Where is the consistency of all these “political principles”?

Some will argue that Military expenditures fall squarely into the Conservative principles of having a strong U.S. military industrial complex and helping ensure stability and defensive readiness of our allies, so that is an unfair comparison.  Fair enough.

 Let’s analyze domestic, non-military government expenditures.  Let’s start with every Conservative’s favorite expenditure to increase blood pressure – TARP.  The TARP program expended $615b on various programs.  While significant amounts of that were allegedly “repaid” – as is 98% of EXIM loans – (remember the admonition on how accurate ‘government accounting’ is), the taxpayer (“welfare”) monies were given to well-publicized corporate “giants”.  Some other taxpayer “welfare” programs for corporate giants are:  Federal Reserve Rescue efforts (restoring liquidity to the financial markets $6.4t); various Federal Stimulus Programs (to save or create jobs – $112t); AIG Bailout program ($182b); FDIC Bank Takeovers ($45.5b); other Financial Initiatives ($1.7t)[8]  The “default rate” on these “loans” were significantly greater than EXIM’s 2% (and it’s highly debatable how many jobs were “maintained or created” with all these bailout expenditures).

The above is not even inclusive of the IRS code “corporate welfare” that elements of both parties rail against.

Therefore, if the opponents of EXIM are going to rely on proper Conservative principles, then I strongly encourage them to be consistent and act on all such programs that benefit “corporate giants” with “corporate welfare”.  Otherwise, they are simply using “principles’ to be politically expedient and incur political favor; are being intellectually dishonest; are attempting to avoid the hard work necessary to solve a legitimate problem, or are engaging in a “political pack mentality”.  None of these demonstrate the courage and will expected and required of our elected officials.

The next critical objection to EXIM is that EXIM programs actually hurt international trade and do not create U.S. jobs.[9]

The published EXIM statistics state that its programs “support more than 164,000[10] American jobs” and “nearly 90% of Ex-Im’s transactions supported U.S. small businesses in 2014”.  EXIM’s programs “supported $10.7 billion in exports from U.S. small businesses” in 2014.  In many international venues, U.S. small businesses would be foreclosed from competing because (U.S. or international) commercial financing (and/or bonding) is difficult or impossible to secure, thus, making the U.S. small businesses unable to compete with foreign businesses which may be backed by one of the 60 similar export credit agencies (“ECA’s”) in other countries.[11] 

While it is prudent, and in fact required, to engage in a constructive debate on the effectiveness of EXIM’s support of businesses (especially small businesses) in international trade, it is indisputable that international trade is essential to the economy, to job creation, and the stability and security of our country.  How or whether government assistance (some say interference) affects job creation in the U.S. is likewise a debatable issue.  However, providing an atmosphere for job creation is one of the prime functions for Congress – and they must address that issue without resorting to “political positioning” and political dogma.  If re-authorizing EXIM (with needed modification) is best for business, international trade, or job creation (or even “maintaining” jobs), then they must put aside “presidential politics” and do the right thing!

Summarily letting EXIM lapse without first having those countervailing Conservative “fixes” (listed infra) in place, is “fool’s bet”.  Throwing away something that is, at least somewhat, effective without having in place strong Conservative economic “controls” is gambling with both our economy and the Conservatives political future[12]

Every Member of Congress can and should take a position on the myriad of complex issues involved in the decision to re-authorize EXIM. However, the lapse of EXIM will risk a negative effect on those small businesses that rely on EXIM to participate in international trade.  (Small businesses are the economic engine of our economy).   

EXIM statistics demonstrate, for example, that in my state of North Carolina in 2014, its programs have helped 206 exporter companies (148 of which are small businesses[13], 11 minority-owned, and 17 women-owned), in the industries that have been hard hit in our State (textiles, chemical and wood products).[14]  Without this EXIM help, and given the current state of NC economy in these industries, job creation or stability could have been negatively affected. 

It is a well-known axiom that “all politics are local”.  Well, “all jobs are local”.  Concentrating specifically on the N.C. 6th Congressional District, EXIM has helped 16 exporter corporations, including 5 small businesses and 1 minority-owned company, with a total export value of $81m in 2014 – all resulting in jobs and revenue in this District and the State.  The Congressman for the 6th District (M. Walker), summarily stated that he will vote against re-authorization because “I am now satisfied that there is a private market ready and eager to replace the federal government’s role and guarantee these loans.”  Such a position seems to reflect a rather simplistic analysis and only a regurgitation of party lines.  Under the governing statute(s), the existence of “private capital” is not a disqualifying event to EXIM participation. EXIM was intended to “supplement” the “private market”, not replace it.  Thus, voting to not re-authorize EXIM on that conclusion, alone, is actually voting based on a total misunderstanding of its fundamental operating principles.

By voting to allow EXIM to lapse, Members will assuredly face constituent complaints of lost jobs. Will they tell the families of workers in small businesses, that the “private market is ready and eager” to help? The decision on whether to disengage government assistance in efforts to promote international trade and level the playing field isn’t based simply on whether there is “private capital” available.[15]  Having “private capital” available, of and by itself, isn’t a guarantee that any company – large or small – will have the ability to compete internationally with corporations that are quite possibly supported by one of 60 other countries’ ECAs which vie for the work, or will have the ability to submit a competitive bid against corporations from China, N. Korea or other countries with significantly cheaper labor, or will be able qualify for a (bid or performance) bond, which is often times a pre-requisite for international corporations to compete (a service that EXIM provides and most “private market banks” do not).  The analysis is simply not that basic.

“Conservative principles” should be promoted, and I am a staunch believer in and a vocal promoter of a free-market solution whenever possible. But hiding “political principles” behind the curtain of Conservatism especially without engaging in a thorough analysis of all issues, is the worst of politics and will serve no one well.  Sometimes, just sometimes, “free market principles” are the effective adjunct – not the only answer. Congress’ job is to do what is best for the country, not solely what is best for the party line.

Granted there are manyissues with EXIM that need fixed – many parts of EXIM that should be revised or even repealed, but saying that nothing EXIM does is worth saving flies in the face of certain indisputable facts.  Unless and until Congress enacts (or repeals) or otherwise puts in place those “Conservative free market principles” that all Conservatives believe will ensure a strong economy without government imposition or intervention (listed infra), Congress should not presume or “guess” that the current state of the “U.S. free market” can or will solve this “international trade issue”.  Any such imprudent conclusion is gambling with the lives of each and every voter – and with the Member’s own job.  The time to repeal EXIM will come – but just choose the right time and the right reason.

Conservatives nation-wide extol the policies and principles of Ronald Reagan – and they should.  However, perhaps before Congress throws the baby out with the bath water, it should recall what President Reagan said about EXIM. “Exports create and sustain jobs for millions of American workers and contribute to the growth and strength of the United States economy.  The Export-Import Bank contributes in a significant way to our nation’s export sales.” (January 30, 1984) (Similar strong support has been demonstrated by Presidents Kennedy, Ford, Clinton and George W Bush). The positions of the U.S. Chamber of Commerce and the National Association of Manufacturers in support of re-authorization, also deserve serious consideration.

Congress should re-authorize EXIM, albeit for a short period of time, and undertake a thorough and practical revision of the authorizing statutes.  Our citizens, corporations and economy deserve no less.

 



[1] It is not the author’s intent to signal a departure from his fiscal conservative principles, but simply to point out certain factual and logical inconsistencies in some of the points in opposition to re-authorization. 

[2] And the Congressional Research Service report – March 25, 2015

[3] Statute requires at least 20% be spent on small businesses.  The Exposure Cap for 2014 is $140b.

[4] Legitimate debate can and should be had on whether to revise the required participation percentages for small businesses; more stringent requirements and evaluations on availability of private sector financing, reasonableness of repayment; opening up of Transaction-Content eligibility; re-evaluation of fees and interest rates (size dependent); increased due diligence for Economic Impact evaluations (12 USC 635(a) et. seq.); and re-evaluation of current Exposure Caps and Default Rate (currently no greater than 2%). 

[5] This article will not address the debate whether EXIM “makes a profit” or whether the offsetting collections reduce appropriations to “0” – thus making EXIM self-sustaining.  Government accounting requirements are sometimes byzantine, at best, to understand or explain.

[6] FMS is a government program where foreign governments purchase US military goods and services.  FMF is a foreign policy tool where grants (of taxpayer monies) are provided to foreign governments to purchase US military goods, services and training.

[7] The author believes that both programs serve legitimate national, international, political, security and business purposes, regardless of the “cost”, and raises the issue solely to point out the hazards and illogic of blindly raising “absolute principles” to support a political position.

[8] Source – CNN Money 2015

[9] The additional claim that EXIM should be shuttered because there is “fraud, waste and abuse” would likewise require literally every government agency, the executive office and Congress to be shuttered. ($17b of Social Security fraud; $7b IRS fraud, and $10b in welfare fraud – all in 2015)

A similar claim is that EXIM is not self-sustaining and that it operates at a loss.  While the accounting can be debated, its default rate is 1.75% of all loans/guarantees. I can find no other government program that operates on a self-sustaining basis or anywhere close to it.

[10] Some EXIM sources claim “over 200,000 jobs”

[11] Some off the ECAs are significantly larger in fiscal capacity than the U.S. Export Import Bank.

[12] There are numerous economic “fixes” that would need to be addressed before the ‘free market’ would work, by itself, to help spur international trade:  repeal of SOX; banking regulations that strangle small business’ financial capacity; repeal of Dodd-Frank and other regulations; reform of corporate tax codes that promote international business; etc. The U.S. has lost millions of manufacturing jobs since 2008 and we need to promote all efforts to bring manufacturers back to the U.S.

[13] EXIM definition of “small business” could be debated and revised, as they vary from other government agencies.

[14] The North Carolina Small Business & Technology Development Center is the State’s leading resource for growing and developing small businesses, and is the EXIM City/State Partner of the year for 2015.

[15] In fact, as detailed in the Congressional Research Service’s report (March 25, 2015), available to Members, the enabling Statute sets out numerous policy requirements to govern Bank operations, and the Bank’s requirement to “supplement and encourage, not compete with private capital”, is but one.