Export Import Bank: New Deal Program Needs a Makeover

Back in 1934, President Franklin Delano Roosevelt issued Executive Order 6581, effectively establishing the Export-Import (Ex-Im) Bank.  The original purpose of Roosevelt’s Ex-Im Bank was to protect American companies by providing them loans with the hope that they would put domestic companies on a level playing field with foreign competitors, who were also subsidized by their respective governments.  For years, Ex-Im played its proper role, but as time passed, it grew, eventually becoming a bloated government agency with no oversight and little semblance to the bank established by Roosevelt and a classic example of corporate welfare.  Now there is a move to re-evaluate the necessity of the Ex-Im Bank.  According to The Hill, “House Majority Leader Eric Cantor (R-Va.) and House Minority Whip Steny Hoyer (D-Md.) are close to striking a deal on reauthorizing the Export-Import Bank, sources said Thursday [May 3]….The Ex-Im Bank reauthorization in past years has been largely non-controversial, but with the rise of Tea Party conservatives in the House it has been difficult this year.  Conservative groups like the Club for Growth oppose the bank on principle as a government subsidy, even though technically the bank pays for its own activities through fees charged to customers.”

The reason for this re-evaluation is partly due to the bank being shrouded in controversy.  It has consistently exercised inexcusably poor judgment.  It has given risky loans to companies are like Air India, which is billions of dollars in debt and is in the process of being bailed out by its government.  Going further, Ex-Im has subsidized corrupt and now bankrupt companies such as Enron and Solyndra.  Ex-Im’s failures are alarming, but what is more disturbing is the fact that the government has failed to diligently oversee and reign in the Bank’s risky expenditures.

Even worse than the Bank’s atrocious business deals is the harm that Ex-Im does to American jobs.  Ex-Im Bank gives loan guarantees to foreign companies that are in direct competition with American businesses.  As a result, U.S. companies are forced out of business or have to scale back their services, ultimately causing Americans to lose their jobs.

The most prominent example is Export-Import’s subsidization of foreign airlines, which have cost the American airline industry as many as 7,500 jobs.  The Bank gives loans to foreign airlines that purchase Boeing planes, allowing them to save roughly $5 million per wide body aircraft.  By law, American airlines are excluded from obtaining these same loan guarantees, meaning that foreign airlines receive significantly cheaper planes and an unfair competitive advantage.

Ex-Im Bank’s actions can be boiled down to the government picking winners and losers.  It provides financial backing to companies at the expense of others.  Usually, the companies that benefit most are the ones with powerful lobbyists.  Boeing happens to have some of the best lobbyists in the nation’s capital and as columnist Howard Rich noted, the company “benefited from $8.4 billion in Ex-Im loans in 2009, $6.4 billion in 2010 and $11.4 billion in 2011 – gobbling up the overwhelming majority of the bank’s lending capacity.” 

The government shouldn’t be distorting markets to the point where it is awarding profitable companies billions of dollars, especially when American jobs are at stake. The unintended consequences of Ex-Im’s lending policies are far reaching and at a time of economic uncertainty, it is important that Congress ensures Ex-Im does not hinder economic progress.         

Congress should eliminate the Ex-Im Bank.  If Congress doesn’t the courage to eliminate the Ex-Im bank it should pass  legislation that would call for the Ex-Im Bank’s business practices to be more transparent by disclosing its activities and opening its meetings to the public, so that their investments could be scrutinized more closely, possibly preventing future loans to bankrupt.  Moreover, legislation should force Ex-Im to abide by its Congressional mandate, which reasonably says that the Bank must consider the negative impact of its loans on American workers before it doles out assistance.  And now is a better time than ever to pass such reforms since Congress is currently debating reauthorizing the Ex-Im Bank’s charter.

Congress needs to act.  The Bank needs to be reformed so that America’s interests come first.  Other countries give out loans to boost their respective domestic companies and America should not be forced to unilaterally disarm, but the practice of giving billion dollar handouts to foreign companies at the expense of American industry needs to end.  Simply stated, Ex-Im should be restored to a bank of more modest means that protects American companies, like it did when it was first created by President Roosevelt, not the behemoth that picks winner and losers resulting in American employers being punished.