The Export-Import Bank Debate: Tempest in the Tea Party Pot

The charter of the Export-Import Bank (Ex-Im Bank or Bank) must be reauthorized by the end of September. Given the current heated debate it is likely that its fate will not be determined until the 11th hour.
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The charter of the Export-Import Bank (Ex-Im Bank or Bank) must be reauthorized by the end of September. Given the current heated debate it is likely that its fate will not be determined until the 11th hour.

What is going on right now is essentially a confrontation between ideology and methodology. The ideology is that of the Tea Party and conservative Republicans who insist the government should not be interfering in the free market system. The methodology is the work of the Ex-Im Bank in providing loans, loan guarantees and credit insurance to help foreign buyers purchase American products and services.

What makes this debate rather unusual is that it basically pits Republican against Republican. Lining up on the "social conservative" Republican side are groups such as Heritage Action, the Club for Growth and FreedomWorks. Lining up on the "business" Republican side are groups such as the National Association of Manufacturers, the U.S. Chamber of Commerce and the Aerospace Industry Association.

Each of the conservative groups has their designated spokespersons and talking points. But, the most influential person is Rep. Jeb Hensarling (R-TX) who chairs the House Financial Services Committee which oversees the Bank's charter.

In a speech to the Heritage Foundation regarding the Bank, Rep. Hensarling declared, "Its demise would clearly be one of the few achievable victories for the Main Street competitive economy left in this Congress. I believe it is a defining issue for our party and our movement."

On the flip side of the argument, as Holly Yeager reports in the Washington Post, Ned Monroe, political strategist for NAM asserted, "This is not about our legislative opponents. This is a jobs issue."

Those two differing perspectives frame this matter well: "a defining issue for our party and our movement" versus a "jobs issue." In this sluggish economy which continues to struggle to create jobs - especially good paying ones - we find the jobs positioning more persuasive. Our assessment of the need for the Ex-Im Bank is strengthened as we look at some of the other assertions and facts surrounding the debate.

The most common charge against the existence of the Bank is that it is an example of "crony capitalism" giving preferred treatment to large corporations such as Boeing, GE and Caterpillar thus not letting the free market work its magic.

This charge might carry some weight if there were such a thing as the free market in the world market place. Unfortunately, the only place where that market exists is in the space between some folks' ears.

The fact is that 59 other countries, including major ones like China, France and Russia, provide export financing assistance. For the United States not to do so, would put American firms wanting to do business internationally at a competitive disadvantage.

It is true that the bulk of the Bank's lending assistance in terms of dollars goes to large companies (around 80 percent). But, the preponderance of the clients (90 percent) served are smaller businesses.

Another criticism of the Bank is that it's made some bad loans to outfits like Enron and Solyndra. That's absolutely true. But, they also have had a very low default rate of only one percent since 2006. That compares quite favorably to the default rate of private sector banks in the same time period.

A third criticism of the Bank is that it only affects about 2 percent of American exports and that if it went out of existence it would not have a dramatic impact on American exporting. That is true in the larger scheme of things and we are certain that the mega-corporations would find other sources for their financial assistance.

On the other hand, we believe the Bank's demise would have a direct effect on the small businesses and workers in those companies that benefit from the Bank's lending. This brings us to the most compelling argument for why the Export-Import Bank should be reauthorized.

That is the business case for it which is as follows: The Bank has a very small operating budget. The Bank pays for itself. The Bank generates profits for the U.S. Treasury. The Bank helps numerous American companies. Those companies create American jobs.

Here are the specifics. In 2013, the Ex-Im Bank:

  • authorized27.3 billion in direct loans, loan guarantees and credit insurance
  • had an operating budget of90M paid for completely by customer fees and interest
contributed $1.1 billion to the Treasury
  • approved a record high 3,413 small business authorizations - 625 of those businesses were first time users
  • estimates that it helped support 205,000 American jobs

In sum, the Export-Import Bank is a government program that works and more importantly costs the taxpayers nothing. To sacrifice the Bank on the altar of ideology makes little sense. Instead, it should be held up as an exemplar of how the government can operate in a business-like manner and make a difference in the American economy.

That's not to say the Bank is perfect and cannot do things better. Rep. John Campbell (R-CA) has drafted a "third option" path for legislation reauthorizing the Bank for three years with reforms. Those reforms would include measures to: reduce U.S. taxpayer exposure, improve risk management, and ensure the Bank remains the lender of last resort.

As might be expected, the conservative Republicans are resistant to even considering reform of the Bank while the progressives are embracing the need for it.

Writing in U.S., Nancy Pfotenhauer, president of Media Speaks and former director of the Washington office of Koch Industries asserts, "Reform isn't possible with Ex-Im because by definition it distorts the free market and... favors some lucky, well-connected companies over others."

In contrast, Diana Carew, of the Progressive Policy Institute and a former employee of the Bank in a blog for The Hill says, "A third option has the power to make Ex-Im Bank better, by enabling reforms to fulfill its mission more effectively. Such reforms would enhance the global competitiveness of U.S. companies, not take it away."

We don't think reform is impossible. In fact, the very existence of the Export -Import Bank proves that it is possible.

The Bank was established in 1934 during the New Deal administration of Franklin Delano Roosevelt to help American companies do business around the world and to compete more effectively during the Great Depression. Eighty years later, the global economy is even more competitive and the United States is still struggling to emerge from the Great Recession.

We need the Export-Import Bank now more than ever as one of the resources to drive business development and job creation by American companies. It is the time to reform and strengthen this Bank, not to kill it.

(In the interests of full disclosure, Frank Islam served on the Advisory Committee for the Export Import Bank for one year and Ed Crego's daughter is employed by Boeing.)

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