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Ed Lotterman: Ex-Im Bank battles are mostly symbolic

Ed Lotterman
Ed Lotterman Staff

Some of the arguments over the Export-Import Bank remind me of a silly commercial for mints in the 1960s in which two people argued about whether the product was candy or a bad-breath remedy.

I want to interject: “It’s two, two, two banks in one!”

Yes, the large bulk of the Ex-Im Bank’s services do flow to a handful of very large and financially well-established corporations, as its opponents contend. Yes, it also is of great help to many hundreds of small- and medium-size companies trying to establish an export business, as its supporters tout. Both are true.

Much of the battle over the Ex-Im Bank is symbolic. Abolishing it will save the federal budget little, if any, cash. And, despite the alarmism of business lobbies, the U.S. economy isn’t going to crumble into dust without the bank.

Simply put, it doesn’t have much substance as an issue facing our nation.

However, as anyone who has served on a church board, or even been married, knows well, bitter, even existential, arguments can stem from symbols over substance. To libertarians and many other conservatives in the Republican party, the bank symbolizes everything that is wrong with the intersection of U.S. politics and the economy.

It is a government-owned corporation staffed by civil servants that is subject to little ongoing oversight between periodic re-charterings. The bulk of its services of loans, loan guarantees and insurance flow to a handful of corporations such as Boeing, General Electric and Caterpillar.

In 2007-08, two-thirds of its loan guarantees were for sales of Boeing aircraft alone. In 2012, that figure was 82 percent. In 2013, 74 percent of guarantees and of direct loans combined went to only 10 corporations. So when conservatives charge “crony capitalism,” they are right.

The bank also gets criticism from liberal Democrats, often because it facilitates exports of fossil-fuel-burning or nuclear power plant technology seen as bad for the environment. And the same issue of the bulk of assistance going to big corporations galls many Democrats beyond Bernie Sanders-type populists. It was Barack Obama who, seven years ago, called the bank “little more than a fund for corporate welfare.”

Just as defenders of crop subsides, the bulk of which flow to a small number of large producers, emphasize the benefits to Ma and Pa Kettle, so Ex-Im advocates stress benefits to small companies exporting pickles, specialized farm machinery and specialized medical devices.

As for the Boeings, GEs and Caterpillars of the world, they raise two defenses. The first is the level playing field on trade — the “everyone else is doing it so we must, too” argument — similar to cities subsidizing sports venues or state “incentive” packages to attract big manufacturing plants. There is some validity to this argument. More than 60 other countries, including all the major industrialized economies, have export banks similar to the U.S. one. Most adhere to a code of practices put out by the Organization for Economic Cooperation and Development that is supposed to limit the most egregious export subsidies. However, several, including Russia, China and Brazil, for example, do not.

The argument made by Boeing and Caterpillar is that they will lose their international market share if they don’t get the same sort of help as Europe’s Airbus or Japan’s Komatsu.

That raises the question of the level of actual aid. While bank supporters argue that U.S. companies need aid to offset similar subsidies offered by other countries, they simultaneously argue that the bank costs U.S. taxpayers nothing because the fees and interest charged for guarantees and loans more than cover the cash outlays for bank operation. The bank actually turns a few hundred million dollars over to the Treasury each year.

There seems to be a logical conflict here. On the one hand, aid from the bank is supposed to be necessary to offset competitors’ subsidies. On the other hand, there supposedly is no outlay of Treasury funds. Which is it?

A plausible explanation is that the subsidy is an implied one. The same is true in all sorts of government-subsidized loans, including those to rural electric co-ops and water systems, manufacturers of photovoltaic panels, young farmers and so on; ditto in spades for government bailout loans to Lockheed, Chrysler, AIG and GM.

The government absorbs the risk that keeps private lenders from funding such exports at the same interest rate. From an economic point of view, the very fact that the public treasury potentially is on the hook for any loan losses is a real economic subsidy even when no outlays occur.

Good studies place the value of implicit subsidies to the large capital equipment exporters at about 1 percent of the export sale price. That may not be much, but the international market for locomotives, mining trucks and jetliners is competitive. And Airbus, Komatsu, Alstom and Siemens do get some level of subsidy. So the “all our competitors are subsidized too” claim is not entirely bogus.

Is this factor so important that the big airplane and machinery manufacturers will all decamp to greener pastures if the bank is not re-chartered? The U.S. Chamber of Commerce and the sector’s battalions of lobbyists would have you think so. I am skeptical.

The small guys, like the small-town Iowa manufacturer of truck bodies who went on a trade mission to South America, have a better economic argument. There are economy-of-scale, information and other forms of market failure in international trade, particularly for small firms. Prudent government action may offset such private market imperfections.

This can be particularly important for first-time exporters who don’t have existing banking relationships with expertise in trade. Nor do their potential customers. The problem is that once both sides become used to cheaper-than-market credit, they tend to want perpetual access to it, even when volume and expertise would make private trade financing available.

I’d be happy with a re-charter that capped aid to any single company at a low level and, as we did with Temporary Assistance to Needy Families and food stamps, limit it to a few years.

However, the political reasoning is like that of farm subsidies. While economists see them as making our economy both less efficient and less just, the subsidies are the political quid pro quo necessary for funding food stamps, also administered by USDA. If you think this assistance makes our economy more just or more efficient, then you well may bite your tongue and support farm subsidies. In the same way, if you think the aid to small exporters from the Ex-Im Bank is worthwhile, you may hold your nose and support implicit largesse for Boeing and GE.

All that said, the economic importance of the issue, one way or another, has been blown out of proportion. If the energy that has gone into it had been directed at constructive tax or Medicare reform, we might be much better off.

St. Paul economist and writer Edward Lotterman can be reached at boise@edlotterman.com.

2 ways to see Lotterman in Boise

Ed Lotterman, the former Federal Reserve economist whose column has run in the Statesman for 10 years, will speak Friday, Nov. 20, at the Boise Metro Chamber of Commerce’s annual economic summit.

The event is from 8 a.m. to 10 a.m. at the Boise Centre, 850 W. Front St. The cost is $35 for chamber members and $45 for nonmembers, and includes breakfast. To register, go to boisechamber.org or contact Mike Swain at (208) 472-5212 or mswain@boisechamber.org.

The Statesman also invites readers to meet Lotterman and discuss economics over coffee. Anyone interested may come at 10 a.m. Thursday, Nov. 19, to the Statesman office at 1200 N. Curtis Road. There is no charge.

Please let Business Editor David Staats know if you plan to attend: (208) 377-6417 (leave a message), dstaats@idahostatesman.com or @DavidStaats.

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