By Neil Irwin | June 19, 2014 | NYTimes.com | The Upshot
If there’s one thing that populists on the left and right can agree upon, it is disdain for crony capitalism. It is a distaste for the cesspool of Washington influence, in which big-business lobbyists canoodle with lawmakers to get their way. It is anger at corporate welfare enriching America’s biggest companies at the expense of the little guy.
But what’s new is that conservative activists are channeling that spirit into a concrete change in policy. Rather than just talking about ending crony capitalism, House Republicans and some of the outside groups that support them and try to push them to the right are looking to eliminate an agency that provides billions in government-funded loans to support American exporters.
How one stands on reauthorizing the Export-Import Bank of the United States is a test of who’s really in charge of the Republican party, pitting business interests against a populist Tea Party wing. The two sides could agree that they hate Obamacare and want to cut social welfare spending. But the debate over Ex-Im Bank pits the likes of the Heritage Foundation and Americans for Prosperitydirectly against the preferences of the U.S. Chamber of Commerce and National Association of Manufacturers.
But when you dive into the debate, it also offers something else: A fascinating case study in how modern economies really work, and the ways big business and big government are inevitably intertwined in ways that believers in free markets may not like — but may not be able to avoid. In short, we’re all crony capitalists, whether we like it or not.
So what is the Ex-Im Bank? Its job is to provide financing for American exports. When a Brazilian airline buys a Boeing 737 or a Turkish electric utility buys General Electric turbines, they can receive financing through the bank at more favorable interest rates than would be available in the private market. Smaller American companies that are looking to export can borrow working capital to help float the costs of selling their goods overseas.
The borrowers pay interest on those loans and loan guarantee fees, which allows the bank to return cash to taxpayers; the Congressional Budget Office projects that using standard government accounting rules the bank will refund $14 billion over the next decade to the Treasury Department. But taxpayers are subsidizing the bank to the tune of $2 billion for the same period of time if you use “fair value” accounting, calculating the values of the guarantees and below-market loans the bank issues.
So why should the government be running what is, in effect, a very specialized bank? For smaller companies, getting trade finance through privately owned banks is hard simply because only the biggest and most global institutions are in that business.
Good luck going to your neighborhood bank branch and asking for a $1 million loan to finance the shipment of industrial equipment to Uruguay, a transaction that includes all types of exotic risks (currency, political, etc.) that will leave your banker scratching his head.