More Crony Capitalism

Time for U.S. manufacturers to declare independence -- from government

Timothy P. Carney
Washington Examiner
July 3, 2011

Big industrial lobbies continue to rail against overregulation and overtaxation, but they don't hesitate to come to Capitol Hill with open palms.

In June, the manufacturing lobby pushed hard in both chambers of Congress for the preservation and expansion of a federal corporate welfare agency - the Export-Import Bank of the United States. The lobbyists don't have to apply too much pressure, though, because both parties love the subsidies.

Ex-Im is a federal agency that subsidizes U.S. exports by issuing or guaranteeing loans to foreign buyers of U.S. goods. Originally created by Franklin Roosevelt, the agency comes up for renewal every few years. Its current authorization expires at the end of 2011, and so the House Financial Services Committee and Senate Banking, Housing and Urban Affairs Committee is moving ahead on passing reauthorization.

I was at the subcommittee markup earlier this month, where a dozen or so lobbyists watched in relieved satisfaction as Chairman Gary Miller sped through the formalities and passed the bill in about 10 minutes.

The biggest group represented at the markup appeared to be the National Association of Manufacturers, the $10-million-a-year lobbying operation headed by Republican operative Jay Timmons. NAM is a powerhouse on Capitol Hill, especially among the Republican Party, which shares NAM's antagonism toward Big Labor, high taxes, and burdensome regulations.

Despite their free-market rhetoric that the business lobby and Republicans often employ, both entities happily embrace Big Government when it comes in the form of subsidies and bailouts. Ex-Im reauthorization and expansion is a prime example of Democrat-Republican-Big Business comity.

Here's a typical example of how Ex-Im works: Luxembourg's CargoLux (an air cargo carrier) is looking to buy Boeing jets with General Electric engines. The companies have lined up JP Morgan to finance the deal. Ex-Im is considering offering a loan guarantee.

The Ex-Im guarantee lowers the interest rate JP Morgan charges, thus lowering the effective price CargoLux would pay. This helps Boeing beat out heavily subsidized European jetmaker Airbus.

Boeing, GE and Ex-Im will all say this isn't a taxpayer subsidy or corporate welfare because it comes "at no cost to the taxpayer": Congress recently moved Ex-Im's subsidies off-budget so that new loans and guarantees are covered by fees and the repayments of old loans and guarantees.

So, Ex-Im claims to be "profitable" and not reliant on taxpayers in its work to grease the wheels of commerce through financing. If you lived through the housing crisis, this probably sounds familiar.

Ex-Im is the Fannie Mae and Freddie Mac of the export industry. But where Fannie and Freddie's guarantee was only implicit, Ex-Im is explicitly backed by the full faith and credit of the United States. In other words, if CargoLux doesn't pay, Ex-Im cuts a check to JP Morgan.

If something bad happened, like widespread economic or political turmoil in countries where Ex-Im has outstanding loans, guarantees or insurance products - such as Greece, Bahrain, Egypt, Libya, Argentina, China, Brazil, Ivory Coast, Iceland, Ireland, Saudi Arabia or Russia - and the result was a surge in defaults by foreign buyers, American taxpayers would bear the brunt. Ex-Im's defenders say their controls are too strong and that won't happen. Fannie Mae's defenders said the same thing.

NAM helped bring witnesses to a Senate Banking Committee hearing on Ex-Im last week and posted a memo on its website about the reauthorization. "Export-Import Bank Key to Doubling Exports," the lobby declared, referring to Obama's export-promotion goal. Lauren Airey, NAM's director of trade facilitation policy, wrote that "95 percent of the world's consumers are outside of the U.S., and manufacturers need additional tools such as the Ex-Im Bank tools to reach these customers in new markets."

There's no doubt Ex-Im helps manufacturers export. But there's also no doubt that Fannie and Freddie helped Realtors and homebuilders. Government intervention can always help some narrow segment of the economy - and it always creates inefficiencies that hurt the economy as a whole.

Ex-Im isn't the only way NAM plays footsie with Big Government. NAM, like the Chamber of Commerce, supported Troubled Assets Relief Program and the use of TARP to bail out Detroit automakers. NAM also backed Obama's cash-for-clunkers boondoggle.

The pattern is this: NAM sounds conservative on taxes and regulation, and liberal on handouts and bailouts.

Of course, this is NAM's job - to help manufacturers. But in the long run, this lack of underlying principle (beyond profit) undermines the credibility of NAM and the whole business lobby.

Businessmen and politicians like to talk of "public-private partnerships," like Ex-Im. But if manufacturers want to stand on solid ground opposing Obama's taxes and regulations, it's time for these businesses to declare independence from Big Government.

Here's a typical example of how Ex-Im works: Luxembourg's CargoLux (an air cargo carrier) is looking to buy Boeing jets with General Electric engines. The companies have lined up JP Morgan to finance the deal. Ex-Im is considering offering a loan guarantee.

The Ex-Im guarantee lowers the interest rate JP Morgan charges, thus lowering the effective price CargoLux would pay. This helps Boeing beat out heavily subsidized European jetmaker Airbus.

The bit in blue is the really key thing here. American manufacturers are at a significant disadvantage with foreign competitors who ARE heavily subsidized - whereas our businesses labor under extremely high corporate tax rates and an excessively burdensome regulatory atmosphere.

However, I would be only TOO happy to do away with Ex-Im and the crony capitalism it represents.

The left is only too happy to demonize private sector businesses, calling them "greedy" and stirring up class envy against successful businesses - but recognizing that they need the money those businesses generate, they are all on board with FDR-era schemes like Ex-Im.

The right (at least the blue-blood, North-Eastern "right" - if you could call them "right") complain and whine about excessive government intervention in the private sector but are only too happy to accept favorable treatment by the federal government!

All of it needs to stop and it needs to stop now! We need to return the federal government to exercising ONLY its constitutionally mandated role! We need to SLASH federal regulations, federal corporate taxes, and let businesses do what they do best!