Kill Big Business's Bank; D. Bandow

And those firms are not shy about show ing their support. When the Senate Sub committee on International Finance of the Committee on Banking, Housing and Ur ban Affairs held hearings earlier this year on reauthorizing the Bank, eight of nine wit nesses endorsed more money for the insti tution. Half of them represented companies supping at the federal trough. Business organizations like the National Association of Manufacturers, which always extoll their commitment to free enterprise, devote al most as much energy to increasing benefits Doug Bandow, a nationally syndicated columnist, is a senior fellow at the Cato Institute and the author and editor of several books, including Tripwire: Korea and U.S. Foreign Policy in a Changed World. by Doug Bandow to business as to battling regulations on business. Of course, none of the firms admits that self-interest animates its lobbying on behalf of ExIm, which has spent $3.7 billion over the last fiveyears. Bank supporters argue that ifthe U.S.

government doesn't provide cheap credit, American companies will lose out to foreign firms, many of which are subsidized by their home governments. The result would be lost jobs. Thus, ExIm advocates contend, their fight for subsidies for their firms is actually a fight for jobs for America. A Flawed Argument There are two major flaws with this argument. The first is the belief that gov ernment can provide a free lunch, that the money channeled to the purchasers of U.S. exports is somehow costless. But it isn't. When the Bank makes a loan, or uses guarantees or insurance to direct someone else's loan, less credit is available for use by other firms and individuals. University of Arizona economist Herbert Kaufman esti mates that every $1 billion in federal loan guarantees crowds out between $736 mil lion and $1.32 billion in private investment. That means fewer deals and lost jobs. As the General Accounting Office acknowledges, "Government export finance assistance pro grams may largely shift production among sectors within the economy rather than raise the overall level of employment in the economy." The ExIm Bank, then, redistrib741 742 THE FREEMAN • DECEMBER 1997 utes rather than creates jobs-after exacting an administrative charge.

There's neither moral nor economic rea son to enrich those companies lucky enough to benefit from Bank activities at the ex pense of the rest. Rather, the institution offers lawmakers political benefits: visible subsidies to companies that reciprocate with campaign support and invisible costs to the public, who remains inert. The second misleading claim made by Exlm enthusiasts is that the Bank under girds U.S. exports. In fact, the vast bulk of export financing comes from the private sector. Bank deals account for but 2 percent of total exports. And the $16.5 billion in subsidized trade this year, a record, is a mere blip for a $7 trillion economy. Equally important, it is virtually impos sible to assess which deals are dependent on ExIm subsidies. Undoubtedly some are, but every participant in the process-borrower, banker, exporter, bureaucrat-has an in centive to claim that the subsidy clinched every transaction. Yet surveys have long shown credit to be but one of many factors in making a purchase; one review of aircraft sales ranked credit terms eighth of twelve.

And that is America's experience in prac tice. Last year ExIm dropped any financing of work for China's massive Three Gorges Dam project (allegedly for environmental reasons). That hasn't stopped several American firms from providing as much as $100 million worth of equipment and ser vices so far. Thus, in many cases the buyer does what he would have done anyway and simply pockets ExIm's gift. Underwriting Brutality The Bank, created in 1934 to help under write trade with the Soviet Union, has never found a government too brutal to subsidize. Today China is a leading beneficiary, having borrowed some $5 billion. Nevertheless, ExIm supporters complain about the Bank's withdrawal from the Three Gorges Dam project, as if $5 billion was not enough taxpayer support for the globe's last major communist state. Nor is China the only thuggish recipient of the forced largesse of American taxpay ers. Indonesia is another major Bank client.

Over the years ExIm handed out cash to Nicolae Ceausescu's Romania, a regime bizarre even by communist standards, and Saddam Hussein's Iraq. Haiti, Nigeria, the Soviet Union, Sudan, and Yugoslavia have also been beneficiaries of Bank aid. As for the argument that foreign coun tries and companies couldn't purchase U.S. products without ExIm subsidies, Ian Vasquez of the Cato Institute points out that "44 percent of the Bank's guarantees in FY 1996 went to Argentina, Brazil, China, Indonesia, Korea, Mexico, Singapore, and Thailand-all emerging economies that have no problem obtaining investment from the private markets." Other nations have more trouble raising funds and paying their debts, of course, but that is a reason to deny them Bank credit. ExIm has also interfered with markets at home and abroad. For instance, by subsi dizing Boeing sales to foreign airlines, the agency has effectively used taxpayer dollars to put American airlines at a competitive disadvantage. The Bank has had the same deleterious effect in foreign nations, rou tinely underwriting failing state enterprises that should have been privatized rather than subsidized. Mexican economist Roberto Salinas-Leon points to the Bank's $5.6 bil lion loan to Pemex, the oil monopoly, a decade ago. More recent has been Exlm support for Gazprom, the Russian gas mo nopoly.

But let's assume the theoretical case for the Bank. Other nations are subsidizing their exporters and there are some deals that, all other things being equal, should go to American firms. Exlm can restore "bal ance" and shift the work back to America. It all sounds very nice, but what evidence is there that federal officials have special commercial or political knowledge that jus tifies turning them into international loan officers? Surely Washington has had enough experience with grant and loan programs to demonstrate that they always operate to fulfillpolitical,not economic, objectives.There is not the slightest chance that ExIm provides money only when it is "efficient" to do so. More basic still is the issue of principle. What justifies mulcting Americans to en hance corporate profits? The fact that other governments loot their citizens to boost exports is no argument. The fact that some U.S. firms suffer when other nations do so is no argument. The money being spent and lent by ExIm does not belong to it or to KILL BIG BUSINESS'S BANK 743 Washington. Rather, it is the taxpayers' funds. Businesses have no moral claim to seize that money for their own benefit.

There is perhaps no better example of cor porate welfare than the ExIm Bank. The deal is simple: taxpayers provide· the cash, exporters collect the profit. That's neither fair nor effi cient. It's time for legislators to acknowledge that 60years of corporate welfare is enough and to dismantle the Export-Import Bank. D Faith of Our Fathers Edited by Mary Sennholz God-given natural rights were the guiding light of the Founding Fathers. The stirring closing paragraph of the Declaration of Independence was not only the formal pronouncement of independence but also a powerful appeal to the Creator of all rights: "We, therefore, the Representatives of the United States of America, in General Congress, Assembled, appealing to the Suprem.eJudge of the world for the rectitude of our intentions, do, in the Name, and by authority of the good People of these Colonies, solemnly publish and declare, that these United Colonies are and of Right ought to be free and independent States." In the final sentence of defiance they appealed to the Almighty for His protection: /I And for the support of this declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our Sacred Honor."

The moral precepts and the self-evident truths that guided our Founding Fathers may not be fashionable in our time, but they are as inescapable and inexorable as they have been throughout the ages. We are free to ignore and disobey them, but we cannot escape the rising price we must pay for defying them. Faith of Our Fathers includes an incisive introduction by Mary Sennholz and powerful essays by Clarence B. Carson, John Wesley Young/ Robert A. Peterson, Wesley H. Hillendahl, Gary North, Ridgway K. Foley, Jr., Hal Watkins, James C. Patrick, Hans F. Sennholz, George C. Roche III, F. A. Harper, Jarret B. Wolstein, Leslie Snyder, Bruce D. Porter, Benjamin A. Rogge, Paul L. Adams, Ken Ewert, Ben Barker, John K. Williams, Edmund A. Opitz, Erik von Kuehnelt-Leddihn, and Calvin D. Linton. Published by The Foundation for Economic Education, Inc. Irvington-on-Hudson, NY 10533 Special holiday pricing ISBN 1-57246-063-6 398 pages (indexed) paperback $16.95 To order,call (800) 452-3518 • Fax (914) 591-8910 THEFREEMAN IDEAS ON LIBERTY What's So Bad About Big GovernmentAnyway?