Blog

Don’t Kill the Export-Import Bank. Clone It.

Washington politics may be considerably calmer than in recent summers (remember the crisis and credit downgrade of 2011?). But there remain simmering tensions looking only for an appropriate outlet. Over the past few weeks, the normally quiet Export-Import Bank, whose existence is likely a mystery to the vast majority of citizens, has become that outlet.

A phalanx of Republican representatives, led by new House Majority Leader Kevin McCarthy, has taken a firm stance against renewing the bank’s charter. The complaint is that the bank, which provides loans and guarantees to facilitate U.S. exports, is a prime example of crony capitalism and that the government should not be providing these loans in lieu of the free market. The argument, stated somberly during recent hearings and as talking points, was nowhere better spelled out than in a YouTube video titled “The Kronies: Laughing All the Way to the Export-Import Bank.” Other opponents challenge the bank’s contention that it increases exports and supports domestic job creation.

It’s an odd target. The Export-Import Bank is one example of channeling a limited amount of government revenue to augment free enterprise. Last year alone, it supported $37 billion in exports. It ends up costing taxpayers nothing, because the fees and interest on the loans it provides end up generating a surplus to the U.S Treasury, which amounted to more than $1 billion last year. Rather than killing it, we should be cloning it.

The Roosevelt administration created the Export-Import Bank as part of the New Deal in 1934; the goal was to increase American exports and boost jobs and output during the height of the Great Depression. It assumed an even more prominent role just after the end of World War II to aid American companies in taking an active role in the reconstruction of Western Europe. Its charter has been renewed rather uneventfully over the past eight decades—in fact, an equally partisan Congress did so by an overwhelming margin in 2012.

For the most part, the bank provides loans that make it easier for U.S. companies to sell their goods abroad. Usually that entails guarantees, in case a buyer in a foreign country fails to pay or cannot honor its orders. Every big nation, and increasingly most midsized nations as well, have their own version of an export-import bank. While the U.S. Export-Import Bank offered $27 billion in loan guarantees in 2013, countries such as China, Brazil, and Russia as well as other developed nations offered a total of $175 billion, according to statistics released by the bank. Other countries also provide indirect subsidies to the exporters. In that respect, the Export-Import Bank is simply an American wing of a global phenomenon.

Opponents are quick to point out that in the past few years, the bank has predominantly benefitted a few large corporations, Boeing above all. Helping big business used to be staunchly defended by Republicans in Washington and opposed by liberal Democrats. In recent years, the Tea Party has mostly donned the mantle of populist opposition to those cozy alliances. Yet in the case of Boeing’s commercial airline franchise, the company has only one major international competitor, Airbus. Airbus is an EU consortium that receives substantial backing from multiple European governments, Germany and France especially, and Boeing credibly argues that only with some similar assistance from the U.S. government can it compete in the marketplace.

The notion of an immense multinational company such as Boeing receiving taxpayer-guaranteed credit feeds the Republican and Tea Party narrative of a Washington beholden to monied special interests. The brouhaha over the Export-Import renewal has also further opened the fissure between Republicans who are more focused on business than on the populist agenda of the Tea Party. In late June, 41 House Republicans, backed by pro-business lobbying groups such as the U.S. Chamber of Commerce, wrote to House Speaker John Boehner urging a renewal of the charter. And the plethora of Democrats supporting the bank may have also spied an opportunity to recapture the business and Wall Street crowd who have clearly been vacillating in their support.

Such are the politics of this debate. Just as important, however, are the economics of it. Given the Tea Party focus on deficits and runaway government spending, the bank makes an odd target, because the bank actually costs the American taxpayer nothing. Yes, it’s true that if the loans go bad, taxpayer money would be used to cover losses. But that hasn’t happened since the late 1980s, when it cost $3 billion—a lot of money, but a pittance in relation to the federal budget. And that was 25 years ago. The default rate is currently at 0.23 percent, which is why the bank has been generating a profit for the U.S. government. Far from adding to government spending, the Export-Import Bank actually helps the deficit and makes money for the American taxpayer.

The idea that government programs can enhance the financial health of the commons is an alien one in our current climate, in which government is perceived purely as an expense. You would think that those who believe government should be run more like a business would celebrate a multi-billion government program that supports American manufacturing and bolsters thousands of small businesses along with the behemoths such as Boeing, all the while garnering a profit. What, exactly, is wrong with that picture?

The Export-Import Bank is a rare American example of a government program that provides a vital spur to private investment that serves the public good. Canada has been much more aggressive in implementing such models. The Canadian government has developed a wide variety of public-private partnerships, where government underwrites the initial and often riskiest tranche of capital that banks may be reluctant to fund.

In the U.S., the proposed infrastructure bank, which has been part of the un-enacted Obama agenda, takes a similar approach to funding infrastructure. Rather than command and control government spending—which does indeed cost taxpayers hundreds of billions of dollars—these initiatives use a relatively modest outlay of government-backed loans to unlock hundreds of billions in capital spending by companies and loans by banks. These approaches have allowed Canada to upgrade public infrastructure at less cost and in less time.

What follows, then, is that rather than killing the Export-Import Bank, we ought to use it as the inspiration for multiple other programs. Why spend hundreds of billions in subsidies and direct spending and hiring when we could instead use government as a guarantor that unlocks the free market? The Small Business Administration is a parallel example, helping new businesses get loans, but it could be dramatically expanded. Instead of spending hundreds of billions in highway bills, we could create a public-private road agency. Every agency, from the Veterans Administration to Health and Human Services, could be tasked with finding areas where private companies can serve the public good if they are simply given some basic backstops that give them access to needed capital.

Government would still foot the direct bill for much of the commons, from national defense to the justice system, from public education to aspects of health care and elderly care. But the model of the bank suggests that there are ways to deliver public goods more efficiently and a much lower cost. The current fight over the Export-Import Bank is illuminating not because of a cohort of Republicans is trying to kill it off, but because we should be looking to it as a model. The problem with the bank isn’t that it exists; it’s that so many more things like it do not.

This post originally appeared on Slate.

Featuring

Articles By This Author

The Envestnet Edge, May/June 2018 Video: Five (Investing) Rules To Live By The Envestnet Edge, March/April 2018 Video: Buy The Dips Video: No Place Like Home? Market Bias Perceptions and Realities The Envestnet Edge, February 2018 The Envestnet Edge, January 2018 Video: Raging or Aging: How Much Longer Will the Bull Last? Webinar Replay: 2018 Market Outlook The Envestnet Edge, December 2017 Video: Bitcoin, Bubbles, and the Bigger Picture The Envestnet Edge, November 2017 Video: Taxes are certain, but don't obsess about tax reform The Envestnet Edge, October 2017 Video: Time to stock up on growth or value? The Envestnet Edge, September 2017 Video: Time To Take A (Measured) Risk? The Envestnet Edge, July/August 2017 Video: Bitcoin: Buy Or Buyer Beware? The Envestnet Edge, June 2017 Video: FANG, FAAMG: Too Big a Bite of the Market? The Envestnet Edge, May 2017 Video: Invest "As If" The Envestnet Edge, April 2017 Video: What To Do In Quiet Markets The Envestnet Edge, March 2017 Video: Bull Or Bear: Should Investors Still Care? PMC Weekly Review - March 10, 2017 The Envestnet Edge, February 2017 Video: Separating markets from politics, is it really a "Trump rally"? The Envestnet Edge, January 2017 Video: Investing in Trump’s Economy? Proceed With Caution The Envestnet Edge, December 2016 Video: Have We Only Just Begun? The Envestnet Edge, November 2016 Video: Rotations, Reversals, Rising Rates: A Time to Reposition Post-Election, Will Markets and Portfolios Emerge Winners or Losers? Webinar Replay: Post-Election Winners and Losers The Envestnet Edge, October 2016 Video: In a 2-2-2 world, look for modest economic growth and expansion PMC Weekly Review - September 16, 2016 The Envestnet Edge, September 2016 Video: Diversification is working in 2016 (so far) The Envestnet Edge, July/August 2016 Video: Valuations: it's all relative Brexit: Plunging into the Unknown? The Envestnet Edge, June 2016 Video: Equity valuations and bond yields: reach no further PMC Weekly Review - June 17, 2016 The Envestnet Edge, May 2016 Video: Hitting singles: a measured approach for this investing season The Envestnet Edge, April 2016 Video: Investing with impact: increasingly a matter-of-fact Video: In this election cycle, will investors be winners or losers? The Envestnet Edge, March 2016 PMC Weekly Review - March 11, 2016 Video: In a low-growth world, less could be more The Envestnet Edge, February 2016 The Envestnet Edge, January 2016 Video: Markets are a mess, but don't jump to conclusions yet A Most Challenging Year Video: Interest Rates and Energy: The Highs and Lows of Year-End The Envestnet Edge, December 2015 The Envestnet Edge, November 2015 Video: We'll always have Paris The Envestnet Edge, October 2015 Video: Politics and the markets: déjà vu all over again? Video: China, Commodities, and Crisis: What's Next for Emerging Markets? The Envestnet Edge, September 2015 PMC Weekly Review - September 11, 2015 Is This The Big One (Financially Speaking)? Probably Not. The Envestnet Edge, August 2015 Video: In a "meh" market, look again at U.S. stocks The Envestnet Edge, July 2015 Video: Is this the Big One? What to do in a financial crisis Don't Worry About China Don’t Believe the Hype About Greece The Greek Catastrophe Is Finally Here (Unless It Isn’t) The Envestnet Edge, May/June 2015 Video: When Following the Herd is Risky, Where is the Safety? The Envestnet Edge, April 2015 Video: The End of Short-Termism is Long Overdue PMC Weekly Review - April 24, 2015 The Envestnet Edge, March 2015 Video: Keep Your Friends Close and Your Robo-Advisor Closer The Envestnet Edge, February 2015 Video: The Return of the Comeback: Is 2015 the Year for International Stocks? PMC Weekly Review - February 13, 2015 Why the Jobs Report Means Diddly Don’t Turn America Into Europe PMC Weekly Review - January 23, 2015 Video: Active and Passive: The Yin and Yang of Investing The Envestnet Edge, January 2015 Will Politics in 2015 Catch Up with the Economy? Video: Our Perspective on 2015: Maintain Yours The Envestnet Edge, December 2014 PMC Market Commentary: December 12, 2014 No, This Is NOT the '90s Economy Again PMC Market Commentary: November 14, 2014 Video: 2014 U.S. Midterms: A Win for Stocks? The Envestnet Edge, November 2014 Whose Economy Will It Be in 2016? PMC Market Commentary: October 17, 2014 Video: Special Video Commentary: Market Volatility and Fundamentals The Envestnet Edge, October 2014 Video: You Know What’s Not Sustainable? Ignoring the Opportunity in Impact Investing Don’t Panic! PMC Market Commentary: October 10, 2014 Greenberg’s Folly Naomi Klein Is Wrong PMC Market Commentary: September 26, 2014 Subprime Loans Are Back! The Envestnet Edge, September 2014 Video: When it Comes to Interest Rates, Who Says What Comes Down Must Go Up? PMC Market Commentary: September 12, 2014 Why Indie Bookstores Are on the Rise Again The Fed Is Not As Powerful As We Think PMC Market Commentary: August 22, 2014 Americans' Sour Mood on the Economy Doesn't Square with the Fact The Envestnet Edge, August 2014 Video: The World is in Crisis... the Markets are not PMC Market Commentary: August 8, 2014 PMC Market Commentary: July 25, 2014 Punitive Damages Video: Market Valuations and The Theory of Relativity The Envestnet Edge, July 2014 Don’t Kill the Export-Import Bank. Clone It. How India’s Economic Rise Could Bolster America’s Economy Video: Separating Risk from Reality PMC Market Commentary: June 27, 2014 No Sex Please, We're French PMC Market Commentary: June 13, 2014 The Envestnet Edge, June 2014 PMC Weekly Market Review, May 23, 2014 The Envestnet Edge, May 2014 Don't Bet on Rising Wages PMC Market Commentary: May 9, 2014 The Sharing Economy: Why Are So Many So Afraid? PMC Market Commentary: April 25, 2014 The Obsession with CEO Pay Won't Help the Middle Class PMC Market Commentary: April 11, 2014 Time to Face Reality: Our Unemployment Problems Are Structural PMC Market Commentary: March 28, 2014 In Defense of Relentless Optimism The "Made in China" Fallacy Forget GDP - Use Big Data