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NY Times, June 19 2014
Why We’re All Crony Capitalists, Like It or Not
by Neil Irwin
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 Prosperity directly 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.
Bigger companies — the Boeings and G.E.'s of the world — have access to
the huge global banks that are used to dealing with those types of
risks. But America’s corporate giants have to fight for business against
competitors that benefit from advantageous, government-subsidized trade
finance. Boeing might have plenty of access to capital from Citigroup or
JPMorgan to help its customers finance airplane purchases, yet it has to
fight for business against Europe’s Airbus, which is aided by subsidized
loans from Europe’s equivalent of the Ex-Im Bank.
And there’s the rub for those who want to shut down the Ex-Im Bank. It’s
all well and good to assail crony capitalism and to say that taxpayers
shouldn’t be subsidizing private industry. But it also would amount to
unilateral disarmament on the international stage, essentially putting
American exporters at a clear disadvantage compared with European and
Asian competitors.
More broadly, the debate over the Ex-Im Bank exposes an uncomfortable
truth about global capitalism. As much as a purist might believe there
exists some state of nature in which governments neither subsidize nor
obstruct business, and capitalism represents a pure survival of the
fittest, that isn’t the world we actually live in.
The terms of global trade are determined by high-stakes negotiations
between countries over tariffs, market access and common regulatory
standards. Tech companies spend vast sums obtaining and defending
patents, which are essentially a state-granted monopoly granted to the
first one to invent something. American diplomats fight for the
interests of American oil companies, among other industries, in their
interactions with foreign governments.
And the banks that would be expected to fill the vacuum of providing
trade finance if the Ex-Im Bank were disbanded were themselves bailed
out on a vast scale in 2008, and continue to be intensively regulated.
Here’s a delicious irony: One of the leaders of the push to shut down
the Export-Import Bank is Delta Air Lines, which doesn’t like the fact
that international competitors are able to buy Boeing airplanes more
cheaply thanks to American taxpayers.
“The bank hurts Delta in a very serious way,” the airline’s chief
executive, Richard Anderson, told The Seattle Times in an interview this
week. “Our tax dollars are being used by the U.S. government to
subsidize our foreign competitors to take jobs from the U.S.”
In his mind, it boils down to “the government picking and choosing
between industries in our country.”
That, of course, would be the same Delta Air Lines that was bailed out
by the federal government after the Sept. 11, 2001, terrorist attacks,
transferred its pilots’ pension obligations to the federal Pension
Benefit Guarantee Corp., and which to this day benefits from rules that
strictly prohibit foreign air carriers from competing with Delta by
flying routes within the United States.
There’s a principled libertarian case to be made that this world we live
in of big companies and big governments working hand in hand stifles
competition and makes consumers worse off. It is less clear that the
current push to get rid of the Export-Import Bank would do much of
anything to change that.
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