Ideologues in Congress don’t understand how markets work
June 25, 2014 12:00 AM
By JOE NOCERA
In the real world, markets aren’t perfect.
If they were, you wouldn’t need Fannie Mae to play such a vital role in housing finance. You wouldn’t need government to fund research. And you certainly wouldn’t rely on an export credit agency to help promote American exports and create American jobs. Surely, the private sector can handle that.
And, indeed, in some 98 percent of American export transactions, the private sector does just fine. But then there’s the other 2 percent.
There’s the small business that wants to expand abroad but can’t find a bank willing to take a risk on a newbie exporter. There’s the midsize manufacturer for whom financing insurance by the government is a necessity — in large part because its competitors in other countries are able to offer prospective buyers government financing insurance. And there are big companies like Boeing that operate in a global industry where the assistance of an export credit agency is baked into the business model.
Our country’s export credit agency is called the Export-Import Bank of the United States. Last year, it helped 3,413 small companies start or expand their export business. It also helped Boeing land aircraft sales against Airbus. In the aftermath of the financial crisis, the Ex-Im Bank stepped in because banks had become skittish. It exists precisely because markets aren’t perfect.
Or as Douglas Holtz-Eakin, the prominent conservative economist — and president of the American Action Forum — put it to me Monday: “I share the belief that I would like to live in a world without the Ex-Im Bank. Unfortunately, that is not the world we live in.”
I wrote about the Ex-Im Bank two weeks ago because the bank’s late September reauthorization, which never used to be in question, was under serious assault by such ultraconservative groups as the Club for Growth, Americans for Prosperity and Heritage Action. They made the fundamentally ideological argument that the bank was putting taxpayers’ money at risk handling tasks the private sector was better equipped to handle. It is not true, but it made for a glorious Tea Party sound bite.
My assumption, however, was that cooler heads would prevail, and the Export-Import Bank would be reauthorized. That’s what happened in 2012, which was the first time the bank came under ideological attack.
On Sunday, however, that calculus changed. Kevin McCarthy, the California Republican who was elected to replace Eric Cantor as House majority leader, said on “Fox News Sunday” that “I think Ex-Im Bank is … something the government does not have to be involved in.” He added that he wouldn’t support reauthorization.
Two years ago, Mr. McCarthy did support reauthorization, and it is pretty obvious what transpired. In order to gain the votes of the Tea Party conservatives in Congress, Mr. McCarthy chose to sell American exports down the river.
Business is now up in arms. On Monday, the U.S. Chamber of Commerce and the National Association of Manufacturers held a conference call to decry the threat to the Export-Import Bank and promised a “full-court press” to get Congress to take up the reauthorization. The Wall Street Journal added fuel to the fire, reporting that four Ex-Im Bank employees had been removed or suspended amid investigations.
Meanwhile, Mr. Holtz-Eakin’s group, American Action Forum, has done some solid research knocking down many of the ideological arguments. For instance, the Ex-Im Bank’s opponents claim that the assistance given to Boeing is nothing more than “crony capitalism.” But Andy Winkler of American Action Forum notes that “Ex-Im’s activities reflect the structure of U.S. trade itself, supporting a large number of small and medium-sized exporters, but with the largest dollar volumes concentrated among large firms.”
Then there are small and medium-size exporters themselves. One former small businessman is Chris Collins, a freshman Republican whose district includes Buffalo, New York. Before being elected to Congress, he owned a company called Audubon Machinery Corp., which got a combination of guarantees and insurance from the Export-Import Bank worth $8.33 million between 2007 and 2014.
Needless to say, this made him the target of Heritage Action. But when I spoke to him Monday afternoon, he was completely unapologetic. Indeed, he was in the process of sending a letter, signed by 41 Republican congressmen, asking Mr. McCarthy and Speaker John Boehner to allow a reauthorization vote.
What he learned over the years, he told me, “is the importance of the Ex-Im Bank for companies with $10 million to $20 million in sales, like ours.” For instance, banks worry about accounts receivables from companies in developing nations. “A company can pay a fee to the Ex-Im Bank and get accounts receivable insurance. Without the Ex-Im, some of our business would be all but impossible.
“I was really caught off guard when Heritage went after me,” he said as our conversation was winding down. Then he added, “They must not understand what is required to be an exporter.”