MONEY The Economy

The Capitalist Argument for Renewing the Export-Import Bank

While this bank is a government agency, it levels the global playing field and promotes U.S. jobs.

Having excoriated big-government liberals and tax raisers, the Tea Party has now set its sights on the Export-Import Bank.

To the anti-government Tea Party movement, the bank is just one more government intrusion into things that private parties can do for themselves.

Created in 1934 by President Franklin D. Roosevelt, the Export-Import Bank is a U.S. government agency that lends money to foreign buyers to help them purchase our airplanes, computers, and other goods and services. Since 1945, its charter has been subject to periodic renewal by Congress. The latest renewal runs out in a couple of months.

In the vast majority of cases, the loans are paid back in full, with interest. Last year the default rate on loans the bank made was about 0.2%. The bank earned about $1.06 billion for the federal Treasury.

The bank is not supposed to compete with private lenders; therefore, it specializes in higher-risk loans that private institutions are unlikely to make. Over the years it has financed many large projects, including the Pan American Highway that runs from Alaska to Chile. It was involved in the Marshall Plan after World War II, and in the rebuilding of former Soviet countries after the fall of the Berlin Wall.

Who Benefits?

The purpose of the bank is not primarily to help the countries to whom money is lent. It’s to enable them to buy our goods and services, and therefore to create jobs in the U.S.

Between now and September, the reauthorization deadline, the Tea Party will be arguing that the main beneficiaries in the U.S. are big companies that don’t need help.

When you look at the organizations now lobbying for a renewal of the Export-Import Bank, it might appear that the Tea Party has a point there.

Among the organizations that have been speaking up on behalf of the bank are Boeing, General Electric, the U.S. Chamber of Commerce, and the National Association of Manufacturers.

At this moment, the battle is too close to call. In the Senate, sentiment appears to favor renewal of the bank’s charter. In the House, there is a good chance that the majority will vote for its abolition.

Competitive Landscape

My biggest disagreement with the Tea Party here is that it doesn’t make sense to be an ideological purist and think only in terms of the U.S.

Foreign companies such as Airbus receive a variety of subsidies to help them compete internationally. The Export-Import bank provides an indirect subsidy to U.S. manufacturers, helping their customers afford our goods and services.

Why should the Tea Party attack an institution that evens the playing field, helps to create jobs in the U.S., and makes money for the Treasury?

Harry Reid (D., Nev.), the Senate majority leader, is talking about a short-term reauthorization of the bank, tied to a bill that would fund the government past September 30 — again, for the short term.

A more statesmanlike solution, I’d say, would be to extend the bank’s charter for at least another three years, as Congress has done 16 times before. The most common extension period has been five years. That’s what the administration has asked for this time, and that’s what Congress should do.

John Dorfman is chairman of Thunderstorm Capital LLC, a Boston money-management firm. He can be reached at jdorfman@thunderstormcapital.com.

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