The new, tea-infused GOP has been training its rhetorical sights on "crony capitalism," the chummy relationship between government and the private sector that breeds subsidies and regulatory favors. Indeed, some Republicans seem to think crony capitalism is at play whenever government helps business, for whatever reason. That's bad news for the Export-Import Bank, a federal agency that helps U.S. companies attract customers overseas by absorbing risks that private lenders won't touch.
Governments regularly intervene in markets in the name of public safety, economic growth or consumer protection, drawing squawks of protest whenever one interest is advanced at the expense of others. But a policy that's outrageous to one faction — for example, the government subsidies for wind, solar and battery power that have drawn fire on the right — may in fact be a welcome effort to achieve an important societal objective. What's truly crony capitalism is when the government confuses private interests with public ones. A good example is when defense contractors persuade lawmakers to order the Pentagon to buy weapons systems that military officials don't want.
The Ex-Im Bank, by contrast, doesn't pick winners and losers when it helps finance sales of U.S. products to foreign buyers. Instead, its help — including loans, loan guarantees for foreign buyers of American-made goods and insurance against buyers defaulting — is available to any U.S. exporter of American goods who shows that private banks won't provide financing on terms that allow them to compete with foreign manufacturers. The Ex-Im charges exporters less than a private lender might, which makes its aid a sort of government subsidy. But it hasn't cost taxpayers — at least not yet — because it has generated more in fees than it has lost on defaults.
The vast majority of the deals financed by the Ex-Im involve small U.S. exporters who say they can't interest private banks in financing their sales on affordable terms, either because the dollar amounts are low or because the buyer is in a developing country. In many cases, these are companies that need funding to ramp up production to satisfy big new orders overseas, or that don't have enough reserves to cover the risk of a foreign buyer not paying for the goods.
Some critics say the government shouldn't take on financial risks that private banks aren't willing to take. But the smaller banks that serve small exporters often rely on Ex-Im guarantees because they don't have relationships with the foreign buyers, and so have trouble judging how risky a transaction might be. Without the Ex-Im as a backstop, many of those deals would evaporate for lack of financing. Congress might accept such a result in a fast-growing economy, but it shouldn't do so now.
If having government help big industrial players fend off unfair competition is just too galling for Congress, there are ways to limit aid to those companies without abandoning the thousands of small exporters that also benefit from the Ex-Im's presence. In the meantime, though, Congress should reauthorize the Ex-Im Bank so it can continue its work on behalf of the U.S. economy, and lawmakers should find a better target for their newfound ire against crony capitalism.