Foreign and Defense Policy

Expand the Ex-Im Bank

Image Credit: shutterstock

Image Credit: shutterstock

Corporate welfare in the defense of liberty is no vice.

Apparently to prove that he’s no Eric Cantor, new House Majority Leader Rep. Kevin McCarthy has taken aim at the US Export-Import Bank, long a bête noire to libertarian economists. The bank’s congressional authorization expires in September, and the ability to cobble together a deal that would pass the House – which Cantor did two years ago – may have died with Cantor’s primary defeat.

The Ex-Im Bank’s critics live in the world of homo economicus. They say that financial markets are perfectly capable of pricing the risk associated with, say, selling Boeing Dreamliners to Nigeria. They assert that the quality of Boeing’s airplanes – or US-made goods more generally – is so high that the loss of government-backed credit won’t hurt sales that much. They shrug and further say that, when the Nigerians then quite rationally buy planes from Airbus, the geopolitical effect is insignificant.

But in the world as we know it – that is, the one where humans aspire to be powerful even more than they aspire to be rich, and military power, not wealth, is still the ultima ratio regum, the United States ought not to kill the Ex-Im Bank but to restore its previous and larger scope. The problem with the bank is not that it underwrites commercial sales, but that it no longer backs the sales of arms.

Back in the 1960s – when the Cold War was at its chilliest and America was worried about the stability of the “Third World” – the Ex-Im Bank provided a very useful mechanism for enhancing the military capabilities of poor and weak allies. The bank underwrote about $2 billion in sales from 1962-7, which was a lot of money back then. Even today that’s a lot for a “developing” state. Indeed, the Congress was so concerned about the expansion of US arms sales that in 1968 – at the height of the Vietnam War – it revoked the bank’s ability to finance such sales to developing nations. That still allowed slightly richer clients to get Ex-Im financing, but when the Shah of Iran, who had used the bank to buy F-14 fighters, was deposed, Congress got the Ex-Im Bank out of the defense trade altogether.

While the bank has continued to encourage civilian commerce, the Pentagon has had to make due exclusively with either direct giveaways of old US equipment or on a very unwieldy program of “Foreign Military Sales” and its even more cumbersome finance arm, the Defense Export Loan Guarantee Program, created in the mid-1990s. A Government Accountability Office described the defense loan program as simply modeled on the Ex-Im Bank, but “lacking the scale or depth of financial expertise.” The worst thing about the defense loan program is that it only applies to our richest and best allies – NATO Europe, Israel, Japan, South Korea, the ones who can most afford to finance arms purchases on their own – and does nothing for real at-risk states in Africa, Latin America or the Middle East. The FMS-DELG duo has hampered, not helped the Pentagon’s security “partnering” efforts. In today’s environment, and particularly when China aims to replace Russia as the alternate, non-US source of front-line military equipment, the United States government needs a bigger, better and more aggressive export credit agency. The Congress should rejuvenate, not exterminate, the Ex-Im Bank.

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9 thoughts on “Expand the Ex-Im Bank

  1. Please explain the difference between ExIm, currently in the news as a cesspool of corruption, which the AEI supports, and tax credits for movie production which the AEI opposes.

  2. In fiscal 2013 the bank authorized $6.9 billion in direct loans. The three biggest totaled $3.9 billion and were to BG Energy, Reliance Industries and Global Foundries. The suppliers were Bechtel, Flour, Conoco Philips and Applied Materials.

    To suggest any of these parties need help with financing is deceptive as it is deceptive to suggest the Bank’s main business is helping small vendors export.

    The bank is corporate welfare for big business and it should be shut down.

    http://bipartisansoapbox.blogspot.com/2014/06/the-recipients-of-ex-im-bank-largesse.html

  3. O.K. Mr. Donnelly, the ball is in your court. Until you can come up with a viable response to Mr. Armstrong’s and WP Knabe’s replies, I will have to side with them.

  4. Here’s the point: government-backed loans that aid America’s front-line allies are qualitatively different than helping them stay current in popular culture. Movies are more likely to lead to license than protect liberty. All subsidies are not created equal.

    • I was hoping for a more detailed and poignant response as I will fully admit I don’t know much about the IM Bank and it’s functions but. Topically it seems like an idea whose time has passed and needs to be shut down. If you’re suggesting to keep it around and limit the function to just arms sales and boosting up foreign allies I could maybe climb on board but you don’t state that in your article. Nor did you address the inbred corruption that we are only now just hearing about and will continue to prosper without sever restraints.

  5. Surely you jest. Are your seriously suggesting that Boeing’s selling a Dreamliner to a Japanese airline, ANA, is an aid to “a front line ally.” I didn’t realize the Dreamliner was a war plane. I thought it was a flying movie theater, which offers its passengers a view of those movies that “lead to license.” And Delta Delta Airlines, an American carrier, which doesn’t get the benefit of the guarantee, doesn’t think much of Ex-Im either. Delta has to be more “front line” than ANA

  6. Surely you jest. Are your seriously suggesting that Boeing’s selling a Dreamliner to a Japanese airline, ANA, is an aid to “a front line ally.” I didn’t realize the Dreamliner was a war plane. I thought it was a flying movie theater, which offers its passengers a view of those movies that “lead to license.” And Delta Airlines, an American carrier, which doesn’t get the benefit of the guarantee, doesn’t think much of Ex-Im either. Delta has to be more “front line” than ANA

  7. Mr. Donnelly, you present a fair argument for improving and expanding FMS-DELG. But I don’t see anything in your reasoning that warrants support for Ex-Im. Arms sales to allies may thwart enemies and may advance the security of the US. But it doesn’t follow that liberty is in anyway protected. History shows that many allies are no friends of liberty.

  8. That’s pretty high-larious, I’d say. This Donnelly fella’s sarcasm is so out-there that none of the commentators get it- its a joke- a joke, fer cryin out loud. C’mon folks – just cause we’re conservative or libertarian, doesn’t mean we can’t have a good laugh ;}
    (Idi Amin woulda loved this!)

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