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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