Democrats have made political hay in recent years painting Republicans as the party of big business enablers, who prioritize taxpayer funded subsidies for corporation welfare at the expense of average Americans. But the dirty little secret is that Democrats may not be pro-business, but they are big on cronyism, at least insofar as it benefits them politically.
“I’ve sad this to [Chamber of Commerce President] Tom Donohoe and others: In many ways mainstream Democrats are closer to you than many Republicans because the tea party has pulled them so far to the right,” Sen. Chuck Schumer, D-N.Y. said recently. “They’re doing what’s harmful to business.”
What Schumer would call “harmful to business,” Republicans would call beneficial to everyone without preference for anyone. But Democrats have made a political calculation that some corporate welfare streams, if defended quietly, could be enough to fill their campaign coffers.
Chief among those streams is the reauthorization of the Export-Import bank, a multi-billion slush fund whose purpose is to offer cheap loan guarantees to foreign companies in the hope of boosting exports from the U.S. A quick glance at the data shows how pretentious this hope really is.
In 2013 almost three fourths of Ex-Im largesse was spent for the purported benefit of ten large companies with recognizable names like Boeing, General Electric, Dow Chemical and Caterpillar. Which of those companies lacks the market capital or creditworthiness to pursue loan guarantees from private credit markets? And as Dominique de Rugy writes for The Daily Beast, these companies’ customers aren’t poor either:
For instance, the bank subsidizes wealthy foreign borrowers—like mining heiress Gina Rinehart, owner of the Ex-Im-financed Roy Hill Iron Ore Mine and Australia’s richest woman. She could easily find private capital without government privileges. It also subsidizes numerous state-owned companies in wealthy countries like Saudi Arabia and fast-growing airlines (PDF) like Lion Air and Air Emirates.
Maybe more interesting is the fact that the biggest beneficiary on the foreign buyer side is a company named Pemex. It is a super gigantic Mexican state-owned petroleum company with a market capitalization of $416 billion. And yet it has benefited from $7 billion in U.S.-taxpayer-backed financing since 2007.
And since there is a relatively limited pot of Ex-Im funds, many domestic manufacturing companies are put at an economic disadvantage when a competitor receives the taxpayer-backed, risk-free funding. In effect, the government is picking winners and losers among domestic manufacturing by subsidizing some and not others.
Domestic competitors aren’t the only losers, there’s also the U.S.-based competitors of the foreign customer. For instance, last year Delta Airlines rightfully complained when the Ex-IM bank financed Boeing’s sale of planes to foreign carriers in India, Saudi Arabia and elsewhere. The problem in Delta’s mind was that the lower borrowing costs enabled Air India to reduce ticket prices on international routes that directly competed with Delta’s foreign routes. One recent Cato Institute study found that these downstream industry costs, which could be accurately described as a tax, amounted to $2.8 billion every year.
It would be one thing if all of these billions of taxpayer dollars were doing some good, but they’re not. The government’s chief auditor reported that the programs “largely shift production among sectors within the economy rather than raise the overall level of employment in the economy.” And even Ex-Im’s biggest beneficiaries are ready to admit that they will happily take, but don’t really need the help. Boeing has even said that they could “arrange alternative financing” without taxpayer-subsidized loans.
Despite the facts, Democrats, with Hillary Clinton as their figurehead, are now lining up to support the Ex-Im bank, whose funding will run out on June 30.
“Most of the big countries we compete against, they subsidize their businesses to be able to export overseas,” Clinton told a group of New Hampshire voters. “The idea we would remove this relatively small but vital source of funding for our businesses to compete is absolutely backwards.”
Absolutely backwards. Funny hearing that from Democrats who swear they are the party standing up for average citizens. As it turns out, they’re the biggest proponents of corporate welfare, they’d just prefer to hide it under the label of Ex-Im funding.