The sleepy, little-known U.S. Export-Import Bank is having an uncomfortable moment in the spotlight. The bank, a federal agency that finances and insures foreign governments’ and corporations’ purchases of American exports, is due for congressional reauthorization this fall. For most of its history, Congress has reauthorized the Ex-Im bank without controversy. But it has become a political lightning rod amid accusations that it’s an instrument of crony capitalism — a way for well-connected domestic companies to receive federal subsidies at the expense of competitors and taxpayers. A chorus of libertarian and ultraconservative Tea Party Republicans are making reauthorization a litmus test, framing the bank as “corporate welfare” abetted by the Republican establishment. The fight over reauthorization has taken on greater urgency since House Majority Leader Eric Cantor, a key supporter of the bank, improbably lost his Republican Party primary in June in what was billed as a Tea Party-versus-establishment battle. Indeed, after his loss Boeing — a large beneficiary of Ex-Im funds — took a tumble in the stock market on fears that Ex-Im’s survival has been imperiled.
The accusation of crony capitalism is a powerful one. In the age of trillion-dollar corporate bailouts, it’s not hard to see why that accusation resonates with many U.S. voters. However, the debate over whether the bank represents “crony capitalism” illustrates a major point of confusion about what crony capitalism is, obscuring actual steps that could be taken to address the problem. The public debate about crony capitalism should focus not simply on where government and business intersect, but on when that intersection implicates the kinds of traditional corruption — such as bribery, bid-rigging, special treatment, and conflicts of interest — that distinguish crony capitalism from government’s legitimate if controversial engagement with the private sector. Without focusing on the actual corruption that gives rise to crony capitalism, those trying to fight it are aiming at the wrong target.
Let’s begin with an overview of the accusations. Some mainstream commentators admit that the charge of crony capitalism at Ex-Im “has a lot going for it.” Indeed, President Obama, when he was a candidate for President, singled out the bank as “little more than a fund for corporate welfare.” And the optics of Ex-Im as the “Bank of Boeing” can be hard to dispute when Pew releases reports noting that over a two-year period, 65% of the bank’s funding went to support foreign purchases of Boeing’s planes. Meanwhile, some major American businesses argue that Ex-Im is not just benefiting certain companies but also actively hurting others. One famous example is the U.S. airlines’ argument that by subsidizing the purchase of Boeing jets by foreign airlines at costs below what American airlines pay, the bank is effectively subsidizing U.S. airlines’ foreign competition with taxpayer dollars.
The bank’s supporters have countered with two rhetorical strategies, neither of which really denies the charges of crony capitalism.
First, most claim that regardless of crony capitalism, the bank is necessary — a sort of defensive crony capitalism (although they do not use that exact term), meant to help American export giants hold their own against foreign, especially European competitors who are buoyed by their own nations’ Ex-Im equivalents. Twenty-nine governors, including nine Republicans, recently sent a letter to congressional leadership arguing that Ex-Im helps American companies “compete on a level playing field” made un-level by foreign nations’ export credit agencies. Larry Summers recently argued in the Financial Times not that Ex-Im isn’t crony capitalism, but that closing down Ex-Im would “be the economic equivalent of unilateral disarmament.” Such rhetoric basically concedes that Ex-Im is an unfortunate, even dangerous thing, while insisting that it’s necessary.
Second, rather than justifying the alleged crony capitalism as a defensive necessity, some embrace the term but attempt to dilute its negative association — as the New York Times’s Neil Irwin did when he declared “we’re all crony capitalists, whether we like it or not.” On this view, “how modern economies really work” is that “big business and big government are inevitably intertwined in ways that believers of free markets may not like — but may not be able to avoid.” Such a tu quoque defense also concedes to charges of crony capitalism, but declares crony capitalism the new world order that everyone is engaged in all the time.
Both of these lines of defense miss something important about crony capitalism, and obscure measures that could actually be taken to ameliorate the real crony capitalism problem. As I have pointed out in the past, crony capitalism is very difficult to define, measure, and compare. But at its core, crony capitalism is when corruption — in the form of bribery, bid-rigging, self-dealing, conflicts of interest, special treatment, etc. — gives rise to the appropriation of public resources for private gain. Expanding the definition to encompass any overlap between business and government, as both proponents’ strategies implicitly do, drains the term of any usefulness.
But this critique isn’t just about definitions: it affects the actual remedies the parties pursue. A view of crony capitalism that extends to any business-government nexus transforms the debate about crony capitalism into simply a debate about the role of government in industry — a debate about whether something like the Export-Import Bank should exist or not. But there’s a very important middle ground that such a debate obscures: that the nexus between government and industry should be policed for corruption, rather than eliminated. If Ex-Im’s critics believe it to be engaged in crony capitalism or corruption, such as treating companies like Boeing with favoritism, then they should produce evidence of it. Dismantling an agency because it could include corruption is an awfully inefficient way of attacking the problem of crony capitalism.