Prominent Dutch blogger Stän Veuger argues at The National Interest that while “private gains and socialized losses” are generally undesirable, they are salutary in the world of exports.
Dr. Veuger, my valued colleague at the American Enterprise Institute, weighs into our *intramural debate over the Export-Import Bank defending Franklin Roosevelt’s creation as “a federal-government program of at most negligible cost that helps” the businesses it subsidizes. That could also describe Solyndra-type loan guarantees, the ethanol mandate, the sugar program, eminent domain for corporate gain, oppressive occupational licensing programs, food-truck bans, light-bulb bans, taxi-protectionist legislation, and many of the worst forms of corporate welfare. Low direct cost to taxpayers and clear benefit to the politically favored are hardly compelling defenses of industrial policy.
Veuger, who otherwise embraces free-enterprise arguments, attempts to distinguish Ex-Im from other forms of corporate welfare by pointing to the unique difficulties of international trade. Ex-Im, he writes, “compensates to some extent for the barriers imposed by borders, for the rules and regulations that differ widely from country to country, and for the imperfections of the rule of law once trade crosses national boundaries.”
You can almost hear the EU anthem striking up behind the good Dutchman as he curses borders and national differences. With just enough taxpayer loans to state-owned Chinese banks and loan guarantees to petro-state royal families, why, Alle Menschen really could werden Brüder …
In the real world, obstacles and risks exist. These obstacles and risk show up in the prices of some goods and services. For instance, your rent includes the landlord’s calculated risk of non-payment. When you buy a cheap good, you’re being compensated for the risk the thing will break. The people involved in these trade of goods and services often wish the risk didn’t show up in the prices. So, in the realm of exports, Veuger volunteers the American taxpayer to bear the risk. Alstublieft!
Veuger also asserts that “the kinds of loans and guarantees provided by the Ex-Im Bank are highly effective.” His proof:
This echoes the most common defense of Ex-Im, even from Americans: The U.S. ought to be more like Germany. But Veuger’s “evidence” is less than compelling. He points out that firms receiving export subsidies increase jobs. This isn’t surprising. Here’s a more telling piece of evidence, from the same researchers studying Germany’s export subsidies:
The researchers write that “about 3 percent of exports are covered” by German Ex-Im-type subsidies and that “[t]he trade creation due to Hermes therefore amounts to at most 0.52 percent of total German exports.” That means that most German export subsidies subsidize exports that would have happened anyway.
So, the taxpayer-backed export financing does boost exports, but that export-enhancing effect is drowned out by the free money it hands to German exporters, their foreign buyers, and the private banks financing the deals. Now we have the government allocating wealth around the economy, instead of letting the market do the allocating. The result is more jobs for subsidized exporters and fewer jobs for everyone else.
German taxpayers may be willing to pay economically inefficient rents to their exporters. Americans tend to feel differently about such unearned transfers to the politically connected.
