The current occupant of the White House made quite a splash on his trip to India when he announced that 50,000 American jobs would be created thanks to $15 billion in U.S. export contracts. We’ll ignore Barack Obama’s grab at credit for these deals. Rupa Subramanya Dehejia of India Real Time notes, “The announcements were timed to coincide with the Presidential visit, but many of the deals were concluded well in advance. So no surprises there.”
What especially caught my eye about the trip was who accompanied Obama. The Khaleej Times reports:
Obama had also brought along with him the largest American business delegation ever to have accompanied a US president to a foreign country. A 200-plus star constellation of American business leaders and giants of the corporate world including Jeffrey Immelt of General Electric, Jim McNerney of Boeing Co, David Cote of Honeywell International Inc’s and Indian American Indra Nooyi, the CEO of Pepsico Inc.
That’s quite an entourage of heavy corporate hitters. But who was serving whom? Two things struck me as I read this: First, the corporate state is alive and well. And second, rumors of Obama being a Marxist bent on destroying capitalism are greatly exaggerated.
I wasn’t surprised to see Boeing on the list. Its association with the government has always been rather close. Boeing CEO James McNerney chairs the President’s Export Council, which is officially described as “the principal national advisory committee on international trade. The Council advises the President of government policies and programs that affect U.S. trade performance; promotes export expansion; and provides a forum for discussing and resolving trade-related problems among the business, industrial, agricultural, labor, and government sectors.” But I’m sure there’s no special pleading involved.
Incidentally, Air India has ordered 27 of the new 787 Dreamliners. Budget airline SpiceJet is buying 30 B737s. And the Indian Air Force wants ten C-17s.
Sign of Privilege
As a laissez-faire advocate, I am suspicious of this chumminess between government and business. It’s far too likely to eventuate in privileges for the favored at the expense of the taxpayers and the politically unconnected. Why can’t these big companies arrange their own export deals? Others seem to have no problem doing it.
I haven’t yet mentioned one important passenger on Obama’s flight to Mumbai: Fred Hochberg. He runs the Export-Import Bank of the United States, and his presence further illuminates the corporatist nature of Obama’s mission to India. The Ex-Im Bank is a taxpayer-backed agency that serves the needs of American companies seeking to export their products. The official mission statement notes, “Ex-Im Bank provides working capital guarantees (pre-export financing); export credit insurance; and loan guarantees and direct loans (buyer financing). No transaction is too large or too small.”
Whenever this agency facilitates the financing of a company’s exports, one of two things must be true. Either the deal could have been financed without taxpayer backing, as most exports are, or it couldn’t. If it could have been privately financed, then why were the taxpayers exposed unnecessarily? A political agenda is at work.
If a project couldn’t find private financing, isn’t that a sign it was flawed and should have been dropped? Who’s better at separating investment wheat from chaff, the capital markets in which investors have their own money at risk, or unaccountable bureaucrats who may have a special-interest program in mind? (Of course, today’s capital markets are hardly freed markets, with all the government protection from competition and failure, but they should be.)
Ex-Im’s defenders will counter that the taxpayers seldom have had to make good on a bad deal and that other countries subsidize exports. But that’s not the whole story. Even when loans are repaid, the intervention distorts economic activity. Capital is scarce. So the company benefiting from a government loan guarantee has an unfair advantage over those venturing into the capital markets without a safety net. We’ll never know what we’ve had to forgo because resources were politically diverted to an Ex-Im client. Playing favorites and picking winners are signs of industrial policy, another name for the corporate state. This is not the free market.
The Ex-Im Bank is behind at least some of the Indian deals. In a virtual advertisement for the bank at the Huffington Post, Hochberg bragged about attending the meetings in Mumbai, saying, “As part of these meetings, the Export-Import Bank of the United States signed a Memorandum of Understanding — totaling more than $5 billion in financing support — that will create or sustain approximately 22,000 American jobs, while not costing the American taxpayer a dime.” That financing support will help General Electric, a major government contractor, sell gas turbines to India’s Reliance Power.
Hochberg added that the Memorandum “signals to American companies — both large and small — the tremendous opportunities available in this critical Asian market — and it informs Indian companies that the credit is there to buy our products and services.”
Translation: Come on in the taxpayer-financed pool. The water’s fine! (But make sure you have the right connections.)
When I see Boeing’s name, I immediately think of the Ex-Im bank. It’s long been known as “Boeing’s Bank” because it has backed so many of the company’s aircraft deals. (Enron was a big client too. It even got loans to buy things from itself!) A Pew Charitable Trusts Subsidyscope analysis last year found, “In FY2007 and FY2008 combined, Ex-Im issued $15.3 billion in long-term loan guarantees. Of that total, almost $10 billion, or an average of 65 percent, went toward the purchase of commercial aircraft made by the Boeing Company, the world’s largest manufacturer of commercial jetliners and military aircraft combined.”
It must be nice to have virtually your own taxpayer-backed finance agency.
The Ex-Im Bank grows out of the mercantilist belief that the wealth of nations is determined by a “favorable balance of trade.” Therefore the level of exports is crucial and government promotion is paramount. All balderdash, of course. In reality mercantilism functioned as a cover for polices that catered to special business interests at others’ expense. It’s time we got rid of the bank.