There are two kinds of companies who receive corporate welfare from Washington: successful businesses that don’t need it, and unsuccessful companies that don’t deserve it.
Everything else you hear from politicians when corporate welfare comes up – rhetoric about public-private partnerships, about matching Europe’s subsidies of foreign competitors – is a mere distraction from the truth: They are mortgaging our children’s and grandchildren’s future to subsidize the politically connected.
This was the case with Solyndra, the infamously bankrupt solar-panel manufacturer who turned close political ties to the Obama Administration into more than $500 million in sweetheart loan guarantees.
It was the case with the auto bailouts, in which President Obama repaid the massive contributions union bosses made to his 2008 campaign by bailing out and then handing over to them two free car companies.
It has also been the case with taxpayer subsidies to Enron, Fannie Mae and Freddie Mac, General Motors and Chrysler, Wall Street -- and even Greece! Washington bailouts and subsidies don’t make industries stronger. They pick winners and losers, create unintended consequences for American workers, and often end in expensive failures.
The push to reauthorize and increase the Export/Import Bank is the latest example.
Ex-Im, as it is known, is a federal program that gives politically appointed executives power to lend mainly to foreign companies that buy American products and services. Started decades ago with a lending cap of $5 million, like all federal programs its grown over time and now has a taxpayer subsidized $100 billion cap. Senate Democrats want to further expand it by 40% to $140 billion. Ex-Im also has specific mandates to subsidize politically-popular causes like green energy.
What’s wrong with this? In principle, it’s wrong because all companies – foreign and domestic – should compete on a level playing field, so that success goes to those companies who offer the best products and services at the lowest prices.
In free market finance, we all benefit as businesses compete for investment that follows those with the best innovations, highest quality, at a price buyers are willing to pay.
Not so with government-run finance where funding decisions are made more often based on politics instead of economics. That’s why corporate welfare is so inefficient.
It was just this kind of political mischief that spurred banks to make subprime mortgage loans and led General Motors to make an unpopular, expensive, flammable electric car – all the while putting taxpayers on the hook for the losses.
It also explains why Ex-Im has financed over $10 million in loans benefitting Solyndra before it went bankrupt and even financed over $600 million in loans to Enron projects before Ken Lay went to prison. In 2010, General Electric made $150 billion in profit, paid no corporate taxes but was helped by over $1 billion in Ex-Im loans that same year. Ex-Im even made loans worth hundreds of millions of dollars to a solar company to sell solar panels -- to itself.
But more importantly, this is why corporate welfare is so unfair. For every company that benefits, there are a dozen competitors who suddenly find themselves at a disadvantage in the marketplace.
It’s no surprise then that Ex-Im’s loans have come under increased scrutiny for hurting thousands of jobs in the American airline industry. In fact, Ex-Im is required by Congress to conduct reviews on how their loans to foreign companies could endanger American jobs, but in over 90% of the loans, these reviews are never performed.
And what’s worse, Washington sends competitors the signal that the easiest way to get ahead isn’t to make better companies, but to lobby Congress for special taxpayer benefits.
And so a vicious cycle emerges. Washington's attempt to centrally manage the economy only transfers wealth from taxpayers to corporations, it takes those corporations’ eye off the ball, dulling our economy’s competitive edge and slowly making America less and less competitive in the increasingly competitive global market.
Is it fair that foreign countries subsidize their companies? No. But, America didn’t become the world’s strongest economy by trying to out-socialize Europe, and we won’t win the future by picking winners and losers with taxpayer dollars. The American way to address subsidized foreign companies is to beat them in the free market.
If foreign competitors can’t get by without subsidies, it means they can’t compete with our best. And if we’ve reached the point where America admits that our best can’t beat theirs, all the subsidies in the world won’t save us.
Congress should stop the corporate welfare gimmicks and get serious about our real problems. America now has an unsustainable $15 trillion debt and soon the developed world’s highest corporate tax rate, economic anchors dragging our economy down that cannot be remedied by taxpayer subsidies for a few industries. If the President and Democrats in Congress really want to help American companies to compete globally, they’ll help Republicans reform the tax code, reduce burdensome regulations, and repeal Obamacare that is crippling businesses and will bankrupt our nation.
In a free market, all businesses are equal, and everybody wins. In a crony capitalist market, some businesses are more equal than others, and before long, everyone loses.
Jim DeMint is a Republican U.S. Senator from South Carolina.