The Export-Import Bank of the United States provides loans and loan guarantees to businesses when other financing is not available. The bank’s charter will lapse on September 30 unless Congress acts. Business groups are concerned about the possible demise of the bank. Dennis Hoffman, director of the L. William Seidman Research Institute at the W. P. Carey School of Business at Arizona State University, will talk about what the bank does and its importance.
Ted Simons: The Export-Import Bank of the United States is designed to boost U.S. Business interests overseas, but the bank's charter expires at the end of September, and business groups are concerned that Congress will refuse to reauthorize the agency. Dennis Hoffman is Director of the Seidman Research Institute at ASU's W.P. Carey School of Business. He's here to talk about what the bank does and its impact on the economy. What does this bank do?
Dennis Hoffman: Well first Ted, this is great. This is, you know, the fight du jour. At least it's not the debt ceiling this time. I think this is an important issue to some businesses, but whether or not this bank stays or goes is a far different issue than some of the recent debates we've had. You know, on the side of getting rid of this bank. Let me back up. The bank really is designed to provide credit for these export-based transactions that take place. Trade depends upon credit. You know 98% of this credit comes from the private sector. Only 2% comes from this bank. But yet it remains controversial. Those folks want to get rid of it and they range from Ralph Nader to the Tea Party, by the way. There's a strange union, but they want to get rid of this because they don't support big businesses, they see that this bank supports two primary businesses in the U.S. and that's Caterpillar and Boeing, although there's a vast array of smaller businesses that also are supported.
Ted Simons: Correct me if I'm wrong here, but looking into this it sounds like it subsidizes already subsidized foreign government buyers, is that remotely in the ballpark?
Dennis Hoffman: Well possible, possibly you could think of it that way. So therefore, it's redundant, you know get rid of a little bit of g, that means a little less government, taxes can go down, yadda, yadda, yadda. The challenge with that particular argument and that is what's advanced by those who want to get rid of it, is this is a competitive environment. And you will be ceding some jobs to foreign governments that don't get rid of their export financing subsidies and that would be places like Japan, Korea, you know, to some degree Europe does this, although Europe and the U.S. have this mutual agreement around airlines in terms of their domestic markets. But nonetheless, there will be some job loss here in the U.S. if Boeing and Caterpillar don't get this break.
Ted Simons: Have we seen job losses just because of the debate regarding reauthorization?
Dennis Hoffman: Well, probably not. I don't think -- you know, I don't think it's reached that level and I think that markets will find a way. So if Caterpillar and Boeing lose this subsidy, then they're going to have to take it out of their employees, they're going to have to take it out of their returns to their shareholders or they're going to have to find some alternative means of financing.
Ted Simons: I've heard it called cronyism. And I've also heard it say cronyism and really not all that effective. Valid?
Dennis Hoffman: Well, you know, the incentives are everywhere and people have to understand this. I'm told that Texas has the best tax structure and that's why all businesses move to Texas. Well, they also have the biggest incentive fund. It's $20 billion. Texas' incentive fund annually is almost as big as the entire U.S. Export-Import Bank. So, you know, these are -- these are big deals, incentives are at play and we would like to say in a perfect world we could get rid of crony capitalism but it's a tougher game to play if you're the first one to get rid of it.
Ted Simons: Well with that in mind, we talked about what the critics say. Supporters, including President Obama, who wants to extend that charter I think five years and he wants to increase the amount that the bank can lend. What would be the impact of that?
Dennis Hoffman: Well, if it's used strategically to promote exports in this country and, by the way, we have not done that aggressively like other countries have. It could be job-growing. It could be economy-enhancing but you do have to figure out optimal ways of doing it. I'm hearing, you know, arguments around picking certain industries. Well, we want to only support small businesses. Well, we only want to support those businesses that are friendly to the environment. You know, now you've got even a second level of government intervention here. You know, to me a job is a job. If it's a job at a begin business or if it's a job at a small business. You know, Boeing obviously is very important in this state, although not a division that relies that much on the Export-Import Bank. But big businesses are important to the labor market picture Tucson without Raytheon for example, the big businesses are very important.
Ted Simons: So we've gotten one side saying kill it, the other side saying extend it and give it more money to work with. Are there reforms somewhere in the middle that could make it at least most folks happy?
Dennis Hoffman: There could be compromises I think that you would want to look at this and make sure that there's not, you know, dirty dealing here somewhere or, you know, people are getting undue benefits, that there is definitely a need. I think you can get into the data with Caterpillar, for example. If caterpillar doesn't get this incentive on selling goods to China, will Korea and Japan actually be able to compete, have a competitive advantage against them? It seems to me that's an empirical question, we could investigate it and come to a conclusion.
Ted Simons: And again September 30th is that date that, do you think it's going to be extended?
Dennis Hoffman: I don't know at this point, you know. I think the Tea Party may be looking for a victory and this could be a place where they choose to go.
Ted Simons: Dennis good to have you here. Thanks for joining us.
Dennis Hoffman: Great to be here Ted.
Ted Simons: Tomorrow on Arizona Horizon, join us for another clean elections debate, this time between Republican candidates running for Secretary of State. A debate Tuesday evening at 5:30 and 10:00, right here on Arizona Horizon. That is it for now. I'm Ted Simons. Thank you so much for joining us. You have a great evening.
Dennis Hoffman:Director, L. William Seidman Research Institute, W. P. Carey School of Business at Arizona State University;