Despite the stunning primary loss of Eric Cantor (R-Va.) last week that resulted in yesterday’s election of a new House Majority Leader, Rep. Kevin McCarthy (R-Calif.), there are signs that it’s business as usual on Capitol Hill. This especially is the case when it comes to government favoritism to big business, even though this was a key part of David Brat’s anti-Beltway message that helped him best Cantor.
The morning after Cantor’s loss, House Minority Leader Steny Hoyer (D-Md.) spoke on the House floor in typical fashion of “employees who are making the minimum wage and living in poverty.” Yet curiously, only a few sentences later in the same speech, Hoyer pushed support for an entity that gives government aid to some of the biggest corporations in the country: the Export-Import Bank.
“Export-Import is absolutely critical, and it phases out, and you will not bring it to this Floor,” Hoyer exclaimed. The bank, which makes government-guaranteed loans to foreign businesses buying goods from large U.S. corporations, will lose its funding if Congress doesn’t reauthorize it by Sept. 30. Politico paraphrased Hoyer this week as saying “he was keen on working with McCarthy on a number of policies that Hoyer and Cantor worked closely on, including legislation to reauthorize the Export-Import Bank.”
But before McCarthy — or Hoyer for that matter — backs this big piece of big government for big business, they ought to listen to George F. Will, the Pulitzer-prize winning pundit who never shies from bucking the Beltway’s conventional wisdom. Will said on “Fox News Sunday” that “the Export-Import bank played as large a role in that election as immigration did.” (Here’s the clip). Seasoned political commentator Michael Barone also lists Cantor’s support of reauthorizing the Export-Import Bank as a reason for the stunning loss.
While political prognostication is admittedly not my expertise, the Export-Import Bank does seem to fit the “cronyism” charges of Cantor’s victorious opponent Dave Brat. And though not an issue in the Brat-Cantor race, the Senate Banking Committee’s GSE “reform” legislation known as Johnson-Crapo would fit that bill as well.
On the stump in Mechanicsville, Va., Brat proclaimed: ”I’m not against business. I’m against big business in bed with big government.” (Hat tip to Lee Fang at the left-leaning Republic Report for finding this and other good Brat quotes on the topic of business-government collusion, though Fang wrongly conflates cronyism with deregulatory polices in general.)
The key phrase from Brat is “big business in bed with big government.” Any politician supporting direct or indirect government subsidies or favoritism to certain businesses – rather than free-market policies that benefit all firms – is vulnerable to charges of cronyism, a charge that this primary shows many voters take seriously.
That Boeing’s stock price tumbled 2.3 percent the day after Cantor’s loss showed how close the big manufacturer is tied to the Export-Import Bank and how close the prospects of the Export-Import Bank were tied to Cantor. Will referred to the government agency as “Boeing’s bank” and others have made similar observations about big firms being the major recipients of the Export-Import Bank’s largesse.
The Heritage Foundation’s Diane Katz notes that “multinational corporations attract the largest proportion of Ex-Im financing, including the construction and engineering firm of Bechtel, ranked by Forbes as the fourth-largest privately held company by revenue, and Lockheed Martin, valued in excess of $50 billion.” And as my colleague Competitive Enterprise Institute colleague Iain Murray has shown, the bulk of this financing also goes to export purchasers in wealthy European countries.
This is why more and more lawmakers and policy groups have called for an end to the Export-Import Bank. CEI is proud to be one of 30 organizations that signed a letter urging members of Congress to oppose reauthorization. The letter states, “By paying foreign companies to buy American exports, the Export-Import Bank tilts the playing field away from mid-sized and small businesses in favor of large, politically connected corporations.” The letter also notes that the Bank understates its risks to taxpayers by relyincg on “obsolete accounting methods that significantly overstate its profits.”
Efforts to deauthorize the Export-Import Bank have received a strong boost from House Financial Services Committee Chairman Jeb Hensarling (R-Texas). In a May speech at the Heritage Foundation, Hensarling proclaimed: “There is probably no better poster child of the Washington insider economy and corporate welfare than the Export-Import Bank. Its demise would clearly be one of the few achievable victories for the Main Street competitive economy left in this Congress.”
Yet Cantor, who had cut a deal in 2012 with Hoyer to bring reauthorization to the floor, reportedly still stood with Export-Import Bank. Now Cantor won’t be standing on the House floor at all for much longer. As Washington Examiner cronyism chronicler Timothy P. Carney writes, “Sounds like free-market populism has some teeth — and it’s already drawn some blood.”
And the next thing this populism could bite is the collective rear of supporters of Johnson-Crapo, the pseudo-reform of Fannie Mae and Freddie Mac that actually expands the government’s role in housing and would serve as a direct backstop to Wall Street banks securitizing mortgages. As I have written, under the bill, these banks will get government protection for “90 percent of losses from mortgage instruments insured by the new Federal Mortgage Insurance Corporation (Feddie Mic).”
CEI coordinated a letter opposing Johnson-Crapo, which narrowly passed the Senate Banking Committee last month, signed by 26 conservative and free-market leaders. But cronyism was also part of the critique of opponents of Johnson-Crapo on the left. David Dayen wrote at Salon that “all Johnson-Crapo would do is eliminate Wall Street’s competition, allowing them to corner a lucrative market while only carrying a sliver of the risk.”
While pro-market does not mean pro-business, it doesn’t mean anti-business either, or even anti-big business. At the same time Hensarling is pushing to wean big manufacturers off the teat of the Export-Import Bank, he is pushing legislation that will benefit them – as well as consumers, employees, and the economy as a whole – by rolling back Dodd-Frank’s strangling red tape on the use of derivatives to hedge export risks of currency fluctuation and inflation.
Pairing the trimming of subsidies and regulation is also consistent with David Brat’s stump speech attacking “the burdensome regulations of FinReg (Obama’s financial reform bill) and Obamacare.”
Before the “Fox News Sunday” panel, Will disputed the notion that in the wake of Cantor’s loss, even less in Congress will get done. “I’ll tell you something that may get done now because of this and that is deauthorizing – refusing to reauthorize – the Export-Import Bank,” he said.
So if enough in Congress will listen, the primary results in Virginia’s Seventh District` hold promise that Congress may “get more done” in its most important duty: curbing Washington’s assault on “Main Street” from its souped-up subsidies to its meddling mandates. And if they won’t listen, they shouldn’t be surprised to find themselves being “Cantored.”
John Berlau is senior fellow for finance and access to capital at the Competitive Enterprise Institute. CEI research associate John Breeden contributed to this post.
Disclosure: Berlau owns shares in Boeing.