Governments have a number of mechanisms through which they aim to support domestic economic growth, maintain jobs at home and expand opportunities for local firms to sell to additional markets via export. One vehicle which many countries have, including the U.S., is an export credit agency – an Export-Import Bank. In the U.S., we have the Export-Import Bank of the United States. “The mission of the Bank is to create and sustain U.S. jobs by financing sales of U.S. exports to international buyers” – it does this through a number of means, including loans, guarantees and insurance products.
It’s unfortunate that my becoming acquainted with the Export-Import Bank was a WSJ article reporting on alleged wrongdoing at the agency. In short, the allegations relate to claims that officials at the Bank received bribes or kickbacks to facilitate transactions for businesses with powerful “connections”. As you can read in the article, the timing of these allegations could not come at a more delicate time, as approval for the agency by Congress is coming up for renewal and Republicans appear to be lining up votes to shut it down. While the allegations are troubling and we should not tolerate such behavior at a government agency, I think it is important to assess the benefits and costs of having such an agency in clearheaded terms. From some quick internet searches, I can attest that there does not appear to be any shortage of Ex-Im Banks funded by countries around the world, supporting companies within their borders increase their exports. Supporting U.S. manufacturing by “facilitating” the financing of international trade, by both large and small businesses, to ensure that they remain competitive in an ever changing marketplace appears that it can be a worthwhile exercise for the Bank.
-Bill Ott
Please see below for a link to the WSJ article, as well as a related article from Bloomberg.
http://www.bloomberg.com/news/2014-06-27/how-the-u-s-ex-im-bank-landed-on-republicans-death-row.html
Excellent articles and commentary Bill.
As Bill points out, this is one tool by government to facilitate the international competitiveness of national firms. recall the discussion we had last class on the extent to which such steps reduce global efficiency and distorts international activity that is based on comparative advantage of countries rather than on government policy. we had no difficulty reaching a consensus that the former is the best situation from a global perspective.
as Bill research rightly shows, all countries have such banks, leaving firms whose governments do not support them at a disadvantage. this also questions the value of such policies – what exactly do they reach if most participants pursue them.
only a global agreement to collectively stop them could help here, but was saw how challenging this is.