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Hamilton, Jefferson, and the Fate of the Export-Import Bank

Dueling visions of the role America's government should play in commercial affairs date back to the days of Hamilton -- pictured above in his fatal encounter with Aaron Burr -- and continue with the renewed battle over reuathorization of the Export-Import Bank of the United States. Image courtesy of Wikimedia Commons.

Dueling visions of the role America’s government should play in commercial affairs date back to the days of Hamilton — pictured above in his fatal encounter with Aaron Burr — and continue with the renewed battle over reuathorization of the Export-Import Bank of the United States. Image courtesy of Wikimedia Commons.

Two hundred and ten years after Aaron Burr felled Alexander Hamilton with a pistol shot, modern-day Jeffersonians are taking aim at a quintessentially Hamiltonian institution, hoping to deal it a mortal blow in America’s revivified duel over the proper role of government.

The fight is over the Export-Import Bank of the United States, whose charter will expire later this year absent congressional reauthorization. The bank is the official export credit agency of the United States; its mission is to assist in financing the export of U.S. goods and services to markets overseas. The independent federal agency is quick to note that it operates at no cost to taxpayers, and says that in the last five years it actually sent $2 billion in excess revenues to the Treasury while helping to create or maintain more than 1.2 million American jobs. The bank adds that almost 90 percent of its transactions provide direct benefits to small businesses.

Turning a profit (as excess revenues are known outside of government) while reducing the deficit, boosting exports, helping to create jobs, and assisting small businesses might sound as unassailably American as baseball, apple pie, and Chevrolet. However, those who would see the bank shut its doors argue that the institution ultimately is “un-American” in the sense that it violates the Founders’ principle of holding government aloof from matters of commerce so that the free market can guide the economy along its natural course.

This view, of course, discounts the fact that Hamilton was one of the most prominent Founders, and that he believed passionately that government can and should play a role in promoting economic growth for the national good. In everything from his plan for federal assumption of the states’ debts to, particularly, the establishment of the Bank of the United States, Hamilton was more than comfortable with the federal government aligning itself with certain financial interests, implicitly to the detriment of others.

And just as the anti-Federalists railed against Hamilton’s bank as an institution that would make government beholden to “the monied interests,” Tea Party activists and Republican lawmakers of a libertarian bent today argue that the Ex-Im, as the Bank is known, engages in “crony capitalism.” The Cato Institute and the Heritage Foundation are at the forefront of efforts to scuttle the Bank; their arguments are detailed by Sallie James, Diane Katz, and others.

Opponents of the bank are particularly critical of its role in supporting the sale of Boeing aircraft and providing financing to small and mid-sized businesses that are suppliers to Boeing, charging that a disproportionate amount of the institution’s resources are devoted to one company and industry. Boeing is the nation’s largest exporter, so it’s not surprising that an agency dedicated to promoting exports would be heavily involved with the aircraft manufacturer, but the bank’s detractors charge that the Ex-Im’s support of Boeing is a textbook case of how the law of unintended consequences reigns supreme over legislation intended to steer the economy for the common good. They argue that while the bank’s work with Boeing and its domestic suppliers helps some American businesses, it inevitably hurts others. As one example, they charge that the Ex-Im-assisted sale of Boeing aircraft to Air India ultimately hurt Delta Airlines’ ability to compete with Air India on contested routes.

In keeping with its nature as an agency unafraid to jump into the fray, the Ex-Im responds to those and other charges in language that is refreshingly direct and specific for a government entity. Beyond addressing the Boeing issue, it tackles the questions of whether the bank competes with or displaces private lenders, and whether its financing assistance amounts to “corporate welfare” or subsidizing specific companies.

The Bank also has powerful friends in Washington and across the country, with the National Association of Manufacturers, the U.S. Chamber of Commerce, and others making the case for re-authorizing the institution.

In that choosing of sides, that coalescing of interests, the battle over the bank shows itself to be the latest confrontation in an American debate as old as the struggles between Hamilton and Jefferson, and as modern as the Tea Party’s opposition to government intervention in the automotive industry and financial markets during the Great Recession. The fight also reflects the current tension in the Republican Party, as pro-business moderates and libertarian Tea Partiers nominate competing primary candidates and vie for control of state GOP organizations.

It is perhaps fitting, then, that the bank at the center of this conflict is not only the spiritual progeny of Hamilton but also the spawn of the President who was the most energetic practitioner of interventionist government to come along since his fellow New Yorker – Franklin Delano Roosevelt. FDR created the current institution’s forerunner, the Export-Import Bank of Washington, by executive order in February 1934. The immediate goal was to finance the sale of American goods to customers in the Soviet Union, whose Communist-controlled financial institutions would not extend credit for such transactions. A month later, Roosevelt issued another executive order to create the Second Export-Import Bank of Washington, this time to facilitate trade with Cuba. The two banks were combined in 1936 and the merged institution was given its current name in 1968. In between, the bank played a role in financing several projects deemed strategically important to the United States, including building the Pan-American Highway and post-World War II reconstruction initiatives in a Western Europe threatened by Communist expansion.

That heritage underscores one argument for the bank that generally isn’t presented to a public more receptive to statistics about supporting job growth and helping small business. Factors ranging from China’s assertion of its power on the world stage to Russia’s assertion of its interests in Ukraine are prompting the U.S. to seek to achieve more and more through economic statecraft. While critics may deride specific actions the Ex-Im has taken (and some of its recent activities have provided opponents with ammunition on this score), there is no denying that the Bank is an instrument of such statecraft.

The U.S. inhabits a world in which other countries not only have few concerns about defining the proper relationship between government activity and commercial enterprise but work hard to meld the two to maximum advantage. Whether it involves regulatory shunting of credit to vital industries, currency manipulation to boost exports, de facto subsidization of select segments of the economy, sovereign wealth fund investments made to advance geopolitical goals, or owning a controlling stake in businesses, many of America’s ersatz allies and potential adversaries look at such practices not in terms of what’s right or wrong, but rather with regard to what’s effective and what’s not.

The purists respond that this state of affairs is no different than that confronting America two centuries ago, when the fledgling Republic had to contend with Great Britain and other powerful nations engaged in mercantilist practices.

And so the stage is set for the fight over reauthorization of the Ex-Im. After being reauthorized with bipartisan support 14 times from 1947 to 2006, the bank found itself in the sights of limited-government advocates in 2012, when lawmakers backed by Tea Party groups sought to jettison the agency. After a protracted fight, House Majority Leader Eric Cantor (R-VA) and House Minority Whip Steny Hoyer (D-MD) forged a compromise which reauthorized the bank through this fall. The deal also increased its lending limit from $100 billion to $140 billion in return for imposition of increased auditing and reporting requirements demanded by opponents of the Bank. In May 2012, the House passed the measure by a vote of 330 to 93 and the Senate approved it 78 -20. President Obama, who had been a critic of the bank’s effectiveness in his first presidential campaign but who supported its reauthorization, signed the bill later that month.

Two years on, with a modestly improved economy perhaps blunting the resonance of the job-creation argument and the flawed healthcare reform roll-out increasing public skepticism about the effectiveness of government, opponents of the Ex-Im think the timing might be right to shut down the bank. Further, they have a powerful ally in Rep. Jeb Hensarling (R-TX), chairman of the House Financial Services Committee and a vociferous critic of the Ex-Im.

The battle over the bank that will play out in coming months is unlikely to attract the attention accorded the hot-button social issues that are so divisive domestically or the conflicts that are so worrisome internationally. But those who listen carefully to the arguments will be able to discern the echo of debates that took place in Philadelphia in 1787, in the halls of Congress in the 1930s, and in political campaigns ever since. The choice between renewing or scuttling the Ex-Im is, at its heart, a choice between ideological purity and sometimes-uncomfortable pragmatism, fidelity to an ideal and flexibility in response to evolving challenges and opportunities. The outcome won’t signal that the country is moving inexorably in one direction or the other, but it will be a good indicator of which side has the momentum in the continuing debate over what America’s government should and should not do.

 

Author

Tom Garry
Tom Garry

Tom Garry is an analyst and writer who examines how capital flows affect everything from the stability of Euro-zone governments to the basic needs of families in developing nations, and from the bankrolling of terrorist organizations to the redistribution of power in our multi-polar world.

He has a master’s degree in financial economics from the University of London’s School of Oriental and African Studies, where his thesis focused on the exchange-rate policies of Latin American countries, and a master’s in political science from American Military University, where his thesis examined resurgent Russian influence in the Eastern European nations of the former Soviet Union. He received his bachelor’s degree in international relations from American Military University.

When he’s not “following the money,” Tom’s other areas of focus extend from business marketing and consumers’ financial decision-making to religion, governance, and diplomacy.

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