The ripples from the shocking primary defeat of House Majority Leader Eric Cantor by an unknown college professor are still rocking establishment Washington. As is usually the case, the immediate spin by talking heads competing for attention was incorrect.
Cantor’s defeat was due to several factors, not simply immigration or the tea party: Most notably, not grasping that the voters thought he prized his lobbyist connections more than he did his constituents, which was underscored by the juicy factoid that Cantor spent more money on D.C. steakhouses than his challenger spent on his entire campaign.
Conservatives are pro-market, not pro-business, but Cantor, like many Republicans, confused the two, so while in many ways Cantor was the most conservative member of the Republican congressional leadership team, he was his steakhouse patrons’ man. This helped put him out of touch with a conservative constituency that now prizes constitutionally limited government over bringing home the pork.
That’s why Cantor was pushing immigration reform despite the concerns of his constituents, and it’s why Cantor was out of touch with the conservative grass roots over several issues that fall squarely under the category of corporate welfare or crony capitalism.
While Cantor’s primary loss almost certainly means that immigration reform is dead for this Congress, most observers thought that was already the case, given the distrust President Barack Obama has earned regarding his commitment to enforce the laws as written by Congress. It’s more likely that the most significant issue affected by Cantor’s loss is one that has become a symbol for the dispute between pro-business and pro-market conservatives.
Cantor was the lead water carrier for reauthorization of the Export-Import Bank, an agency that offers guaranteed (and thus risk-subsidized) loans to foreign companies in order to purchase U.S. goods. This is what the pro-business folks call helping U.S. companies compete globally, but it’s what market conservatives recognize as an illegitimate role for government and a source of market distortions. For instance, while Ex-Im may finance foreign purchases of Boeing jets, why is the federal government helping the competitors of U.S. companies like American, Southwest, Delta, FedEx and UPS?
Created in 1934 by Franklin Roosevelt in order to facilitate the sale of goods to the Soviet Union, Ex-Im is like so many federal agencies that, once started, never go away. More recently, Ex-Im made loans to Enron, Solyndra and even (unknowingly) to Mexican drug cartels, though Ex-Im’s primary beneficiaries most often have been major U.S. corporations like General Electric and Boeing.
By offering government-subsidized loans to the politically connected, Ex-Im creates moral hazard and market distortion, and opens the door to corruption and to the potential for another taxpayer bailout. Ex-Im of course says that is nonsense, but so did Fannie Mae.
Conservatives lose credibility when they argue for cuts to food stamps and other forms of assistance to individuals and families while championing welfare for the biggest and most successful corporations in the world. There’s nothing in the Constitution that authorizes the federal government to provide financing to private business interests. If such loans are creditworthy there is plenty of private financing available, but if they aren’t creditworthy, why on earth should taxpayers be guaranteeing the loans? Republicans can’t accomplish much of their agenda while Barack Obama is in the White House, but by doing nothing they can allow the Export-Import Bank to phase out, earning some credibility with their grass roots and with the larger electorate in the process.
If the federal government wants to promote American business, the place to start is cutting the corporate tax rate across the board for all American companies from its current globally uncompetitive level. But a loan program that benefits a few politically connected companies and harms others is corporate welfare and crony capitalism, and Republicans would do well to let Ex-Im expire.
Tom Giovanetti is president of the Dallas-based Institute for Policy Innovation and may be contacted at tomg@ipi.org.