August 25, 2014

Delta's good fight on Export-Import Bank marred by support for crony capitalism

It's rare to find big business lobbying for free enterprise against corporate welfare. So it's pretty depressing to find it lobbying for corporate welfare in other instances.

Delta Air Lines has made life difficult for the Export-Import Bank and its clients. Partly as a result, the political situation in Congress this year is the first real threat to renewal of Ex-Im's charter.

Why does Delta care? Delta flies internationally and so it competes against foreign airlines. Ex-Im’s primary business is subsidizing foreign airlines with U.S.-taxpayer-backed loan guarantees. In Fiscal Year 2013, more than 80 percent of Ex-Im's guarantee dollars subsidized Boeing sales.

Some of Boeing's customers compete directly with U.S. carriers like Delta. For instance, Air India received $3.3 million in Ex-Im loan guarantees between 2006 and 2009.

Delta argues that these subsidies “allowed Air India to flood the US-India market with extra capacity and crowd out competitors like Delta,” as Delta and industry allies wrote in a complaint in a 2012 court case against Ex-Im. “Delta stopped flying from New York to Mumbai in October of 2008 due to the Bank's loan guarantees to Air India,” they said.

Delta’s pain highlights the folly of export subsidies, which hurt U.S. consumers and U.S. companies that compete with the foreign buyers getting Ex-Im financing.

For instance, Ex-Im has subsidized Chinese steel mills and semiconductor fabrication plants, as well as a Mexican refrigerator factory. This helps the American companies who sell factory equipment to these overseas customers, but it hurts the U.S. manufacturers that compete with the foreign manufacturers.

Ex-Im’s victims often go unseen: the small businessman who got beat out for a bank loan by a subsidized exporter; the Iowa farmer who pays more for his farm equipment because Ex-Im drives up demand; the domestic manufacturer who sees the prices of his inputs (land, steel, tools, transportation) increase because his larger competitors get export subsidies.

This is why corporate welfare usually wins in Washington. The costs are diffuse and the victims are hidden, while the benefits are concentrated among a few highly visible (and vocal) beneficiaries.

Delta changed the landscape of the Ex-Im debate. For the first time, one of the victims is speaking out — highlighting how Ex-Im’s benefits to Boeing end up punishing U.S. carriers.

Let Boeing and its foreign customers line up financing in the free market, Delta’s executives and lobbyists argue.

Hurrah! Big business is favoring free enterprise over crony capitalism!

Except for the cases where free enterprise harms Delta, of course.

Delta has lobbied against allowing the export of crude oil. Delta operates an oil refinery in Philadelphia (a sensible move for a company very sensitive to the price of jet fuel). Current U.S. policy generally prohibits the export of crude oil, but allows the export of refined fuel.

This is a great deal for oil refiners in the U.S., who pay the artificially depressed U.S. price for crude, but can sell their refined fuel at the world price. Delta — a refiner now—is vocal in lobbying to keep the current policy.

Delta Senior Vice President Graeme Burnett testified to a Senate committee in January that Congress needs to preserve the export ban “to help this country achieve energy independence.”

In another fight, Delta sides with the Airline Pilots Association (ALPA) in its effort to restrict Norwegian Air's routes to and from the U.S. Delta invokes fairness in this debate, too, arguing that Norwegian Air's expansion would violate the international “Open Skies Agreement,” codified by a series of treaties.

But ultimately, Delta is lobbying for government intervention that restricts consumer choice.

These Big Government policies help Delta and their shareholders in the short run, but that doesn’t mean it’s okay for Delta to support them — or even good for Delta in the long run.

When Delta praises free enterprise in the Ex-Im fight, and then discards it when it comes to foreign airlines and oil exports, all opponents of Ex-Im suffer.

“These guys are not free-marketeers,” one Republican operative who favors Ex-Im growled at me about Delta. “These guys are just trying to grab onto what they want.”

In this context, all of Delta’s principled arguments are indistinguishable from special pleading.

Even in opposing corporate welfare, Delta opts for self-interest rather than principle. On Ex-Im, the company has never called for abolition, or limiting Ex-Im to small exporters. Instead, Delta simply wants Ex-Im to stop subsidizing wide-bodied jets—the kind that can fly across the ocean and compete with Delta.

“Delta focuses on specific policy issues that impact our customers, our employees and the communities we serve,” is how the airline explains it.

This seems on K Street like a reasonable, narrow request that occupies some sort of middle ground — we’re not questioning Congress’s wisdom in subsidizing big exporters, we just want you to fix this one problem the program causes us.

From another angle, though, it shows that there’s no principle to the argument. Why is Delta the only victim of Ex-Im that deserves a reprieve?

Lobbying on principle may seem like a foreign concept to K Street and big business. But for the victims of corporate welfare, it sure couldn’t work worse than the current approach.

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