- Governments engage in an economic arms race, while the corporations profit from the attention.
- Musk wins free-enterprise, anti-cronyism points for fighting tariffs on solar panels and protectionist car-dealer laws in NJ.
- Ex-Im loans money and guarantees private bank loans -- at taxpayer risk -- to Musk's overseas customers.
Billionaire entrepreneur Elon Musk justifies U.S. subsidies for his rocket company by pointing to French subsidies for his competitors. The problem: Musk's company also profits from those same French subsidies.
It’s a standard tale of corporatism: Governments engage in an economic arms race, while the corporations profit from the attention.
Musk is a true entrepreneur of the 21st century. He heads three companies: Tesla, which makes high-end plug-in electric cars; SolarCity, which installs solar panels on homes and office buildings; and SpaceX, which makes rockets and spacecraft.
Musk is also the model businessman in the age of Obama: His businesses thrive on mandates, regulations and subsidies. Tesla received a federal loan guarantee to make its plug-in cars, which are also subsidized through tax credits for buyers. SolarCity's suppliers are subsidized solar panel makers, and its customers get tax credits for getting the panels installed. SpaceX is largely a government contractor.
(Musk wins free-enterprise, anti-cronyism points for fighting tariffs on solar panels and protectionist car-dealer laws in places like New Jersey.)
Another federal subsidy for Musk is the Export-Import Bank of the United States.
Ex-Im loans money and guarantees private bank loans -- at taxpayer risk -- to Musk's overseas customers. For instance, Ex-Im approved more than half a billion dollars in loans in Fiscal 2013 to satellite providers in Hong Kong. This subsidized the purchase of satellites made in the U.S. by Boeing and Loral and launched by SpaceX rockets, which are also made in the U.S. Israel separately got a $105 million loan to use SpaceX to launch its Israeli-made satellites equipped with U.S.-made solar arrays.
Why does a billionaire running a profitable business need taxpayer backing to sell his rockets?
Musk answered that question at Ex-Im’s annual conference in Washington on April 25, where one of his Hong Kong subsidies won “Ex-Im Bank 2014 Deal of the Year.”
“Ex-Im’s really important in this equation because the French have this thing called Coface, which is very aggressive in providing low-cost funding,” Musk said, as hundreds of bankers and exporters in the hotel ballroom nodded. “And if we didn’t have the American Ex-Im Bank, it would be very difficult for us to compete on the international market.”
Coface, which is France's own Ex-Im, subsidizes French exporters. Invoking Coface and its counterparts around the world is the key argument for Ex-Im backers this year. To win reauthorization before its charter expires Oct. 1, Ex-Im will need Republican support in Congress. We need subsidies because the other guys have subsidies, is a decent way to win over those who otherwise favor free enterprise.
But Musk’s argument has two gaping holes.
First, most of Ex-Im's subsidies to SpaceX didn't counter foreign export subsidies, at least not according to Ex-Im's own records. The 2013 annual report gives a reason for each loan or long-term guarantee. For the Hong Kong loans benefitting Boeing, Loral, and SpaceX, Ex-Im cited two justifications: “To assume commercial or political risk that exporter and/or private financial institutions are unwilling or unable to undertake” and “To overcome maturity or other limitations in private-sector export financing.”
Only for the Israel deal did Ex-Im say the loan was “to meet competition from a foreign, officially sponsored, export-credit agency.”
But here’s the other hole in Musk’s The-French-Are-Doing-It-Too defense: SpaceX benefits from Coface subsidies, too. In fact, SpaceX’s biggest commercial project got a boost from a Coface loan guarantee.
A Virginia company called Iridium announced in 2010 it was sending a constellation of new communications satellites, called “Iridium NEXT,” into orbit. Because Iridium signed a French company called Thales to make the satellites, it got subsidized financing through Coface.
SpaceX was a partner in the subsidized Iridium NEXT project. Musk called it “the biggest commercial launch deal in history.” The Coface subsidies were earmarked for manufacturing the satellite, while SpaceX was responsible for building and launching a rocket that could dispense all the satellites. But still the French subsidy, lowering Iridium's costs, profited SpaceX.
Satellite News reported at the time that the $1.8 billion Coface guarantee “enabled Iridium to award some of the industry's largest contracts in history to build and launch the ambitious project.” [Emphasis added.]
An ironic footnote: One of the smaller subcontractors on the Coface-backed Iridium NEXT deal is Boeing -- the prime recipient of Ex-Im subsidies and leading champion of the agency.
France may be more aggressive in its corporate welfare than the U.S. Both countries are probably harming their economies by picking winners and losers. This is what happens in an arms race: Nobody wins — except for the guys making the rockets.
Timothy P. Carney, a senior political columnist for the Washington Examiner, can be contacted at [email protected] This column is reprinted with permission from washingtonexaminer.com.