The Overseas Private Investment Corporation (OPIC) is a government agency created in 1971 to provide political-risk insurance and loan guarantees to US companies doing business abroad. One would think that OPIC would be the ideal program for a pro-business Republican like me. So why am I working to scrap it?
OPIC's mission is to support American business expansion in countries where conventional financial institutions have supposedly been unwilling to lend. OPIC's mandate is to facilitate private-sector investment in the developing world and to expand US exports.
I'm not opposed to private-sector investment in the developing world or to expanding US exports. What I am against is using money collected from the American people to benefit any interest group, even one I support. And that's what OPIC does.
Here comes Uncle Sam, good-natured but gullible, to dish out $26 million every year in appropriated funds and to carry $8.6 billion in obligations so he can tell people he helped "facilitate private investment." Through OPIC he subsidizes companies such as Union Carbide, Coca-Cola, Motorola, McDonalds, Amoco, Citicorp, Duracell, and Texaco. I don't think the investments of companies like these need facilitating.
OPIC likes to claim that its insurance has produced $43 billion in added exports in the past 25 years. However, such investments are just the kind that Wall Street has been willing to support. OPIC has taken the role usually reserved for bankers, insurers, and financiers. Many private-sector businesses specialize in political-risk insurance - OPIC's main task - including the American International Group (AIG), EXEL Ltd., and Mid Ocean Ltd. OPIC makes it more difficult for such insurance companies to survive.
If there were a revolution in Russia tomorrow, OPIC would require Americans to cover the bill for the companies that lost their shirts. Although such a catastrophe seems unlikely, the federal government is putting the faith and credit of its people on the line. Not only that, OPIC's insurance extends, in some cases, up to 20 years. Who knows what will happen during that time?
What if banks and insurers really won't invest in these risky ventures? Well, as we say in my home district, tough tomatoes. If Merrill Lynch won't insure Du Pont in Russia, why should the American taxpayer? When small-business owners in my district need a loan or want to invest in junk bonds they don't get a special guarantee funded by their neighbors. I don't think Ronald McDonald should either.
US companies certainly should be free to invest abroad. I support any company's right to further its interests in new markets and expand its export base. I support the government's role in promoting free trade around the world. But we have to remember that the "free" in free market means private interests must succeed based on their own ingenuity and at their own risk.
We've seen again and again that government interference in the economy leads to inefficiency and delays improvement. Subsidizing private firms in Russia and elsewhere only relieves host governments of the need to establish investment regimes that are genuinely attractive to private investors. Even when it goes to the private sector, aid tends to discourage, not promote, economic reform.
Additionally, since 1987 OPIC has been dabbling in venture capital, one of the riskiest areas of the financial industry. It has created numerous funds to encourage investment in less-developed countries. These funds rarely turn a profit and are subject to little control or oversight by OPIC. Such expenditures are wasteful because private foreign investment is already flowing, indeed flooding, to less-developed nations, particularly those reforming their political and legal structures.
Last week, Budget Committee chairman John Kasich (R) of Ohio and I teamed up with a broad coalition to defeat the effort to double our commitment to OPIC's corporate liabilities. Our allies included the CATO Institute, the Progressive Policy Institute, Citizens Against Government Waste, the AFL-CIO, the Wall Street Journal, the Progressive Caucus, the Heritage Foundation, Ralph Nader and USPIRG, the National Taxpayers Union, Friends of the Earth, and Capitol Watch. When groups from such different viewpoints can agree OPIC should go, the case against it has been made.
As most Americans now realize, free-spending Uncle Sam has gotten into a financial crisis. He's spent so much of the past decade funneling money into programs that "facilitate" or "promote" or "expand," that he is flat broke, and his "boss" is getting tired of having to work half the year to pay for his bright ideas.
Last month Congress did the right thing by passing a tough, no-nonsense welfare-reform bill. Our victory on OPIC reinforces the message: The days of business as usual are over. We won the battle, but programs such as OPIC will continue to rear their ugly heads. Let's show the American people that Congress really is committed to smaller government across the board. Let's end corporate welfare.
*Edward Royce (R) represents the 39th district in California.