Vehement domestic opposition to a government agency that finances trade is a distinctly American phenomenon. But the misunderstanding of economic reality which underpins the arguments against the U.S. Export-Import Bank is widespread, not confined to zealots like the Tea Party wing of the Republican Party. Washington’s trade finance bank lost its ability to write new business on June 30. Critics wanting to get the government out of the business prevented a reauthorisation of Ex-Im’s charter. Despite still-ferocious opposition, Ex-Im might regain its lending authority in a vote in Congress as soon as Oct. 26. Even setting other arguments aside, a true government-hater’s fervour might be better directed elsewhere. The Congressional Budget Office estimated in 2014 that Ex-Im would cost taxpayers a meagre $2 billion over 10 fiscal years, discounted at the less favorable market rate provided by the CBO. Using the same accounting technique, the bill for the Federal Housing Administration’s single-family mortgage programme is $30 billion over a decade, while student loans may cost the Feds $88 billion. More thoughtful believers in the superiority of markets over governments would start their campaign with attacks on those larger programmes or, perhaps better still, on Fannie Mae and Freddie Mac, the government-backed mortgage giants whose failings before the 2008 financial crisis and $190 billion bailout should have sounded their death knell long ago. Ex-Im, though, somehow excites more passion. Even if it demonstrates the “crony capitalist nature of Washington, D.C.”, as lobbyists at Heritage Action claim, so do most institutions inside the beltway. As for corporate welfare, Ex-Im is a small provider. True, Boeing is Ex-Im’s largest beneficiary and presumably its closest crony, but the $20 billion of government contracts awarded to the aircraft maker provide far more opportunities for unmerited taxpayer largesse than any trade financier could manage. Of course, symbols are crucial in politics, and Ex-Im makes a good one. It seems to be doing something private institutions should manage without help. Besides, any subsidies might ultimately go into undeserving foreign pockets. Neither of those claims is really on target, but the detailed debate hides a more basic understanding. The wrong principle Right-wingers are not the only people who love free markets and distrust governments. It is a commonplace among economists that competitive markets are the most efficient means of producing and allocating goods and services. Governments, according to this theory, cannot harness as much productive energy as keenly competing enterprises. With no rivals to check their political and legal power, state institutions are prone to sloth and corruption. While some anti-government ideologues may close their eyes to reality, most economists see clearly that governments are, in fact, by far the largest actors in any modern economy. To start, they provide vital support by running the monetary system, passing and enforcing laws, and setting regulatory standards – the rules, both basic and arcane, that govern markets and other activities of all kinds. Meanwhile, government spending accounts for 39 percent of U.S. GDP, according to the OECD. It is not surprising that the government is the biggest funder of such crucial parts of the economy as transport, education and healthcare. Since taxes provide almost all of that spending money, tax policy is always at the centre of debates on both prosperity and economic justice. The ubiquity of government in the economy, however, undermines the theoretical case in favour of market mechanisms. If markets really worked as well as their promoters claim, then policymakers would have long ago been driven out of many important businesses. Ex-Im would never have got off the ground. Some economists accept that such facts should be allowed to influence theory. They believe that governments can do many things which markets cannot. Others downplay the evidence, seeing no more than a collection of modest market failures and imperfections, combined with officials willing to sacrifice efficiency for such non-economic goals as the universal provision of elementary education. Another of the market advocates’ arguments is that corruption leads governments to use their power to stop markets from working their economic magic. All these explanations rely on a duality, the idea that there is always a contest between market and government. That is unrealistic. In today’s complex economies, governments and markets are not opposites. They are deeply intertwined, with complementary and overlapping responsibilities. They do not always agree but they mostly work together – as regulators and regulated, as customers and suppliers or, as with Ex-Im and private-sector banks, as providers of different but related services. Of course, state-run organisations can sometimes be a simple alternative to the private sector. Utilities and hospitals, for example, are sometimes owned by governments and sometimes by shareholders. Pro-market ideologues often exaggerate the differences. Both are typically run as meritocratic bureaucracies. Both are subject to intense regulation and have to please many constituencies. Both are often plagued by self-interested leaders and debilitating traditions. Even the most ideologically significant division, between private competition and state monopoly, is often less clear on the ground than in theory. Many private companies face limited competition, while many government operations have to jostle with private and state-run rivals. The finance sector may have more melding of state and private than most. Most remarkably, central banks effectively outsource almost all money creation to commercial banks. In return for that privilege, private banks must hew to particularly detailed rules, which cover both capital structure and their mix of business. Banks and other financial intermediaries are also used as conduits for government policies on interest rates and pensions. The existence of Ex-Im and many comparable institutions around the world suggests that trade finance is a suitable candidate for some measure of state intervention, too. Actually, governments have a pretty modest role. The World Trade Organization estimates that private institutions control 80 percent of the market. Governments come into the picture when private-sector banks lack the expertise and patience needed to finance sales of big-ticket items like aircraft to companies in distant countries. In addition, these deals usually have a political aspect – not to mention, in some cases, a hint of needed development help – so both buyers and sellers feel more comfortable with a bit of government support. Getting it right In a world free of instability and geopolitical machinations, the U.S. Export-Import Bank might not be needed. In this one, however, it pretty much does what it was designed to do. It genuinely and scrupulously supports U.S. exports. And it does so without harming the business of private banks and credit insurers, to judge from the lack of complaints from these potential rivals. It’s more worrisome when foreign governments take a more sweeping financial role. Generous lending terms can be alluring for potential customers in poor countries. Done on a large scale, though, this can prevent competitive markets from performing one of their more useful functions, letting rival suppliers compete fairly on quality and price. Fortunately, many governments have recognised that this sort of escalation ultimately produces no winners. Members of the OECD have limited the scale of their financial support for exports since 1978, when they made an informal agreement. Unfortunately, China and Russia have not signed on. If Ex-Im is resurrected, it may eventually ask Congress to give it room to compete more aggressively. That, however, is a fight for another day. Up until its charter was allowed to expire, Ex-Im had figured out how to combine a modicum of state support with disciplined bank lending, while providing a service comparable to what many other developed nations offer their exporters. That is not crony capitalism. It is the modern economy working well.