Bank Quake

Snagged in a fault line of our broken political system, the Export-Import Bank reveals broader opportunities for bridge building and repair.

How Ranked Choice Voting helps fix our democracy

Teetering near the tectonic epicenter of Washington’s polarization and gridlock lays the fate of a certain government agency. A sinkhole has opened up beneath the Export Import Bank, an institution obscure to most Americans. Over the years the bank has been a target of both the left and the far right. But observed in broad context, the recent and curious legislative dynamics of the far right help illuminate how our political system is broken — and, possibly, how it can be repaired. The vast majority of Americans believe that our political system is rigged against them in favor of wealthy corporations. The fact that the system may be starting to be rigged against certain corporate interests too suggests something more fundamental is going on.

Established for consent of the governed, Congress should be a key forum for working through our complex national issues by accurately representing the American people in all their diversity of opinion and interests. A dysfunctional Congress derails leadership emanating from either inside or outside the institution, including leadership that seeks to serve the national interest. In the House of Representatives it is becoming increasingly clear that a structural cause — namely our winner-take-all, single-member districts — incentivizes much of the dysfunctional behavior. The Ex-Im Bank offers an illuminating case study to observe House dysfunction in action. Could structural reform make for a better Congress that could satisfy stakeholders on this and other issues?

Emergent far right rebellion against “corporate welfare” and “crony capitalism” recently applied its outsized political influence to block the House of Representatives from reauthorizing the bank as of June 30. This lapse in Congressional authorization means that no new government export credit is forthcoming in the form of loans, guarantees, and insurance. Corporate interests, including the U.S. Chamber of Commerce, Boeing, and General Electric, have spent tens of millions of dollars lobbying in support of Ex-Im Bank reauthorization, as have interest groups in opposition aligned with the far right. To the far right with its general disdain for government, the takedown of a government institution would be a coveted symbolic trophy.

Background

Franklin Delano Roosevelt established the bank in 1934 for the strategic purpose of winning influence with the Soviet Union and Cuba. Since then, many developed and developing nations set up their own “export credit agencies” which have collectively gravitated around long-term capital equipment, including civil airliners, satellites, and oil and gas projects. Congress makes no appropriation to the bank. The bank draws on Treasury funds, and taxpayers bear the risk of bank operations.

As political background, left and right positions on the bank have evolved in their influence, but generally fall into four categories. For example, liberals including Senator and then-Representative Bernie Sanders have consistently opposed the bank. Similarly, presidential candidate and then-Senator Barack Obama remarked in 2008 that the Ex-Im Bank had become “little more than a fund for corporate welfare.” But now President Obama supports the bank with many other Democrats, primarily over the issues of jobs and foreign competitiveness. The Ex-Im Bank has enjoyed a bipartisan majority coalition of support in both the House and the Senate that has prevailed politically — until the advent of the libertarian leaning far right.

The objective of this treatment is to suggest that (1) global export credit agencies constitute corporate welfare on a world scale, impacting both American and foreign taxpayers; (2) the broken U.S. political system confounds proper understanding, deliberation, and legislation over the practice; (3) a Congress that accurately represented voters would act in the national interest to legislate against such corporate welfare; (4) an accident of circumstance confers upon the U.S. far right outsized power to block reauthorization of the U.S. export credit agency; and (5) the dynamic offers a case study for how updating our political system can help address this and other important issues facing the American people.

From a policy perspective it is important to resist politicizing matters of fact. Export credit has been well studied for decades, firmly establishing that it is, in fact, a subsidy — even if the Ex-Im Bank delivers a financial profit. Fair value accounting, as addressed by the Congressional Budget Office; loans from the treasury; and guarantees tied to the full faith and credit of the government all confer economic value. Importantly, there is no evidence that private entities would fill the role of the Ex-Im Bank in its absence.

Critics want an end to the subsidy. Meanwhile, advocates argue that most other developed nations provide competing export credit, so an Ex-Im Bank shutdown constitutes “unilateral disarmament.” There isn’t much of a case for general, macro-economic benefit from export credit subsidies. For example, liberal economist Paul Krugman and the conservative Heritage Foundation agree that export credit subsidy redistributes jobs rather than creating or supporting them. Krugman calls out a temporary exception attributable to our current, near-zero Fed interest rate. Export financing may benefit a recipient project, but opportunity cost means that corresponding private financing will not be forthcoming for other projects. Another argument against the bank is that foreign borrowers (and their downstream customers) inherit a leg up against their American competition.

Developed nations actively coordinate on their export credit agencies. Their stated objective is a level playing field such that competition among exporters is based on quality and price rather than officially supported financial terms and conditions. Curtailing government export credit in general is not the objective of the coordination. The United States is a member of the Organisation for Economic Co-operation and Development (OECD), a collection of 34 developed countries including the European Union that has evolved a self-described “Gentlemen’s Agreement.” Last year, the emerging economy BRICS nations (Russia, Brazil, India, China and South Africa) began developing their own agreement on export credit agency cooperation, operating independently from western-based institutions. A less commonly discussed aspect of export credit is that it accounts for 80% of debt owed by less developed countries to northern governments — a level inconsistent with sustainable development. Export credit agencies are also criticized for their standards related to human rights and environmental impacts.

A U.S.-led, managed global phase out

Ex-Im critics and supporters have both invoked a U.S.-led global phase out as a way forward, possibly rhetorically, in particular where the U.S. would lead negotiations to wind down government export credit altogether. A managed transition would cushion domestic stakeholder impact. Obviously, such an approach would be challenging. Yet the U.S. has been a leader, particularly since World War II, in negotiating multi-lateral free trade. The World Trade Organization already limits export credit agencies, but member nations now bypass these rules on the books.

Interestingly, the politics of this solution would bridge left and right and economic strata. Taxpayer subsidy from the 99% would cease. Jobs would redistribute towards laissez faire equilibrium, but not so abruptly as to induce disruption. Meanwhile, for corporate interests, free trade is hardly unacceptable and will also be preferable to the American competitors of former foreign loan recipients. Most importantly to corporate interests, the approach would adroitly sidestep unilateral disarmament. Meanwhile, a unified position within the Congress would empower the President’s trade representatives to lead from a position of strength and negotiate aggressively on behalf of the U.S.

Winner-take-all dysfunction

It is not an object of this treatment to advocate specific policy on the Ex-Im Bank as much as to cite an example bridge building path where sound policy in the national interest does not get derailed by special interests, partisan interests, or a voting bloc with accidental outsized influence. All Americans are stakeholders, at least as a taxpayers, and therefore should be party to deliberation through their elected representatives.

Default blame for the dysfunction usually goes to the usual suspects of campaign money, political parties, the television broadcast media, lobbyists, politicians, and gerrymandering. But better illumination of the problem comes by viewing these factors as symptoms.

Winner-take-all, single-member districts are outdated structural artifacts leading to systemic — and highly predictable — partisan bias in each district. This bias has become so predictable that non-partisan think tank FairVote can project two years ahead to the November 2016 House elections and confidently forecast that 373 incumbents will win out of the total 435 House races should they seek re-election. That works out to 86% non-competitive elections using a methodology that has missed just one of its last 700 projections. Even a district with a modest tilt towards one party — 53 percent to 47 percent, for example — is nearly impossible for the minority party to win.

Meanwhile, winner-take-all also leaves conservatives stranded in liberal districts and progressives stranded in conservative districts. Large swaths of the electorate with a mix of conservative and progressive views are excluded altogether from the legislative process. Even if district boundaries were chosen without partisan bias, a mere 51 percent of the vote garners 100 percent of the representation. The other 49 percent of the people in that district are not represented at all.

Population migration (self sorting) across the past few decades has become a major driver to polarization, re-coloring the nation into blue urban districts and red rural districts. Self sorting has introduced an enormous structural bias favoring Republicans mostly because laying down balanced district lines including both cities and rural areas happens to be extremely difficult geometrically — even before gerrymandering. Even if up through 55% of the popular vote goes to Democrats, Republicans will still win the House.

The center has given up on the political system because it is now largely unresponsive to those voters. But for the party in a district whose general election victory is all but a foregone conclusion, primary elections increasingly favor extreme candidates, whose voters are more active and engaged and therefore more likely to turn out than moderates. Primary turnout declined to all-time lows in most states in 2014, leaving this key power to our most partisan voters. Once in office, representatives feel intense loyalty pressure to vote along party lines to achieve majority domination, as the winner-take-all dynamic plays out further. Partisans on the left and right find themselves in a zero-sum tug of war. Moderates, bridge builders, and third party candidates are outcast as spoilers.

With so many voters structurally blocked from representation, it is no wonder that campaign money, lobbyists, political parties, media, and geography fill the power vacuum. Given the wedge of polarization dividing the American people, scant political power remains to counterbalance runaway economic inequality.

An elegant way forward

The dysfunction induced by single-member districts could be addressed immediately by passing the Ranked Choice Voting Act, a seasoned initiative from FairVote. The Act enables multi-winner ‘super districts’ assembled from, say, 3–5 adjacent single-member districts and adds a further structural refinement called Ranked Choice Voting (RCV). RCV enables voters to elect their super district representatives as a group by ranking them in order of preference. RCV gets rid of the need to resort to strategic voting to game the two-party system and expands the power of voters elect a representative. With RCV voters simply vote their true preferences, thereby eliminating any fear of “spoiling” or vote splitting among similar candidates that may undesirably benefit a dissimilar candidate. With multi-winner districts, the contentious issue of geographical district boundaries simply goes away because there are no more district boundaries.

The result is fair representation. Many city governments in the United States, including Minneapolis, San Francisco, and Oakland, have already successfully implemented RCV. Meanwhile, the state of Maine will hold a referendum next year to adopt RCV for all congressional and state elections. At the national level, recently announced “referendum” presidential candidate Lawrence Lessig embeds the Ranked Choice Voting Act into his three-point reform package. His approach aims to establish a mandate to pass the legislative package, not as a single issue, but as the nation’s first issue. Establishing political priority for fixing our broken system recognizes that all other campaign issues cannot be addressed realistically until the nation has a functional Congress.

Better campaigns, lower relevance of money

Multi-winner congressional districts are fully constitutional — and indeed were common during the nation’s early years. Combining them with RCV promises to elect a House more representative in keeping with what the founding generation expected. Voting by equal citizens increases voter power and choice, naturally enhancing legislative competition and turnout. New legislative competition does not directly alter traditional power centers of money, lobbyists, political parties, media, or geography — nor should it in a free society. But where these other factors have self-aligned around political entrenchment under the current system, fair representation and legislative competition would upend entrenchment by opening up more independent and diversified influence regarding any given representative winning or holding office. Therefore, enhanced accountability to voters and legislative competition discounts the influence of special interests, including reducing the relevance of (or demand for) money in political campaigns.

Lobbying doesn’t go away, but its nature evolves. Consistent with keeping an open mind, any new idea or proposal from any source should remain fair game for pitching within the halls of Congress. But when representatives are vastly more accountable to voters, advocacy must further align with voter interests and add value to the electorate. Accountability to voters adds healthy new decoupling between lobbyists and campaign funding.

Legislative competition also means that political parties compete from the bottom up according to their value added rather than imposing top-down loyalty demands. Representatives need not caucus with their party on every vote. In fact, the beliefs and skills of individual candidates may eventually over time become more important to American voters than political parties. Incumbency is no longer an issue itself because individual representatives are retained only as long as their value added to voters remains competitive. And because candidates can readily opt to bypass the primary to run in the general election if their party is not adding value, there are fewer incentives to hold “money primaries” (or ultimately any primaries at all, for that matter).

RCV also produces campaigns that tend to be more civil. Efficient discourse arising from civil campaigns lowers messaging costs by generating less heat and more light.

Parties and issue-based caucuses are natural social networks well matched to social media — a fascinating evolutionary broadening of media in general. Multi-winner districts discount geography so that what people think matters as much or more than where they live. Social media becomes increasingly relevant as an organizing tool, especially in connecting voters on national issues. Fair representation also enables social media to provide a cost effective counterbalance to paid campaign advertising on regionally targeted broadcast television. Lines of communication in social media networks tend to be more bi-lateral (peer-to-peer) and based more on personal trust than those of television broadcast media.

Waiter, I’ll try some of what they’re having…

When it comes to catching the ire of the rest of America, the far right does not disappoint. The visceral antipathy gets personal. Voters and establishment interests marvel at the collateral damage on the nation. But if these voters’ lives are viewed in context, isn’t some compassion in order? The far right is angry and frustrated — as are so many other Americans. To its credit, the far right’s political expression lies entirely within established political process. Could mainstream America actually be resentful that far right voters are wielding real power?

It looks like chaos. But as analyzed above, the behavior is systemic. Winner-take-all, single-member districts tend to favor a two-party duopoly (“Duverger’s Law” in political theory). Imposition of party loyalty is a corollary. Party power in the House of Representatives has been concentrating over decades towards the leadership. The rules favor the majority party to the exclusion of the minority party, thereby depending on parliamentary system-type discipline of the rank-and-file. Today’s tectonics originate from the emergent far right challenging the top-down establishment loyalty structure through bottom-up independence. This new tension first played out in spectacular form with the government shutdown of October 2013.

For the far right to legislate rather than disrupt, it needs to organize. In fact, the far right has been organizing for years and continues to advance today. Nevertheless, Duverger’s Law tries to merge the two distinct GOP caucuses into one. Earthquakes beget tsunamis — forget about finding one’s sea legs. We have likely not seen the last of the tectonics. It is not people who are driving the shocks to the system — it is the outdated system itself that is inducing the shocks.

What is needed is expansion of real representation evenly to all voters, not just the lucky sliver of the electorate comprising the far right or the dominant political party. Dysfunction lies not so much with the far right’s representation — it’s that other Americans are denied representation of their own.

October surprise?

Contrast the fair representation scenario with the chaotic state of play in Congress now. The bank’s fate may well be decided in the next few weeks with coin-toss odds. In spite of an unusual procedural maneuver that is further inflaming the far right, attempts at final passage may operate through attachment to a ‘must pass’ bill originating from the Senate. With the pending Speaker selection and a backlog of important legislation to be passed, the far right has leverage to block passage. Retribution can also come during the 2016 elections where bank supporters may get targeted and risk a primary challenge from the far right.

Electoral structure is also clearly affecting selection of the Speaker of the House. In today’s dysfunctional environment, the Speaker has the near impossible role of reconciling the GOP factions. As stress only worsens, it is not clear how any Speaker can long survive in that role. In contrast, fair representation would likely elevate inclusive Speakers from the bottom up who are by nature moderate bridge builders — individuals with whom both major parties (and caucuses thereof) — could find common ground.

Healing the divide

If Americans want to end the dysfunction, then we must step up and own it. Lawmakers who benefit from the existing system won’t proceed until they are pressured from the outside. The Ranked Choice Voting Act is foundational reform. But to complete the process, America will also benefit from bridge building to span its left-right divide and begin to heal its polarization. Voters from the left and right may not agree on many issues today, but a shared interest in curbing corporate welfare just may offer a substantive path towards a majority coalition. Demand for party loyalty impedes such a coalition today, but fair representation would remove that constraint. Legislative victory would also offer olive branch symbolism to the far right by helping to rekindle the nation’s founding ideal of self-government. Bridging the nation’s harmful political wedge of partisan polarization may be the most healthy, practical, and effective means of counterbalancing runaway economic inequality.

America’s sustained progress towards more democracy throughout its history has never looked neat and clean. And when the Internet first emerged, many observers perceived only chaos. Historically, we view democracy and connectivity as transformative, affording the U.S. with new opportunities to improve life at home and leadership abroad. Fair representation is not a panacea. Yet the opportunity to implement such an elegant update via statute in such an otherwise chaotic epoch is extraordinary. A key driver of United States success has been that it was the first nation in history to be founded on an idea. By unlocking latent ideas, leadership, and industry, fair representation can liberate America’s transformative potential.

Regardless of whether or not the Ex-Im Bank survives, new structural rumblings undermining the corporate establishment reveal just how outdated and even destructive our winner-take-all, single-member districts have become, driving to the fore ever worsening dysfunction, polarization, and gridlock for all.

The status quo leads only to more of the same. Consistent with every other challenge in our nation’s history, the path of more democracy by far has yielded America’s greatest dividends.

The author is grateful to Rob Richie, Executive Director of FairVote, for his review of this article.

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Clark Cohen has founded and led three GPS-related start-ups, one of which was recently acquired by Apple. He served a U.S. Senator on a fellowship were he helped investigate an international financial institution’s structured transactions that Enron used to inaccurately characterize its financial condition. He served as Chief Engineer for a $200 million DoD program on behalf of Boeing and has also worked on satellites at General Electric (now part of Lockheed Martin). He was an inductee to the Space Foundation’s Space Technology Hall of Fame and earned a bachelor’s degree in physics from Princeton and a doctorate in Aeronautics and Astronautics from Stanford.