NCPA - National Center for Policy Analysis

Heritage Foundation: Discontinue OPIC

June 26, 1997

In the eyes of Nobel Prize-winning economist Milton Friedman, the Overseas Private Investment Corporation (OPIC) "has no business existing." But will Congress allow it to die when its funding runs out this September?

In a paper from the Heritage Foundation, analyst Brett Schaefer says there is no reason U. S. taxpayers should be forced to provide risk insurance and cut-rate loans to companies that are in business overseas to make a profit. The government corporation was established in 1971 to extend political risk insurance, loan guarantees, and direct loans at subsidized rates to U.S. companies that invest abroad.

Schaefer examines some of the arguments of OPIC supporters and finds them wanting.

  • While supporters contend that OPIC creates jobs here, numerous studies have concluded that government subsidies to businesses have little or no impact -- or even have a detrimental effect -- because they simply shift resources, taxing some corporations and destroying jobs there to assist politically favored business.
  • OPIC-type subsidies distort market-driven allocation of capital and labor.
  • Preventing OPIC from engaging in new activities would save U.S. taxpayers more than $500 million over a ten-year period, according to the Congressional Budget Office.
  • Businesses don't need subsidies to encourage them to invest abroad, since sources other than OPIC provided 93 percent of the financing and 75 percent of political risk insurance last year to business in countries in which OPIC had a presence.

Moreover, OPIC really plays only a minor role in U.S. exports and foreign direct investment -- 1 percent of U.S. exports last year, less than 2 percent of financing for foreign direct investment and less than 10 percent of political risk insurance for U.S. investments abroad.

Despite apologists' claims that OPIC is needed to help small businesses here, only 5 percent of firms that did business with OPIC last year could be classified as small, and only 3 percent of OPIC-assisted projects last year involved small businesses.

Schaefer concludes that the defense of OPIC advanced by its proponents consists largely of myths with no basis in reality.

Source: Brett D. Schaefer, "The Overseas Private Investment Corporation: Myths and Realities," Heritage Foundation Backgrounder No. 1127, June 26, 1997.


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