Public Banking, State Capitalism and the Collapsing Bridge

January 7, 2018 updated January 8, 11:16 AM

by Matt Stannard

I’ll give away the ironic image-play here. One chief argument for public banks is low-or-no-interest public infrastructure funding, and the exemplar of that argument is the San Francisco-Oakland Bay Bridge retrofit, which cost nearly twice as much as it should have because of interest rates on the money borrowed to complete it. Probably ten people total would get that connection to the title of this post.

The collapsing bridge here is the one between capitalism on the one side and public or democratic control of some financial institutions on the other.

The biggest challenge for the public banking movement is that it was originally conceived –at least in the wake of the Occupy movement of 2011– as a bridge between people who love capitalism and want to save it from the monopolies of the financial sector; and those who believe we need a full-scale transition into cooperative, non-capitalist economics. That bridge may no longer be stable. In a few years, it may not even exist at all, and the movement will have to answer the age-old question of the radical labor struggle: Which side are you on?

Over at Occupy, [EDIT: THE ARTICLE IS HERE] I’ll have an article up later this week (and will edit to add the link) on the ways in which the public banking movement has taken some punches to the gut, from Governor Phil Murphy’s deprioritization of a New Jersey state bank to the defeat of L.A.’s Measure B to the end-of-year news that the report commissioned by California’s Cannabis Banking Working Group strongly recommends against any public option in cannabis banking—bitter (but, as I explain in the article, unsurprising) news for those of us who pushed the public banking option and spoke before the Working Group at its public banking hearing in Los Angeles in 2017.

Deonna Anderson’s good new article on public banking in Yes! magazine doesn’t get into the movement’s recent defeats, but does mention my cautionary report about North Dakota’s use of its state-owned bank to entrench rather than break free from our life-killing dependence on fossil fuels—and the function of that public bank to emergency-fund state repression of protesters at Standing Rock.

Obviously there are different definitions of success, and the anti-scarcity narrative of public banking has tended to use a very generic definition, allowing advocates to tout the success of North Dakota’s extraction industry (made possible in part by the lending of the state-capitalist BND) while also taking some credit for the launch of Germany’s post-carbon transition. In a kind of marshmallow liberal sense, it makes sense that advocates of a type of public entity rather than an entire value system would present their case in value-neutral terms. But humanity is killing itself and major portions of the planet, public control of finance could help reverse course, and there are limits to who we want to spend time and resources winning over in that fight.

For years, the public banking movement has courted the smaller players in the banking industry—particularly community bankers, whom the movement has sometimes flatteringly portrayed as white knights of economic justice–with promises to do what BND does and support small business lending and regulatory compliance among community banks. North Dakota bankers like it and have been willing to say that. Painfully few other leaders in the small-scale end of the financial sector have followed the lead. There are occasionally internal debates in the public banking movement about the utility of continuing to court community bankers, and the “everyone at the table” approach generally wins, though not always by much.

With no community bankers on board, earlier iterations of the movement were often energized by conspiracy theory types (who are sometimes right—I say “conspiracy theory types” more of a description of their political praxis than their particular beliefs) who’d recently read Ellen Brown and learned that, according to a widely supported theory of banking, banks create money by lending it.

But the dominant “banks create money” narrative is a kind of potential red herring to public banking as a political movement. It’s not what chiefly motivates the divestment-oriented eco-justice and new socialist proponents of municipally-owned banks. The language of the narrative, the kind of “look what we discovered about banking that Wall Street doesn’t want you to know,” probably does more harm than good. I get that it’s a compelling and sound argument. But even if banks do not “create money” they do facilitate the creation of value and liquidity, and have the power to erase the practical distinction between having and not having money. Even if “money creation” is more metaphorical than real (there are good reasons to think it’s both), it stands for the proposition that banks are extraordinarily powerful entities in financial infrastructure and for that reason, irrespective of any others, they should be publicly owned.

Mobilizing around that “secret” about banks has made for some strange bedfellows since the beginning, and so at least until the divestment and economic justice movements re-acquainted themselves with public banking, it has been too esoteric, evidenced by the handful of leading public banking exponents who are vocal Trump supporters (in the service of which they make or retweet embarrassingly stupid arguments which I will refrain from linking to here). Some of these people are carry-overs from the section of the movement informed by the anti-banking, anti-federal reserve positions associated with G. Edward Griffin, a Bircher whose 2009 conference on Jekyll Island off the coast of Georgia helped build the white supremacist militia movement. Anti-Semites and authoritarian-fetishists saw public banks as a means to dismantle the imagined “Jewish hold” over private finance capital, or allow strong dictators to quickly fix the economy. Similarly, in many ways, the “free money” section of the public banking narrative is more a libertarian wish-dream than a democratic socialist template. If we’re careless, all of this becomes a way of bypassing democracy, not actualizing it.

But since Trumpism and vaguely antisemitic conspiracy theories are grounded in the same essential worldview as neoliberalism and finance capital, the right-wing public banking advocates can’t effectively defend the movement from attacks by the finance industry in the form of negative feasibility studies. There’s a fundamental disconnect in someone who believes banks should be run by municipalities in the public interest but also stands by Trump. Allies like that are distractions at best. At worst, they represent the desire for a fantasy-world of authoritarian state capitalism, where powerful demagogues or fascistic parties control giant “public” banks so they can control or quickly fix troubled sectors of the economy, eliminating material rivals rather than being subject to the kinds of deliberative and transparent community control characteristic of, say, democratic socialism.

Public banks may provide a means of sustainable growth. Unless engineered by oligarchs, they will not provide the kind of growth that pleases powerful investors or allows speculation and gambling with other people’s money. But those are precisely the things capitalism presently wants. Public banks won’t save capitalism as it manifests today, and there is no political or policy trajectory towards an “ethical” capitalism, a “green” capitalism, or any other kind of non-exploitative, non-extractive capitalism. The individuals and small groups associated with such visions have no political roadmap, even though they are often smart and nice people. There is no mass movement behind them, nor is there the ground to build such a movement. The occasional entrepreneur-with-the-innovative-solution-to-poverty isn’t enough. Elites can’t, and won’t, transform the material conditions that made them into elites.

What all this ultimately means is that we need democratic, public-centered, commons-centered control of our finance, period. It may not matter what that looks like. There are many great models, some transitionary, some that compromise too much in my opinion, and many that don’t.

Ultimately, economic and ecological justice can’t be about “bringing everyone to the table.” It has to be about bringing willing stakeholders to the table, and rendering the unwilling (and materially predatory) parties irrelevant. It’s been encouraging that movements across California, from Los Angeles to Oakland to San Francisco to Santa Rosa, have begun to adopt that more militant, egalitarian, justice-oriented praxis. I really hope the best for them in the face of yet another rebuke commissioned by conservative public officials and written by those for whom economic democracy is foundationally alien.

Matt Stannard is director of Solidarity House Cooperative and writes, researches, and teaches about cooperative law and economics. He served as policy director for Commonomics USA, and was communications director and later a board member for the Public Banking Institute.

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