Can Public Banks Help Re-Establish an Economy That Works for the Majority?

The New Republic’s Sarah Jones is reporting on how citizens in Los Angeles will be voting on a ballot initiative about whether the city should be permitted to create a public bank.  She provides a concise overview of what public banks are and what they do.  But don’t feel confused if you’ve never even heard of them: only one — the Bank of North Dakota — exists in the entire United States.

As with a couple other economic reforms we’ve discussed recently — ending stock buybacks and requiring that workers have a place on company boards of directors — two contradictory thoughts come to mind.  Like these other proposals, public banks seem like common sense, but clearly face an uphill battle against status quo thinking that the private sector and the free market will take care of all the public’s needs.  What’s particularly intriguing about all three of these reforms, though, is how they challenge mainstream thinking about the economy in a way that exposes how preferential to wealthy interests our current economic arrangements are, and how such public-minded reforms can actually move us in the direction of actual free(er) markets.  

Since the 2008 financial crisis, big banks have clawed their way back into respectability and ensconced themselves ever more firmly in the economic firmament.  Too big to fail has become an accepted reality of the financial sector, with entities like Citigroup having successfully resisted moves to chop them down to less systemically-threatening size.  Since the election of Donald Trump, we’ve also seen the rollback of various Dodd-Frank requirements that sought to protect the economy from another financial meltdown.

Despite these unfortunate developments, though, 2008 and its aftermath have left an indelible impression on the public consciousness, and offered living proof, that there is nothing sacrosanct, let alone inherently robust, about our privatized banking system.  In this context, public banks might be seen as a necessary addition to the financial sector that would provide stability the next time our profit-hungry banks overreach and threaten to take us all down with them.  In terms of competition, too, it’s hard to argue that more banks would somehow not be a good idea.  And after the countless instances of banks exploiting their customers by misrepresenting mortgage terms and gouging them with random bank fees, it’s laughable to say that there’s not a need for a public-oriented banking sector to balance out private finance’s propensity to screw ordinary Americans.  That would give consumers a real choice, more so than asking people to grapple with whether Wells Fargo or Bank of America would abuse them the least.

In a parallel fashion, ending stock buybacks and putting workers on company boards also directly address glaring imbalances in how rewards and power are distributed in our economic system.  By doing so within the existing framework, and in fact in ways that arguably would strengthen it, they demonstrate that our current arrangement is merely one among many that are possible.  And as with the banking sector, the 2008 financial crisis and its aftermath of slow growth and increasing inequality put into question the fairness of buybacks and exclusion of workers from business decisions.  It’s clearly time to try something else, as more extreme versions of the same old thing fail the basic test of logic.  Co-determination and public banks also have the great and necessary virtue of reforming the economy by making it more democratic; in doing so, they'd also contribute to the revitalization of American democracy, which will only return to health when economic matters are brought more firmly under its scope.  Political and economic justice are two sides of the same coin.