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WE ARE ALL BANKERS NOW

By Cliff DuRand
October 29, 2008

How many of you are citizens of the U.S.?  Congratulations.  You are now part owners of the largest banks in the U.S.  That’s right, collectively we are now bankers thanks to the $700 billion we taxpayers gave to the Treasury Department for the bailout.  But before you get too excited I should point out that we won’t have any say in how our banks are run.  Because President Bush and Secretary Paulson made sure we are only passive investors.  That is, private financial investors will decide what to do with our money and use it to make themselves even richer.  Public money is being used for private enrichment.

But it doesn’t have to be that way.  As owners we ought to have a say in how our money is used.  We ought to be able to use it to benefit the public by promoting social projects.  We could use it to give relief to the millions of distressed homeowners.  We could use it to finance projects like green energy, infrastructure development, college loans –whatever we the people decide best promotes the common good.  This crisis could become an opportunity to expand the scope of democracy in our country.  We claim to believe in democracy, don’t we? 

Yet, the decisions of our government are influenced more by the interests of the wealthy than by we the people.  Our political system is what political scientists like Robert Dahl call a polyarchy, i.e. rule by elites.  Its main democratic feature is that periodically we get to elect which members of the elite will rule us.  But the decisions are made by those we elect and the elites who surround them.

What if we took seriously our ownership of the banks and decided to control them?  That may sound like a radical idea, but we actually have something like that in my home state of North Dakota.  It’s not widely known, but North Dakota is the only state in the U.S. that has its own publicly owned bank.  For nearly a century now, the citizens of that state have been empowered by this unique public institution.  It came out of the agrarian populism that swept the rural areas of the country in the years prior to WWI.  It was one of the ways family farmers were able to protect themselves against the usurious big banks of the Eastern establishment as well as the predatory railroads and milling interests.  And when the Great Depression came along, rather than foreclosing on homeowners who fell on hard times, the state bank helped farmers weather those years.  As a result, the family farm still exists in North Dakota whereas in most of the rest of the country it has been replaced by agribusiness.  Here we have a living example of democratic empowerment. 

Philosopher David Schweickart has pointed out that

Treasury Secretary Henry Paulson resisted this idea but was finally forced to adopt it, not by popular pressure, but by circumstances.  Writing just one month ago, Schweickart went on to add:

What we’re talking about here is economic democracy, i.e. the possibility of a shift away from investment decisions being made by unaccountable private people of wealth based on the profit motive to investment decisions being made by democratically accountable representatives of the citizenry based on the common good. 

And there is a lot of good that such popular banks could do.  For starters, they could resolve the millions of mortgages now in delinquency in a humane fashion, either by renegotiating mortgages where possible or converting homeowners into renters.  That is far better for everyone than to have millions of vacant houses and families living on the streets or in the basements of their parent’s homes.    

There is another good that democratically controlled investment can do that will be of immense long term benefit to society.  These popular banks can channel investment into green energy, financing innovative renewable energy sources that can move the economy away from climate destroying hydrocarbons and the wars needed to secure them.  Surely, this is a stimulus package that would open the way to a sustainable future.

Where, you might ask, would the capital come from for this and other investments?  Schweickart suggests that we abolish the corporate income tax and replace it with a simple, flat-rate capital assets tax.  He points out that “profit taxes used to comprise a significant portion of our national income tax receipts, but they no longer do.  Corporations have figured out how to avoid those taxes.  A capital assets tax is much simpler to administer and more difficult to avoid.”  This would enable our popular bank to directly fund worthwhile projects for the common good by loaning capital rather than through the present cumbersome mechanism of giving tax benefits to businesses as an incentive.  There are other aspects to Schweickart’s proposal that I can’t go into here, but you can read it on our website  http://www.globaljusticecenter.org/articles/bailout.html   and in the several books he has written on economic democracy.

Two weeks ago I argued that this financial crisis is rooted in the combined effect of two factors.  http://www.globaljusticecenter.org/articles/big_one.html  On the one hand incomes of most Americans have been stagnant or even declined for the last 30 years, making it increasingly difficult to achieve the American Dream.  On the other hand, there has been a mammoth concentration of wealth in the top couple percent of the population, wealth that has had difficulty finding opportunities for profitable investment.  So they have been throwing easy credit at people who are trying to live beyond the means otherwise available to them.  In sum, the root of the crisis is the immense income inequality in U.S. society –even greater than in 1929.  What is needed is a redistribution of income downward, not tax breaks for the wealthy.  

It is becoming increasingly apparent that the financial crisis is evolving into a general depression, although many are shy about using that harsh term and call it only a recession.  By any name it is getting worse and likely to last for a long time.  As it does there are increasing calls for relief to soften the impact on people.  But beyond that there will need to be major programs to get the economy growing.  I think there will have to be more than tax relief.  There will need to be major public investment in infrastructure, education, green energy and the like that will not only stimulate the economy, but make it more efficient and sustainable in the long run.  What we need is a new New Deal that at once protects people’s livelihood, grows the economy and regulates the capitalist market. 

But I think we will need to be bolder than FDR, of whom it is said he saved capitalism from the capitalists.  While that rescue and regeneration of capitalism lasted for 60 years, now capitalism has once again reached a similar crisis born of its own contradictions.  We should use this opportunity to create new institutions that will not lead us to yet another dead end a generation from now.  Rather than sell the banks back to private interests after we the taxpayers have fixed them, we should keep them as public property.  And as other productive enterprises verge on bankruptcy, rather than bail them out, the taxpayers should buy them out and then lease their productive assets to the workers formed as democratic cooperatives.  This will not only save their jobs.  It will also lead us further toward economic democracy. 

The present financial crisis and the unfolding general economic crisis allow us to consider new possibilities.  Neo-liberalism has been the reigning ideology for the last 30 years.  The disrepute into which it has now fallen calls us to develop new ideas to guide our economic and social development.  The Chinese character for “crisis” is a combination of two other characters: one for something that is falling apart, the other for new opportunities.  This double meaning is also seen in the medical use of the term for the turning point in a disease when an important change takes place, indicating either recovery or death.   As the Greek root of the word “crisis” (krisis) suggests, this is a decisive turning point where we can decide between alternatives.  Are we going to stick with a failing system or are we going to choose to move toward a more viable, healthy alternative?  If it is to be the latter, a good deal of popular struggle and what John Dewey called social intelligence will be necessary.  Let’s hope that the present election campaign is the beginning of the latter.

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