Sacred Headwaters #12: Public Banking
Globally, public banks account for $35 trillion, or 1/4 of all banked assets. But there are only three in the US. What are public banks, and what role can they play in a global energy transition?
Sacred Headwaters is a bi-weekly newsletter that aims to guide a co-learning process about the existential issues and planetary limitations facing humanity and about how we can reorient civilization in a way that will enable us to thrive for centuries to come. If you’re just joining us, consider checking out the first issue for some context and read through the other issues when you can. The newsletters are not strictly sequential, but this exploration is meant to build on knowledge and understanding over time. Subscribe below if you haven’t already, and please share with friends, family, and colleagues who may be interested:
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Issue #12: Public Banking
The most terrifying words in the English language are: I'm from the government and I'm here to help.
This is an oft-cited Ronald Reagan quote. It’s been surfacing frequently in response to both rising support for “Green New Deal” style policies and COVID-19 measures across the world.
While Reagan may have given words to these sentiments (“government is the problem” and so on), he didn’t invent them. These quotes represent a narrative that’s become part of our western cultural frame over the last fifty years. It’s understood as truth: government is inefficient (or even corrupt); innovation comes from the private sector and “free market” competition.
A deeper look exposes this narrative for what it is — a story. There are plenty of examples of government inefficiency, but there are plenty of examples of private sector inefficiency, too, in the practical “this outhouse cost a million dollars” sense; in the “we extracted so much value from this land that now it can’t support the people who live there” sense; and in the “we knowingly caused global warming while convincing the world it wasn’t happening — and we’re still doing it” sense.
In this newsletter, we’ll read about how public funding has actually been a driver behind many of the most innovative technological breakthroughs of the last century. We’ll also look at how governments at every level — from municipalities to multi-state coalitions like the EU — are using a variety of public banking models to encourage sustainable, just, and locally appropriate community development. US-based readers: pay close attention. Public banks nearly died out in the US over the course of the 20th century, but there are now three public banks across the country and there are a number of legislative initiatives pushing to allow more to be created.
What is a public bank? (10 minutes)
When I talk about how the current global economic system is “extractive,” I use that term in a way that goes beyond the extraction of value from natural resources and the environment. The financial network is a defining part of the system’s extractive structure. Small businesses, public infrastructure projects, and more are funded by credit; that credit overwhelming comes from investors (or banks) that are not co-located or associated with the project itself. Revenue from that lending is “extracted” from the area or group that is actually generating the wealth. The same perspective applies to resource extraction by multinationals, or even to a Walmart popping up in a small town — revenue is extracted from that town (at the cost of local business), going instead to a distant corporation and its shareholders.
Public banking is an alternative model. It’s similar to the idea of a credit union, but instead of being owned by its members, it’s owned by the government, whether municipal, state, or federal. This short video and article give a quick summary of how public banking can fit into the US model of governance, what public banks can be used for, and how they are funded. Note: this is from a group advocating for public banking in New Mexico and is presented in that context.
Sparkassen: Germany’s public banking network (10 minutes)
Germany has a public banking network that dates back more than 200 years. The Sparkassen is a network of public municipal “savings banks” that provides banking services for the public and stable credit for businesses and public investment. The banks operate to make a profit, but they have also have a legally defined public mandate that ties them to the community interest. This case study from the Centre for Public Impact introduces the Sparkassen network and looks at how it performs in a number of qualitative metrics surrounding public impact. In addition to the improved access to credit for small and medium-sized enterprises and municipal investment that public banking can offer, there is evidence that some forms of public banks — including the Sparkassen network and the only public bank that existed in the US at the time, the Bank of North Dakota — are better able to weather global financial crises. The Sparkassen network is deeply embedded in German society and history and that exact model may not work elsewhere, but it provides an example of public banking working well in an industrialized and economically healthy democracy.
“This economist has a plan to fix capitalism. It's time we all listened” - a profile of Mariana Mazzucato (25 minutes)
Mariana Mazzucato is an economist who has worked across Europe and the Americas advising policy-makers on mission-driven public investment. This Wired UK profile introduces her work from historical analysis of innovation to forward-looking policy strategies like Horizon Europe. Mazzucato argues that the overwhelming majority of technocratic innovation has been driven by public investment, but that the credit tends to be captured by private industry in what becomes a self-fulfilling narrative prophecy. She cites innovations like integrated circuits, the internet, GPS, Siri, and the touchscreen as examples, all of which were initially funded by US government initiatives in the latter half of the 20th century. From this, Mazzucato draws the conclusion that to face the global crises of the 21st century, we need to draw on what’s worked for us in the past: what she calls “mission-driven” government investment. I find Mazzucato’s work particularly interesting because she’s taken a critical lens to the cultural narratives surrounding innovation and used a historically-based interpretation to inform real and innovative policy-making.
How Public Banks Can Help Finance a Green and Just Energy Transformation (30 minutes)
This policy brief from the Transnational Institute looks at how public banks can play a role in facilitating the $90 trillion dollars of green infrastructure investment needed to finance energy transition (caution: that article is from 2015…read with that in mind, it is incredibly demoralizing). It discusses the scope of transforming our energy system and some of the inadequacies of private finance that prevent it from fully funding that transition. Then, it goes into detail on two examples of public or public-like banks, Costa Rica’s worker- and government-owned BPDC and Germany’s government-owned KfW. These two banks are quite different in governance, structure, and services, but both are being used to fulfill social mandates to finance green energy, energy efficiency, and conservation projects. The brief emphasizes that while no public bank is perfect, these banks demonstrate important characteristics that make public or public-like banks a critical tool in the fight against climate change. Ultimately, the author argues that with the proper social mandate and democratic governance structure, public banking should be more broadly applied.
Book Recommendation: The Entrepreneurial State, Mariana Mazzucato
In this book, Mazzucato uses empirical and historical examples to argue that governments have been deeply involved in technological innovation and shaping (and creating) economic markets throughout the history of global capitalism. She looks at why we subscribe to a pervasive narrative of government incompetence and “free market efficiency,” identifying it as a narrative that is perpetuated by the private actors that it serves. The book was written in 2013, but the points are doubly important now as we look to massive-scale government spending to drive recovery from the global COVID-19 recession (depression?) and as that recovery simultaneously must drive us to a cleaner, more sustainable, and more just world.
Bonus Essay: “On Sourdough” (5 minutes)
This newsletter is meant to be a library of information or guided research journey more than anything else, so I don’t usually include my writing other than the intro and article blurbs, but I published a short essay last week on sourdough bread, COVID-19, and climate change and thought I’d share it. If you’re interested in my more opinionated ramblings, follow along on Medium.
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Source: Public Banking Institute, https://www.publicbankinginstitute.org/why-public-banks/.