In 1919, the farmers of North Dakota got fed up with predatory lenders, and successfully lobbied for a credit union style state-run bank for them to use instead. Private sector financial institutions elsewhere in the country would have none of this, and destroyed this initial effort by freezing the North Dakota bank out of access to bonds, and by underwriting a political attack on bank supporter Governor Lynn Frazier, leading to his recall. Frazier was, in fact, the first governor to be successfully removed from office in the United States. The leader of the anti-farmer and anti-labor movement, a member of the Independent Voters Association party, took over the governor’s seat. Frazier was later elected senator.
Although anti-farmer interests managed to get rid of pro-farmer and pro-union Frazier, they didn’t exactly get rid of the bank. It continued to exist, but with an altered mission. Today, the bank is still a state bank. The state uses this bank to hold its funds, instead of using a privately owned bank. Local governments can optionally use it, as can other entities.
A state bank that is not chewed up by Wall Street goons has the potential to help a lot of people and advance important progressive ideals. Therefore, you can expect Republicans, Libertarians, Conservatives, and of course, bankers, to vigorously oppose it.
But Minnesota may well get a state bank.
Minnesota Auditor and Gubernatorial candidate Rebecca Otto (DFL) has just proposed a state bank as part of her overall economic plan (the Local Economies Plan) for Minnesota.
The idea is to address high student debt, and limited access to capital for small businesses including farms, and to address social (often racial or, really, just plain racist) disparities in access to cash within the state. The plan is outlined here.
I caught up with Rebecca this morning and asked her to tell me a bit more about the project. For one, I wanted to know why, with all the banks around that seem to serve a wide range of purposes, we needed this new kind of bank. “Right now the scales have tipped away from the people and toward big industry,” she told me. “Because we live in a time of the politics of greed and citizens united, we’ve got to aggressively figure out how to provide for equality of opportunity and focus back on strong local economies and the common good, and we must pursue every option available.”
We live in an increasingly miserly culture, I told her. I see every single policy proposed, some policy that might keep baby kittens from being tortured, and people insist on knowing the economic benefit before the moral or ethical benefit. How does this plan address the most parsimonious sensibilities?
“Consider farming,” she said. “When the economy turns down, the farmers that are most diverse tend to survive. That’s been well-established and I have seen it as a member of the Rural Finance Authority board. It’s just like when Shawn and I were in business, we knew that we needed a diverse customer base. If we let any one customer become too big a share of our sales, we became vulnerable. Diversity in the local economy makes us stronger and that means more small businesses. That way when one of them decides to close up shop you don’t lose half the economic base of the town.” And one of the main purposes of the bank is to address this problem.
During the conversation we got a bit off track to talk about her overall economic plan. Regarding a $15 minimum wage, Auditor Otto noted that “People tell me, ‘$15, we could never afford that,’ and I ask them: are you telling me that we can’t afford to pay people enough to survive? Because the alternative is to have people starving or to put more and more money into government safety net programs instead of people making enough to support themselves, and we all pay for that in taxes,” she argued. “So this is a moral question as well as an economic one. Capitalism doesn’t work unless people have an education and have money in their pockets. The whole thing breaks down, so policies that improve the common good economically support capitalism too.”
The other day, I spoke with some of Otto’s lead campaign staffers, and I got the strong impression that Otto is currently even with, or slightly leading, the other main candidate in the DFL’s endorsement process, and has a very good chance of being the endorsed candidate for governor. Otto, a resident of rural Minnesota with strong ties to the cities, the educational communities, and business, enjoys more statewide support than any other candidate, and has a high probability of winning in November, even if there isn’t a “blue wave.” But there will likely be a blue wave as well. So, the chance that we get to see how a State Bank can work for the state is very high!