Striking at the Heart

Almost fifty years ago, in April 1974, a coup by left-leaning soldiers within the Portuguese armed forces overthrew the country’s fascist dictatorship and triggered a far-reaching economic, political, and social revolution. Faced with the threat of capital flight and capital strikes, unionized workers in the country’s banks seized control and demanded the replacement of governing boards hostile to this “Carnation Revolution.”

Following a failed countercoup in 1975, the government nationalized private Portuguese banks (without compensation) to break the power of the country’s small group of capitalist elites. Over the subsequent years, these public banks helped spur Portugal’s economic development and transition to a multiparty, social democratic system.

Portugal’s moves were bold, but not unprecedented. Throughout the twentieth century, radical movements in countries from Russia and Cuba to Chile and Tanzania realized that leaving capital in private hands would, at best, limit what they could achieve and, at worst, threaten their very survival. In the US Midwest, a similar dynamic — an ascendant left-wing movement grappling with private capital — led to the creation of the Bank of North Dakota (BND), the more than one-hundred-year-old public bank that serves as a model for many US public-banking campaigns.

In the late nineteenth and early twentieth centuries, North Dakota was under the thumb of corporations and wealthy capitalists, particularly out-of-state railroad companies and grain monopolies backed by large private banks. These companies used their wealth and power to evade state taxes and buy off state officials. Early efforts to weaken this plutocratic stranglehold were met with warnings of capital strikes. In 1891, for instance, grain companies threatened to close their elevators rather than accept modest regulation.

Between 1916 and 1918, candidates aligned with the newly formed Nonpartisan League (NPL) won a series of elections on the promise of creating a more just economy. Upon gaining control of the North Dakota legislature and governorship, the NPL began to implement its agenda. Aware that corporate interests would use their control of capital to stymie radical policies, the NPL made public banking a cornerstone of their approach.

In July 1919, the BND opened its doors and managed to survive an early economic and legal counterattack from Wall Street banks and their local allies. It has subsequently become an engine for economic development in the state, supporting lending to farmers, providing disaster relief, making low-cost student loans, providing banking services to smaller banks and individuals, and returning tens of millions to the state general fund to support social services.

Method and the Madness

Creating a completely new public bank at the city or state level is a difficult and complex proposition. For many years, the BND was the only full-scale public bank in the United States, and only recently did a second institution join that list: the Territorial Bank of American Samoa (TBAS).

Despite mounting momentum behind public banking — especially in California, where enabling legislation was passed in 2019 — it has proven difficult to get new public banks off the ground for a variety of reasons, including opposition from private-banking interests and the requirement (in California) that new public banks receive Federal Deposit Insurance Corporation (FDIC) insurance (something that neither the BND nor the TBAS needs given that deposits are guaranteed by the state or territory government).

Founding a new public bank in Chicago, and realizing its full benefits, will likely take time — time that the Johnson administration politically, and the people of Chicago economically, manifestly lack. Fortunately, there are several half steps the city could adopt to assert public control over capital and move toward a full-fledged public bank.

As a new report by the Jain Family Institute and the Berggruen Institute outlines, a potential first step would be to create or repurpose a municipal finance corporation (MFC) — similar to those already existing in several North American cities — that would make loans and investments but would not collect deposits. Such an institution, the authors contend, would be much easier to establish through traditional municipal processes and would not require FDIC approval. “The MFC structure could thus allow the city to quickly initiate lending toward its goals and social mandates in climate, housing, and financial justice,” they write.

Not only would this MFC help Chicago deliver on some of its most pressing economic, social, and environmental priorities, but it could help lessen the blow of a potential capital strike by providing funding (in the form of loans or investments) to Chicago-based businesses. Additionally, it could serve as proof that public control of capital is possible, strengthening the case for a full-scale public bank.

Another option would be to acquire an existing financial institution and convert it to a public bank. While the Jain/Berggruen plan envisions this as a second stage once an MFC is up and running, it could also be implemented separately. In the private sector, most bank expansions and new entrances occur by way of an acquisition since it is quicker and cheaper to simply purchase a bank charter than to erect an entirely new bank.

Currently, the FDIC lists thirty-one insured banks operating in Chicago (not counting branches of larger national or international banks). While not all these banks would be a viable option to buy out, one or more could be willing to sell their operations to the city at a fair market price.

The Jain/Berggruen report acknowledges some downsides to the buy-existing approach, including inheriting loans and business lines that might not be in accordance with the goals of a public bank. The report even suggests that the city might find it more difficult than a private bank to shut down these business lines.

This is a contestable presumption. Traditionally, one of public ownership’s main benefits is that it can advance whatever goals society chooses to prioritize — including ending or excluding noxious business activities. By contrast, a private bank committed to maximizing shareholder returns will likely find it exceptionally hard to mothball socially undesirable business, especially if it is lucrative.

Committing to Economic Democracy

Public banks, like all publicly owned enterprises, are not inherently good or bad. They are institutions that must be consciously designed to produce the outcomes that society desires. Over the decades many have been highly successful in their aims, from boosting employment to developing industrial policy. Others, however, have been at best overly top-down, bureaucratic, and alienating, and at worse, vehicles of clientelism, environmental degradation, and state oppression.

In recent years, an alternative known as Democratic Public Ownership (DPO) has started to emerge and proliferate around the world. At its core, DPO is about enhancing democratic decision-making structures, transparency, and accountability both within and around a publicly owned enterprise or service. This may include empowering trade unions and works councils; creating democratically elected governing assemblies; establishing multi-stakeholder boards; building autonomous community “observatories” to enhance participation and oversight; implementing participatory planning and budgeting processes; and crafting co-governance arrangements with popular membership organizations.

While relatively new as a cohesive concept, DPO has a long history anchored in left theorizing and anti-capitalist experiments. From the multi-stakeholder “Plumb Plan” promulgated by US railroad workers after World War I, to efforts to institute workers’ councils and worker self-management in Eastern Europe during the Cold War, to more direct forms of community control of public services implemented in South America in recent decades, many leftists have long identified the need to democratize publicly owned enterprises.

Fortunately, DPO principles figure prominently in the contemporary public-banking movement in the United States, and there are numerous proposals that the Johnson administration could consult: along with the recent Jain/Berggruen paper, there’s a report from the Democracy Collaborative titled “Constructing the Democratic Public Bank,” the governance proposal put forth by the East Bay Public Bank campaign, and experiments like Costa Rica’s Banco Popular, a large and highly successful public bank with an innovative democratic governance model.

Brandon Johnson will face a blizzard of challenges when he is sworn in as Chicago’s fifty-seventh mayor this month. He will need to move quickly and forcefully to attack those obstacles — including by asserting democratic, public control over capital. And even if his administration is not immediately successful, it could be responsible for creating a powerful new public bank that serves as an engine for just economic development in Chicago for generations to come.