"Banking is not just a market good or service. It is a vital part of
societal infrastructure, which properly belongs in the public sector.
By taking banking back, local governments could regain control of that
very large slice (up to 40 per cent) of every public budget that
currently goes to interest charged to finance investment programs
through the private sector. Recent academic studies by von Mettenheim et al. and Andrianova et al. show
that countries with high degrees of government ownership of banking
have grown much faster in the last decade than countries where banking
is historically concentrated in the private sector. Government banks
are also LESS corrupt and, surprisingly, have been MORE profitable in
recent years than private banks."
A Public Bank Option for Scotland
Posted on September 17, 2014 by Ellen Brown
Scottish voters will go to the polls on September 18th to decide whether Scotland should become an independent country. As video blogger Ian R. Crane colorfully puts the issues and possibilities:
[T]he People of Scotland have an opportunity to extricate themselves from the socio-psychopathic global corporatists and the temple of outrageous and excessive abject materialism. However, it is not going to be an easy ride . . . .If Alex Salmond and the SNP [Scottish National Party] are serious about keeping the Pound Stirling as the Currency of Scotland, there will be no independence. Likewise if Scotland embraces the Euro, Scotland will rapidly become a vassel state of the Euro-Federalists, who will asset strip the nation in the same way that, Greece, Ireland, Portugal and Spain have been stripped of their entire national wealth and much of their national identity.
To achieve true independence, Crane suggests the following, among other mandates:
- Establish an independent Central Bank of Scotland.
- Issue a new Scottish (Debt Free) Currency.
- Settle any outstanding debt with new Scottish Currency.
- Take Scotland out of the EU.
- Take Scotland out of NATO.
- Establish strict currency controls for the first 3 years of independence.
- Nationalize the Scottish oil & gas industry.
- Re-take control of the National Health Service.
- Establish a State Employment Agency to provide work/training for all able-bodied residents.
Arguments
against independence include that Scotland’s levels of public spending,
which are higher than in the rest of the UK, would be difficult to
sustain without raising taxes. But that assumes the existing UK/EU
investment regime. If Scotland were to say, “We’re starting a new round
based on our own assets, via our own new bank,” exciting things might
be achieved. A publicly-owned bank with a mandate to serve the interests
of the Scottish people could help give the newly independent country
true economic sovereignty.
I
wrote on that possibility in December 2012, after doing a PowerPoint on
it at the Royal Society of Arts in Edinburgh. That presentation was
followed by one by public sector consultant Ralph Leishman, who made the
proposal concrete with facts and figures. He suggested that the
Scottish Investment Bank (SIB) be licensed as a depository bank on the
model of the state-owned Bank of North Dakota. I’m reposting the bulk of
that article here, in hopes of adding to the current debate.
From Revolving Fund to Credit Machine: What Scotland Could Do with Its Own Bank
The
SIB is a division of Scottish Enterprise (SE), a government body that
encourages economic development, enterprise, innovation and investment
in business. The SIB provides public sector funding through the
Scottish Loan Fund. As noted in a September 2011 government report
titled “Government Economic Strategy”:
[S]ecuring affordable finance remains a considerable challenge and further action is needed to ensure that viable businesses have access to the funding they require to grow and support jobs. The recovery is being held back by limited private sector investment – indeed, overall investment in the UK remains some 15% below pre-recession levels. Evidence shows that while many large companies have significant cash holdings or can access capital markets directly, for most Small and Medium-sized companies bank lending remains the key source of finance. Unblocking this is key to helping the recovery gain traction.
The
limitation of a public loan fund is that the money can be lent only to
one borrower at a time. Invested as capital in a bank, on the other
hand, public funds can be leveraged into nearly ten times that sum in
loans. Liquidity to cover the loans comes from deposits, which remain
in the bank, available for the use of the depositors. As observed by
Kurt Von Mettenheim, et al., in a 2008 report titled Government Banking:
New Perspectives on Sustainable Development and Social Inclusion from
Europe and South America (Konrad Adenauer Foundation), at page 196:
[I]n terms of public policy, government banks can do more for less: Almost ten times more if one compares cash used as capital reserves by banks to other policies that require budgetary outflows.
In
2012, according to Leishman, the SIB had investment funds of £23.2
million from the Scottish government. Rounding this to £25 million, a
public depository bank could have sufficient capital to back £250
million in loans. For deposits to cover the loans, the Scottish
Government then had £125 million on deposit with private banks, earning
very little or no interest. Adding the revenues of just 14% of
Scotland’s local governments would provide another £125 million,
reaching the needed deposit total of £250 million.
The Model of the Bank of North Dakota
What
the government could do with its own bank, following the model of the
Bank of North Dakota (BND), was summarized by Alf Young in a followup
article in the Scotsman.
He noted that North Dakota is currently the only U.S. state to own its
own depository bank. The BND was founded in 1919 by Norwegian and other
immigrants, who were determined, through their Non-Partisan League, to
stop rapacious Wall Street money men foreclosing on their farms.
Young
observed that all state revenues must be deposited with the BND by
law. The bank pays no bonuses, fees or commissions; does no
advertising; and maintains no branches beyond the main office in
Bismarck. The bank offers cheap credit lines to state and local
government agencies. There are low-interest loans for designated project
finance. The BND underwrites municipal bonds, funds disaster relief and
supports student loans. It partners with local commercial banks to
increase lending across the state and pays competitive interest rates on
state deposits. For the past ten years, it has been paying a dividend
to the state, with a quite small population of about 680,000, of some
$30 million (£18.7 million) a year.
Young wrote:
Intriguingly, North Dakota has not suffered the way much of the rest of the US – indeed much of the western industrialised world – has, from the banking crash and credit crunch of 2008; the subsequent economic slump; and the sovereign debt crisis that has afflicted so many. With an economy based on farming and oil, it has one of the lowest unemployment rates in the US, a rising population and a state budget surplus that is expected to hit $1.6bn by next July. By then North Dakota’s legacy fund is forecast to have swollen to around $1.2bn.With that kind of resilience, it’s little wonder that twenty American states, some of them close to bankruptcy, are at various stages of legislating to form their own state-owned banks on the North Dakota model. There’s a long-standing tradition of such institutions elsewhere too. Australia had a publicly-owned bank offering credit for infrastructure as early as 1912. New Zealand had one operating in the housing field in the 1930s. Up until 1974, the federal government in Canada borrowed from the Bank of Canada, effectively interest-free.. . . From our western perspective, we tend to forget that, globally, around 40 per cent of banks are already publicly owned, many of them concentrated in the BRIC economies, Brazil, Russia, India and China.
Banking
is not just a market good or service. It is a vital part of societal
infrastructure, which properly belongs in the public sector. By taking
banking back, local governments could regain control of that very large
slice (up to 40 per cent) of every public budget that currently goes to
interest charged to finance investment programs through the private
sector.
Recent academic studies by von Mettenheim et al. and Andrianova et al. show
that countries with high degrees of government ownership of banking
have grown much faster in the last decade than countries where banking
is historically concentrated in the private sector. Government banks
are also LESS corrupt and, surprisingly, have been MORE profitable in
recent years than private banks.
Young wrote:
Given the massive price we have all paid for our debt-fuelled crash, surely there is scope for a more fundamental re-think about what we really want from our banks and what structures of ownership are best suited to deliver on those aspirations? . . .As we left Thursday’s seminar, I asked another member of the audience, someone with more than thirty years’ experience as a corporate financier, whether the concept of a publicly-owned bank has any chance of getting off the ground here. “I’ve no doubt it will happen,” came the surprise response. “When I look at the way our collective addiction to debt has ballooned in my lifetime, I’d even say it’s inevitable”.
The
Scots are full of surprises, and independence is in their blood.
Recall the heroic battles of William Wallace and Robert the Bruce
memorialized by Hollywood in the Academy Award winning
movie Braveheart. Perhaps the Scots will blaze a trail for economic
sovereignty in Europe, just as North Dakotans did in the U.S. A
publicly-owned bank could help Scotland take control of its own economic
destiny, by avoiding unnecessary debt to a private banking system that
has become a burden to the economy rather than a pillar in its support.
_________________________
Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her 200+ blog articles are at EllenBrown.com.
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