Friday, January 11, 2013

Public banks and unions

Public Banks: helping workers by helping people.

By Mike Krauss

In the decades after World War II, the American people built up the greatest and most broadly shared prosperity the world had ever seen. But for about the past forty years, the vast wealth of America has been steadily concentrated among a relative handful of our citizens.

This period of declining prosperity for the 99 percent has corresponded exactly with the decline of American unions. It does not take a rocket scientist to understand that strong unions are vital to a broadly prosperous and democratic America.

As the son of a steelworker, I know what a strike is like, in the winter, when your family is forced to choose between heating oil and electricity. My dad retired with the dignity and security of a pension and good health care. I know first-hand what unions did for my family and millions like it.

Today, many millions of Americans are daily making the choices our family made only during a strike: forced to choose between the mortgage or rent, and food or medicine, between health care or education, keeping the car in good repair or clothing.

How can the political muscle of unions be restored?

To answer that question, it is important to understand that political power flows from wealth; and as wealth is concentrated, so too is political power.

Today in the United States and Europe, the concentration of wealth and political power has become so grotesque as to threaten the very survival of democratic government.

But Americans are awakening to the threat, and there is a growing movement to challenge and break the greatest and most lawless concentration of wealth and power: the “too-big-to-fail” and “too-big-to-jail” private banking cartel of Wall Street and the Federal Reserve.

The tool needed to get that job done is the creation of a network of “public” banks, modeled on the hugely successful Bank of North Dakota (BND).

Public banks at the state, county or municipal level are capitalized with public funds, which are then leveraged in partnership with local, community banks and municipal governments to provide the sustained and affordable credit that is essential for economic development and jobs creation in the modern economy.

The profits of such a bank are returned to its one and only shareholder – the people – as non tax revenue. These banks are managed by civil servants who receive no outsized salaries, bonuses or commisions – no incentive to take the reckless risks that crashed Wall Street.

And as the Public banking Institute (PBI) chairperson, Ellen Brown has explained, public banks can take a huge bite out of the interest – the debt service borne by taxpayers – on the financing of capital and infrastructure projects; such as schools, highways and bridges and water treatment facilities.

Finally, public banks will correct a dangerously dysfunctional private banking system.

It is reported that nine banks now hold 75 percent of all assets in the U.S. banking system: $11.5 trillion. The balance of assets is held by the remaining 7,307 banks; a number forecast to be reduced in the next two years by 2,000, as the rules of Dodd Frank, written by the big banks, take effect.

Assets will be even more dangerously concentrated in a banking system that already fails in its basic function: the efficient distribution of capital and credit into the productive economy.

Through the 1980s the finance industry accounted for no more than 16 percent of U.S. domestic profits. By 2008 that figure had more than doubled to 40 percent. Financial “products” which create few jobs are crowding out the investment in providing goods and services, which does create jobs.

A network of American pubic banks will dramatically alter the banking landscape. As public banks are established, all the tax revenues and assets of the chartering government can be deposited in its bank, instead of on Wall Street.

And as credit creation is decentralized and economic development is locally funded and locally directed, as prosperity is once again broadly shared, so too will be political power.

Main Street or Wall Street. That’s the choice.

This is a task vital to our democracy, and a historic opportunity for unions to bring to the battle something unions still have plenty of – money.

It is in the pension funds.

For example, examining the public employee pension funds described in the Consolidated Annual Financial Report (CAFR) of the Commonwealth of Pennsylvania, and reviewing other published analyses, we discover that while these pension funds need returns of above 8 percent to keep abreast of future liabilities, they are earning only about 4 percent, or less.

And at a substantial cost paid in fees to advisors and fund managers.

Not only that, but a significant portion of these pension funds, collected from the paychecks of union members, is not invested in Pennsylvania, and not even in the United States. That is indicated in a footnote to the CAFR that describes how the funds manage the risk of investments in more than 30 foreign currencies!

No doubt, a thorough examination of pension funds across the United States would uncover many other examples of how contributions from the paychecks of union members to their pension funds are being exported, along with their jobs.

The public Bank of North Dakota is consistently returning 17 percent to 25 percent on equity. This suggests that as public banks are created, a union equity position, supported by some percentage of the pension funds would be a prudent and profitable investment.

But more importantly, if unions are seen to drive a broad, economic recovery through their investment in pubic banks, unions will make a lot of new friends.

This is what AFL CIO President, Richard Trumka’s grandfather was telling him, those many years ago: “If you want to help workers, you first need to help people.”

This is the kind of new thinking for the labor movement outlined in Sarah Jaffe’s article on AlterNet, “Six Ways to Juice Up the Labor Movement.”

In this collection of essays, Stephen Lerner, architect of the Justice for Janitors Campaign wrote: "We need bargaining not to just be about workers, but what's good for the community, so that we're bargaining for broader issues, especially in the public sector. So that it's not bargaining for the few, it's bargaining for the many."

Union support for creation of public banks in states, and more importantly in cities and counties all across America will help a lot of Americans back to prosperity, and the unions back to a position of political power that is vital to safeguarding the prosperity of all American workers, union or not, so that it is never again stolen away.

Mike Krauss is a director of the Public Banking Institute and the Pennsylvania Project. He is a former officer of Pennsylvania county and state government executive director of the Pennsylvania Republican Party.

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