Wayne O’Leary

The Solution That Dares Not Speak Its Name

Public ownership! The words strike fear and loathing in the hearts of conservatives and market worshippers everywhere. This is a devil they thought they had slain, a specter exorcized once and for all in the reign of Ronald Reagan, a satanic threat consigned long ago to the dustbin of history. Yet, what goes around comes around, and a generation of triumphant right-wing ideology, culminating in such calamitous marketplace failures as those of the banking and oil industries, has generated new interest in public enterprise, suggesting a possible renewal.

Actually, the concept has never gone completely away, although the aphorism “out of sight, out of mind” certainly has applied in recent times. In the US, the federal Tennessee Valley Authority survives, providing consumers in the southeastern states with some of the cheapest electrical power in the country during this era of energy deregulation; the same is true for residents of the Pacific Northwest, who benefit from the inexpensive, publicly produced federal hydropower of the Columbia River basin. In Canada, government no-fault auto insurance has proven successful, with drivers in the western provinces of British Columbia, Manitoba and Saskatchewan paying half to two-thirds less annually for socialized insurance than those in the “tort provinces” of Ontario, Alberta, and the Maritimes pay for private insurance.

Overseas, financial dislocations of the sort we are presently living through have been minimized by national ownership of banks. Norway experienced a banking crisis in 1988-92, brought about by credit deregulation, excessively low interest rates, and lax industry supervision. The typically Scandinavian answer was to nationalize Norway’s three largest lending institutions, expropriating private shareholders. Bad debts were subsequently worked out, and the banks were eventually returned to private ownership. In the interim, government officials used the proceeds from running the banks to set up a public pension fund now valued at $390 billion.

Other countries have likewise played the public-ownership card in finance. Great Britain is currently following the Norwegian lead with respect to major mortgage lender Northern Rock, a victim of the transnational subprime-mortgage crisis, by implementing that nation’s first nationalization since the pre-Thatcher years. Elsewhere, governments have not waited for economic emergencies to assert a dominant role. India’s government, which exercised a virtual state monopoly in banking until the deregulatory 1990s, still controls 70% of the financial services industry through the State Bank of India and 28 smaller public-sector banks. Russia, too, limits private control of banking; state banks held 40% of all its national financial assets in 2005, and one state-owned savings bank alone accounted for over half of all retail deposits nationwide.

Public ownership certainly offers Americans one way out of the subprime-generated financial mess. Moreover, it need not extend to the drastic step of nationalizing major banking institutions, although government takeover would obviously benefit taxpayers more than billions of dollars in federal giveaways to bail out bad actors like Bear Stearns. A potential model can be seen in North Dakota, where the Nonpartisan League of the early 1900s, America’s last expression of agriculturally based populism, created a state bank in 1919. The publicly owned Bank of North Dakota, founded primarily to offer low-cost farm loans and finance state government, still exists; it pioneered in providing federally insured student loans in the 1960s.

In an era of financial chaos, North Dakota’s state bank, the only one in the nation, should not continue in that lonely role. The need exists for a new wave of state savings banks, not to finance farmers (though they could do that), but to accommodate family savings at a fair return, make small-business micro-loans, and issue low-interest, fixed-rate home mortgages. Such state banks, independent of Wall Street, would not function to maximize returns for shareholders by dabbling in bizarre financial instruments or risky investments; they would be peoples’ banks operating to provide basic retail-banking services to consumers at cost, uninfluenced by the machinations of the private financial markets. State banks charged with implementing sensible loan policies could do much to prevent predatory lending and a replication of the present mortgage crisis.

By building a broad network of nonprofit public-sector banks similar to credit unions (but open to all), states could use their mortgage-holding position to short circuit the securitized-debt process responsible for today’s financial situation. There is another contemporary economic concern, however, that only the federal government can address: the rapid and probably unjustifiable rise in gasoline prices that threatens to undermine the entire economy. Our Canadian neighbors responded to a comparable situation in the wake of the 1973 OPEC oil shock by forming a national oil company, Petro-Canada, to monitor and compete with private industry.

From 1975, when it was established by the Liberal minority government of Pierre Trudeau at the instigation of its coalition partner, the nominally socialist New Democratic party, until 1991, when Prime Minister Brian Mulroney’s Conservatives privatized it, Petro-Can served as an exemplary example of government enterprise. A report on Canada’s national oil company prepared in 1977 for Washington State Democrat Henry M. Jackson’s Senate Committee on Energy and Natural Resources, which was then considering an American version of Petro-Can, outlined Ottawa’s rationales for its new Crown corporation. These included several benefits Americans of this generation might consider.

First, a fully integrated national oil company would provide the government with in-depth knowledge of industry operations from the inside, eliminating guesswork as to the whys and wherefores of what private companies like Exxon were doing. Second, it would offer a “yardstick” on pricing policies in the private sector, setting guidelines and establishing with relative certitude whether the oil giants were indeed bilking the public. Third and most importantly, it could hold down retail prices by creating a competitive alternative to the majors untainted by market manipulation or gentlemen’s agreements. For these reasons alone (and there are others, such as energy research and development), a national oil company is worth exploring.

When it comes to long-term solutions to what appear to be permanent, ongoing fuel and housing crises, the public-ownership option is looking less and less forbidding. It’s a far better policy approach than the political pandering symbolized by gas-tax holidays and bailout packages. The economic solution that dare not speak its name may at last be finding its voice.

Wayne O’Leary is a writer in Orono, Maine.

From The Progressive Populist, August 15, 2008

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