State Bank Idea Is Back (As A Bill This Time)

Photo courtesy of Governing Magazine, circa 2012.

Kim Kalunian writes that Rep. Charlene Lima has introduced legislation, at the request of Keven McKenna, to create a state-owned bank in Rhode Island – a movement that is gaining traction across the country.

The bill states that the purpose of the bank would be “to protect the financial welfare and economic vitality of the citizens of Rhode Island, to obtain credit and support the functions of state government, to create jobs and improve the general welfare of the state of Rhode Island.” Anchor Rising’s Monique Chartier reacted predictably.

I’ve previously written about a Rhode Island state bank before, to the chagrin of state bank supporters. The example everyone points to is the Bank of North Dakota (BND), since that’s actually the only example. North Dakota is the only place where a state bank has been tried. But, as has been pointed out to me, Rhode Island of 2013 is a different place than North Dakota of 1919 (when the BND was founded, McKenna says 1908 in Kalunian’s article). And I think there’s something to be said for that.

The major thing to me, 1919 North Dakota’s state bank wasn’t hatched by a lawyer talking to their representative. North Dakota’s state bank was part of a platform created by socialists and populists within the North Dakota Republican Party, called the Nonpartisan League (this is why you need to watch political names). These were highly popular farmer socialists and populists, who managed to control both houses of the North Dakotan legislature and governor’s office and pushed through the creation of the bank as well as a state-run mill and grain elevator and a railroad, and also banned corporate farming. That deep-red North Dakota continues to hold onto most of these socialist legacies may prove that they’re red in more ways than one.

2013 Rhode Island contains no such socialist/populist movement, much less one that is politically organized enough to seize both houses of the legislature and the governor’s office. It also lacks a single dominant jobs sector like North Dakota’s agricultural economy of early 1900s. Virtually all of North Dakota’s economic structures put in place were to benefit farmers; the bank to provide credit, the mill and grain elevator to create a market for produce, and the railroad to get produce to market, plus a number of other laws like hail insurance or the ban on corporate farming.

The point is that all of these addressed a perceived need for North Dakotans. Read the history sections of the bank or the mill and elevator. It’s essentially “North Dakotans had a problem, and our business is how they solved it.” There are serious abuses in the banking system; robosigning, usurious payday lending, etc., but it’s not clear that a state bank is the necessary solution. Both bank and mill neglect to mention their political origins, nor the fact that following their creation, they were attacked by corporate forces for being experimental. They survived these assaults, but only by dint of the Great Depression making their need more apparent then ever.

So what about a state-run bank in RI?

The major function of a state-run bank would be to act as the state’s coffers; it would be where all our deposits are kept. Now, this probably would have a decent effect on our state’s economy, we’d no longer be financing foreign banks with state money, which is what we currently do. However, pulling our deposits out of those banks could have a disastrous effect on the banking system in Rhode Island. The other thing is to look at North Dakota; bankers punished North Dakota for establishing the state bank, purposefully causing trouble for state borrowing by driving up interest rates. Given that the banking system is perhaps more unaccountable today than it was in 1919, it’s highly conceivable Wall Street would react just as negatively in 2013. North Dakota spent many years in difficulty as its socialist and conservative Republican Party factions battled for control of the state and party.

Therefore, it might be more conceivable and less politically damaging to look at where there’s problems and gaps in the Rhode Island economy (a process itself which has been done numerous times with varying degrees of success), and think about establishing state-run enterprise there if no private enterprise currently exists. Yes, this would be risky. But Rhode Island is going to have to come to grips with the idea that its gambling revenue is going to decline in the coming years. Enterprise that pays profits into the state’s general fund could be a massive boon to the state government, especially if it lands upon an untapped market.

But for any of this to be politically viable, you’ll need a Nonpartisan League-type of organization; which would demonstrate far more cooperation and organization than any faction within any political party has ever shown in this state’s history. So, to establish a state-run enterprise in Rhode Island you’ll need at least two things: a (necessarily theoretical) model built on Rhode Island conditions and an organized political grouping with the muscle to make it a reality. It’s not impossible, it’s just implausible.