Banking on the States

What is it about local politics that seems to bore the Left? Is it that progressives want to do as much as possible for as many as possible? Is it a concern that local regulatory legislation is ineffective? Or is it an aversion to a strategy that more often than not appeals to backwater reactionary “states’ rights” campaigns?

Whatever the reason, lefties ignore local politics at their own peril. Local and state policy have great potential to push an effective progressive agenda.

There’s a reason conservatives operate this way. In the wake of Democrats’ electoral romp in 2008, Newt Gingrich launched a think tank called “American Solutions” to put conservative pressure on “513,000 elected [local] officials in America”. The move, discussed in November 2008 by Nathan Newman on ProgressiveStates.org, was second nature to Gingrich, who used a similar strategy to vault the Republican Party into Congressional majorities in 1994.

“With the recent loss of federal power,” Newman predicted, “we will no doubt see conservative leaders at the state level launching local attacks on immigration, gay rights and other issues as a wedge to win local power and to undermine support for federal progressive policy in the media.”

But even before “American Solutions” and Koch Industries’ campaign against fictitious FEMA camps and death panels struck a chord with Americans who had just been robbed blind by private sector tyrants, progressives could have gleaned an important lesson about state level reform – in the context of the financial crisis – from North Dakota: a state so far from a Democratic stronghold that it recently sought to ban abortion.

In 1919, North Dakota farmers were fed up with being gouged by out-of-state agricultural conglomerates, railroad magnates, and monopolist financiers. In response to populist anger, a socialistic movement called the Nonpartisan League saw a gaggle of members elected to the legislature and other state offices. Shortly thereafter, they established the Bank of North Dakota (BND); the first – and only- state-owned bank in the country.

How does it all work? The BND – capitalized by the state’s tax revenue – was founded to “’promote agriculture, commerce and industry’ in North Dakota”. While the bank’s policies have changed from decade to decade, in 1969 the state passed legislation to create an advisory board for the bank accountable to the governor’s office, which was in charge of making policy recommendations. The bank’s president also used the institution to guarantee student loans, buy down interest rates offered by in-state banks and free up resources for agricultural lending, having had come to terms with the fact that legislation limited the bank from making direct loans. Yet despite these increased responsibilities, the bank remained profitable. In the ‘70s, profits increased by 201%.

By the ‘90s state wonks and legislators were increasingly keen on using the bank to spur commercial activity. Under the leadership of bank president Jon Hoeven (who later went on to become Republican Governor and in 2010, a US Senator), the bank’s initiative was fulfilled; Hoeven remodeled the institution as the “Bank of New Development”. Between 2000 and 2008, under Hoeven’s governorship, North Dakota’s GDP per capita rose from 40th in the US to 20th. And in the wake of 2008, the state barely felt the global financial crisis. Its unemployment rate barely fluctuated between 2008 and 2009, increasing by a paltry 1.2% – the lowest increase in the country. By March 2009, it was the only state in the union to see a month-to-month job increase and in June 2009, Forbes reported that North Dakota and Montana were the only states with budget surpluses. As of April this year, unemployment was 3.3%; the lowest in the country. Even before that, statistics indicate that the BND – with competent and sympathetic management at the helm – has helped improved North Dakota consistently. In the ‘90s, GDP increased on average by about 6%. And the BND has also enriched the state.

“The State of North Dakota does not have any funding issues at all,” current BND President Hardmeyer told Mother Jones in 2009. “We in fact are dealing with the largest surplus we’ve ever had.”

But the bank itself would never have been possible if the Nonpartisan League had originally focused its sights on pushing change through Washington.

This example of effective local reform, however, only appeared on the radar of mainstream America after the pain of 2008, when North Dakota’s economic strength proved to be resilient and the rest of the country gazed on in envy. While North Dakotans have, in a modest way, pointed out that an amalgamation of factors independent of their policy have helped – an oil boom, high agricultural commodity prices (both made possible, ironically, because of speculators) and a small population with little interest in living outside its means – public involvement in the financial sector mattered a great deal. There are a handful of similar states, yet none have enjoyed a recent Great Leap Forward like North Dakota.

Is it merely coincidental that the only state in the union with a bank capitalized by and for the public purse has performed atypically? If not for the BND, North Dakota probably would have been exposed to and exploited by big bankers. So it is only natural that other states are taking note of the North Dakota success story. In fact, significant banking reform is being discussed in 12 states: Arizona, California, Hawaii, Illinois, Louisiana, Maine, Maryland, Massachusetts ,Oregon, Vermont, Virginia, and Washington; all of whom are considering state banking systems in the vein of the BND.

Despite the presence of Arizona and Louisiana on this list – hardly dyed-in-the-wool Blue States – public development banking is undeniably left of center. Might social democratic reform, therefore, best be proposed at the state-level? Nationwide reform movements inspire frivolous lawsuits and effective histrionic right wing smear campaigns. On a smaller scale, however, it appears to be making progress. It is impossible for robber-baron apologists to fight a knockdown dragout legal fight over claims of unconstitutionality – the Supreme Court found that North Dakota was well within its rights as a state to establish a public bank ( Green V. Frazier). Most importantly, reforms are arguably most effective at the state level because they are less likely to cause voters to feel like they are being lorded over by a cadre of out-of-state bureaucrats.

Such Washington-resentment isn’t entirely irrational: consider both the ineffectiveness of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Federal Reserve’s backdoor bailouts. A proposal to create a Bank of America (a public one) would probably not inspire much confidence from sea to shining sea, legal issues aside (some on the right are moaning that Dodd-Frank and financial reform is unconstitutional). North Dakota has shown that an accountable public bank at the state level can work, however.

And it isn’t just banking reform that is being tackled by states; there are a number of progressive policies making their way through state legislatures today: Vermont’s single-payer health care system, Connecticut’s paid sick leave, progressive immigration reforms that have been passed by a number of states, environmental protections supported by a number of communities, some of which challenge the notion of corporate personhood, and a host of other reforms (some of which have taken on trade and agriculture regulation).

What’s missing is a comprehensive network of progressives working for local change. If progressives can apply the tools of Federalism as artfully as Newt Gingrich, it could help reverse the seemingly unstoppable three decade long Randian tide that has had grave consequences on both micro and macro levels. Progressive federalism could produce a diverse movement with eggs in many baskets; a contrast to those on the left who pinned all their hopes on President Obama – a phenomenon that has created something of a tragic Lefty Maginot Line.

Moreover, a decentralized reform movement could have a widespread impact on the public discourse. The fan-out-and-attack approach worked for conservatives between 2008 and 2010, and it worked for New Dealers long before that (as Nathan Newton has pointed out). Just championing policies that benefit the majority of Americans doesn’t appear to be a sufficient strategy, even if it is aimed at strengthening the grassroots. It turns out that the grassroots itself must get involved for grassroots politics to mushroom. As one speaker at Netroots Nation in Minneapolis said last week, “its ‘yes we can’, not ‘yes he can.’”

Samuel Knight

Samuel Knight is a freelance journalist living in DC and a former intern at the Washington Monthly.