Marxist economist Michael Roberts (thenextrecession.wordpress.com) has long argued and campaigned to take the banking and financial system into public ownership. He spoke to us about why.
Why is public ownership of banking and finance an important demand for the working class and labour movement? What are the key arguments?
Banking is an important service for ordinary workers, households and businesses, particularly small businesses. When we get our wage packets, they’re normally paid into bank accounts, and when we conduct most of our transactions they’re conducted with bank cards or credit cards. We also use banks when we take out loans, for instance mortgages, for big ticket items we can’t afford on our monthly pay packets. It’s a service which is absolutely necessary, just as much as the health service and the education system.
Yet this service is entirely in the hands of huge great banks and other financial institutions, around the world, and in this country in particular. It’s not a public service. It’s a secondary matter for banks to provide services and loans to households and businesses; banking’s main activity, particularly in the last thirty or forty years, is using our funds and raising other funds to speculate in financial assets, in the bond markets and so on; to take commissions to organise mergers and acquisitions for companies; to engage in all sorts of corporate financial activities, and invent all kinds of weird and grotesque financial instruments people can bet in on the market. Plus a big part of what banks do now is provide tax advice, in other words tax evasion advice, for big companies and billionaires and very rich individuals to avoid paying tax in a variety of ways.
The scandals that have come out even in the last decade about what banks do in this area are just amazing. They have engaged in all kinds of tax fraud scandals. Meanwhile through all these forms of speculation and chicanery they’ve put the economy, put our jobs and services at risk, because of the risk of a new collapse in the banking system through overspeculation in finance, in what Marx called “fictitious capital”, in betting on things which supposedly represent real value but don’t necessarily do…
On top of that, bank leaders get huge payouts, incomes, bonuses, pensions, stock options and so on, for a so-called service which is not in the public interest. In fact it’s highly damaging, as we saw in the great financial crash [in 2007-8]. Even now, as we emerge from Covid, we hear that the banks are continuing to invest heavily in fossil fuels and all kinds of other carbon emission-expanding companies, rather than in tackling climate change. There’s no social control over what these institutions do.
I think those are fantastically powerful arguments for wanting to bring banking into public ownership, under the control of democratic institutions, so it becomes a public service for people, like health, like education, like transport and housing should be. While it remains in the hands of these small numbers of huge banks and their shareholders in this interconnected system, we’ll remain in this nightmare of scandals, fraud, tax evasion and speculation.
TUC Congress passed the Fire Brigades Union proposal for this in 2019, but during the Covid crisis it’s not been widely raised or even known about. How do we raise this now?
With Mick Brooks I was commissioned by the FBU in 2012 to write their pamphlet on public ownership of the banks [read the pamphlet here]. Mick died earlier this year as a result of the pandemic, but he was a fundamental arguer and supporter of this policy. The arguments we made in that pamphlet still apply, things have moved on, but the fundamental essentials still apply. It provided the arguments for the FBU to present their motion at the 2012 TUC Congress [the 2019 policy reaffirmed it] – which went through with no opposition at all. But it went through so the TUC leadership could shelve the resolution; they had no intention of putting it in any TUC programme or campaign.
The result is here we are, ten years after the end of that global financial crash and the great recession that ensued afterwards, and in some ways people in the labour movement don’t see the relevance of banking any more. It used to be the big enemy, the big thing we had to deal with. Since then, we’ve fallen back into the old position that all we have to do is regulate. The banks have to have more capital to protect us from going bust, so we need to regulate to make sure they operate in a fair and reasonable manner.
This is nonsense. The scandals have continued, never-ending. Only this week we’ve seen that two very big banks, Credit Suisse and Nomura, have lost something like $20 billion by lending huge amounts of money to a hedge fund that went bust. I always refer to a grotesque example of the failure of regulation, when HSBC, one of the big five British banks, engaged in laundering millions of Mexican drug cartel money over several years. The head of its US operations became head of the bank overall and essentially nothing was done. No bankers have been arrested, convicted or anything like that.
Regulation has failed, but alternatives like bringing the banks under popular control are not registering on the labour movement’s agenda. Other issues dominate people’s minds – Covid, precarious employment, the run-down of the NHS and other public services, the need for a proper health system in the US, the issues of austerity.
But unless we have control of the financial levers of power, as a labour movement and as a people, we’re in no position to start reorganising the economy in the interests of the people. If the big banks and financial institutions are in the hands of the private sector and billionaires, they will use their funds to invest in what capital on the whole sees as necessary, and in general that will act against the interests of the people. Banks have had huge injections of credit from the Bank of England, the US Federal Reserve, the European Central Bank and so on to prop them up, but they’ve simply used them to speculate in markets and provide funds for big business interests that can deliver big interests and profits for them.
So this is something we must continually campaign for in the labour movement. That’s difficult. My feeling is this often produces a dead silence; that many people think yes, I suppose you’re right, but… People are thinking of other things. But also there’s a fear, of the damage it would do to the economy if we had a labour movement and a government preparing to do this. There’d be a run on the pound, we’d lose money, as if we haven’t with the global crash, then Brexit and Covid! Finance is something that frightens people, they don’t really understand it, and they’re unsure what to do about it. I’m talking about labour movement activists.
What are you calling to be taken over, which institutions?
The big five commercial and retail banks [HSBC, Lloyds, NatWest/RBS, Barclays, Santander] is what we’re talking about, those are the ones first of all we need to bring into public ownership. Also the insurance companies; it’s a scandal the way they run, with high premiums and so on, and they’re also an important part of the investment process. And then the pension funds: occupational pension funds are now just appalling; they’re now contributory pensions, not on the basis of final salary any more. What we need is one state pension fund for all, which would be far more efficient, eliminating all these pension fund managers and their fat salaries, and allow us to provide decent pensions for all.
What we don’t need to take over is small community and co-operative banks which have been or could be set up by people in different areas. Some of that already exists, at least there are still elements of it. These institutions could be coordinated with the state banking sector and actually get help from it. There are all kinds of changes taking place in banking, and yet the big banks remain terrible at providing basic services.
Some on the left argue, or half-argue, that this is too big and that public regional investment banks would be easier and do essentially the same job?
Under the Corbyn and McDonnell leadership, they were always interested in consultation and advice. McDonnell set up a banking advisory committee, and all the left economists would turn up for the discussion. The Communication Workers’ Union had raised the issue of a “post bank” which would be an alternative to the big five. All the left economists went along with a national investment bank, regional banks, a postal bank – but not taking over the big five or other institutions. The only person who mentioned that was yours truly. After the meeting was over, the two CWU representatives talked to me and said they thought a postal bank would just get annihilated by the big banks. So frankly, it’s a diversion.
We don’t need a publicly owned second eleven while the big banks stay on top and still control everything. If you look at national investment banks around the world, they’re very limited in what they’ve done. It’s just avoiding the issue. Even under Corbyn and McDonnell Labour was afraid of it, in terms of fearing it couldn’t win public support, and also not being sure it was a good idea or viable economically. [For more by Michael on "Corbynomics" and left debate on this, see here, here and here.]
Would this work if it was carried out in just one country?
There’s a particular and a general answer. The particular answer is, in short, yes. This is a major demand which should certainly be taken up by any socialist movement trying to establish a government in this country. I see absolutely no reason why it couldn’t work much more effectively than the current system, instead working in the interests of a social plan. Of course, there are more difficult questions of a wider scale, internationally, because all these banks are connected internationally. It would mean disruption of international flows of funds, though many of those flows are speculative anyway and we should be quite happy to put an end to them.
There needs to be an international economic plan, and so the banking system should be under democratic control globally. However, it seems to me there’s no reason we can’t do this in Britain, or somewhere else, and provide a marker about how things could be done in other countries too.
What’s your assessment of the experience of publicly owned banking systems in other countries?
The formerly so-called Communist countries of Eastern Europe all had public banking systems. India and other countries, for instance in the past in Latin America, have had banking systems where the state banks are dominate. The problem is these systems were entirely bureaucratic, entirely controlled from the top down, with no representation with the bank workers or the wider labour movement. They were not built into any plan for the economy, and instead were often used to provide governments with funds for corrupt activities.
So there’s a lot of bad press on state banks but on the other hand, a lot of things have been missed about state banks, even in that period. In Brazil they had a big development bank that was the only bank that provided any funds for investment. These experiments were limited, but without control of the major parts of the banking system, you can’t plan an economy in the interests of people. I always like to quote what Lenin said:
The banks, as we know, are centres of modern economic life, the principal nerve centres of the whole capitalist economic system. To talk about "regulating economic life" and yet evade the question of the nationalisation of the banks means either betraying the most profound ignorance or deceiving the "common people" by florid words and grandiloquent promises with the deliberate intention of not fulfilling these promises.
The failure of the Paris Commune, which we’ve just been commemorating 150 years on, 72 days when the workers did take power, with the first workers’ power government so to speak – that government fell because they didn’t take over the central bank, they let the Bank of France sit there, they left all the funds in the hands of capital and therefore they had no resources to support their government and take it forward. They restricted themselves by their own decision. [More comments by Michael on this here.]
I’ll give you two positive examples of successful state banks, though limited ones. In North Dakota, which is a right-wing Republican state, in the 1930s the state government set up a state bank; it’s the major bank in North Dakota. It takes the deposits of households and farmers in the state and distributes loans back to farmers and households in mortgages. It engages in no speculation in financial assets; it concentrates on providing services, and it makes a profit which is returned every year as extra revenue for the state government. During the global financial crash that bank was totally unaffected by the collapsing house of cards of all the other banking entities in the US and globally. It’s not fully democratic, but it is partly elected, and it works well.
On a bigger scale, the Chinese banking system is primary run by state entities, and it operates according to the plan set by the Chinese government. Yes, it’s top down, there’s no democratic control from below – but it does play a role in ensuring investment according to the state plan, and that played a role during the financial crash and last year in getting the Chinese economy through these crises in a better way than most. So we can see positive examples, even if they are limited or far from the democratic forms of public ownership we want.
You’ve flagged up the question of climate change. Can you say more there?
There’s just a report out which shows that the big banks and financial institutions have done absolutely nothing to shift their funds towards green investment and reducing carbon emissions. Instead, they’ve ploughed their loans back into the big fossil fuel companies, the Shells, Essos, the BPs, Exxons, all the rest of them, plus the coal industry, steel, all these high emission sectors which need to be reduced or phased out completely. The banks are carrying on merrily in face of the disaster fast approaching us, because they can make big money. We can’t change that until we have control of them.
When people in the labour movement rightly say we need a green policy, we need to end fossil fuel emissions, we need to get to zero targets as soon as possible, we need to get control over and reverse global warming as soon as possible, then the banks absolutely cannot be left out of that equation.
It’s good that a number of unions have campaigned on public ownership of the energy industry. I should also say I was impressed by the work some comrades in the CWU did to raise public ownership of the communications industry and telecoms in particular. There was another very good pamphlet that was produced [by CWU Greater London Combined telecoms branch: read it here].
Public ownership, even of the financial system, is not yet socialism. How does it relate?
How does public ownership of any and all industrial sectors relate to socialism? The basic start for any labour movement looking to move towards socialism is to take control of the means of production, or strategic sectors of them, what we used to call the commanding heights, and that must include the banks. We need to expand things we need, like public transport and housing and public services, and we need also need to close down in areas which we don’t need – like the military and fossil fuels. It’s not just a question of expanding production but of switching it onto different tracks, so it’s run for social need.
Socialism is a system where everything is commonly owned and the working people are in control of that commonly owned system, so you have production for need and transactions on the basis of money and exploitation begin to disappear, because we’re producing sufficiently for workers to reduce their hours and start to participate and live in new ways. That’s not really possible practically until we have a world government and a world economy. But you have to start somewhere.
We’re not going to have simultaneous international socialist revolutions all in the same week to achieve that. Given all the different conditions in different countries, different levels of income, of economy, even geography and climate, and of course different levels of class struggle, it’s going to be a patchwork of change. Revolutionary change won’t come in a single event, it will come in a series of waves. If the US had a workers’ government it would dramatically transform the world, provoking a series of dominoes falling. Most likely, it will be somewhere else less decisive that will start them falling. But again, we have to start somewhere.
If someone says nationalising the banks and the means of production, even with workers’ control, is not yet socialism, I agree, but the question is how do you see socialism coming about, what do you start with?
To come back to the present situation, we now face an additional barrier to raising this, in a much more conservative Labour leadership. How do we move forward?
The current leadership is just going to talk about regulation and focus on particular scandals like David Cameron and Greensill Capital. So again, we need to go back to how regulation has failed, time and time again, how all the same problems continue. We’re constantly told that the regulators need to look at things again, somehow they missed this one, and it continues.
That’s the first thing, you press that. But then also you raise it in a positive way: if regulation has failed, we need to look at some alternatives. What’s the objective? Rather than starting with “we want to take over the banks”, we begin with “banking should be a public service”, like other services that are necessary in a modern economy, so that people can have a reasonable life. Health, education, transport, housing, all these things exist or should be restored as public initiatives to meet people’s needs. Banking is one of these things, we need it to turn it into a public service, and we can provide positive examples of that, if on a small scale or with limitations. Of course then people will say how are you going to make this happen, and of course we have to say nothing is going to change unless we take control of the big five and other financial institutions.