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Most books by progressive academics are usually centred on a critique of an aspect of capitalism with a token chapter on what can be done to address it. Even within this proposed reform chapter, the suggested reforms are either honestly unattainable or couched in the “need to shift the balance of power”, without offering the strategies or the starting points for this. To be clear, critiques are absolutely necessary, but a discussion of proposals for change, which can form the bedrock of mobilisation, is also necessary. Since I was always grumpy about this, it is not very surprising that I was obsessed with Democratizing Finance as soon as I started reading it!
The book sets out to discuss proposals that “embody our deepest aspirations for a just a humane world” and “can to a greater or lesser extent be built in the world as it is”. Recognising the centrality of finance in addressing, among other things, concerns of the climate crisis, crippling social infrastructure and widening inequality, it takes on the task of not only putting forward realistic reform but ones that will also “redistribute power away from existing institutions”. Considering the breadth of this exercise, the edited volume is split into three parts, anchor essays, politics of financial reform and alternative financial visions. And because I love it when my work is done for me, I will also split my review in the same way.
As the name suggests these papers form the foundation of this book. This starts with Robert Hockett’s paper on “Finance Without Financiers” which argues for an alternative way of understanding the operations of finance. Unlike the widespread view that private financial markets take on a pivotal intermediating role (channelling savings to investments), he argues that the public “validate and underwrite” their operations by what he termed “accommodation” (whereby a public entity holds a private liability as its own e.g. holding the equivalent of the private bank’s deposits with them to ensure interbank clearing of transactions) and “monetisation” (whereby the public accepts bank deposits or credits issued by the private banks as spendable money). He also offers examples of how other financial markets are dependent on the public or its institutions, for example, the essential role of sovereign debt in the pricing of other private assets (we can all agree that markets are reliant on prices).
Understood like this, the private financial entities (especially banks) can be seen as only channelling a resource (finance) underpinned by the public, towards what it considers profitable investment. In a sense, it is a “franchise” of the public. After highlighting this franchise system for the allocation of a public resource, he proposes two ways this resource can be used for the benefit of the public and not cornered for profit maximisation. First, he argues for the formation of a National Reconstruction Development Council, tasked with “coherently projecting and overseeing productive national investment at the federal level”. Secondly, he calls for reform of the Fed (where it takes up a development facilitation and inclusion role), mostly through the establishment of a digital wallet. This would ensure more effective monetary policy (direct crediting of accounts bypassing the indirect role of the private banks), financial inclusion (every citizen has the wallet) and easier lending for productive investment (again, everyone has it).
The second paper in the section, Financial Democratization and Transition To Socialism by Fred Block, was probably one of my favourites (tied with another essay that I will rave about later). It builds on the previous essay to offer proposals for a credit system that is not profit-oriented. These reforms include the expansion of existing non-profit retail financial institutions (e.g. credit unions or public banks), the creation of non-profit investment banks (which will compete with the existing private ones and offer finance to starved entities such as local governments and infrastructure projects), and the establishment of a non-profit innovation stock market to “assure a higher level of investment in innovative small firms working at the technological frontier”.
Apart from serving the purpose of non-profit credit allocation, he argues that the proposals would also serve the important additional roles of weakening existing institutions (by shifting savings away from private financial institutions) and crucially, form the basis for broader social and economic reforms towards a more democratic economic system. This is because most radical economic reform is stifled by a transition trough, a situation where capital pushes back against policy changes that affect its profits in the shape of capital strikes (seizing investment) and capital flight (leaving the country), with negative impacts on employment and currency stability leading a reduction in political goodwill for the reforms. The non-financial institutions can help solve this by plugging the lending gap and borrowing from international markets to address the shortage in foreign exchange.
While these essays are brilliant lynchpins for the upcoming sections (despite being lengthy), it is difficult to ignore the exclusive focus on the USA. Especially in Fred Block’s essay, as reiterated in the work of Jayati Ghosh, low and middle-income countries are the ones disproportionately vulnerable to capital flight with the consequent volatility in exchange rates even more disastrous due to their reliance on imports and the burden of sovereign debt. Therefore, it is slightly concerning that the proposals to address this have been put forward based on examples from the USA. Despite this, I thoroughly enjoyed the analytical exercise of putting together reforms, both in structure and timing, to imagine a more egalitarian future.
Politics of Financial Reform
The three essays in this section focus on the “democracy” element in democratizing finance. Broadly cushioned under the theme of “Politics of Financial Reform”, the essays focus on what form democratization of financial institutions and markets should take and the practicalities of such.
While both Economic Democracy & Enterprise Form in Finance and Three Modes of Democratic Participation in Finance undertake comparative exercises with the former focused on the form institutions that are “constructed to internalised public goals and values” can take to embody democracy (i.e. state agency, cooperatives, government cooperation and charity non-profit), the latter goes further by not only comparing “popular plans for democratizing finance”(i.e. non-profit credit unions, public investment banks, sovereign wealth funds, inclusive ownership funds and bank nationalisation) but also discussing how these can reduce the influence of finance capital in a democracy, and by implication “democratizing”. This influence being manifested either in active participation (e.g. lobbying, campaign finance) or structural influence (from its role as the allocator of investment, and flexed by capital strikes or capital flight). Michael McCarthy argues that apart from bank nationalisation, the other proposals do not significantly reduce the active participation of private business in democracies (as they leave the operations of such entities intact). However, although to different extents, they all challenge structural influence (directly in terms of bank nationalisation and indirectly for the rest). This is because while nationalisation of banks puts finance under public control and directly challenges private finance capital’s role in allocating finance, the others only lessen the impact of capital strikes and capital flight by making up for the shortfalls in finance.
The remaining paper in this section, To Democratize Finance, Democratize Central Banking by David M. Woodruff, is probably the most topical due to the current debates on inflation and central banks. The essay argues that substantive democratization of finance must not come at the expense of “broader economic policy” but should push back against what he calls “everyday libertarianism”. The reversal of central bank independence is argued to be crucial in doing this. Everyday libertarianism is defined as “ the sense that our net market income ‘belongs to us… in a matter of sense that what happens to that money is morally speaking entirely a matter of our say so’”. I found it easier to think of this as the knowledge system of the market, where the market is synonymous with efficiency and everyone believes they get what they work for.
David Woodruff points out that previously discussed proposals of publicly oriented lending fail to challenge the ideological underpinning of contemporary capitalism (everyday libertarianism) and thus fall short of engaging in the broader restructuring of the economic system (e.g. non-profit institutions still need to repay loans based on their use of resources in a market system that is inherently unequal. Additionally, he argues, that these institutions (such as credit unions) have been in place before but they have failed to cause any ideological change (manifested in the continual adoption of regressive broader economic policies in the USA). On the other hand, he argues that the reversal of central bank independence, making monetary policy a topic of public discussion, will make everyday libertarianism untenable. This is because people will see the contradictions in the policies of fiscal austerity (for working people) and monetary supports (loose money) for corporations. Additionally, David Woodruff highlighted that this public engagement has scope for engendering more far-reaching reform as monetary authorities will have tools to ensure effective monetary policy (such as increasing bargaining positions for labour). Finally, a central bank that is not bound by independence can provide necessary support during a transition trough, as private or public banks can potentially run out of reserves.
Apart from the Economic Democracy & Enterprise Form in Finance essay in this section, which I did not enjoy (probably because it reminded me of my dreaded economics textbooks), I found insights from this part interesting. Starting with McCarthy’s essay which brought forward the rarely acknowledged (at least in non-academic spaces) concept of structural influence, which I find useful even beyond the realms of finance. For example, the last time Malawi tried to protect its tobacco farmers by implementing minimum prices, tobacco multinational companies exercise their structural power and refused to buy the product (for context, tobacco is the country’s largest foreign exchange earner). This eventually led to the de-facto withdrawal of the reform. Thus, an understanding of the structural power of capital is not only crucial in understanding whether reform will make a dent in democratizing finance, but also in understanding why some reforms never occur.
On the other hand, David Woodruff’s paper does an impeccable job of unmasking the independence of the central bank, he even called it the “hallmark of the neoliberal push”. My only apprehension with this wonderful body of work was that I would have loved a more extended discussion on the link between “making monetary policy a matter of debate” and the proposed ideological shift, given the power relations that exist in knowledge construction.
Alternative Financial Visions
I found it harder to find an overarching theme for the papers in this section, as “alternative financial visions” seemed to encompass almost all the papers in this edited volume (or I might have missed something obvious). This section starts with the “A Modern Financial ToolKit: Lessons from Adolf Berle” essay by Sarah Quinn, Mark Igra and Selen Guler. This drew on the work of Adolf Berle, a progressive reformer of finance during the Franklin Roosevelt New Deal era. The authors look at lessons from his work and use them to understand what can be done about contemporary finance. Specifically, they draw on his comprehensive propensity to highlight the shortfalls of alternative proposals (mirrored in their contemporary critique of the role of private finance in infrastructure development), his tendency to reiterate previous government action as the basis for further reform ( the modern counterpart being their emphasis on the USA government’s federal programme as the backdrop for transformative policy) and finally, they draw on his idea of having core principles governing the proposals, putting forward their principles for current reform including fair allocation, local and global sustainability and political accountability.
Mary Mellor’s “Democratizing Finance or Democratizing Money” was the joint favourite I was talking about earlier. This argues that, as critiques of progressive social spending, the questions of “where will the money come from?” and “how will this be financed?” are different as the latter implies reallocation of existing finance (a question addressed in previous sections) while the former raises the questions of who “create and circulates money”. She thus takes on the task of tackling the former question, by debunking the market origins of money, both from its historical origin (arguing that money arose from taxes, not markets) and in the contemporary landscape by showing not only do states create money when they spend, but they also legitimise bank money (monetisation).
Having established the public nature of money, as before, we can then subordinate money to social good. Crucially, she also highlights the need for democratic input into monetary matters, be it public or private, proposing the use of public platforms for inclusive monitoring and evaluation as well as participatory budgeting.
The next essay “Democratizing Investment” by Lenore Palladino takes the discussion to the other side and looks at ways of correcting the implications of an unequal financial system. Based on the drastic wealth inequality in the USA (the top 10% of households, hold 80% of corporate equity), she focuses on proposals for the government to ensure equal access to non-debt-based investment. Central to her proposal is a Public Investment Platform, which will serve as an intermediary to put together funds from non-wealthy investors, with an added focus on helping fund equity-starved small companies. Drawing on Darrick Hamilton’s idea of baby bonds, every citizen (depending on their family wealth) will be offered an endowment in a public investment account that can only be used to transact on this platform. In this sense, Lenore Palladino argues, there will be equitable access to investment opportunities for historically marginalised groups without the need to undertake further risk.
While it was interesting to see how calls for financial reform have been received in the past in “A Modern Financial ToolKit: Lessons from Adolf Berle”, I was more engaged with the other two papers ( probably because my understanding of American history sucks). Mary Mellon’s essay was arguably the most accessible text I have read on monetary issues. Not only does she make the case for public money in an eloquent manner, but she also pre-empts pushback and discusses how to ensure even the government is democratically held accountable as the creator and circulator of public money. On the other hand, Lenore Palladino does the often-forgotten task of addressing unequal access to wealth, reiterating the role of this in addressing historical inequalities (such as racial disparities).
This book brilliantly balanced theory, critique and policy proposals in a way I have not come across before. Not only does it give you an understanding of the shortfalls of the common understandings of the origin and role of finance in our communities, but it also shows how this can be changed to meet pressing social needs. As highlighted earlier, I was rather disappointed by the disproportionate focus on the USA throughout the analysis. The issues raised in the introduction, of climate collapse, financial instability and transition troughs disproportionately affect developing countries. Considering this, I would have loved policy proposals centred on the experiences of such countries, considering the constraints of their specific position in the global economic order (manifested in aspects such as conditionalities from multilateral agencies) and the impacts they have on their ability to undertake a concerted push for public money spending or credit disbursement. In addition to this, it would have also been useful to have at least some concerted discussion on global finance, especially considering how integrated capital markets are. Nonetheless, this book bravely takes up the often neglected task of creatively constructing an egalitarian future with the added hurdle of ensuring it is currently practical.