Imagine walking through your future home—a city-owned and democratically-run housing complex—on your way to a monthly meeting in your commons space. This residential complex was financed as an initial project for a now-ongoing partnership between your regional public bank and a local community development corporation. Tonight’s meeting is the final vote on what projects will be receiving loans. Some projects on the ballot include: a green space in an abandoned cement lot across the street, financing for an upstart solar panel manufacturer, and a childcare cooperative in a vacant storefront. This structure of decision-making was built into your regional public bank. This public bank was integral to creating the place you now reside, and it will be key for the next iteration of regenerative development.

This dream of democratically controlled finance created the California Public Banking Alliance, a grassroots coalition of progressive movements, which won the passage of the Public Banking Act in California in October of last year. The Public Banking Act has been widely praised for its potential to spur affordable housing development in big cities, but it can also be leveraged to structure a Green New Deal.

Public banks are “banks operated in the public interest,” owned by the government unit, and founded with a mandate to serve the public. The idea of divesting from corporations and financing the just transition using public banks is not new. Early last year, for example, Jacobin argued that public banks were essential to moving away from fossil fuels. But public banking is not just about creating more banks owned and operated by the wealthy, just with a little voter input sprinkled on top. It’s about bringing democracy to finance.

Public banks do not serve to increase the supply of money and capital; they aim to restructure capital at its very core, by bringing democracy to finance. If we incorporate concepts from Modern Monetary Theory (MMT), we see that public banking is a crucial addition to any transformative-but-costly leftist policy package. MMTers have argued that we do not need to raise taxes or build public banks to “fund” a Green New Deal.

Busting Myths About Money

The understanding of money that shapes our current financial system is designed to uphold the status quo. In order to imagine how public finance might change things, it helps to start with the mistaken assumptions most people have about how money functions, and how it operates in banking.

In the mistaken view, money is essentially private; the wealth of banks comes from individual deposits, which create the money that banks lend out. Thus, the argument for public banks here is that we must create alternative institutions which compete for people’s deposits. Through this, the money deposited in those public banks can then be lent back out for financing the public good. This model pits public and private banks against each other to compete over a scarce resource: the capital of individuals and businesses. A network of public banks that competes with private banks could help the underbanked, connecting millions of people to financial services. It could also issue low-cost loans to projects that a private bank might not see as profitable enough. But as enticing as it may sound, this perspective only shows us a tiny fraction of what is possible when we bring democracy to finance.

To see this only as a system of deposits-creating-loans hamstrings us into fighting on the terms of the private financial elite. Rather than take back control over what is fundamentally ours, we compete for what we see as necessarily held by others. Instead, need a broader vision of public banking and its possibilities. Public banks do not serve to increase the supply of money and capital. They aim to restructure capital at its very core. Thinking of public money as “franchise” and its “inflation constraints”, as opposed to obsessing over numerical deficits, turns what could be a simple policy amendment into the groundwork for regenerative, worker-controlled finance.

Over the last thirty years Modern Monetary Theorists (MMT) and fellow travelers, including Alexandria Ocasio-Cortez, have been arguing for a different understanding of finance. To MMTers, banks and financial institutions operate as “franchisees” of money and credit, similar to how an individual McDonald’s relates to the larger corporation. In the case of public banks, the “franchisor” is the government. The financial power of banks doesn’t come from the wealth of private individuals and groups; it comes from the faith and backing of the public. Rather than the “scarce money” view that deposits create loans, it is the reverse: loans create deposits.

Warren Mosler, a major proponent of MMT, describes it succinctly:

“[It’s] like going to the movie theater or football stadium: nobody thinks they collect a ticket first before they sell it. It’s the same thing: when you’re the source of thing, all the dollars to pay taxes can only come from the federal government or its agents, or else they’re called counterfeit. You can’t do that, and so as a point of logic they [the government and its agents like private banks] necessarily have to spend before they can collect.”

Due to this licensing out of lending powers and capacities to private institutions, it appears that private entities are the ones that are in charge of distributing money that we as individuals first gave them. Yet when a private bank is understood as a franchisee, we can see that private institutions are granted control by the government over who gets money, and for what. But if money is essentially public and therefore franchised out by the public, then there is no reason why communities of residents and workers couldn’t do the exact same thing. The public is constantly fed phony “wealth transfer” plans like Universal Basic Income, which pretend that a small cash infusion is the same as economic justice. Instead, we should ask how finance operates as a system of control, and what we could be doing instead.

The promise of public banks is not simply in addressing scarcity, which is the byproduct of a financial system motivated by profit. As Modern Money Theorists and others have argued, public banks could be used to pay for many traditionally “expensive” policy packages, including a Green New Deal. The money is there, because money is essentially public—whether or not it is privately licensed out.

If the government is not actually constrained by money, as MMT suggests, in what ways is it constrained? MMTers discuss an inflation constraint. Inflation does not always have to do with more or less fiscal spending-- instead, there are various ways to tackle inflation, including ones that involve investment planning, strategy, and design. These are matters that are sector and geography-specific, based on regulatory decisions and investment planning dependent upon adequate information. Efforts to understand the inflation constraint therefore raise several questions: how is this information gathered? What is counted as information? Who makes decisions from this information?

The promise of public banks therefore lies in addressing the structural inequity built into the very design, generation, and allocation of capital. Its promise also lies in opening up the space for greater, more accurate, and more relevant local informational input from workers, residents, and consumers. Currently, the accepted parameters for inflation are based on input from a narrow range of stakeholders. If, as Hockett says, “inflation is about money supply in relation to goods and services supply”, then let’s ask what this means for workers and communities. This means democratizing capital and investment through democratizing public banks. Instead of a public-private financial system, we can start building a “social-public” financial system. Here finance turns from being extractive at the benefit of private elites to being based on worker- and community-controlled regeneration and stewardship.

Case Study: The Boston Ujima Project

It is not enough to charter public banks that are public-in-name with little accountability. As Nuno Teles writes, “[public] banks [can] behave no differently than their private counterparts, or are controlled by public bureaucracies that end up serving particular private interests.” This does not mean rejecting public banks, however. Rather, it means having the insight to design public banks in ways that do not resemble private financial institutions. It means that the power of the public purse can be designed to draw from the combined expertise of professionals and laypeople by way of real democratic processes oriented towards regeneration and stewardship.

The Boston Ujima Project, founded in 2016, is premised on changing how decisions over finance get made, merging the focused character of impact investment with the values of community organizing. In a webinar on the Boston Ujima Project, Director Nia Evans asserts that the financial organization is structured to “center working class people of color” in financial decision-making. Regeneration and stewardship aren’t just values in theory; they inform everything about how Ujima works.

Accountability and democratic participation are at the heart of Ujima, starting with the establishment and annual revision of community standards for beneficiaries of the project. This occurs through central general assemblies and neighborhood assemblies co-hosted with partner organizations, which meet on a weekly basis over four months. The community standards mean that if Boston Ujima finances your enterprise, you must agree to and uphold criteria spread across eight “good business categories”: good faith effort; community ownership; good local jobs; worker power; health & safety; customers & vendors; environment; and community power. For example, under the community power category, people of color must own a majority of the financed business. Other criteria for financing include committing to a green energy plan, occupational safety and compliance, and limiting the acceptable disparity between the highest and lowest paid employees. There are consequences for violating community standards; offending parties might see their interest rates go up or be otherwise compelled back into compliance. But compliance is rooted in multi-stakeholder democratic accountability, not subordination to private control.

Boston Ujima has demonstrated that financial instruments can be designed in culturally proficient ways. For example, through its participatory process, upon being approached by Muslim clients, Boston Ujima Project constructed its financial product to ensure it was compliant with Islamic Finance Laws.

Beyond this, Ujima’s financial toolkit is wildly versatile. Its sample portfolio ranges from micro-finance, to working capital, growth capital, real estate and what it calls “community infrastructure.” This enables Ujima to engage in a multi-pronged strategy of community wealth generation and stewardship. Ujima has invested in worker cooperatives, community-run schools, food cooperatives, solar energy, and other projects. But the Boston Ujima Project is still largely based on monies from impact investors, foundations, and a myriad of depository sources. What might a public banking version of Ujima be able to do? What are the implications of Ujima for a public banking model premised on the understanding of the franchisor-franchisee relationship of banking?

Participatory Democratic Public Banks...Why Not?

Over the last thirty years, community banks have been declining and disappearing. “In 1985, there were 18,033 FDIC-insured banks across the U.S.; by 2018, there were just 5,477 such banks across the U.S.” This decline has substantially hurt local business development, as community banks are most likely to lend local. This impacts how we view the project of building a network of public banks as part of a Green New Deal. Because the public wants renewable, clean energy, jobs, and more shared wealth, public banks could be a key piece to a just transition.

Organizing for democratic banking institutions as part of a Green New Deal can mean organizing around a concrete financial vision for a regenerative economy. On one level, a Green New Deal can stimulate the creation of public banks similar to the Bank of North Dakota, where the state public bank partners with local and regional community banks as a “bank of banks”. However, we should go further. We need a banking sector that operates as a part of the community, deeply invested in regeneration and stewardship. Public banks can help us achieve all of this, but we must begin to see them as not a means of solving what is a socially- and privately-constructed scarcity (i.e., private banks operating as franchisees). We must create new franchisees along the lines of the social-public rather than the public-private.

Money and capital are a means for people and communities to share in abundance and determine what this abundance means to them. We can structure money as a means of coming together and operating as a public to address the climate emergency. Reforms based on simply boosting private consumption, such as universal basic income and sovereign wealth dividends, are insufficient in this regard. We need tools that put communities in control of just transition. Democratic public banking could be the core piece to this project.

Alexander Kolokotronis is a Ph.D. Candidate in political science at Yale University. He was formerly a Worker Cooperative Development Assistant at Make the Road New York and Student Coordinator at NYC Network of Worker Cooperatives.