In honor of public banking month at Ujima, Paige Curtis, our Culture & Communications Manager, sat down with Christine Desan, a member of the Massachusetts Public Banking Coalition to talk about the growing effort across the Commonwealth to establish a public bank. As Ujima’s flagship issue, public banking offers so many cooperative benefits to communities, entrepreneurs of color, and the state as a whole. Explore our candid conversation with Christine below!
Paige: So Chris, who are you? And why do you do the work that you do?
Chris: I’m Christine Desan, I teach at Harvard Law School, and I’m very concerned about the way communities govern themselves. In some ways, this relates to the issues that Ujima works on more generally, thinking about self-determination, equal access, etc. I started out completely far away from finance issues though. I went to college and majored in comparative religion because I was interested in spiritual values. I went to law school, in part because of concerns about access, inequality, and justice, the kind of things we could go to law school for. But I realized that in all sorts of debates over governance, people were talking about money. They were debating money, and during all these critical moments — the Civil War, the Revolutionary War, and COVID — money turned out to be incredibly important. I realized those of us who are actually interested in governance, injustice, and equal access, are leaving money questions to the economists. So I started trying to unpack the way money worked and the way banks work. One thing led to another, and I became very interested in and concerned about the current architecture of money.
Paige: Why is public banking so urgently needed in Massachusetts?
Chris: I think COVID shows us just how drastic the situation is particularly for communities of color, because these communities (and others) have been shut out of access to credit and capital. So the recent Boston Foundation report, “The Color of Capital,” has all sorts of findings that are just striking and desperate and dramatic. We see this long history of discriminatory access, divestment, and disenfranchisement of people from the monetary system. The federal government defines what money is, and then it outsources the distribution of money to commercial actors. That’s literally the way the monetary system works, and it developed that way over 200 years. In really structural ways, we built this system to allow private actors operating for profit to make fundamentally public decisions. That’s one of the courses I’m teaching at the [Harvard] Law School this semester. So that system is just weird! It’s as if you have something that’s public, supported by all of us by our tax dollars, but it’s outsourced to banks operating for profit to distribute. I think that’s just inherently discriminatory, and strange for a democracy to do. So to bring that back to Massachusetts, I do think that we have a chance in Massachusetts, because we have a population that’s very engaged and we have the politics here to make this possible. That’s because of Ujima, BECMA, the MA Public Banking Coalition, and a whole set of organizations that get it — we can figure this out. Because we have the political energy and insight, we’re able to see a way towards public banking in Massachusetts.
Paige: You spoke at the first of our Financial and Political Education workshop series on public banking, and you asked the audience what we all wanted to see funded if we had a public bank in Massachusetts. I personally would love to see greater funding for small BIPOC-owned food businesses that are trying to start up, so I wonder if we can use that as an example to help illustrate how public banks work. If there were a small BIPOC-owned food enterprise, can you walk us through how public banking benefits small businesses like this?
Chris: Right, so say we have a food truck or a very small entrepreneur, in an underserved community; that person or that family may have very little capital. In part, this is for historical reasons of discrimination, or because they’re working in a community that has fewer resources. All of these things, by the way, connect to how banks have worked for generations. For the present moment, it means that this entrepreneur, trying to start a small business doesn’t have obvious collateral to offer a bank. For instance, they can’t put up their home equity or an existing business as collateral for a loan, access to a family inheritance, or may not have a credit history. So we need something that allows those entrepreneurs to get started. There are many people in that category that given the chance to get started can run a very fruitful business.
Commercial banks would actually prefer to have larger borrowers because it takes the same amount of energy and attention to do all the credit analysis, outreach, and transactional work for a small business as it does for one big borrower worth ten times as much. Also, identifying good entrepreneurs often takes local knowledge that larger banks don’t always have. So small borrowers just aren’t interesting to a [commercial] bank, because the bank is trying to create returns for its investors. It’s operating on a budget, and it just makes more sense for it to scale up and pick customers that will allow it to make very efficient decisions, as opposed to decisions that take more time and attention.
Paige: Yes, and what I find interesting about commercial banks is that the decisions they’re making are driven by profit, which is ultimately a set of embedded values right?
Chris: I think that’s right. You set up a system, in which you’re saying the only actors who can expand the money supply are commercial banks, then you give the decisions to actors who are operating for profit. They are making decisions that are value-laden (and often they make decisions that are actually not profitable and are value-laden in other ways, like discrimination against women and people of color, who are actually great bets in terms of the ultimate value). If the only actors that we allow to disseminate credit are for-profit actors, then we’re trying our hands at the very beginning. We wonder why big commercial banks aren’t making decisions for the greater good? Well, because it was never their mandate.
Paige: When Nadav [Orian Peer] spoke about the current MA legislation (An Act to Establish a Massachusetts Public Bank) at #UjimaWednesdays last week, he talked about the act in terms of this being a “pilot.” Is there any discussion around how success will be defined, and on what timescale?
Chris: Right now we’re really focused on the first step. As part of that legislation, the coalition talked a lot about how much to ask for. We are asking for $200 million, which is really not much in the state’s budget. Massachusetts state revenue is a little over $60 billion a year (Tax Policy Center, Brookings). We want to get this set up initially, show that it can operate in a way that is sound and does good work. Then hopefully the state would allocate more money for capital and expand the bank. There’s a longstanding public bank, the Bank of North Dakota, and North Dakota is a much smaller economy than Massachusetts, something like 1/10 of the size. North Dakota takes all of its state revenues as well as its municipal revenues and keeps them in the public bank. The Bank of North Dakota has been running now for a century, and it has a track record of credibility. It’d be great to get to that point where all the Massachusetts public revenue goes into the public bank and does the work of the people.
Paige: There’s also a public thread around the level of risk involved in public banks. So much of how we think about who’s worthy of lending is wrapped up in perceived notions of risk.
Chris: Yes, that’s a very important factor. So on the one hand, the public bank will have operating costs that are even lower than a private bank, and it doesn’t have to pay shareholders. It has only one depositor, which is the state. So for a variety of reasons, its operating costs will actually be lower than a commercial bank, so that it can reach more lenders and offer them a lower rate, which is just fantastic. Having said that, the bank has to operate in a way that’s credible to the public. One of the most exciting parts of this is if we can reach all of these great entrepreneurs, like the food business we talked about, it really uplifts our communities, which is good for the state in so many ways, ranging from the intangible benefits, like community relations to the material. The state will get higher taxes because there are now successful entrepreneurs who can pay taxes, higher taxes than they were paying before when they didn’t have a business. So a public bank is good for the state in all sorts of ways.
Paige: We think a lot about equitable governance at Ujima. Can you expand on the measures in the public banking legislation that ensure BIPOC people have representation among the bank’s governing bodies?
Chris: Partly what we do in the legislation is specify oversight and engagement. So for example, in section 4B, it says “Board representation shall reflect the geographical, racial and gender diversity of the commonwealth.” There’s a really delicate line to walk between directing engagement and attention to underserved African Americans and other marginalized groups, and staying out of (given the conservative jurisprudence) constitutional trouble. So we have to avoid creating racial quotas or something like that, while still sending the signal that attention to underserved communities is an important aspect. We actually borrowed language around ‘underserved neighborhoods’ from the environmental justice bill. There was a lot of work done by folks in the environmental justice movement about how to walk this line, and they defined an underserved neighborhood as a neighborhood that meets criteria around annual median household income, the proportion of households lacking English proficiency, etc. Similarly what we’re trying to do [in the public banking bill] is direct attention to communities in a way that passes constitutional muster.
In terms of the governance, there’s a similar strategy to specify groups who are engaged with their communities at the grassroots level and engaged with underserved populations. So the Board of Advisors specifies different categories of engagement, and the Governor has to appoint people that are nominated. So the idea here is for the Governor to receive Board nominations from specific entities. That is to say, we’re turning the control over to those entities to nominate people, and we hope that those entities will be in touch with communities of color and are conscious of the kind of engagement and representation we want across different racial groups. But, it will ultimately depend on engaged groups in Massachusetts, like Ujima, BECMA, the MA Public Banking Coalition, and others, staying alert. The public oversight of this is extremely important. We would have to make a fuss if people start to go off the rails with this project and start to hijack it. We have to be a public watchdog for the way this plays out.
Paige: Agreed, it’s super important that the public keep an eye on this. Any final thoughts to share Chris?
Chris: Remember that there’s no reason that all the credit and all the cash that comes out in the form of new money should be made by commercial banks. There’s no reason for us to limit ourselves to dependence on commercial actors. Historically, in Massachusetts and many other states, there were public banks, but in part because of the rising power of banks, privatization took over. The Bank of North Dakota, which is always cited as an example, was actually a latecomer to the party — there were lots of public banks and partly owned banks in the 19th century. As private power rose, it asserted a monopoly in this area, but there is no reason why access to credit should be monopolized by private banks. So, the public bank is just proposing that we are more wide-ranging and realistic when it comes to lending, and include the public voice in the way credit is allocated.
Paige: I think that’s the perfect note to end on. Thank you, Chris!
Chris: Thank you, Paige!
This interview has been edited and condensed. Learn more about the growing movement across the Commonwealth to bring a public bank to Massachusetts and get involved here.
Paige Curtis is the Culture & Communications Manager at the Boston Ujima Project.