New Economics for You
Why We Need State Banks | 9 October 2011
North Dakota is the only state with a state bank. North Dakota did better than everyone else in this ongoing recession. (Wall Street declared that the recession ended in 2009, but nobody believes that because it’s nonsense.)
The North Dakota state bank has no branches. Nobody has an account there. There are no ATMs. The entire purpose of a state bank is to make in-state loans to local banks, who loan to business, specifically small business. The big banks can’t be bothered with anything that isn’t international involving billions of dollars. They rarely loan to small business.
But small business is the source of most new jobs in the US, so the big banks are not really helping with unemployment. Below is an OECD chart showing the percentage of employees in very small businesses for various countries. Note that in Greece, which has been a fiscal disaster for years and is the bane of the EU, nearly 60% of employees work in tiny businesses. Greece could use some big business. The US has nearly the opposite situation, with only 11% working in tiny enterprises, the lowest percent among advanced nations. We could use a lot more, and the new jobs that come with them.
When hard times hit, very small businesses pull back by shortening hours or similar tactics. Most big businesses simply fire a lot of people, as Bank of America is presently doing with 30,000 employees. This of course is counter-productive as far as the national economy goes. Too many unemployed people drain the state coffers and make the budget go “TILT”, to say nothing of killing demand for goods, worsening the economy.
It is for this reason that California and a bunch of other states are studying the ins and outs of establishing state banks. There will probably be several in the next few years. The next time a recession rolls around, states with state banks will be better prepared to weather the storm. Moreover, those states will probably see an improvement in the numbers of small businesses, with corresponding increases in new jobs that big business deigns not to create.
This can only be good news for the New Economy.
Tags: flaws of capitalism, liberal blog, new economics, small business, state banks
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John Pennington, San Francisco
I heard on radio (probably NPR or maybe Pacifica) some months ago about North Dakota’s state bank, but didn’t understand the significance of it.
This helps.
The entire purpose of a state ban is to lend to local banks — who then lend to small business (I’m still trying to understand this)? Does this mean local community banks don’t have enough money in customer deposits to make loans to small business? I hope this means the “Move Your Money” movement will (or might) make a difference to small community businesses. Where does the State Bank get its money if “nobody has an account there” ?
Comment by helenofmarlowe — 14 November 2011 @ 10:32 am
It’s just that big banks cannot be bothered with small loans, because they are the same paperwork for less return. As for the source of the bank’s funds, I plead ignorance. My guess is the state.
Comment by John Pennington, San Francisco — 14 November 2011 @ 10:40 am