An independent Scotland has to do things differently from the UK, but that does not mean that it has to do new things. A large quantity of the fuel that fires the engine for separation is the accurate perception that the Westminster economic model is unfair, unfree and rigged. In the search for a more equitable, freer and fairer economic model, Scotland is often urged to do something ‘new’.
Yet economic history is full of enterprising and astounding models that not only took a new and different path but forged that new route to success and prosperity. (Too successful for some financial interests’ liking.) Scotland, its voters and policy makers, can look at these older models, many of them tried and tested yet now enshrouded by the fog of history, and use them, appropriately modernised, for the challenges we face today.
A perfect example exists in the United States which has resisted the financialisation of the American economy, still holding true to its original intentions. The Bank of North Dakota provides a unique illustration of banking possibilities in the present day, being one of the few survivors across the world of banks birthed by a populist and progressive movement of an earlier period and which, due to those origins, focuses on an economy of the people, not the enrichment of bank shareholders.
In 1919 populists founded the bank with the aim of freeing farmers and small businessmen from the python-like embrace of bankers and predatory railroad men. It was originally conceived as a credit union, however, after financial actors suffocated that attempt, it became a state bank, a role which has made it a more effective disperser of economic growth among the general populace.
The bank is the sole depository for all the state funds of North Dakota. Instead of depositing state money in private banks – receiving little interest and facilitating lending by irresponsible financiers – the state puts its money, along with some government agency money, into the Bank of North Dakota. Having this money as a deposit gives the bank a huge capital base from which it can then create credit at a low interest rate.
Unlike other private banks, its aim is not profit but supporting the agriculture and commerce of the denizens of Dakota, North. Its interest rates do not have to add a margin that give each level after level of the banking pyramid a cut of the surplus extracted, until delivering a capstone of golden profit for remote institutions and distant men and women who will never once in their lives set foot in the mid-western state. Instead, it keeps money close to the people whose money it is and returns the surplus earned by its actions to the North Dakotans to the benefit of their daily lives.
All profit is returned to the state, allowing the state to then spend that money on its priorities as these profits belong to the people of North Dakota. If ever there is a shortfall in money available to the government, the bank can step in and provide credit at a rate that, unlike the private banks, will not cause future cuts due to punishingly high interest rates on the loans. The model effectively results in infrastructure being interest-free, since money generated is returned to the bank.
A triumph of far-sighted planning with a human heart? It has certainly been of incalculable benefit to countless and nameless Americans. During the Great Recession of 2009, in contrast to similar states like Alaska and Montana, unemployment in North Dakota never touched higher than 3.3%, and at that time of crisis, while others increased taxes and cut services, North Dakota was able to cut income and property taxes with no impact on services. In 2019, the bank recorded profits of $169 million (straight into state funds) on $7 billion of assets and $4.5 billion of loans.
There is no reason why Scotland cannot do the same. The model works so well, it can even make Sterlingisation work – that’s not a good thing though – a Scottish currency will always be the only solution for genuine independence. Nonetheless, if the Scottish Government were to deposit all its money into a state bank then it can leverage it massively to provide loans for infrastructure projects, all sizes of business and develop sectors of the economy that are under-funded or promise future riches.
Using just a little bit of imagination, there is no obstacle to a network of local banks being created which would receive deposits either from the Scottish government or municipality funds (or a combination of both along with small depositors who’d have better returns and be investing indirectly in their own communities) and each bank would be in the position of not just supporting their regional economies but returning a profit to local government: council deficits and the need for austerity would be a thing of the past. Taxes might even be reduced!
The question is how bold are we prepared to be? It’s not unthinkable to localise and democratise the banking system and create prosperity for all communities in Scotland.
This will be made far more difficult if Scottish assets continue to be sold off and small business is decimated with the encouragement of greater and greater multi-national corporate encroachment into Scottish markets and capital, the current direction of travel by the Scottish Government combining with lockdowns.
The snail-like progress of plans to create a Scottish Investment Bank with funds of £2 billion over 10 years seems dismally unambitious and constrained when you think that it could deposit £41 billion on an annual basis and use leverage to dramatically increase the cash available to projects that we know will make a return: a borders railway extension; expansion of Glasgow airport to include travel links to take a visitor to any part of Scotland; an Edinburgh London high speed link and wave and tidal powered, state-owned electrical generators on the west coast. This would be a start.
But why stop there? Local community owned, green powered energy from rivers and waterfall, alongside energy efficient housing; residents receiving payments for the surplus sold to elsewhere. The technology is there, the loans and grants are not. Too often the banking system hobbles us. An independent Scotland should use it to enrich us in all areas of life.
The North Dakotan progressives – working people, farmers and small businessmen – have taught posterity a lesson that is still, after a hundred years, ongoing. Are we brave and bold enough to learn it?