North Dakota’s Public Bank Was Built for the People — Now It’s Financing Police at Standing Rock

In 1918 in Bismarck, North Dakota, populist socialism won big: The Nonpartisan League, a political party founded by poor farmers and former labor organizers, captured both houses of the North Dakota Legislature. Farmers had been badly hurt by big banks charging double-digit interest rates and by grain companies that operated every elevator along the railroad route, underpaying and cheating the farmers. In response, the new government created the publicly owned Bank of North Dakota (BND) and the North Dakota Mill and Elevator. Both institutions epitomize American public cooperativism, creating democratic checks on private interests’ ability to manipulate financial and agricultural markets. The Bank of North Dakota, in particular, created a firewall against the destructive practices of Wall Street banks, a firewall that went on to protect the state from the worst effects of the financial downturns of the next hundred years.

Nearly a century later, in 2016, that same bank lent nearly $10 million to local law enforcement to fund their response to protests near the Standing Rock Indian Reservation and Cannon Ball, North Dakota. The millions in loans provided by BND allowed the police to double down on suppression of the Standing Rock Sioux’s resistance to construction of the Dakota Access pipeline. They have used harsh detention measures, injury-causing rubber bullets, and water cannons in freezing weather in an effort to demoralize and disperse water protectors, whose chief political actions were praying and nonviolent civil disobedience.

North Dakota’s leadership has bound the state’s economy up so tightly in fossil fuels that it has forced itself to subsidize the security costs of energy companies. In fact, the energy industry has come to expect subsidization for its costs and easy externalization of its negative impacts.

A public bank created to empower small farmers and protect common people from outside interests was used to silence indigenous and environmental opposition to outside interests. How did this happen? And what’s the takeaway for those who point to public banking as a key solution to breaking the power of Wall Street?

The Promise of Public Banks

The state-owned bank envisioned by North Dakota’s Nonpartisan League has been an unparalleled success in government and public finance. It is run like a public utility, subject to transparency and public oversight. It takes deposits of government money (deposits that would otherwise be placed into Wall Street banks). It uses its power of fractional reserve lending (in which only a fraction of bank deposits are backed by actual cash, allowing banks to lend far more than the amount of their deposits) to finance public projects like infrastructure and school construction, as well as providing loans to small businesses, farmers, and even students. The bank has outperformed some Wall Street banks in profitability, and was instrumental in helping North Dakota avoid the worst effects of the 2008 recession; the state enjoyed a huge budget surplus in 2008-09 while nearly every other state faced massive revenue shortfalls.

Today, when many cities and states teeter on the brink of bankruptcy, BND helps fund public goods and economic development around the state, even paying an annual dividend back into the state treasury.

During times of emergency, North Dakota’s Emergency Commission has the authority to authorize BND to respond to state disasters. Low-interest loans are available for as much as 100 percent of the cost of emergency services when necessary. Deficiency appropriations are available if recipient agencies are unable to pay the loans back in a timely fashion. No other state in the U.S. has this kind of financial power for public emergencies; because banks create the money they lend, North Dakota can fund emergency services without draining its budget, and then pay itself back with interest.

In 1997, the floods that swept the town of Grand Forks revealed the magnitude of this financing power, as well as its humanitarian potential. The flooding resulted in billions of dollars in damage. BND provided more than $70 million in relief financing. Unlike Louisiana, which had to borrow money from Wall Street banks to fund relief and rebuilding efforts in response to Hurricane Katrina, North Dakota did not have to go further into debt to outside entities, because the state owned the bank.

BND’s example has inspired public banking movements in more than 30 states and several cities around the country. Proponents of public banks see them as the means to a new, more sustainable and publicly accountable mode of finance. The public banking movement is especially attuned to the abuses of big private banks, and public banking advocates have joined others in attempting to pressure the large banks involved in financing the Dakota Access pipeline to withdraw their financing from the project.

Like anywhere else, North Dakota’s resource and financial priorities are influenced by financial elites, who have always been involved in Big Oil. Public resistance to the Dakota Access pipeline is a threat to one of the staples of North Dakota’s fossil fuel-based economy. So, although the Bank of North Dakota was formed in resistance to corporate interests, those values have disappeared over time, and the Sioux and their allies have few kindred spirits among the state’s elite.

Since energy companies create a disproportionate amount of negative externalities, such as oil spills, emissions, resource depletion, and cleanup costs, it’s not shocking that public resistance to them is high. While companies see dealing with that resistance as a cost of doing business, they also know that governments will heavily subsidize that cost in order to keep the companies happy. So, in the current economic context, BND is making it easier for the state of North Dakota to subsidize Big Oil by providing security and managing public resistance.

Following a Different Vision

In financing those rubber bullets, smoke bombs, and water cannons, BND is paying the security costs of private corporations, subsidizing the worst of Big Oil capitalism. In contrast, if elected officials were committed to sustainable, cooperative economics, public banks would serve much different functions. Those priorities are what drive many members of the public banking movement.

Absent such priorities, economic reforms produce incomplete forms of justice. Demands for economic plentitude and security can trample the movement for justice and sustainability. None of the economic alternatives we are attempting to create avoid this criticism — not public banks, worker-owned cooperatives, local currencies, basic income, or other reforms.

The state of North Dakota is also missing a chance to aim for long-term economic power in its deployment of BND to prop up the fossil fuel economy. Public banks allow states and municipalities to control their own economies without having to serve shareholders or the financial oligopoly. Big carbon-producing states like North Dakota, West Virginia, and Wyoming are taking big hits as parts of the coal, oil, and gas markets flounder, but North Dakota could use BND to finance wind and other clean-energy infrastructure, just as Germany’s public Landesbanken and Sparkassen cooperative banks played a role in financing a system-wide transition to renewable energy in that country.

The paradox and promise remain: If an economy depends on an extract-and-exploit mentality, governments can use public financing to subsidize those destructive operations. Just as good ideas are meaningless without political will, good ideas can be exploited for undesirable ends without a public consciousness pushing hard for justice.

Public banking subjects financial decision-making to the will of public officials — and unless those officials are committed to a broader vision of justice, what we get are rubber bullets at Standing Rock.

Public banks can also be used to more just ends, to fund a post-carbon, sustainable energy transition — but only if people successfully demand a post-carbon, sustainable energy transition. They can create safe and prosperous communities, but only if that’s what communities commit to being.

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