ASA session with Fred Block: Democratizing finance
In a series of posts about real utopias (see the earlier posts by Gar Alperovitz and Jerry Davis), we’ve invited Fred Block, professor of sociology at UC-Davis, to write about his session that will take place Sunday at 10:30 at the ASA conference.
My Real Utopia proposal for this ASA meeting is on “Democratizing Finance.” It is posted at the Real Utopias website. Writing this was much more difficult than I ever imagined, and this draft still needs a lot of work. It was hard because at the current moment, getting unemployment in the U.S. down to 7% seems unimaginably difficult and unrealistic goal. It follows that major structural changes such as democratizing finance appear to be wildly utopian with no element of realism whatsoever. The other problem is that almost all the work we have in the sociology of finance is focused on what happens in one or another specific market. We have very little work that generates an overview of the financial system as a whole, but serious reform has to look at the entire structure.
My argument proceeds through the following steps:
First, I try to explain the major defects in our current financial system. It reinforces inequalities of wealth and power, it generates dangerous speculation, and it fails to channel capital towards economically vital investments. Second, I argue that any financial system requires gatekeepers who will decide what activities are worthy of financing. However, I suggest criteria for evaluating creditworthiness that are far more egalitarian than the ones that are used in our existing system. Third, I propose a series of institutional mechanisms that could allocate capital consistent with these more egalitarian criteria.
This is where the “real” comes in. For one thing, Germany has a diversified and decentralized banking system that does provide financing for some of the activities that are under financed in the U.S. For another, the U.S. already has a healthy number of alternative financial institutions–mostly credit unions–and some of the needed infrastructure to make them effective.
The challenge is to implement policies that would–over a decade–shift the share of consumer deposits held by credit unions from 10% to 80%. Such a shift would dramatically shrink the “Too Big to Fail” financial institutions that caused the crisis and that seem impervious to effective regulation. But this would also mean transforming credit unions from sleepy little institutions to powerhouses that could become the catalyst for locally-driven economic development. Getting there requires both new government policies and a social movement to invigorate locally-based financial institutions.