Ellen Brown sends an article about public banking in Costa Rica
The writer – and others reading this post – first met Ellen – American lawyer – at the 2007 gathering of the Bromsgrove Group and recorded her summary of the way forward on a regional website.
At the gathering, she had detailed the national debts of several countries in her book, The Web of Debt, and described a ‘cruel hoax’: “these governments are in debt to private banks for money created on a computer screen: money they could have created themselves.”
From Ellen’s article, which may be read here, we learn that there are 29 licensed banks, mutual associations and credit unions in Costa Rica, of which four were established as national, publicly owned banks in 1949. There has been enormous pressure by the I.M.F. and the U.S. to privatise them along with other public assets but the Costa Ricans have resisted that pressure–because the value of a public banking option has become abundantly clear to everyone in this country.
As the four state banks are stable and none have failed in 31 years, most Costa Ricans have moved the bulk of their money into them. Those four banks now account for fully 80% of all retail deposits in Costa Rica.
Ellen draws on the writing of Scott Bidstrup, a resident in Costa Rica for the past decade , who reminds us that “The new Happy Planet Index, which rates countries based on how many long and happy lives they produce per unit of environmental output, has ranked Costa Rica #1 globally”.
After summarising the history of the country, he concludes that State banking was key to the private sector growth. “By 1980, the Costa Rican economy had grown to the point where it was by far the richest nation in Latin America in per-capita terms. It was so much richer than its neighbors that Latin American economic statistics were routinely quoted with and without Costa Rica included. Growth rates were in the double digits for a generation and a half. And the prosperity was broadly shared. Costa Rica’s middle class – nonexistent before 1949 – became the dominant part of the economy during this period. Poverty was all but abolished, favelas [shanty towns] disappeared, and the economy was booming”.
State banking offered credit on favorable terms to found small ‘mom-and-pop’ companies that supplied the larger state-owned firms and employed people not involved in the coffee sector. (Left) a special-charter bank called Banco Popular, which in principle is owned by all Costa Rican workers.
Ellen reflects that had they been forced to rely on private sector banking, few of them would have been able to obtain the financing needed to become established and prosperous. Lending policy was government policy and was designed to facilitate national development, not bankers’ wallets.
Virtually everything Costa Rica needed was locally produced. Toilets, window glass, cement, rebar, roofing materials, window and door joinery, wire and cable, all were made by state-owned capitalist enterprises, most of them quite profitable.
Though this was disrupted by the IMF imposed privatisation policies, Scott Bidstrup, continues: “Costa Rica still has a robust economy, and is much less affected by the vicissitudes of rising and falling international economic tides than enterprises in neighboring countries, because local businesses can get money when they need it. During the credit freezeup of 2009, things went on in Costa Rica pretty much as normal. Yes, there was a contraction in the economy, mostly as a result of a huge drop in foreign tourism, but it would have been far worse if local business had not been able to obtain financing when it was needed. It was available because most lending activity is set by government policy, not by a local banker’s fear index”.
His dream scenario:
- Invest in the Holy Trinity of national development – health, education and infrastructure.
- Pay for it with the earnings of state capitalist enterprises that are profitable because they are protected from ruinous foreign competition.
- Help local private enterprise to get started and grow,
- Set up stable state/publicly-owned banks that prioritize national development over making bankers rich.
Though Bidstrup’s recommendation of these policies, which worked well for Costa Rica for a generation, was aimed at ‘third world countries’ wishing to develop, they seem applicable to all.