An old, novel idea: The political economy of public banks in renewed historical perspective

Governments around the world face the threat of increasing economic disruptions resulting from global systemic crises such as the COVID-19 pandemic and climate change. Myriad policy tools exist to help smooth these disruptions. Public banks, or government-initiated and controlled banks, are one such re-emerging tool, such as in the recent passing of the California Public Banking Act in 2019 and the UK’s Green Investment Bank (2012). An ongoing debate between the so-called “two views” of government bank ownership contests the functions of public banks, pitting the argument that they exist to facilitate economic development against the perspective that political rent-seeking motivates their operations. Yet no systematic studies directly examine what leads governments to pursue them, impeded in part by a lack of data. In absence of such analyses, the “two views” debate generates unfounded assumptions about public banks’ origins backwardly inferred from their institutional functions, muddying policy discourse. This dissertation provides the first systematic analysis of public bank formation. The first chapter introduces my conceptual framework for defining and identifying “public banks” and an original dataset that includes over 1,300 banks, 191 countries, and spans the period 1401-2020. Using this dataset, I show that public bank formation is more prevalent in developed democracies, contrasting the implicit expectations of the “two views”. The second chapter develops a novel theory, which I test using case studies and cross-national quantitative analysis. I argue that persistent public bank formation is strongest in the twentieth century when decolonization coincided with economic nationalist movements and a disruption to private finance. Otherwise, public bank formation is less likely in absence of subsequent exogenous shocks and policy advocates creating specific political demands. The third chapter further nuances the “two views” by examining a contemporary case of public banks funding public water in Buenos Aires, the multi-level governance of which demonstrates the complexity of various political, social, and economic factors affecting present-day public bank operations. Collectively, this research challenges old assumptions and opens new pathways for research on public banks as one policy tool for addressing the growing economic precarities and necessities of the twenty-first century.