Money and power: Who gets to participate in financial decision-making?
This blog is part of an ongoing series written by members of NFF's Social Innovation and Equity Council exploring how equity shows up in their work.
NFF is committed to increasing access to capital for populations historically sidelined by under-funding and under-financing, and has implemented ways to broaden who participates in investment decisions, both internally and externally. But so much of the US financial system is money seeking money for its own sake, continuing age-old systems of exploitation, dominance, and extraction. Bringing diverse voices into the day-to day structures and systems of finance is an important step in creating collective action toward transformative change. This blog highlights the obstacles all of us face and some of the transformative ideas out there today that can release human creativity towards productive, equitable infrastructure and social, care-based services.
What’s wrong with our financial system, anyway?
Two major challenges to a more equitable system are that an ever-decreasing number of people control an ever-increasing amount of money, and that financial innovation often means making money for money’s sake, rather than to benefit society. The power to set social priorities through financial decisions is consolidating rapidly in the hands of a few to the detriment of many. First, public goods – like housing, infrastructure, broadband, and data – are being privatized. Second, many financial instruments allow money to be extracted through rents, licenses, and fees while providing little or no real-world productive or social value.
This massive, debt-based creation of financial wealth is built on extractive and dominating forces feeding on generations of structural racism and exploitation of labor. Too often, financial wealth comes not from building material products and services like physical infrastructure and social/care-based systems, but rather from shuffling around financial products.
How did we get here?
A century ago, John Maynard Keynes compared a hypothetical country’s economy to a casino: “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”
Arguably, this is how the United States’ economy is being treated once again. Today, most assets in the US have only a tenuous connection to the physical and social world: 75% of assets are financial ones like publicly-traded stocks and mutual funds. An increasing share of these financial products, like exchange traded funds (ETFs), has no direct investment in real-life activities, but rather has a value derived from real activities (or, worse yet, derived from another financial product!). The concentration of wealth in the US has been buoyed not only by digressive federal and state policies but also the priorities set through new money creation during both the 2008-10 and 2020 recessions. This combination of support led Nobel Laureate Joseph Stiglitz, back in 2010, to observe the undesired outcome of the ability to socialize the losses and privatize the gains.
Financial products like these allow for speculation and exacerbate, not diminish, the boom-bust cycle – which is the exact opposite of the role finance should play in society. Yet when the Federal Reserve created $11 trillion in new money to stabilize the economy through the last two recessions, much of it went towards “saving” the financial sector. Instead of investing in critical social services or the wealth of individual people, this influx of capital supported a market with little connection to real assets and where 10 percent of households hold 88 percent of financial wealth. Yanis Varoufakis, former Finance Minister of Greece, captures a vital strand of truth when it comes to money and power: “solvency is a political decision, at least in the rich west.”
Overwhelming evidence points to the fact that a financial sector should only grow so large. Depending on how you cut it, the US financial sector has provided the means for anywhere from $22 trillion to $47 trillion to be extracted from households, local governments, and local businesses over the past few decades, benefiting a small fraction of the population. The power to do so was allowed for and actively supported by regulations favoring financial activity for its own sake and other mechanisms. But while some will always use this power to benefit only a small network of people, social movements across time and space show us another way: the amazing power of collective action.
“For the master’s tools will never dismantle the master’s house. They may allow us to temporarily beat him at his own game, but they will never enable us to bring about genuine change.”
Pathways toward equity
It will take a lot of work to meet the challenge of building a more just and vibrant society. Democratizing finance means, in part, broadening access to capital but most importantly, it means broadening access to the decision-making process of how resources are allocated. As Audre Lorde so insightfully observed, “For the master’s tools will never dismantle the master’s house. They may allow us to temporarily beat him at his own game, but they will never enable us to bring about genuine change.”
With access to real power, major transformations are possible. We can unleash waves of human creativity towards intergenerational investments that build equitable public infrastructure and support people providing critical care-based social services. For instance, a worker-led movement in Costa Rica led to the creation of a worker-owned and controlled public bank, with strong features of participatory decision-making.
In the US, social and environmental justice movements across the country are seeing the power to set priorities by controlling the purse strings. The nearly 90,000 governments in the US (city, county, school districts, etc.) hold a combined $1 trillion – $5 trillion including pension funds. How these savings are allocated results in real power and the ability to set priorities. Rather than resorting to the marginal strategies of the past several decades, which simply set aside a portion of money but did not transfer real power, diverse movements are working to claim control over the massive power held even by our local governments. A few examples: worker coops, participatory budgeting, public banking, housing cooperatives, renter-owned cooperatives, community land trusts, the solidarity economy, and household debt jubilee.
We can also expand our conception of money through thought experiments. Money signals value just as much as it stores value. What would the world look like if money creation was rooted not in consumption-based businesses and the casino of the financial industry, but something more caring and loving – planting trees, for example? Could we also envision a future that begins demonetizing life and bringing back concepts like the commons? Maybe one day we can de-financialize parts of our society not to absolve people of responsibility, but to say that debtors don’t always get to make all the rules and that people are more than their monetary value to society. Maybe we can even defang the encroaching power of big tech, bolstered by finance, in favor of collective and accessible enterprises working again to put investment towards “the production and maintenance of infrastructure, the wide array of labor necessary for social reproduction, and the underlying state structure.”
This blog is part of an ongoing series written by members of NFF's Social Innovation and Equity Council exploring how equity shows up in their work. Read more:
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