The political conflict over the Bush administration’s plan for a bailout of the banks, brought about both by differences with the Democrats and even more intensely with rightwing Republicans, makes it highly unlikely that Congress will be able to pass a bailout plan that can stabilize the financial situation along the lines that Secretary of the Treasury Henry Paulson originally asked for. Paulson wanted a $780 billion check to clean up the banks’ books by taking their bad loans off their hands. Many believe the price tag would ultimately come to a trillion dollars. He simply wanted taxpayers to save the banks. While a minority of rightwing Republicans reject the fundamental basis of the plan, the Democrats would add conditions — Congressional oversight, better terms for homeowners, limits on executive salaries, and other items — which would (from the bankers’ point of view) weaken the plan and limit its effectiveness.

Even if Congress can quickly arrive at an agreement with the Bush administration and Secretary Paulson about the bailout, the financial situation in particular and the economic situation in general will probably get worse. The underlying problems facing American capitalism — the failure of the United States in Afghanistan and Iraq, the rising cost of petroleum, the continuing and increasing competition from Europe and Japan, and now the ascendancy of China — make it very likely that the country’s economic power will deteriorate, leading to the decline of the United States as a world power. Beyond that are structural and systemic weaknesses in the American economy and society as a result of neoliberal capitalism which have caused a deep disjuncture between the vision of the United States as a post-modern, high-tech economy and the reality of a nation with a crumbling infrastructure, a disintegrating public education system, inadequate health insurance, and persistent problems of poverty.

The economy is already in a recession. Whatever the ultimate bailout plan, the financial situation could well continue to unravel, curtail credit, and shrink the broader economy, leading to a deep recession or depression. The U.S. Congress, both Democrats and Republicans, might then be forced — despite their deep aversion to any form of government ownership — to not only bail out the banks but to buy them. The increasingly popular sentiment that the bankers should be made to pay for the crisis opens the door to the notion of nationalization of the banks. What would it mean to have the government own the banks?

Historically the Populists, various labor parties, and the Socialist and Communist left have raised the slogan of nationalization of the banks as part of a process of bringing about socialism. Their argument has been that if the banks were owned by the government, and the government were controlled by the people, we could democratically plan an economy to meet the needs of all. Nationalization of the banks would form part of a plan of socialization of the economy — banks and corporations, mines and factories, airlines and railroads — brought under the control of a combination of citizens, workers, and consumers. We would put our children, the elderly and the infirm first, and organize the economy to provide jobs, housing, health care, education, and retirement benefits for all. Bank nationalizations in reality, however, have usually just been a stage in the boom-bust cycles of modern economies, a period when the state lends its strength to finance to see it through hard times, and once finance has recuperated, the state returns it to its private owners so they can continue to reap the benefits of wealth plus interest.

 When Governments Nationalize the Banks

In recent history governments have nationalized banks when the pressures of internationalized financial markets and international competition have made it difficult for them to control and stabilize their finances and currency. During the last couple of decades, countries as different as Mexico, France, Sweden, and Japan carried out partial or more or less complete bank nationalizations to regain control of the financial situation.

Japan’s experience more than a decade ago was much like that of the United States in many ways. After a period of great productivity and prosperity in the 1980s, in the early 1990s, Japan’s housing bubble burst, leaving Japanese banks holding sheaves of bad loans. The Japanese housing boom collapsed just as China began to become an export competitor. [1] After neglecting the problem for some time the Japanese government intervened, spending $440 billion dollars of its taxpayers’ money to nationalize the weakest banks, infuse capital into the stronger banks, and to protect depositors. [2] Japanese banks were required to create a Business Revitalization Plan, at the center of which was a capital/asset ratio. Some economists and journalists have suggested that Japan’s solution — partial nationalization and partial financial support for private banks — could provide a model for the United States in the current crisis.

Sweden handled its financial crisis of the early 1990s through a quasi-nationalization. The Swedish Social Democrats — not the conservatives — had deregulated the banks in the 1980s. But in the early 1990s Swedish real estate values began to fall and banks were left holding bad loans. Sweden spent $11.7 billion to rescue its banks but in return received warrants, that is, paper granting the government the right to buy stock in the banks whenever it wished. This constituted a quasi-nationalization of the banks restoring public confidence. As part of the Swedish deal, banks had to write down their losses, sell their distressed assets, and later the government sold the shares it held in the banks. [3] The government’s temporary control allowed the financial situation to stabilize, and the re-privatized banks reentered the national and global financial markets strengthened, though still subject to the ongoing, worldwide crisis of capitalism.

Both Mexico and France nationalized their banks in the 1980s in response to international financial pressures and international competition. In Mexico, the government of President López Portillo raised the banner of the Mexican Revolution as he nationalized the banks in an attempt to regain control of finances and to stop capital flight abroad. In France, the Socialist and Communist parties and the middle class Radical party had adopted in 1972 the Common Program of the Left, which called for the nationalization of the banks. But in France too it was the new international character of finance which led the government to nationalize the banks in large part to get control of the expanding money supply. [4]

 Lessons of the Experience

Without going into all the details of the Japanese, French, and Mexican cases, we can note some similarities in the experience of nationalization of the banks. First, an important sector of bankers resisted nationalization and, when finally forced by the government to relent, fought for higher compensation for their property than originally offered . . . and usually won. Second, in none of these cases was bank nationalization complete, with some domestic and foreign banks usually excluded. Third, where banks were more completely nationalized, the bankers opened new financial institutions which tended to engage in banking functions and significantly drained off capital. In general, bank nationalization tended to contribute to the centralization and modernization of the banking industry as a whole. In all cases after a few years the nationalized banks were reprivatized, usually to many of the same financiers who had previously owned them.

The nationalization of banks does not necessarily represent a progressive measure, nor is it a logical next step toward socialism. Government ownership of banks, at least partial ownership and sometimes complete ownership, is quite common around the world. Many capitalist nations — both developed and developing ones — have nationalized their banks during the twentieth century. A 2002 study of banks found that around a third of all banks were government-owned, though such bank ownership was more common in the developing world. [5]

 The Slogan of Nationalization in a More Radical Time

Bank nationalization had a different character in an earlier era. During the 1930s a far more radical left than that of the 1980s had raised the slogan “Nationalize the Banks!” as part of a revolutionary, transitional, or radical reformist program aiming at the establishment of socialism in a not too distant future. Socialist parties around the world had since the nineteenth century called for the nationalization of the banks, transportation and communication, industry and mining. The idea was that nationalization formed an integral part of socialization, of banks and industries which would be guided by a national economic plan elaborated democratically either by a kind of parliament or by national representatives of workers councils. For some the Soviet Union’s experience — a nationalized economy which brought about rapid industrialization and victory in World War II — represented a confirmation of their notions of the value of centralized planning. Only later would the problems of Stalinism or bureaucratic Communism, that is, undemocratic centralized planning managed by a totalitarian dictatorship and forced labor, become clear to all.

In France, liberated at the end of World War II by a combination of Allied invasion and national resistance movement of the Maquis’ guerrilla bands, there was a great revulsion against the Third Republic, the Vichy government, the French elite, and capitalism more generally. Socialist and Communist Party influence was great, and it was in this atmosphere and under this pressure that the French government nationalized the largest banks on December 2, 1945. This was a far more popular and democratic nationalization than those of the 1980s and 1990s, but it did not fundamentally change the character of French capitalism. Socialists, Communists, and Christian Democrats then joined together in the Three-Party Alliance, and established the Fourth Republic.

During this first bank nationalization, the new French government established a Bank Control Commission with the power to oversee the running of both the nationalized banks and the remaining smaller, private banks. But there was also a National Credit Council appointed by the government, which played a key role in determining the policy of the banks. It was made up of seven members chosen for their expert financial knowledge (from the nationalized and private banks, from the foreign trade banks, and from the stock exchange), seven representatives of the country’s labor unions, including the bank workers, and ten representatives of various economic interests (agriculture, cooperatives, foreign trade, shipping, chambers of commerce, and craft organizations). A cabinet minister presided over the council and the governor of the Bank of France served as vice-president. [6]

France’s nationalized banks worked with the government and private industry to fulfill the 470 billion franc Monnet plan for reconstruction and development. The nationalized banks were used in particular to finance other nationalized firms, such as the gas and electric company. Often the nationalized firms were less sound and less profitable than the private corporations, so the nationalized banks became a kind of government subsidy to state industry. Whatever the left parties had envisioned when they supported nationalizing the banks at the end of the war, and some no doubt saw nationalization as a step toward socialism, it became part of the process of reconstructing European capitalism. European social democracy gave up the struggle for socialism and undertook instead the management of capitalism along Keynesian lines. While the social democratic welfare state provided reforms, it could not ultimately escape the vicissitudes of capitalism and, like the American liberal welfare states, had to bend before neoliberal reforms in the 1980s.

 The Question of State Capitalism

Nationalization of the banks has usually represented a recurring stage in the experience of modern capitalism, which is to say state capitalism. At its birth, capitalism shared the cradle with the modern state. The two grew up together, two brothers testing their strength against each other, and drawing strength from the tests. As they matured, they transformed capitalism into imperialism, and used their strength to extract wealth from the societies of Asia, Africa, and Latin America.

Throughout the world, including in the United States, at every stage of development government provided capitalism with a legal framework, with a domestic market, with government subsidies for the construction of infrastructure, and often with vast grants of land, lucrative contracts, and periodic infusions of capital. Government and finance have a particularly close relationship; they are practically Siamese twins sharing the same nervous and circulatory system. In the United States, the Secretary of the Treasury and the Federal Reserve Bank are the point of connection and each is as much a part of government as of finance. In the modern world, the token of and the tendency toward state capitalism is ever present.

Some have seen nationalization per se as a step toward socialism. In the nineteenth century, some argued that state nationalization of industry by the governments of Bismarck of Germany or Napoleon III of France represented socialism. Karl Marx and Friedrich Engels, the founders of modern socialism, disparaged and ridiculed the idea that the state might hand down socialism from above. Engels wrote,

But of late, since Bismarck went in for state ownership of industrial establishments, a kind of spurious socialism has arisen, degenerating now, and again, into something of flunkeyism, that without more ado declares all state ownership, even of the Bismarckian sort, to be socialistic. Certainly, if the taking over by the state of the tobacco industry is socialistic, then Napoleon and Metternich must be numbered among the founders of socialism.

Engels pointed out that in Europe in the late nineteenth century various nations had nationalized banks and some industries, but, he insisted, “. . . the transformation, either into join-stock companies and trusts, or into state ownership, does not do away with the capitalist nature of the productive forces.” [7]

Rudolf Hilferding, the Austrian-German socialist economist, wrote in his book Finance Capital published in 1910:

Finance capital does not want freedom, but domination; it has no regard for the independence of the individual capitalist, but demands his allegiance. It detests the anarchy of competition and wants organization, though of course only in order to resume competition on a still higher level. But in order to achieve, and to maintain and enhance its predominant position, it needs the state which can guarantee its domestic market through a protective tariff policy and facilitate the conquest of foreign markets. It needs a politically powerful state which does not have to take account of the conflicting interests of other states in its commercial policy. It needs also a strong state which will ensure respect for the interests of capital abroad, and use its political power to extort advantageous supply contracts and trade agreements from smaller states; a state which can intervene in every corner of the globe and transform the whole world into a sphere of investment for its own finance capital. [8]

The Russian Bolshevik political leader and intellectual Nicolai I. Bukharin, following Hilferding, would argue in his book Economics of the Transformation Period published in 1920 that out of imperialism and war had arisen “a new model of state power, the classical model of the imperialist state, which relies on state capitalist relations of production.” [9] In capitalist societies governments engage in the nationalization of banks to reestablish financial stability and improve their economic position in the international market, not to advance the common good. Neither does the capitalist state’s nationalization of banks represent a step toward socialism.

While many things have changed since 1910, the tendency of financial institutions to seek the protection of the state in a world of intense foreign competition remains. While Hilferding and Bukharin seem to have envisioned something like the literal fusion of the state and finance, what we have seen instead throughout the modern period is an oscillation of periods of quasi-fusion through nationalizations and of quasi-independence during periods of privatization. Whatever the exigencies of the moment, in the face of international competition, diplomatic rivalry, and foreign wars, financial institutions and the state will tend to seek out relationships of mutual benefit to the dominant bloc of finance capital. Nationalization of the banks tended to be a moment in this oscillating relationship, the moment of the salvation of the banks by the state.

 The Role of Nationalization in the Program of the Left

Yet the socialist argument that banks controlled by a government of the people could be a step toward socialism does have merit. Left social movements and political parties should raise the idea of nationalization of industries and the banks propagandistically and educationally, but this notion only has socialist implications when linked with the idea of working-class control of the state. The slogan “Nationalize the Banks!” as an agitational point makes sense only when there is a mass movement and a working class ascendant which has the power to use nationalization even under capitalism as a tool to weaken private capital. The left has usually called for the expropriation of the banks without compensation, though perhaps in some situations it might be possible to buy them and permanently retire the bankers. The slogan of nationalization becomes most meaningful as part of the program of the left when we make it clear that we mean the socialization of industry under democratic control, combined with workers’ control of production itself. The goal in the end is the most democratic control of the government and the economy.

The problem for the left today, however, is to organize to build labor and social movements, and to build a political party of the left which could put such a demand as “Nationalize the Banks!” on the agenda. Today the problem is to keep the government from simply using the taxpayers’ money to save the banks and sending them back on their merry way. We have to be part of the struggle to make sure that that doesn’t happen.