A conversation with economist Umair Haque about the "too big to fail" myth and how Americans can force the megabanks to change.
As director of the Havas Media Lab and a regular contributor the Harvard Business Review, author Umair Haque has long been one of GOOD's favorite scholars. Prompted by his tweets lightly mocking the U.K.'s recent anti-austerity protests, during which people attacked banks for their shockingly low tax expenditures, we reached out to Haque to talk about the demonstrations and how they could have been better. His answers were more revolutionary than any kid throwing a rock through the window of a Barclays.
For instance, says Haque, if they wanted to, a group of concerned citizens could divest from big banks en masse and collapse them (an organization called Move Your Money is already advocating just that). He argues that contrary to what most of us may feel in the wake of the financial crisis, customers are far more powerful than banks. And unless Americans learn that lesson quickly, he says, they can "kiss the future goodbye."
GOOD: Last month, you caused a bit of a tizzy on Twitter when you pointed out some of the shortcomings of the U.K. anti-austerity protests.
Umair Haque: Well, I certainly didn't mean to cause a tizzy. My point was simple: In the U.K., people were protesting austerity measures. Yet without fundamental reform of basic institutions—notably banks—austerity is treating the symptom, not the underlying problem. The proximate cause of cuts is deficits, but the ultimate causes of deficits are a banking sector that blew up severely, a government that seems less than capable of managing it (and more than capable of being captured by it), and corporations that are less than willing contributors to the common good. Hence, my point: Protesting budget cuts without understanding the need for deeper reform is a bit like popping a zit when you've got a chronic disease.
If I wanted to be cynical, I'd say cuts are just a sideshow, a diversion from the main event. They'll keep rolling on and on and on, because the simple truth is that wealth is being extracted from society at an ever faster rate. The main event? Deep institutional reform, so our institutions create wealth, instead of merely extracting it. The longer we put it off, fail to do it, or, most vitally, fail to understand that logic, the longer and harder this great stagnation will be.
GOOD: You retweeted someone who said, "People don't believe their power. They don't believe they could topple banks in a month. You and I know they could but they don't." A former SEIU official recently came under conservative fire after suggesting something similar, that Americans should come together and collapse JP Morgan. What would an effort like this look like, and how would it work?
Haque: Let me be very clear: I'm certainly not calling for "collapsing banks." Let me put it this way: I find it hard to understand why so many keep their cash in megabanks when the service is poor, the hidden charges are steep, and the risk is great. Banks are highly leveraged institutions. Were a relatively small percentage of deposits to shift to, for example, community banks or credit unions, megabanks would find it very difficult indeed to sustain the profit margins or market power they currently enjoy. In the 20th century, protests were political, focused on reshaping economies. In the 21st, I have a hunch that the most effective protests will be economic, focused on reshaping polities—like, for example, coordinating the flight of capital from a bank that isn't living up to its end of the bargain that people, communities, and society have struck with it.
GOOD: What impact would it have on the global financial market and our domestic lives if American citizens did come together and topple banks?
Haque: If America can reform its banking sector, it has a fighting chance at a prosperous future. If it doesn't, it doesn't. Though that might sound harsh, the plain truth is that Wall Street's recent meltdown has cost literally trillions; that Wall Street has drained two generations of top talent from authentically creative, productive work; that Wall Street consistently makes malinvestments that blow up instead of investing in what endures, matters, and multiplies.
Economic history 101 tells us that in the modern context, a financial sector focused on extracting wealth—instead of on creating it—is one of the few sure ways to ensure the swift, steady decline of a nation (the others being war, debt, and sheer indolence). I'd say that without the institutional reinvention of finance, America simply won't be able to create the future, because it will keep investing in yesterday's already overleveraged, zero-social-return "ponziconomy." (When I say zero, I'm being kind. When the final bill's added up, I suspect that we'll discover that finance has destroyed significantly more wealth over the last several decades than it has created—the Bank of England has already concluded that over the noughties, banks created zero economic value.)
GOOD: Presumably—and this is from a financial layman—the result of toppling banks would be terrible instability at home and abroad. How is that beneficial to the working class?
Haque: America is watching a great tragedy unfold: The collapse of the middle class. That society needs megabanks is, to put it kindly, a finely tailored piece of marketing. In fact, as I've written about a few months back, banks need society a lot more than society needs banks. How do we know? Well, consider the Irish Bankers' Strikes of the 1970s, when fed-up bankers petulantly decided to go on strike (with the assumption that the economy would collapse, and society would beg to have them back). Instead, the economy kept growing, and a kind of peer-to-peer banking system arose spontaneously. Far from instability, the result was relative stability.
The larger point is that the "instability" that is the heart of Wall Street's scare tactics is in fact already upon us, savagely so. The global financial system is still being propped up with liquidity injections and implicit guarantees of every kind—and on the flipside, income, wealth, and job creation are stagnating while poverty is growing. That is economic instability—and the solution isn't subsidizing Wall Street to the hilt, because that only sets the stage for a bigger, nastier, meltdown in the next five years or so. The solution is building fundamentally, radically better financial institutions.
To fear "instability" at this point is a little bit like a man trapped wearing a life preserver in the middle of the ocean afraid of a little bit of rain. We're already soaked; the challenge is reaching (or perhaps even spotting) the shore.
GOOD: Can you envision a world in which people actually band together to systematically and legally take down banks?
Haque: Sure I can—the Dutch just digitally self-organized to force their parliament to axe bankers' bonuses. Not just going forward, but retroactively. That's not a baby step, it's a giant leap. If the Dutch can do it, using technology invented in the U.S.A.—Twitter and Facebook—it's awfully ironic that Americans seem to think it's about as unrealistic as a sci-fi movie called Escape from New York Meets Cloverfield.
GOOD: You also recently tweeted, "My feeling ... is that Wall St has the US and UK right where it wants them. Confused, afraid, divided, and addicted." What do you mean by that?
Haque: As I said, there's little reason to place your money into a bank that doesn't have your best interest at heart, that costs society the future, and that doesn't reinvest in your community. Yet millions still do—and even you've raised the illusory specter of "instability." Hence, Wall Street's got the U.S. and U.K. right where it wants them: Confused, afraid, and addicted. Unless we can get over our fear, and kick the habit, I'd get ready to kiss the future goodbye.
photo via Gulf of Mexico Oil Spill Blog