The Politics of Democratizing Finance: A Radical View*

• DOI: 10.1177/0032329219878990
• Author: Michael A. McCarthy
• Published date: 01 December 2019
• Date: 01 December 2019
• Subject Matter: Special Issue Articles

https://doi.org/10.1177/0032329219878990

Politics & Society

2019, Vol. 47(4) 611 –633

© The Author(s) 2019

Article reuse guidelines:

sagepub.com/journals-permissions

DOI: 10.1177/0032329219878990

journals.sagepub.com/home/pas

Special Issue Article

The Politics of Democratizing

Finance: A Radical View*

Michael A. McCarthy

Marquette University

Abstract

How can finance be durably democratized? In the centers of financial power in

both the United States and the United Kingdom, proposals now circulate to give

workers and the public more say over how flows of credit are allocated. This article

examines five democratization proposals: credit union franchises, public investment

banks, sovereign wealth funds, inclusive ownership funds, and bank nationalization. It

considers how these plans might activate worker and public engagement in decision

making about finance by focusing on three modes of public participation: representative

democracy, direct democracy, and deliberative minipublics. It then considers the

degree to which democratization plans might be resilient to de-democratization

threats from business. It argues that of the five, bank nationalization goes furthest in

guarding against de-democratization threats but is still pocked with pitfalls if it relies

solely on representative democracy. It argues that two criteria appear necessary for

democratically durable alternatives: the active direct participation of workers and

citizens and the weakening of businesses’ capacity for democratic retrenchment.

Keywords

finance, democracy, labor, credit, business power

*This article is part of a special issue titled “Democratizing Finance” that includes an introduction, anchor

articles by Robert C. Hockett and Fred Block, and commentaries by William H. Simon, Lenore Palladino,

Mary Mellor, Michael A. McCarthy, and David M. Woodruff. The papers were originally presented at a

workshop held in Madison, Wisconsin, in July 2018 organized by the late Erik Olin Wright as part of his

Real Utopias Project.

Corresponding Author:

Michael A. McCarthy, Social and Cultural Sciences, Marquette University, Lalumiere Hall 340, 1310 W.

Clybourn St., Milwaukee, WI 53233, USA.

Email: michael.mccarthy@marquette.edu

878990PASXXX10.1177/0032329219878990Politics & SocietyMcCarthy

research-article2019

612 Politics & Society 47(4)

Proposals now circulate that aim to democratize financial flows by subjecting them to

democratic processes and public accountability. Politicians in both the Democratic

Party in the United States and the Labour Party in the United Kingdom, less than a

decade ago key sources of market reforms, are developing parallel plans that call for

the creation of a public investment bank and a share levy on firms to fund worker-

owned pools of capital that would be subject to democratic allocation.1 Other plans,

such as Fred Block’s and Robert C. Hockett’s, democratize finance at other scales. By

developing a credit franchise model, their plans aim to democratize finance through

local credit unions, whose boards are elected by and responsible to their members and

subject to public policy constraints about lending practices.

Yet few have offered a full account of how their plans will enhance democratic par-

ticipation and make such processes durable. That political concerns lie beyond the

attention of much of the popular and scholarly discussion is, in my view, a mistake.

Financialization has transformed politics in rich capitalist democracies, weakening

democratic institutions and rearticulating political coalitions.2 This article suggests that

unless the democratic politics of reform are confronted with clear eyes and policies

developed that can also weaken the capacity of financial elites to erode newly installed

democratic institutions, the viability of those democratic projects will likely be under-

mined. Democracy must be workable not just economically but also socially and politi-

cally. To explore this argument, I compare several popular progressive plans for

democratizing finance. My aim is to assess the degree to which they might enhance or

diminish the democratic accountability of finance to the public and weaken the capaci-

ties of business or political elites that stand to erode it.

In the first part of this article I examine three modes of public participation that

might be relied on in the development of new institutions for the public management

of finance: representative democracy, direct democracy, and deliberative minipublics.

Then I turn to a brief description of Block and Hockett’s credit franchise system along

with several other plans to democratize finance, including public investment banks,

sovereign wealth funds, inclusive ownership funds, and bank nationalization. Next I

explore the ways that both financial and nonfinancial sectors of business crowd out the

voice of ordinary citizens in politics. Drawing from the political sociology of business

power, I identify two critical mechanisms of corporate political influence, active

engagement and structural prominence, that might erode and undermine democratic

projects. I then ask how the proposals might perform democratically once installed. I

focus on the degree to which each reform does or does not confront the direct and

indirect powers of capital identified in part 1. In particular, I consider how democratiz-

ing finance itself might restructure the balance of political forces in society or leave

those forces undisturbed. Answering these questions requires us to shift away from

purely economistic concerns, such as the allocation of financial assets and market

efficiency. Additionally, we need to address questions of power and politics. I argue

that for democratizing finance to be viable, it first needs to be radical, simultaneously

curtailing the power of finance in politics and empowering ordinary people in the

management of public finance.

Although this article throws out more questions than it can answer, it suggests that

of the five proposals, bank nationalization goes furthest in guarding against the