In agriculture and finance, North Dakota, more than any other state, has proven itself to be a living example of how public ownership benefits far more and is more profitable than other privately-owned entities in those industries. All concerned Americans scratching their heads on how to fight back against Wall Street need only look to North Dakota’s embrace of socialism for a solution.
The word “socialism” is often thrown around by those who least understand it as a way to criticize left-leaning economic reforms. In essence, socialism is simply a collective group of people stepping in to fill a niche and provide goods and services when the only other options are too expensive or too inefficient. In that sense, North Dakota — whose state government leaders and congressional delegation are all right-wing Republicans with the exception of one Democrat U.S. Senator — is ironically the most socialist state in the U.S.
In the early twentieth century, agriculture-dominated North Dakota was swept by a populist agrarian movement borne of farmers sick of watching bankers and railroad bosses take advantage of their work and run amok with their savings. That agrarian movement produced two entities that are still flourishing over 100 years later – a state-owned grain mill, which has become the largest grain mill in the United States, and a public bank that ensured North Dakota would be unaffected by the recession of 2008 that rocked the other 49 states and the rest of the world.
North Dakota, one of the largest producers of grain in the country, was completely at the mercy of the railroad bosses in the early twentieth century. Since the state was so far removed from major ports and other distribution routes, they relied on the railroad system to transport their grain around the country. But once transportation costs were deducted from the amount of grain the farmers sold, they were left with almost nothing. Paul Robert Fossum’s 1925 thesis for John Hopkins University describes the farmers’ predicament:
“Together with the introduction of the middle-man, and the physical separation of the producer from his market, there also was introduced a feeling of distrust on the part of the farmer, who gradually came to the conclusion that he was not given a fair share in the returns of his produce. The terminal market seemed too far away and he, seemingly, had no control over his grain after it had left his hands.”
Despite this hardship, the railroad barons weren’t the only ones bilking farmers out of their money. Grain producers were often forced to go through privately-owned grain elevators who would skim profits off of each load of grain through shady business practices. Fossum explains on page 33 of his thesis:
“For years, the producers had been subjected to all kinds of petty thieveries and injustices in the marketing of their grain. Weights had been false, elevator men had absconded with the proceeds of stored grain, prices had been artificially depressed, the grain had been undergraded… The farmer saw his only hope for higher prices for his produce driven from the business by a combination of elevator men.”
North Dakota’s grain farmers had had enough of out-of-state elevator men and railroad bosses shorting them on their grain, and were fed up with out-of-state bankers from Minneapolis/St. Paul charging them hefty interest rates. In 1915, A.C. Townley led the organization of the Non-Partisan League (NPL), with the goal of taking over North Dakota’s economy through publicly-owned industries. Within a year of formation, the NPL recruited over 26,000 members. By 1918, the NPL’s engaged membership mobilized for a huge electoral victory – electing a governor, and majorities in the state house of representatives, the state senate, and the state supreme court.
In 1919, the NPL-dominated government passed three major reforms: one that formed an industrial commission to run state-owned industries, and two other bills that created those industries. The Bank of North Dakota (BND) Act created the nation’s first state-owned bank and the publicly-owned North Dakota Mill and elevator. The third bill provided the initial financing for both the bank and the mill. All three bills were introduced and signed into law within a month’s time.
The North Dakota Mill opened in 1922, and since then, it’s grown to become the largest grain mill in the U.S., providing 135 stable jobs and producing 3.8 million pounds of flour every day. In 2014, the mill delivered its second-largest profit ever at $13.3 million. In the last 43 years, the mill has produced $155.6 million in profits — $87 million of which has gone right back to the state of North Dakota to be reinvested in public infrastructure. A $27 million expansion of the mill will be complete by Fall of 2015, which will likely increase its capacity for both profit and state reinvestment.
The BND, by design, would house the state’s tax revenues and reinvest it into developing public infrastructure. The bank was also designed to provide affordable loans with low interest rates to homeowners and farmers. While the BND first struggled to sell the first load of bonds required to provide loans, suffered greatly from the Great Depression, and was almost privatized in the 1980s when the rest of the country was swept up in deregulation fever, the BND remains a staple institution today. The bank didn’t engage in the risky derivatives trading that crashed the rest of the financial sector in the late 2000s, and its executives are state employees that earn a respectable but not excessive salary, and are thus not incentivized to make high-risk bets with deposits to enrich themselves.
The results of North Dakota’s experiment are clear: socializing a state’s key industry and chartering a state-owned bank are great for a state’s economy and its citizens. By cutting out profit-driven middlemen and simply focusing on delivering a product to citizens who need it, states could become industrial titans of the commons, creating jobs and additional tax revenue to provide even better public services and infrastructure. If North Dakota can do it, so can we.
(This is part 4 of the 5-part “Austerity is Bunk” series on NationofChange, also hosted on http://commonomicsusa.org.)