Robert Kuttner: Introduction
Saule Omarova: Public Investment Reimagined: A National Investment Authority
Ilmi Granoff, Douglass D. Sims & Todd N. Tucker: How a New RFC Connects to a Green New Deal
Lenore M. Palladino: Nicky Mac: A ‘Public Option’ for Workers’ Capital
Isabel Estevez, Ben Beachy & Rhiana Gunn-Wright: The New Economy Will Be Built by Movements
Mark Paul: Why Muddle the Public Side of the Green New Deal?
Saule Omarova: Closing Thoughts on the NIA Roundtable
INTRODUCTION
BY ROBERT KUTTNER
The transition to a renewable economy will pay huge social and economic dividends in the long run. But as Keynes famously observed, in the long run we are all dead. The planet and its economy could be facing extinction if we don’t come up with very substantial investments in the short and medium term.
Developed with her Cornell colleague Professor Robert Hockett, Saule Omarova has come up with an ingenious proposal to raise adequate sums, inspired by the Roosevelt-era Reconstruction Finance Corporation. The idea is to combine a new infusion of public capital with socially benign investment options for workers’ capital held in the form of pension funds. Omarova’s design, which she explains in the first of the several pieces in this Prospect roundtable, has stimulated both support and respectful skepticism.
Would it compete with, or complement, other long-standing proposals for various forms of green investment banks? Would the new public option for worker pension funds truly wrest control from traditional Wall Street pension managers, or would it be one more form of disappointing “public-private partnership” where the private captures the public? What order of magnitude are we talking about and how do we get it through a divided Congress?
Today we are publishing Omarova’s article describing her proposal. Tomorrow we will publish four reactions, and Omarova will offer a brief final response on Thursday. This is another in the Prospect’s continuing series of Big Ideas—proposals that will not be enacted today or tomorrow, but that can set the agenda.
Public Investment Reimagined: A National Investment Authority
BY SAULE OMAROVA
In the wake of the COVID crisis, we are facing a multifaceted challenge of rebuilding the American economy by addressing climate change, economic and racial inequality, financialization and privatization of productive assets, and other structural problems the crisis made impossible to ignore.
Leaving this effort in the hands of private actors and markets is not an option. A massive shift toward a sustainable, inclusive, and dynamic 21st-century economy requires tremendous commitment of public resources and, just as importantly, public leadership and coordination. It is a fundamentally political undertaking, which involves making explicit distributional choices and using governmental powers to turn them into reality. To do it right, we need a well-designed institutional base: a federal entity with democratic accountability, broad legal authority, and in-house capacity to identity long-term economic-development goals, translate them into specific investment priorities, and finance and actively implement these priorities in practice.
We currently don’t have such an institution. The last entity of this kind in the past 100 years of American history was the New Deal era’s Reconstruction Finance Corporation (RFC). Established in 1932, the RFC played the pivotal role in leading the country out of the Great Depression. As the federal government’s principal financing arm, the RFC systematically supplied massive amounts of credit and equity capital to banks, big and small businesses, and public agencies at a time when private credit was scarce.
Not surprisingly, the pandemic reignited interest in creating a modern version of the RFC. In a recent report, I have outlined core features of a proposal to create a National Investment Authority (NIA) as precisely this kind of a public institution adapted to today’s realities. This essay describes the NIA’s role as a powerful public actor working inside private markets—and making them work for all of us.
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How a New RFC Connects to a Green New Deal
BY ILMI GRANOFF, DOUGLASS D. SIMS & TODD N. TUCKER
The economic fragility revealed by the COVID-19 pandemic has opened an Overton window for progressive economic policy. Anathema even a year ago, bold reforms like a systematic industrial policy are now attracting interest from mainstream politicians on both sides of the aisle. Among the more exciting prospects is the proposal to renew the Reconstruction Finance Corporation (RFC), which the U.S. successfully used to finance the World War II economic mobilization as well as much of the New Deal.
It is little surprise that, as the idea of a Green New Deal is in the air, the RFC idea would not be far behind. The National Investment Authority (NIA) outlined by Saule Omarova here and in academic work with Robert Hockett points to the scale of ambition for a public financial institution that should guide policy efforts, and builds on the suite of tools used by the RFC. Fortunately, there are ample experiences at the state, local, and international levels that show how policymakers might sequence a new suite of public financial institutions.
Lock in early success: Authorizing a green bank now is the first step to more progressive public investment
We do not have to reach to the distant past for lessons about what to do now. In the last decade, at least 17 states and localities in the United States have created green banks or funds capitalized with public dollars. American green banks have caused $5.3 billion in clean-energy investment since 2011, with $1.5 billion of this investment taking place in 2019. According to the Green Bank Network, globally, over a similar period, green banks have invested or committed $24 billion that has mobilized an additional $46 billion in private funding for a total of $70 billion. They invest in renewable energy, energy efficiency, electric vehicles and their infrastructure, smart cities, sustainable agriculture, green affordable housing, and other emerging sectors. While doing so, they drive the creation of good jobs, lower-cost services, and the reduction of carbon pollution and other environmental degradation.
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Nicky Mac: A ‘Public Option’ for Workers’ Capital
BY LENORE M. PALLADINO
The National Investment Authority (NIA) proposes creating a public investment fund to invest in crucial planet-saving innovations. It is clearly not a silver bullet for solving all of the challenges of the twin crises of climate change and financialization, but it can play a useful institutional role in supporting much-needed investment while reducing extractive Wall Street behavior. At stake in its design is this key question: Where do the financial benefits of the Green New Deal go?
Economist Robert Pollin estimates that reaching the Intergovernmental Panel on Climate Change’s recommendation of net-zero emissions by 2050 will require an average level of investment in the United States of about 2 percent of GDP per year to transform our energy supply and energy efficiency in our infrastructure and production. This translates to about $18 trillion over the 30-year period. The NIA proposal will create a path for private investment capital to be channeled alongside public funds into economic transformation in a way that ensures that gains go largely to working families, rather than the American elite.
In order to evaluate the merits of the NIA, and in particular the proposal for a National Capital Management Corporation, or “Nicky Mac,” and assess what its effect would be on financialization—the power of the financial sector—it is critical to distinguish between financial activity that earns an elite group of fund managers fees, and the workers’ capital that makes up public and private pensions, 401(k)s, and mutual funds. The point of the NIA would be to take the trillions of dollars in workers’ capital and offer it a public option for investment that would produce positive externalities of reducing climate change. This could dramatically reduce the funds flowing to private equity, which could stop workers’ capital from being complicit with private equity extraction from companies like Toys R Us.
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The New Economy Will Be Built by Movements
BY ISABEL ESTEVEZ, BEN BEACHY & RHIANA GUNN-WRIGHT
The movements that helped deliver Joe Biden’s election victory are not resting on their laurels. They are now working overtime to deliver a bold economic agenda under a Biden presidency, including the creation of a new institution to catalyze economic renewal.
The need for this institution pulses through the very air we breathe. With each inhale of smoke from wildfires, of tear gas during a Black-led uprising, of stress from chronic unemployment, millions of people are calling for solutions as big and interconnected as our problems. These problems did not begin with Donald Trump, and they will not end with his ouster. As we turn to the post-Trump era, we need a new national investment institution to strategically channel trillions of dollars toward building an economy that prioritizes racial, economic, and environmental justice.
To get there, we must follow the lead of the workers and communities who are most impacted.
We mean this in two senses. First, the policy. Getting the solutions right requires listening to those who know the problems most intimately. Those on the front lines of climate change, mass unemployment, a pandemic, and racial injustice are best positioned to guide an institution dedicated to tackling these very crises. While we all say we want “equity,” if impacted groups aren’t at the center of a new institution, it’ll be a definition of equity by and for elites.
Second, the politics. Movements are essential not only to get this right, but to get this done. We will win the fight to create such a transformative institution only if movement groups that represent frontline workers and communities—including unions, racial-justice organizations, and climate and environmental-justice groups—are pushing for it. Cross-movement backing for a new institution is critical to getting this bold idea across the finish line in Congress.
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Why Muddle the Public Side of the Green New Deal?
BY MARK PAUL
With the prospect of a Biden presidency spending trillions in stimulus money, including $2 trillion in green investment alone, policy thinkers are debating new institutions to manage a renewed U.S. industrial policy, invoking the New Deal and World War II mobilization. In her new proposal, Saule T. Omarova makes the case for a National Investment Authority (NIA) to retool the American economy for both massive investment and climate action at speed and scale. Omarova rightly recognizes that decarbonization isn’t only about the public sector. Private capital too will play a role—but which one?
Omarova’s work, based on earlier writings of hers with fellow Cornell Law professor Robert Hockett, provides a 21st-century update of the New Deal era’s Reconstruction Finance Corporation (RFC), but with a twist. Omarova’s latest proposal tries to do a lot of things at the same time; I agree with many of them. Like Omarova, I want to find the best way forward to rapidly channel trillions of dollars to clean energy; adaptation to inevitable climate damages; transformative improvements to frontline communities through good jobs, housing, and social services—and the list goes on. I support Omarova’s efforts to flesh out the country’s industrial policy, and to ensure that the public sector maintains an ownership stake in the firms it lends a hand to through wise public subsidy.
But the NIA also muddies the Green New Deal waters in its embrace of certain kinds of public-private partnerships. Here, we must be careful.
The task ahead is daunting. As the Intergovernmental Panel on Climate Change put it in its landmark 2018 report on the 1.5 degrees Celsius of warming, we’ll need “rapid, far-reaching and unprecedented changes in all aspects of society.”
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Closing Thoughts on the NIA Roundtable
BY SAULE OMAROVA
It has been a tremendous privilege to have the National Investment Authority (NIA) proposal debated as part of the Prospect’s “Big Ideas” series, especially by such a great group of thinkers and policy experts. The roundtable has generated a richly stimulating and multifaceted discussion, and I am deeply grateful to all contributors for their thoughtful and intellectually sharp engagement with the NIA idea.
At the risk of oversimplification, I would divide the roundtable responses to the proposal into two categories: one focused on the NIA’s institutional design, and the other questioning the political payoff of pursuing the idea.
The essays by Palladino and Estevez, Beachy, and Gunn-Wright embrace the need for an NIA-type institution but challenge us to think through difficult design issues, especially with respect to the NIA’s governance and potential distributional impact. I fully share their concerns about striking the right balance between technical expertise and democratic control. In many respects, these two essays lay out the road map for further development of the NIA proposal—an exciting and challenging task.
The essays by Paul and Granoff, Sims, and Tucker approach the NIA idea from a different perspective, as a potential alternative to either a national climate bank or to existing forms of direct public investment. Albeit in different ways, both essays evaluate the NIA idea in terms of its political viability or desirability vis-à-vis these other policy options. It would be a mistake, however, to frame the discussion as a matter of having to choose among these alternatives. The NIA is not a competitor to, or a replacement for, other forms of public investment—it is envisioned as an institutional catalyst for more effective deployment of a wide range of public investment tools.
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This piece has been updated to note that Prof. Omarova’s proposal drew on her previous work with Prof. Robert Hockett.
