The Public Good: Reports from the Front Lines

Date: 14 Sep 2017 | posted in: From the Desk of David Morris, The Public Good | 0 Facebooktwitterredditmail

A selection of recent news stories with an ILSR insight into “The Public Good.”

Germany’s Public Banks | The Story Behind the Effort to “Repatriate” U.S. Overseas Profits | The Remunicipalization Movement Grows | Philadelphia: Expanding the Civic Commons | Amazon, Predatory Promotion, and Anti-trust Law

Germany’s Public Banks

In Germany most banks are publicly owned. Its banking system rests on three pillars: 1) About 270 private banks, 2) about 1,000 credit union/cooperatives with 18 million members (out of a population of 81 million),  3) About 410 local public savings banks (Sparkassen) and 7 public regional banks (Landesbanken) with 50 million customers.

Cooperatives and the 400 public savings banks hold about 50 percent of banking assets.  Private banks own the other half, with 5 private banks owning about two thirds of the assets of all private banks.

Regarding cooperatives, Christopher Cermak an editor with Handelsblatt Global, Germany’s leading business and financial daily reports, “The idea was and is for customers – both depositors and borrowers – to have a say in the bank’s running. In the case of community-based credit unions, that includes local residents. With cooperatives such as Apobank, which finances the health sector, the stakeholders are pharmacists and doctors.”

The Savings Bank Finance Group explains the governance structure of local savings banks.  A Supervisory Board comprised of 1/3 employees of the savings bank, 1/3 representatives of the municipality and 1/3 local experts and other local stakeholders oversees the individual bank.  The Supervisory Board hires the bank’s Board of Directors, supervises management, determines the direction of the bank and participates in medium-term corporate planning.

By law, the Sparkassen must strive to maximize the economic and social welfare of their region.  They accomplish this in a number of ways.  One is by making major contributions to local cultural, health, education and other programs. In 2015, the Sparkassen contributed more than 500 million Euros to local projects. Another is by financing regional infrastructure and local and regional business. The Centre for Public Impact estimates the Sparkassen account for 70 percent of the national financing of Small and Medium Enterprises (SME) and 42 percent of business financing generally.

A 2016 report from the international banking group, BNP Paribas maintains the Germany’s 2007-2008 financial crisis “highlighted the merits of the small ‘house bank’.”  Private banks suffered dramatic losses (as did regional Landesbanken who invested internationally). The savings banks, on the other hand, “came through the crisis virtually unscathed and required virtually no state aid.”  While overall lending by German banks to domestic non-financial corporations suffered to an extent greater than that of other Euro countries, “the stability of the financing provided by the savings banks and cooperative lenders to German non-financial corporations helped attenuate” the contraction of the lending by the banks.”

Photo Credit: EU Observer.


The Story Behind the Effort to “Repatriate” U.S. Overseas Profits

Money doesn’t stop at borders. Tax accounting does.

Once again Congress is proposing to give US corporations huge tax breaks to repatriate their overseas profits which have more than doubled in the last ten years to over $1.3 trillion.

For U.S. tax purposes, these funds are classified as “permanently invested overseas” and thus exempt from federal corporate income tax until they’re “returned” to the US.  But as Wolf Richter, who writes about finance and business at observed last year the money is overseas only in accounting books.  Physically it is in the good ole US of A.

Richter points to a 2013 Senate subcommittee investigation that found untaxed “offshore” profits of $102 billion held by Irish subsidiaries of Apple. “But according to the Senate report, Apple doesn’t have to repatriate that moolah because it’s already in the US. The Irish mailbox subsidiaries, on whose books this money is for tax purposes, transferred it to Apple’s bank accounts in New York. The money is managed by an Apple subsidiary in Reno, Nevada, and is invested in all kinds of assets in the US. Apple’s accountants in Austin, Texas, keep the books.”

Richter’s conclusion?  Money doesn’t stop at borders. Tax accounting does.

Richter sees this as the reason why, after Congress in 2004 declared a “repatriation holiday” to encourage the “return” of $300 billion in overseas cash there was little of the expected positive economic impact. “(O)ur heroes made some adjustments on their books to “repatriate” these profits that were then taxed at the special and minuscule rate of 5.25%…And then nothing happened. There were no investments and no hiring and no benefits for the economy because the money had already been deployed in the US, as we now know. In May 2013, as a result of the Senate hearings, the New York Times summarized the 2004 phenomenon this way:  “On the contrary, some of the companies that brought back the most money laid off thousands of workers, and a study by the National Bureau of Economic Research later concluded that 92 cents on every dollar was used for dividends, stock buybacks or executive bonuses.”


The Remunicipalization Movement Grows

The privatization movement is alive and well, but in the past decade we have witnessed a growing push back from municipalities around the world.

Earlier this summer the Transnational Institute (TNI) reported on this reverse privatization, or remunicipalization movement in a highly detailed 237-page book Reclaiming Public Services.

TNI identified over 835 successful reverse privatization efforts that have occurred since 2000 in 1600 cities in 45 countries.   Its book contains case studies illustrating the variety of assets being remunicipalized including water, waste, health, and energy systems.

The authors ask, “Why are people around the world reclaiming essential services from private operators and bringing their delivery back into the public sphere? There are many motivations…: a goal to end private sector abuse or labour violations; a desire to regain control over the local economy and resources; a wish to provide people with affordable services; or an intention to implement ambitious climate strategies.”

The evidence presented supports several key conclusions. Remunicipalization is far more common than presumed. Municipal ownership works.  Bringing services back in-house is ultimately cheaper. Remunicipalization results in better, more democratic public services

Today activist cities and their citizens groups are working to build ever expanding and more confident networks. Annual conferences bring together activists and elected officials to share their experiences and strengthen their ties.


Philadelphia: Expanding the Civic Commons

Philadelphia, the sixth largest city in the United States, population 1.6 million, is in at least its 7th year of an increasingly impressive citywide, bottom up initiative to expand the civic commons and lessen the disparity in public services and quality of life among neighborhoods.

Economy League project manager John Taylor describes what may be the oldest of these efforts, “Many Philadelphians are familiar with bike and pedestrian trails in their own neighborhood, but not beyond. Since 2010, more than 65 nonprofits, foundations and agencies have been working to link these trails and thus, these neighborhoods into a regional network known as the Circuit Trails.”

In a recent article, commons expert Jay Walljasper describes the creation, in 2014, of Philadelphia’s Civic Commons initiative.  A partnership of two foundations and a network of non-profit organizations, city staff and citizens, the initiative works to improve public assets like parks, recreation centers, trails and libraries.

“Civic commons are valuable assets that we already own and want to reimagine for the benefit of everyone,” explains Carol Coletta, who helped start Philadelphia’s Civic Commons initiative while at the Knight Foundation and now leads a multi-city Reimagining the Civic Commons initiative as a Senior Fellow at the Kresge Foundation.

Ott Lovell, who was in the thick of the Civic Commons planning as Director of the Fairmont Park Conservancy, a civic group supporting public parks tells Walljasper,  “When you make a place more inviting, it helps out local businesses, it creates healthier communities, it changes the way people relate to one other.”

“Philadelphia’s Managing Director Michael DiBernardinis, who was Parks Commissioner before becoming the City’s second-in-command last year describes the Civic Commons as a “new social compact” between city and citizens.”

In June 2016, the initiative took a major step forward when the city council, by a 13-4 vote, enacted a 1.5 cents per ounce tax on sodas, sweetened teas, sports drinks and artificially sweetened beverages such as diet sodas.

No large city had ever passed such a measure (Berkeley did in 2014 by via a referendum) although there have been a number of failed attempts, including two in Philadelphia.  Many believe these failed because they solely targeted public health objectives, embracing a nanny state narrative.  New York’s Mayor Bloomberg, for example, called his proposal an “obesity tax.”

Philadelphia embraced a more positive strategy, one designed to build up public, shared assets.  The potential health benefits, while noted, were not the centerpiece of the campaign.  Paul Jablow described the strategy at length in an article in Exeter’s Dornsife School of Public Health magazine.  “We knew if we led with (health benefits) we’d be defeated,” Kevin Feeley, spokesman for Philadelphians for a Fair Future, a coalition of some 80 civic, labor and faith organizations who worked for passage of the tax explained to him.

Campaigners promised the money would be spent to expand Philadelphia’s pre K education program and its public assets. About half the projected $80 million in annual revenues will be spent on pre K.  Over the next five years, a little over $40 million annually will be leveraged into a $300 million bond for capital improvements, part of a new initiative called Rebuild Philadelphia, which will upgrade under-resourced neighborhood parks, recreation centers, libraries and other community infrastructure.

Photo Credit: brigitisnow via pixabay (CC 2.0).


Amazon, Predatory Promotion, and Anti-trust Law

In late August the Federal Trade Commission signaled its approval of Amazon’s recent acquisition of Whole Foods.  Ramsi Woodcock, professor of legal studies at Georgia State University argues there is a good legal basis for the FTC’s reversing its decision.

A recent in-depth report published by the Institute for Local Self-Reliance, estimates that almost half of online shoppers start their product search on and projects that within five years, 20 percent of the U.S. $3.6 trillion retail market will have shifted online with Amazon is on track to capture two-thirds of that share.

Woodcock points out that Whole Foods will now have exclusive access among grocery retailers to Amazon’s enormously valuable search engine. It will be extremely difficult to compete with a company whose products and grocery delivery services can be ordered directly through a website that America already uses for nearly half of its online shopping.

The 1914 Congress passed the Clayton Act to authorize antitrust regulators to block acquisitions for which “the effect … may be substantially to lessen competition.”  Woodcock recalls that at one point the FTC argued that a monopoly of promotion was considered an anti-trust violation and offers the FTC’s case against Procter & Gamble (P&G)’s acquisition of Clorox, filed in 1957 as a case in point.

Woodcock writes, “P&G’s product line was so large, extending from Ivory soap to Duncan Hines cake mix, that it was already the nation’s largest national TV advertiser. This allowed P&G to negotiate bulk discounts on advertising time that it could pass on to Clorox.”

In its ruling the FTC expressed its fear that those discounts would give Clorox privileged access to the dominant marketing platform of the era, network tv. In 1967 the Supreme Court upheld the FTC decision, explaining that the acquisition creates a “huge assets and advertising advantages,” P&G would drive competitors from the market because P&G had a promotional advantage. Similarly,

Woodstock argues that the same argument applies to Whole Foods, which will be able to use Amazon’s website to gain an unfair advantage and capture an ever-larger market share. Woodcock, who goes into more detail on the underlying legal argument in a long July 2017 article believes the FTC can still reverse course and block the deal after it closes, as it did in the P&G case.

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David Morris

David Morris is co-founder of the Institute for Local Self-Reliance and currently ILSR's distinguished fellow. His five non-fiction books range from an analysis of Chilean development to the future of electric power to the transformation of cities and neighborhoods.  For 14 years he was a regular columnist for the Saint Paul Pioneer Press. His essays on public policy have appeared in the New York TimesWall Street Journal, Washington PostSalonAlternetCommon Dreams, and the Huffington Post.