I ran for state representative in 2018 on the premise that our government and policy makers were trapped in the 20th century and required new economic thinking to build a 21st century economy. That new economic thinking manifested itself in one ambitious policy proposal, the Ohio Investment Bank. I’ve spoken of it at length throughout the campaign but I don’t think I ever did it justice, I failed to articulate its potential as well as the urgency of Ohio’s economic situation. We have a problem in this country wherein we seem incapable of confronting a crisis before it manifests itself. The election has come and gone with no significant change in Ohio’s government but I do not believe it’s too late for action. Even if our elected officials refuse to act now, when the impending economic crisis hits, it will be invaluable to have a plan like the OIB waiting in the wings.
Why is it Necessary?
It’s not a secret that Ohio has been left behind by quickly changing national and global economies. Forty years ago manufacturing and heavy industry began to disappear in Ohio and the region became known as the Rust Belt. Our population has fallen as our best and brightest fled to better jobs in warmer climates. Economic despair as much as anything else led to the conditions in which the opioid epidemic boomed.
This is a path we will continue to progress toward unless there is a significant change in our way of thinking about the economy. Government and businesses operate within the same, flawed intellectual framework of neoclassical economics. Neoclassical economics came to dominate economic theory and policy in the 1970s as a response to stagflation. It propagated ideas like humans being perfectly rational, self-interested creatures, that markets move into equilibrium, that the only role for government is in market failure and otherwise should get out of the way, and that corporations have an obligation only to shareholder profit. This is wrong which I suspect much of you know. Economics is not a science no matter how much it pretends it is. Very little of economic theory is backed by empirical results.
The end result of neoclassical economics was the 2008 financial crisis that nearly plunged the world into another great depression. Neoclassical economics created the intellectual justification for the financial sector to dominate all aspects of the economy and, through regulatory capture, the government. This is a process called financialization and it is the biggest threat to the American economy, already it has laid waste to much of it. I’ve spent much of the last few years campaigning against financialization and written at length on the subject and if you’d like to know more of how finance has had a hand in damaging every aspect of the economy Change Finance gives a comprehensive description.
To solve these problems we need a seismic shift in society, a reevaluation of our approach to economic policy, to business, and to education. The Ohio Investment Bank cannot possibly achieve this, instead what is required is for people to learn and understand what is wrong. Inform people, show them it’s financialization and flawed economic theory at the heart of our economic woes. It’s not immigrants and foreign countries, it’s not politicians and political parties, it’s not greedy corporations and billionaires. We’ve created an environment for poor decision making and we all share considerable blame. What the Ohio Investment Bank can do is demonstrate good economic policy and financial practice while repairing the damage done to Ohio’s economy.
How It Works:
The Ohio Investment Bank is a source of capital dedicated to meaningful investment that creates productive capital and drives further innovation. Innovation and productive capital accumulation are the main drivers of the economy. Private finance has not made these investment as it became more profitable to make money off of money. These are investments, not loans or grants, the OIB is buying a share of the business it is investing in and is looking to see a return on that investment. The OIB will never have a controlling share in any business.
The OIB offers a number of resources and services through its municipal partners/branches for entrepreneurs to build a successful enterprise and vibrant economy including:
- Seed and venture capital to help startups get off the ground.
- Business management services so that you have the expertise necessary to build your business right.
- Export and supply chain services and connections so you can navigate the complexities of the global economy in building your product or service and then find customers around the world and build Ohio’s export surplus (that’s how you do it without starting destructive trade wars)
- Help you raise capital from outside investors so your company can grow to keep up with demand. This in addition to any investment from the OIB which will allow you to choose where your capital comes from so you don’t have to rely on any shady investors or corporate raiders who do not have your economic success at heart.
- The OIB partners with the technology transfer offices of Ohio’s many exceptional universities so that technologies and advancements developed in the lab can be quickly brought to market and start changing the world while earning additional funding for the universities to pursue their work.
Targeting the right businesses and industries, the OIB will jump-start Ohio’s economy and make us a leader not just in the United States but around the globe. The OIB gives Ohio’s economy the initial kick but the economy will begin expanding rapidly as economies of agglomeration and clustering make Ohio a destination for skilled workers, new industries, and investment.
Gradually the bank will create the technologies to transform Ohio, to deliver energy, food, health care, and transportation cheaply and conveniently to all Ohioans without the government directly providing them through large spending programs or welfare. And as the economy grows, unemployment will decline and wages will rise and fewer Ohioans will need to rely on government assistance.
What Else It Could Do:
- Provide student loans at reasonable rates.
- Provide responsible mortgages.
- Provide business loans.
- Provide basic banking services.
- Absorb the Ohio Infrastructure Bank and take over its responsibilities.
These are not necessary for the OIB’s success and may not be the best role of the OIB. These are merely possibilities to consider.
How to Pay for It:
Currently very little of the government’s budget goes to capital creation or investment. Much of it goes to servicing debt, managing the welfare system, or wasteful corporate giveaways designed to attract jobs. The Ohio Investment Bank is a much better use of the government’s money and much less costly in the long-term. The OIB would not need immense funding to be successful, the $2 billion in Ohio’s rainy day fund would be much more useful at the OIB.
Additionally, as the OIB earns returns on its investments it will be able to reinvest the profit in Ohio’s businesses or, if need be, transfer funds to the Ohio government. If the OIB is successful in creating a private sector and economy that adequately provides for the needs of Ohioans, many of Ohio’s largest expenditures would disappear requiring fewer taxes. If the OIB’s revenues are large enough and the Ohio government’s expenditures low enough, taxes could be completely eliminated and the OIB could fund the government’s operations.