SAN DIEGO–Credit unions gathered here were given a lot to unpack in just an hour, including an update on the evolution of capitalism, how Darwinism is often misinterpreted, an explanation of the velocity of currency, why they should embrace boundaries, and why CUs are an ideal a model for successfully restructuring the economy.
And that wasn't all. There was also an explanation of why “disruption” is fundamentally misunderstood, how a CU can’t be a cooperative if it doesn’t cooperate, and finally, a list of “ten principles” to be thinking about.
Douglas Rushkoff, author of "Team Human" and numerous other books, a historian and podcaster, and a media theorist and professor of media theory and digital economics with CUNY/Queens, argued before credit unions gathered here that many systems, technologies and markets created by humans actually have an anti-human agenda.
Rushkoff posits that society can be remade in ways that foster humanity, and believes credit unions can be an ideal example—as long as they get back to being credit unions.
In remarks to NACUSO’s annual meeting, Rushkoff demonstrated a strong familiarity with credit unions, in part due to his work with Vermont State Employees Credit Union.
“As I looked at the structure and function of credit unions, I came to realize most who work at credit unions don’t fully understand what makes credit unions different form banks,” Rushkoff said. “These are fundamentally different institutions with fundamentally different purpose. So many people working in credit unions think they are competing with banks and they are doing banking, but just not doing banking quite as well as banks. So, they think they have to use some concept of community to do it. But that’s a failing proposition. Credit unions are not banks. They have two totally different understandings of money, and once they can grasp and celebrate a credit union’s understanding of money, then they can rise to the occasion.”
Extraction Vs. Exchange
While credit unions often say their core differentiation with banks is service or a not-for-profit philosophy, Rushkoff said it’s much deeper than that.
“Banks are about the extraction of value, whereas credit unions are about the exchange of value,” he said. “It’s not about getting money out of a market and giving it to shareholders vs. keeping money in the community and circulating it. It’s the difference between seeing money as capital versus seeing it as currency.”
What digital technology has done has accelerated economic change, according to Rushkoff. The growth of companies such as Uber and Googles has come at the expense of peoples and places, he said.
“The real problem with Google was as Google was getting wealthy, the community it was operating in was getting poor,” said Rushkoff, whose book credits include “Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity.”
“People can no longer afford the rent. Google has become more like a vacuum cleaner extracting money from its communities, and that was the shock to me. Here was the Internet, which was supposed to allow value to be created anywhere, but it just became a new chapter for the Nasdaq stock exchange.”
Rushkoff cited a prediction in Wired that thanks to the Internet, the global economy would now grow on an accelerated basis forever. “And that’s why we ended up with companies where there is no such thing as being big enough,” he said.
Rushkoff’s remarks included an explanation of how capitalism and market economies developed an evolved, beginning with the return from the Crusades of Christian soldiers to Europe. They brought with them the concept of bazaars, otherwise known as marketplaces, “where people could trade with one another via barter.” That led to barter experts and the invention of “market money” that was essentially worthless outside the market itself. The result was the emergence of a middle class, a development not cared for by the aristocracy. Fearing for its own power, the aristocracy created the chartered monopoly that required a license—and payment to the rulers of the day.
The Coin of the Realm
“The other invention they came up with was central currency. It became the coin of the realm, and if you wanted it you had to borrow it from the aristocracy and then pay interest on it,” said Rushkoff. “As long as an economy grows, you can keep making payments on amount borrowed. But it ends up burdening the economy with a growth mandate. The economy has to grow just to stay still. There is no such thing as a sustainable business in a growth economy. And it led to the business model we have today.”
Rushkoff said Americans misunderstand the reasons for the American Revolution, which he said wasn’t a protest against King George, but instead against the British East India Co., which operated with a chartered monopoly that benefited royalty and crushed workers and business owners in the colonies.
“Americans as a colony weren’t allowed to create value, so a revolution took place,” said Rushkoff. “The British East India model is the Walmart model. Walmart extracts the value from the community, the community eventually goes bankrupt, and the Walmart closes and moves to another community.”
According to Rushkoff, “corporate profit over corporate size” has been declining for 75 years.
The Real Google Example
“Corporations are really good at taking money off the table, but really poor at deploying it,” he said. “So, what do they do? They acquire. When you can no longer innovate, you acquire companies that can. That’s why Google changed its name to Alphabet, it’s essentially a holding company, a bank.”
Rushkoff argued Amazon and Google and Uber are now performing much the same function in the U.S. as did the British East India Co. did and then, but just doing it faster.
“Is Uber really about helping drivers create value and have sustainable careers? No, they are looking at essentially broken, midlevel industries and using those to create a foothold and a monopoly,” he told the meeting. “And then they reach into other verticals. Uber is a driverless car logistics company; the rideshare is a loss-leader for further monopolization, because it’s all about growth.
‘It’s Just The Way Things Are’
“We use our technologies to grow a particular industry and after a generation has lived with it, it becomes almost as if it was naturalized,” Rushkoff continued. “I was born in a generation when you needed a car to get to work. I wasn’t there when we had street cars and General Motors helped to take them down. Now it’s part of the natural landscape; we think that’s just the way things are. So, now our kids now believe Facebook exists to help me make and maintain my friendships with other people, when really, what they are there for is to use data from our statistical past and predict our future with 80% accuracy, and then to get that 20% down to 10% or even 5%. So, we have reversed the whole point of these technologies. Technologies were to expand our thinking and innovation, now technology is being used to create the automatic. And we end up promoting the inequality already built into corporate capital, and now we’ve put it on steroids.”
Rushkoff challenged a frequently repeated claim made at many credit union meetings and by CUs themselves, that the tech companies are “disruptive.”
“These companies are not disruptive at all. They are the most reactive companies I’ve ever seen,” he said. “They are there to prevent disruption. What happens when they realize there is no growth? They get like Wells Fargo—they play mean.”
The North Star
So, what does all of that mean for credit unions as they look to compete and be relevant and serve members?
“I think the north star for the credit union community is how do we retrieve velocity over growth,” answered Rushkoff. “Growth is Chase’s and Wells Fargo’s north star. Our north star has to be the circulation of money through localities and people.”
To that end, Rushkoff offered what he called “ten easy principles” for credit unions to think about that he said will help the “velocity of currency.”
One. Help businesses make their customers rich. “This is anathema of Google or Amazon,” he said. “They don’t think about, ‘How do we help that person make money?’ Everyone in your chain you want everyone to do well to do business with you. When people are happy it doesn’t mean you did wrong, it means you did well.”
Two. Experiment. “Communities and bosses and boards get really upset at the idea of any credit union or company pivoting in another direction,” said Rushkoff. “So, what if you do a little trial? Always raise it like that so people are less afraid. Look at loans as a gateway, but not as your primary activity. A loan is a way to initiate community support. A credit union could say to a pizza store owner who is looking to borrow $100,000, ‘We’ll loan you $50,000, if you raise another $50,000 from the community using this app.’”
Three. Develop all technology with open source and open APIs. “Encourage all of your suppliers to do so; everyone should be able to contribute and make things better.”
Four. Understand bounded networks. “Companies like Wells Fargo and Chase are generic and universal,” according to Rushkoff. “The beauty of a credit union is it is local, and even if not physically local, its conceptually local. Once you understand the boundaries of your communities, then you know how to understand within it, and how to move value around within it. Think of everything not in terms of external member perks, but internal member perks.” As an example, he proposed offering a different loan interest rate if the borrower uses a provider from within the CU community.
Five. Create a super-fluid economy. “That’s the utopian vision; anyone who needs capital has it instantly. That’s why the profits are secondary. To me, they represent bad allocation of funds.”
Six. Dividends and paybacks are failures. “Charitable giving is nice, but it’s not the real way your credit union demonstrates its community spirit. It’s the food pantry problem; yes, you’re giving food to people, but you really need to teach them sustainable means of feeding themselves.”
Seven. Invest in education. Rushkoff urged CUs to teach members and communities about local economic activity and how economics works. “Don’t consider them membership drives; we have an economically illiterate public,” he advised. “They don’t understand how the economy works or why they should pay more locally.”
Eight. Credit union communities needs to create metrics that show economic velocity. “How can you demonstrate how $1 moves through a community 10 times, and the community gets better in the process,” asked Rushkoff, who is not a fan of using GDP as a metric. “If everyone gets cancer, GDP goes up, but it’s not a positive.”
Nine. Be a cooperative. “When I talk to credit unions, for all this talk of cooperation, they are in intense competition with each other. Cooperative Principle number six is Cooperation Among Cooperatives. If your cooperative isn’t cooperating, it’s not a cooperative. It’s like a vegan eating steak in the middle of the night. Once you cooperate you unleash other potential.”
Ten. When credit unions become a real movement, then can unleash much more. “Venture capitalists promote this idea that the competitive marketplace is more like nature, and they have bastardized nature. It’s not true,” said Rushkoff. “Darwin says evolution is not the story of how species compete against each other, it’s about how species have cooperated for mutual survival. Nature is not a competition, it’s a collaborative act.”
“This is a scary moment in America, but also the moment America needs a functional alternative that’s based in principles of cooperation,” Rushkoff told credit unions.