Saving capitalism For the many, not the few

Robert B. Reich

Book - 2015

Reich outlines how the American economic system is failing, with increasing income inequality and a shrinking middle class, and reveals how a market designed for broad prosperity can reverse the trend toward diminished opportunity.

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Subjects
Published
New York : Alfred A. Knopf [2015]
Language
English
Main Author
Robert B. Reich (-)
Edition
First edition
Physical Description
xvii, 279 pages : illustrations ; 25 cm
Bibliography
Includes bibliographical references (pages [223]263) and index.
ISBN
9780385350570
  • Introduction
  • Part I. The Free Market
  • 1. The Prevailing View
  • 2. The Five Building Blocks of Capitalism
  • 3. Freedom and Power
  • 4. The New Property
  • 5. The New Monopoly
  • 6. The New Contracts
  • 7. The New Bankruptcy
  • 8. The Enforcement Mechanism
  • 9. Summary: The Market Mechanism as a Whole
  • Part II. Work and Worth
  • 10. The Meritocratic Myth
  • 11. The Hidden Mechanism of CEO Pay
  • 12. The Subterfuge of Wall Street Pay
  • 13. The Declining Bargaining Power of the Middle
  • 14. The Rise of the Working Poor
  • 15. The Rise of the Non-working Rich
  • Part III. Countervailing Power
  • 16. Reprise
  • 17. The Threat to Capitalism
  • 18. The Decline of Countervailing Power
  • 19. Restoring Countervailing Power
  • 20. Ending Upward Pre-distributions
  • 21. Reinventing the Corporation
  • 22. When Robots Take Over
  • 23. The Citizen's Bequest
  • 24. New Rules
  • Acknowledgments
  • Notes
  • Index
Review by New York Times Review

TO UNDERSTAND "SAVING CAPITALISM," Robert Reich's sweeping treatise on inequality in America, you must accept a central premise: The free market is fundamentally a human construct and so to debate the appropriateness of government in shaping it is beside the point. Someone is always writing the rules of the market. Reich's concern is that over the last three decades, the lead authors have been Wall Street, big corporations and the wealthy elite. His fear is that "we are lurching toward a capitalism so top-heavy it cannot be sustained." As treatises on inequality go, much of this one is familiar. Reich, who served as secretary of labor under Bill Clinton, criticizes the Citizens United decision, corporate lobbying, tax rates on capital gains and the accrual of "dynastic wealth." But he also hints at another culprit for modern political and economic distortions, less obvious than the superrich and thereby all the more insidious: a naïve faith in the American dream. Myths and legends, as Hunter S. Thompson observed, die hard in America, but perhaps none so hard as this one. Reich, raised in South Salem, N.Y., remembers when "work hard, get ahead" was still very much achievable. His father sold clothes to the wives of factory workers, the first shop eventually yielding a second. "We weren't rich," Reich writes, "but never felt poor." For 30 years after World War II, the family's income and purchasing power grew in lock step with the American economy, as did that of the broader middle class. In the decades since, however, upward mobility has largely vanished. Sometime in the 1970s, wages began to stagnate, though productivity gains and economic growth continued. By 2013, the median American household, after adjusting for inflation, was earning less than it did in 1989. Last year, more than two-thirds of Americans were living from paycheck to paycheck. The winnings at the top, meanwhile, have piled up. In 1978, the chief executives of America's big companies took home 30 times the pay of their average workers; in 2013, that multiplier was 296. Most people don't have a shot at even getting close to such wealth. Middle-income children are half as likely to climb to the top quintile as those born there are to stay; for children of the poorest families, the odds of reaching the financial top are just 6 percent. In spite of this, Horatio Alger's creed remains strong. As of early 2014, two-thirds of Americans agreed that hard work would get most people ahead, and a full 80 percent felt that "everyone has it in their own power to succeed," according to a poll by the Pew Research Center. Yet in today's economy, those adages have become perverse, more inclined to depress than to inspire. "The notion that you're paid what you're ?worth,'" Reich writes, "is by now so deeply ingrained in the public consciousness that many who earn very little assume it's their own fault." "Saving Capitalism" is loaded with broad proclamations, while at times frustratingly spare on the particulars. What's left is an exhaustive, if repetitive, outpouring of Reich's indignations with politics, with free-market ideals, with the proverbial system. A smorgasbord of reforms he proposes in the final pages includes reversing Citizens United, tying corporate tax rates to C.E.O. pay ratios and creating a basic minimum income. But those ideas are less important than what "Saving Capitalism" is at its core: a rallying call, Reich's attempt to be a modern Thomas Paine. The irony is that this appeal to the many is far more likely to be read by the few. ALISON GRISWOLD is a Slate staff writer who covers business and economics.

Copyright (c) The New York Times Company [November 15, 2015]
Review by Booklist Review

Globalization and technology have rendered much of the American labor force uncompetitive, a no-no in capitalism. Reich goes beyond lamenting the harsh realities of market forces to examine how we might mitigate them. The problem is not capitalism but the way the powerful have tilted politics to favor their interests above those of the majority of Americans. Reich, who has served in three administrations, brings an understanding of politics and economics to this examination of how the U.S. economy has come to its current state and the tight relationship between Wall Street and Washington. Reich looks specifically at rules governing property, contracts, monopolies, and bankruptcy to illustrate how powerful corporate and financial powers have maintained protections for their interests at the expense of the middle class. Drawing on history, politics, and economics, Reich recommends raising taxes on the wealthy to invest more heavily in public education, job training, and assistance for the poor. To restore confidence in and respect for American capitalism, Reich recommends restoring the balance of the economic interests of the majority vis-à-vis the powerful.--Bush, Vanessa Copyright 2015 Booklist

From Booklist, Copyright (c) American Library Association. Used with permission.
Review by Library Journal Review

Commentator, political economist, and former U.S. secretary of labor Reich (Chancellor's Professor of Public Policy, Richard and Rhoda Goldman Sch. of Public Policy, Univ. of California, Berkeley; Aftershock) delves into why capitalism currently isn't serving the majority of Americans. He examines the critical underpinnings of a free market such as contracts, private property, bankruptcy, monopoly restraints, and the ability to enforce rules. Reich shows that these structures have been warped to shift the balance of power in favor of large corporations and wealthy individuals. Correspondingly, financial and other rewards, he argues, have become based more on who has the superiority to get paid rather than on merit or societal contribution. To solve such inequities, says the author, Americans must reclaim political sovereignty so that government acts in the interests of the majority to create an even playing field. History, he warns, demonstrates that unfair systems with highly concentrated wealth can't endure. VERDICT Reich has both the stature and eloquence to make a compelling case. His sharply argued critique is therefore highly recommended to all readers. An insightful complement to Thomas Piketty's best-selling work on the current state of wealth inequality, Capital in the Twenty-First Century. [See Prepub Alert, 4/27/15.]-Lawrence Maxted, Gannon Univ. Lib., Erie, PA © Copyright 2015. Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.

(c) Copyright Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.
Review by Kirkus Book Review

An accessible examination of how the "apparent arbitrariness and unfairness of the economy [has] undermined the public's faith in its basic tenets." Since leaving the cabinet of the Bill Clinton administration, in which he served as secretary of labor, Reich (Beyond Outrage: What Has Gone Wrong with Our Economy and Our Democracy and How to Fix It, 2012, etc.) has worked a populist vein of protest against corporate excess. In this nontechnical economic manifesto, he opens with the nostalgic vision of an American past in which ordinary people could afford to buy a home and pay for college on a single income, a time long gone precisely because the economy has been reorganized for the benefit of the wealthy at the expense of the laboring and middle classes. Reich holds that government, long despised as the problem and not the solution, actually has a role, if abrogated, "in setting the rules of the economic game." In the absence of sufficient government oversight, the rich have been setting those rules, andno surprisean ideally level playing field tilts in such a way that they get all the goals. The author takes a measured view even as he argues against free market orthodoxies, insisting, "rules create markets," rules set by governments and not individuals. Reich examines key problem areas such as antitrust regulation and the tightening corporate stranglehold over intellectual property, and he arrives at some innovative reformse.g., paying all Americans a guaranteed annual income, a thought not quite as radical as it might seem and backed by an odd-bedfellow assortment of libertarians and conservatives. He also suggests making Americans shareholders of the intellectual property market, requiring a payment of royalties into the public domain as the cost of holding a patent. Reich's overriding message is that we don't have to put up with things as they are. It's a useful and necessary one, if not likely to sway the powers that be to become more generous of their own volition. Copyright Kirkus Reviews, used with permission.

Copyright (c) Kirkus Reviews, used with permission.

chapter 1 The Prevailing View It usually occurs in a small theater or a lecture hall. Someone introduces me and then introduces a person who is there to debate me. My debate opponent and I then spend five or ten minutes sparring over the chosen topic--­education, poverty, income inequality, taxes, executive pay, middle-­class wages, climate change, drug trafficking, whatever. It doesn't matter. Because, with astounding regularity, the debate soon turns to whether the "free market" is better at doing something than government. I do not invite this. In fact, as I've already said and will soon explain, I view it as a meaningless debate. Worse, it's a distraction from what we should be debating. Intentional or not, it deflects the public's attention from what's really at issue. Few ideas have more profoundly poisoned the minds of more people than the notion of a "free market" existing somewhere in the universe, into which government "intrudes." In this view, whatever inequality or insecurity the market generates is assumed to be the natural and inevitable consequence of impersonal "market forces." What you're paid is simply a measure of what you're worth in the market. If you aren't paid enough to live on, so be it. If others rake in billions, they must be worth it. If millions of people are unemployed or their paychecks are shrinking or they have to work two or three jobs and have no idea what they'll be earning next month or even next week, that's unfortunate but it's the outcome of "market forces." According to this view, whatever we might do to reduce inequality or economic insecurity--­to make the economy work for most of us--­runs the risk of distorting the market and causing it to be less efficient, or of producing unintended consequences that may end up harming us. Although market imperfections such as pollution or unsafe workplaces, or the need for public goods such as basic research or even aid to the poor, may require the government to intervene on occasion, these instances are exceptions to the general rule that the market knows best. The prevailing view is so dominant that it is now almost taken for granted. It is taught in almost every course on introductory economics. It has found its way into everyday public discourse. One hears it expressed by politicians on both sides of the aisle. The question typically left to debate is how much intervention is warranted. Conservatives want a smaller government and less intervention; liberals want a larger and more activist government. This has become the interminable debate, the bone of contention that splits left from right in America and in much of the rest of the capitalist world. One's response to it typically depends on which you trust most (the least): the government or the "free market." But the prevailing view, as well as the debate it has spawned, is utterly false. There can be no "free market" without government. The "free market" does not exist in the wilds beyond the reach of civilization. Competition in the wild is a contest for survival in which the largest and strongest typically win. Civilization, by contrast, is defined by rules; rules create markets, and governments generate the rules. As the seventeenth-­century political philosopher Thomas Hobbes put it in his book Leviathan: [in nature] there is no place for industry, because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by sea; no commodious building; no instruments of moving and removing such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short. A market--­any market--­requires that government make and enforce the rules of the game. In most modern democracies, such rules emanate from legislatures, administrative agencies, and courts. Government doesn't "intrude" on the "free market." It creates the market. The rules are neither neutral nor universal, and they are not permanent. Different societies at different times have adopted different versions. The rules partly mirror a society's evolving norms and values but also reflect who in society has the most power to make or influence them. Yet the interminable debate over whether the "free market" is better than "government" makes it impossible for us to examine who exercises this power, how they benefit from doing so, and whether such rules need to be altered so that more people benefit from them. The size of government is not unimportant, but the rules for how the free market functions have far greater impact on an economy and a society. Surely it is useful to debate how much government should tax and spend, regulate and subsidize. Yet these issues are at the margin of the economy, while the rules are the economy. It is impossible to have a market system without such rules and without the choices that lie behind them. As the economic historian Karl Polanyi recognized, those who argue for "less government" are really arguing for a different government--­often one that favors them or their patrons. "Deregulation" of the financial sector in the United States in the 1980s and 1990s, for example, could more appropriately be described as "reregulation." It did not mean less government. It meant a different set of rules, initially allowing Wall Street to speculate on a wide assortment of risky but lucrative bets and permitting banks to push mortgages onto people who couldn't afford them. When the bubble burst in 2008, the government issued rules to protect the assets of the largest banks, subsidize them so they would not go under, and induce them to acquire weaker banks. At the same time, the government enforced other rules that caused millions of people to lose their homes. These were followed by additional rules intended to prevent the banks from engaging in new rounds of risky behavior (although in the view of many experts, these new rules are inadequate). The critical things to watch out for aren't the rare big events, such as the 2008 bailout of the Street itself, but the ongoing multitude of small rule changes that continuously alter the economic game. Even a big event's most important effects are on how the game is played differently thereafter. The bailout of Wall Street created an implicit guarantee that the government would subsidize the biggest banks if they ever got into trouble. This, as I will show, gave the biggest banks a financial advantage over smaller banks and fueled their subsequent growth and dominance over the entire financial sector, which enhanced their subsequent political power to get rules they wanted and avoid those they did not. The "free market" is a myth that prevents us from examining these rule changes and asking whom they serve. The myth is therefore highly useful to those who do not wish such an examination to be undertaken. It is no accident that those with disproportionate influence over these rules, who are the largest beneficiaries of how the rules have been designed and adapted, are also among the most vehement supporters of the "free market" and the most ardent advocates of the relative superiority of the market over government. But the debate itself also serves their goal of distracting the public from the underlying realities of how the rules are generated and changed, their own power over this process, and the extent to which they gain from the results. In other words, not only do these "free market" advocates want the public to agree with them about the superiority of the market but also about the central importance of this interminable debate. They are helped by the fact that the underlying rules are well hidden in an economy where so much of what is owned and traded is becoming intangible and complex. Rules governing intellectual property, for example, are harder to see than the rules of an older economy in which property took the tangible forms of land, factories, and machinery. Likewise, monopolies and market power were clearer in the days of giant railroads and oil trusts than they are now, when a Google, Apple, Facebook, or Comcast can gain dominance over a network, platform, or communications system. At the same time, contracts were simpler to parse when buyers and sellers were on more or less equal footing and could easily know or discover what the other party was promising. That was before the advent of complex mortgages, consumer agreements, franchise systems, and employment contracts, all of whose terms are now largely dictated by one party. Similarly, financial obligations were clearer when banking was simpler and the savings of some were loaned to others who wanted to buy homes or start businesses. In today's world of elaborate financial instruments, by contrast, it is sometimes difficult to tell who owes what to whom, or when, or why. Before we can understand the consequences of all of this for modern capitalism, it is first necessary to address basic questions about how government has organized and reorganized the market, what interests have had the most influence on this process, and who has gained and who has lost as a result. To do so, we must examine the market mechanism in some detail. 2 The Five Building Blocks of Capitalism In order to have a "free market," decisions must be made about *property: what can be owned *monopoly: what degree of market power is permissible *contract: what can be bought and sold, and on what terms *bankruptcy: what happens when purchasers can't pay up *enforcement: how to make sure no one cheats on any of these rules You might think such decisions obvious. Ownership, for ex- ample, is simply a matter of what you've created or bought or invented, what's yours. Think again. What about slaves? The human genome? A nuclear bomb? A recipe? Most contemporary societies have decided you can't own these things. You can own land, a car, mobile devices, a home, and all the things that go into a home. But the most important form of property is now intellectual property--­new designs, ideas, and inventions. What exactly counts as intellectual property, and how long can you own it? Decisions also underlie what degree of market power is permissible--­how large and economically potent a company or small group of firms can become, or to what extent dominance over a standard platform or search engine unduly constrains competition. Similarly, you may think buying and selling is simply a matter of agreeing on a price--­just supply and demand. But most societies have decided against buying and selling sex, babies, and votes. Most don't allow the sale of dangerous drugs, unsafe foods, or deceptive Ponzi schemes. Similarly, most civilized societies do not allow or enforce contracts that are coerced or that are based on fraud. But what exactly does "coercion" mean? Or even "fraud"? Other decisions govern unpaid debts: Big corporations can use bankruptcy to rid themselves of burdensome pension obligations to their employees, for example, while homeowners cannot use bankruptcy to reduce burdensome mortgages, and former students cannot use it to reduce burdensome student debts. And we rely on decisions about how all these rules are enforced--­the priorities of police, inspectors, and prosecutors; who can participate in government rule making; who has standing to sue; and the outcomes of judicial proceedings. Many of these decisions are far from obvious and some of them change over time, either because social values change (think of slavery), technologies change (patents on novel arrangements of molecules), or the people with power to influence these decisions change (not just public officials, but the people who got them into their positions). These decisions don't "intrude" on the free market. They constitute the free market. Without them there is no market. What guides these decisions? What do the people who make the rules seek to achieve? The rules can be designed to maximize efficiency (given the current distribution of income and wealth in society), or growth (depending on who benefits from that growth and what a society is willing to sacrifice to achieve it, such as fouling the environment), or fairness (depending on prevailing norms about what constitutes a fair and decent society); or they can be designed to maximized the profits of large corporations and big banks, and the wealth of those already very wealthy. If a democracy is working as it should, elected officials, agency heads, and judges will be making the rules roughly in accordance with the values of most citizens. As philosopher John Rawls has suggested, a fair choice of rule would reflect the views of the typical citizen who did not know how he or she would be affected by its application. Accordingly, the "free market" would generate outcomes that improved the well-­being of the vast majority. But if a democracy is failing (or never functioned to begin with), the rules might instead enhance the wealth of a comparative few at the top while keeping almost everyone else relatively poor and economically insecure. Those with sufficient power and resources would have enough influence over politicians, regulatory heads, and judges to ensure that the "free market" worked mostly on their behalf. This is not corruption as commonly understood. In the United States, those with power and resources rarely directly bribe public officials in order to receive specific and visible favors, such as advantageous government contracts. Instead, they make campaign contributions and occasionally hold out the promise of lucrative jobs at the end of government careers. And the most valuable things they get in exchange are market rules that seem to apply to everyone and appear to be neutral, but that systematically and disproportionately benefit them. To state the matter another way, it is not the unique and perceptible government "intrusions" into the market that have the greatest effect on who wins and who loses; it is the way government organizes the market. Power and influence are hidden inside the processes through which market rules are made, and the resulting economic gains and losses are disguised as the "natural" outcomes of "impersonal market forces." Yet as long as we remain obsessed by the debate over the relative merits of the "free market" and "government," we have little hope of seeing through the camouflage. Before examining each of the five building blocks of capitalism separately, it is useful to see how political power shapes all of them and why market freedom cannot be understood apart from how such power is exercised, and by whom. Excerpted from Saving Capitalism: For the Many, Not the Few by Robert B. Reich All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.