on September 17, 2007
According to Robert Reich, former Secretary of Labor in the Clinton administration, there was a time when capitalism and democracy where almost perfectly balanced. This was the period of 1945 to 1975, which he calls the "Not Quite Golden Age." During this period there was a three-way social contract among big business, big labor, and big government. Each made sure that they as well as the other two received a fair share of the pie. Unions recieved their wages and benefits, business their profits, and regulatory agencies had their power. It was also a time when the gap between the rich and the poor was the narrowest in our history. It was not quite the golden age because women and minorities were still second class citizens, but at least there was hope.
Fast forward to 2007, capitalism is thriving and democracy is sputtering. Why has capitlism become supercapitalism and democracy become enfeebled? Reich explains that it was a combination of things: deregulation, globe spanning computer networks, better transportation, etc. The changes were mainly a result of technological breakthroughs; unlike many leftists, he is not conspiratorial thinker. The winner of this great transformation was the consumer/investor and the loser was the citizen/wage earner. The consumer has more choices than ever before and at reasonable prices. The investor has unprecedented opportunities to make profits. The citzen, however, is not doing well. The average citizen does not have much voice - other than voting - in the body politic. And on the wage earner has been stagnating for many years. The most salient illustration of this trend is Walmart. Walmart delivers the goods at low prices, but the trade-off is low wages for their employees. We justify this dilemma, as Reich nicely puts it, because "The awkward truth is that most of us are of two minds."
As a left-leaning author, Reich makes some startling pronouncements. One, stop treating corporations as human beings. They are neither moral or immoral, they are merely "bundles of contracts." I couldn't agree more. Stop expecting corporations to be socially responsible, see them for what they are: profit-seeking organizations. Any socially responsible action is a ruse to bolster the bottom line anyway. Don't even encourage them to be socially responsible because it will wrongly lead us to believe that they are solving problems when they are not. Corporations play by the rules that they are given and it is up to citizens and their elected representatives to change the rules.
This is no easy task in the age of supercapitalism. There are currently 38,000 registered lobbyists in Washington DC in a virtual arms race of spending with each other to buy favors from our so-called representatives. The only way citizens can compete with this is not by hiring more lobbyists but advocating through new media outlets such as the internet and cable tv. This, according to Reich, is currently to most effective way to make government more responsive.
The question that remains, after reading this book, is will consumers be willing to sacrifice their low prices to achieve their goals as citizens. If the answer is yes, we can possibly rebalance the equation between democracy and capitalism; if not, we are left to the not so tender mercies of supercapitalism.
on October 11, 2007
My friend Joanie's father was uneducated and had a very poor work ethic. Yet he worked for a union for 30 years, retired in his 50's and collected health care and pension benefits for 30 more years. His wife did not work, they lived in a nice home in the suburbs and he put three kids through college.
He was fortunate enough to have been born in the right place at the right time (as well as being of the preferred race and sex).
His grandson, Jared, Joanie's son, is 25, has three years of college education, works very hard (about 60 hours per week), lives with his mother and will probably never be able to afford the home and lifestyle experienced by his grandfather.
While the US GDP has grown rapidly, the benefits of the process are not readily visible to Jared - or millions of other young people like him.
Supercapitalism does an excellent job of explaining what has happened to the US economy - and why Jared is having a harder time than his grandfather.
While the term 'fair and balanced' is overused by parts of the media, this book is actually 'fair and balanced'!
Rather than bashing corporations - and corporate executives - Reich points out that they should be expected to do what they do - provide the best products at the lowest prices for consumers and provide a competitive return for stockholders.
He also says that we, as citizens, should become more actively involved in making decisions that are in the best interest of our country.
Reich discusses a major roadblock for citizens to overcome when he notes, "But the largest impediment to reform is one brazen fact: Many politicians and lobbyists want to continue to extort money from the private sector. That's how politicians keep their hold on power and lobbyists keep their hold on money."
Supercapitalism presents a clear analysis of why we are where we are - and a call to action for citizens to become more involved in promoting the common good.
Robert Reich makes a compelling argument that supercapitalism has robbed democracy of much of its power. Supercapitalism by the definition presented in the book is simple--the consumer is king and prices ALWAYS go down. What Reich looks at is the cost of low prices to companies, society, the individual and its impact on the workings of democracy. So how is democracy compromised? Reich also points out that the rise of different lobbying groups, the cost of politics and globalization as contributing to this process. This isn't a surprise. It has just become more pronounced with time.
It's not due to some large conspiracy or any hidden political agenda as much as it is driven by consumption. Ultimately Reich argues that it robs the common citizen of any control over democracy. It's not surprising that this is a highly charged issue because the economics of what benefits society (or "the common good" as Reich calls it)often gets tangled up in the web of politics. Reich also points out that the cost of supercompetitiveness, constantly falling prices is a loss to the economic and social health of America. Reich points out that everyone wants to get the lowest price possible but he also suggests that we must balance that with our desire to have decent wages and benefits. He also points out that the move towards regulation was initiated by government and that corporations went along because it kept out competition and guaranteed a top and bottom for prices allowing companies to get a profit without fear of cutting prices so low that it would put them out of business.
I should point out that this is an oversimplification of Reich's points but it does capture some of the concepts. He also makes some suggestions that would help keep the free market afloat without undermining democracy and allowing consumers to still benefit from competitive pricing. Since this is economics we are discussing politics is mixed in and might color whether or not you agree with his points.
Reich's style is breezy for a book that looks at economics, democracy and the erosion of wages, benefits. Reich comes across as fair balanced and thoughtful even as he sells his take on what is undermining American society. Ultimately it's a worthwhile book to read simply because it opens up dialogue on the social cost of constantly lowering prices and how it impacts those who live next door to us.
Those looking for a revolutionary manifesto will not find it in "Supercapitalism" - instead, its a rather benign set of observations on current behaviors, and a few recommendations.
Reich sees Supercapitalism (capitalism supercharged via globalism) as enlarging the economic pie, but also making democracy less effective. While workers are subject to heightened job insecurity and downward wage pressures, former limits on inequality (unions, progressive taxation) have been weakened and the wage gap greatly widened. Meanwhile, corporations have become more active in politics - thus, capitalism is stronger than ever, and democracy has been weakened.
Reich does not see any of this as some villainous plot, only the result of increased competition and globalization. He even defends the staggering multiples of average worker pay awarded to CEOs on the grounds that their jobs are much more difficult now, with reduced product life-cycle times, reduced economies of scale and entry barriers, deregulation, and globalization. (Reich, however, ignores the fact that CEOs are paid much less in other nations, most notably Japan and China, and that some low-performers manage to still get very high pay for many years. On the other side, he also ignores the formerly self-destructive behavior by rapacious unions that led to eg. mostly/entirely non-union Southwest Airlines, Nucor Steel, Roadway Package Express, etc.)
Reich, like others, also documents the explosive growth in Washington D.C. lobbying. This is not explained by growth in government, nor greater Republican influence (it's a worldwide phenomena), but simply striving to achieve a competitive edge. Reich proposes that we stop relying on capitalist companies to display "socially responsible" behavior without defining what that is through regulation and laws - current instances of such are really simply good practices (eg. reducing pollution via less use of hazardous and expensive chemicals) paraded under a different banner (eg. "environmentalism").
How do we pass laws to enforce "social responsibility?" Reich falls back on outlawing corporation funding for campaigns, and also adds Lester Thurow's suggestion that corporations no longer be taxed - only their shareholders.
The bad news about "Supercapitalism" is that Reich doesn't entertain any thought about rethinking the iron grip that Adam Smith and David Ricardo have on today's economic thinking - that unfettered free trade (REGARDLESS OF PER CAPITA INCOME LEVEL DIFFERENTIALS) is good for America. The evidence (lost jobs, falling incomes, lost or weakening health care and pension benefits) over the last twenty years suggests otherwise.
on March 8, 2009
I get so tired of reviews that are basically rehashes of what's on the back of the book. I know that's not what I look for when reading these, so here you go. Is it a good coverage of the material? Heck yes. It gives historical context, sets up the premise, answers its own questions.
However, it's a bit dry. If you're an economist, this is likely not an issue for you, but if you're a couch-cushion politico or an idly curious reader it gets a bit thick going over 50-year-old GDP graphs. I haven't found a better book that covers this area, and I do recommend it, but with the cautionary warning that you should be ready to put it down and go do something to break up the dryness at times.
on April 28, 2009
This book rocks, but given the multitude of reviews out there already (and that I like it for the same reasons everyone else does), I thought I'd make my contribution by giving a quick summation of the contents.
Basically, the whole book is about how this country is supposed to run on the dual ideals of capitalism and democracy, but lately, the forces of capitalism have been crushing the democracy part. Reich says it's our own damn fault: our greed for $$$$$$$$$$ and Return On Investment have driven the vast majority of our actions as consumers and investors, causing the very social ills we complain about (job insecurity, massive wage inequality, depraved garbage on TV, etc.)
He makes the point that it's illogical to scapegoat Wal-Mart and friends no matter how big they are, since they're basically playing by the rules and doing exactly what we demand of them. In fact, when a company shows the slightest sign of generosity (i.e. when Costco's CEO lets its employees pay only 8% of their healthcare costs instead of the usual 25%) it instantly gets slammed; any CEO that isn't doing everything to "maximize shareholder value" usually gets the boot. Investors don't care about much else besides the bottom line (and even when they do, their purchasing patterns don't reflect it), which is why they're willing to pay whatever it takes to get the most profit-generating CEO (and then later, of course, everyone gripes about massively overinflated CEO salaries).
Basically, we're all hypocrites and morons, but Reich reminds us that it's not entirely our fault, because the system makes it a lot easier to express your voice via capitalism than via democracy. For example, you can choose where to shop, what companies to invest in, and what CEOs you want in charge, but if you try to speak your mind about something like how the media is debasing society, well, there's no real specific constructive outlet for it, and chances are you won't be heard above the din.
I guess this stuff should be obvious, but I never really thought about it before, and anyway it's rad how he analyzes everything so deeply, fairly, and realistically -- lessons yet to be learned by sycophants like Michael Moore.
As a sidenote, I also picked up on a few interesting nuggets of truth, like:
- Costco's customers have more than 2X the income of Wal-Mart customers. I also heard that Costco's CEO only makes a six-figure income (unheard of for CEOs) and the company pays people about $17/hour vs. Wal-Mart's $10. Sounds like a really thoughtful company.
- Reich thinks it's silly that the 80s was known as the decade of greed, as if that mentality wasn't there before. Plus, a lot of the seeds and statistics of this gaping inequality started in the 70s. Ack, I forgot which ones.
Anyway, definitely recommended.
on September 10, 2007
I'm a constant multi-tasker, often reading a half-dozen books at the same time. That's why I was surprised to find myself reading Supercapitalism cover to cover in a single day - probably the first time I've done that in 8 or 10 years. It's not that Supercapitalism is the best book ever written, or even that it's really a page-turner. It's that it's the first book I've read that directly addresses some of the issues I've been feeling about the country not going in the right direction and that politics is out of control, but that attacking capitalism isn't the right way to go about solving the problems.
Reich lays out an elegant argument explaining why the negative consequences of the success of capitalism aren't because of some big conspiracy among corporate executives, but rather an emergent behavior caused by increased global competition, the marketplace rules of capitalism, and the rule of law. Supercapitalism isn't a defense of capitalism. It's a rallying cry for strengthening democracy. While we've made such great strides in the last 30 years as consumers and investors, our lives and powers as citizens have been degraded.
I consider myself relatively sophisticated in understanding PR, spin, and marketing. But my eyes were opened in Reich's discussion of politicians lambasting corporate executives over human rights issues in China. Reich points out that the pols score points by excoriating the CEOs, but then never follow up with legislation that would make what they did illegal.
In today's world of absolutist ideology, Reich does a good job of explaining how people can easily hate Wal-Mart for their labor practices and their impact on Main Street businesses, and also love their lower prices at the same time. It reminds me of Ted Turner deriding media consolidation at the same time as benefiting from it - actually a very consistent position to take. The fact is, if the rules say you can pay your employees $10/hr, or shift to more temps so you don't have to pay benefits, or outsource to China, then hypercompetitive companies will do it - unless it's illegal. So, if you don't like what corporations are doing, strengthen democracy, because it's society's job to decide what the rules of the game are.
The weakest part of the book is that it's missing details or richness or variety in its ideas for what to actually do about the current state of affairs. I suspect that in coming years many future authors or politicians are going to be picking up the thread here and coming up with innovative solutions. Until then, the contribution of Reich's Supercapitalism should be understood as getting people focused on the right set of problems to solve, rather than proscribing the solution. And if that's not "changing the rules of the game" in a capitalist democracy then I don't know what is.
on July 18, 2009
As a conservative, I had never expected to agree so completely with an individual so often ridiculed by my contemporaries. Nevertheless, I see logic in Reich's arguments and a warning to all citizens hoping to enhance social equality in the US.
Reich argues that capitalism has evolved to an overarching business model that is forcing corporate managers to focus solely on the returns, to investors and indirectly to consumers in the form of lower product/service costs. Reich defines the corporation as "nothing more than bundles of contractual agreements" (p. 216). The implication of the hypothesized evolution is that corporate managers, as fiduciaries for their investors, have no obligation to promote social good and no right to use the corporation as a reified person in demanding rights our using the reified status as a protection against personal responsibility.
Reich covers the history of corporate evolution through the 20th century to focus on the change in the economic climate, from oligopolistic national industries to increasingly competitive chaotic global market participants. The result is that all individuals, consumers, investors, politicians, activists, must now recognize the corporation's new role and the fact that this role has resulted in system-mandated corporate political activism that is harming the democratic input of citizens. Corporations are rightfully responding to the consumer and their investors, by necessity, and are corrupting the political process to achieve or maintain competitive advantage in the global market.
Reich finishes the book with a number of recommendations, the first being that citizens accept the fact that corporations are not real actors in the democratic game, they don't pay taxes (the consumer does through higher prices), they don't donate to charity (the investor does through lower dividends), they don't provide health care to employees (the government, the citizen, does through forsaken taxes). Reich recommendations flow logically from his view of the new corporation; eliminate corporate taxes (or restructure earnings as investor partner dividends), remove the corporate tax exemption on health care and provide universal care, eliminate the tax deductibility of non-product related business expenses like political contribution, charity contribution. Reich also makes a case for treating all corporations located within the nation equally, whether US or foreign owned.
on August 6, 2008
Reich was interviewed on NPR in September 2007, and some of his comments promoting this book were eye-opening and counter-intuitive. His 'driveway moment' suggestions included eliminating the corporate income tax, putting lobbyist contributions into blind trusts so politicians could not know who gave what, preventing punitive fines on corporate malfeasance, eliminating the ability of corporations to challenge business-limiting regulations, and not giving tax advantages to corporations who keep their headquarters in the United States. These were some revolutionary recommendations and I was anxious to read his preparatory research.
Unfortunately this book is a good bit less convincing than his radio interview. The second through fifth chapters are devoted to a litany of scolds about multinational corporations, globalization, outsourcing, Fair Trade laws and other sins of 'supercapitalism.' On nearly every page within these four chapters he mentions Wal-Mart at least once. He rightly blames market forces for the intense competitiveness which drives such corporations to look no further ahead than their next quarterly statement. He correctly places the blame on public ownership for changing corporate focus from customer satisfaction to stock price. There is nothing noteworthy here, and it is 2/3rds of the book.
The first chapter is an excellent summation of the thirty year period 1945-1975, when most of us grew up, when government stimulus and regulatory bite combined to create a hugely-successful economic engine. During this period (our formative) a vibrant Middle Class emerged; educated, financially rewarded, productive, acquisitive and procreative. The new markets thus opened up drove industry to create more and better products, which in turn created more wealth shared among the workers. It was a positive feedback loop that floated all boats.
Chapters 2-5 detail, as mentioned, the change in focus from productivity to profitability but without really explaining how this change came about. It isn't until the sixth and final chapter that Reich begins to lay out his vision of what happened.
The mid-'70s saw the first cracks in the American juggernaut, with the Arab Oil Embargo, the rise of Japanese electronics imports, increasing auto imports, the fall of the U.S. dollar and the strain of the Vietnam War. In response, industry began lobbying Congress for increased freedom from regulation, from union contracts, from environmental responsibilities and from restrictions on overseas outsourcing. By the time Ronald Reagan washed into office the stage was set for major re-ordering of priorities, with the stick-and-carrot of previous regulation-and-stimulus being replaced by carrots alone. Big business took off running, and an unholy alliance of politics and big business suddenly got cozier -- to the point where consumers, citizens & taxpayers are no longer Congress's main constituents.
Reich's solutions to these systemic problems depend, as he admits, on a culture change inside the Washington beltway, and this is unlikely to occur without some sort of intervention to break the dependency on lobbyist dollars. His recommendations on pages 210-211 are:
* publicly finance election campaigns for all major offices
* require broadcasters who use the public airwaves to contribute free campaign advertising to candidates in a general election
* prohibit lobbyists from soliciting and bundling big-check donations from their business clients
* ban gifts to lawmakers from corporations or executives
* prohibit privately financed junkets for legislators and aides
* ban parties staged to "honor" politicians with corporate contributions
* prohibit former legislators and public officials from lobbying for at least five years after they leave office
* require lobbyists to disclose all lobbying expenditures
* mandate that all expert witnesses in legislative and regulatory hearings disclose financial relationships with economically interested parties
I might add term limits would also be helpful. Decoupling legislative elections from lobbyist contributions would help Congress begin to serve the electorate again, and weed out career politicians whose only loyalty is to their own benefit.
To return to Reich's radio recommendations, they have to do with eliminating the fiction that corporations are individuals, with rights and responsibilities. He recommends essentially making all corporations S-type corporations, where all profits and losses are funneled straight through to the shareholders and taxed on the shareholders themselves, rather than waiting for capital gains taxes. This eliminates the tax advantage to corporations to make capital investments (i.e. buy competitors) rather than pay dividends to shareholders. He also recommends that corporate malfeasance, and any fines levied, be charged to corporate officers directly rather than coming out of business profits. Corporations must not be used as proxy people, especially when publicly-held corporations are using shareholder money to enrich the officers of the company without returning an appropriate portion back to the real owners.
In all, I still respect Robert Reich as one of the smartest men in politics, and if he were to run for office I'd vote for him in a heartbeat. Unfortunately (for us) he's probably way too smart to do that.
Robert Reich, President Bill Clinton's secretary of labor and one of the most provocative public intellectuals in the U.S., unflinchingly explores the transformation of American democratic capitalism into a system of "supercapitalism," in which corporations and the market exercise apparently unbridled power. Reich considers and then discards most, if not all, of the standard leftist explanations for this development. Instead, in a logically coherent analysis, he arrives at some startling but convincing conclusions. For example, arguing that the government should never treat corporations like people, Reich advocates eliminating the corporate income tax. getAbstract recommends this book to anyone who wants to understand today's economics, politics or fiscal events. Although recent legislation attempts to address some of the issues Reich raises, such as the flow of corporate money into political campaigns, his analysis is still relevant.