Occasionally, very occasionally, you come across a book that encapsulates much of what you feel about an issue, that gets so close to the truth that you feel a kinship with it. Oddly enough, these don't tend to be the same books from which you learn a lot, because the latter reveal new truths; those may even feel disruptive. But the best of the "truth" books confirm what you already think or feel, while broadening that understanding. When I come across one of those, I recommend them to others, even if, for them, the book will be a "learning" book. In other words, I am likely to commend a Category A book, knowing or hoping it will be a category B book for someone else.
One of the very interesting interviews I have read was William Greider's 2006 interview of Robert Rubin, Clinton's Secretary of the Treasury. There are a number of interesting exchanges; this interview goes beyond the usual Charlie Rose fare. (I'm deliberately avoiding criticizing Greider for the flaws in his book, One World, Ready or Not; Paul Krugman already did that in 1997, and subsequent events have not entirely cleared up that controversy.) In a response to a question as to possible downsides of globalization, Rubin says:
My feeling on the specific issue noted above, where Rubin believes that, "I'd get the most pie I could and then figure how to get the distribution that results in everybody getting it," is that Reich is far closer to the mark. Many economists believe that you make the pie bigger, then worry about who's getting how big a slice later.
But growing the pie is not a very difficult problem, at least in theory. In general, moving toward consumer-based capitalism is the most efficient way of making a bigger pie, which we've seen time and again. It's the real problem of ensuring that everyone gets a piece which presents the dilemma. And whenever you focus on the easier problem and defer the harder, the likelihood that you'll ever get to the harder grows very small indeed. In short, if we focus on growth and ignore distribution, we may never get to distribution (especially as powerful institutions count on that growth).
So I was pleased to find that Reich was to tell his side of that story in the 2007 book, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life. And I was even more pleased to discover that the book did not disappoint. I will try to summarize Reich's basic premises, then offer a few specific criticisms. However, I want to be clear (if I haven't been already) that this is a great book, an important book, and any negatives I thought I found are more in the way of quibbles than basic flaws.
Supercapitalism refers to our current system, in which the forces of free-market capitalism have much the greater influence over events than democracy (I wrote a post about my feelings on that conflict here). Reich's essential premise is that modern technologies of communications and transport allowed the creation of global supply chains. The rise of computers and the Internet allowed the old oligopolistic system to be replaced by more competition, fomented by entrepreneurs who fought for deregulation. Investors were able to buy into the system as never before, and their involvement forced companies to deliver returns and cut costs. The old democracy-oriented institutions, particularly labor unions and government, were not able to cope as power "shifted to consumers and investors" [p. 87].
I've just boiled a fairly involved argument down to four sentences, which is unfair, but you get the drift. The critical lens through which to view the text is that the consumer/investor is well-served by supercapitalism; we've seen the stock market explode, we've seen a greater number of goods and services at lower prices than we ever thought possible.
But the other side is the employee/citizen. We know the litany by now: job loss (which in my view is more properly called career loss in many cases), income inequality, a sense of insecurity about the future, the prospect that our children and grandchildren will have no shot at a good life (let alone a better one). The employee/citizen has little power, no matter what the theory of democracy says, and government is such a captive to corporate interests that their proper function, that of representing democracy, has been lost in contributions and lobbying.
Of course, the consumer/investor is the employee/citizen, so why does pretty much every American favor the former role to the latter? Reich doesn't really explore this question in any great detail, he assumes it and moves on. And I won't either, at least not right now, but I will point out one thing.
Reich discounts three ideas that have been proposed to explain this shift in people's thinking: the rise of powerful multinational corporations, the rise of conservative leaders, and the acceptance of certain ideas such as "neoliberalism" or "neoconservatism." He believes that, since some of the changes in technology and deregulation predate these, that they have had no effect worth mentioning. I disagree - while it is true that industries started to push for deregulation before Reagan, what I saw was that the Great Communicator made these ideas palatable. The '70s were a difficult time for America, and Reagan offered hope. The only thing he asked is that we buy into some simple ideas, government is bad, the free market solves all problems, etc. I can't say that Reich's supercapitalism wouldn't have occurred in much the same way, but Reagan helped people believe that it was right, that government shouldn't be responsible for limiting it in any way. And a large number of Americans bought into that.
As is clear by now, I am in basic agreement with the premises of this book in principle, so, rather than continuing to rehash the book itself, I'll mention a few things that I believe were underemphasized or elided over (granting that not everything could be covered in 272 pages).
Reich spends time talking about the "Not Quite Golden Age," the era that ended in the 1970s. This time featured few large companies in each industry, government-supported barriers to entry, union involvement (and salaries in non-union industries were maintained by the presence of unions), corporate responsibility. These factors added up to the broadest-based prosperity that any nation has ever known, and one from which we've been retreating ever since. The major labor troubles of the 1930s is not mentioned, but that reality wouldn't detract from the facts.
One note here - while there is no explicit criticism of the Clinton administration, in fact there is almost nothing negative about any specific person, neither does Reich shy away from letting us draw the conclusion that the trend to supercapitalism was pretty constant through the 1990s. This restraint is remarkable, given the way we've seen other former Clinton staffers attempt to burnish the image of the Clinton years as a mini-Golden Age. Part of this is probably related to the current Clinton campaign, part to self-aggrandizement, but Reich properly, if subtly, demonstrates that the 1993-2001 period was no deterrent to the rise of powerful corporate interests.
Reich believes that labor unions presented an important counterweight to the power of the large corporation. He shows a chart [p. 81] from the U.S. BLS where union membership in the private sector rose from about 13% in 1929, to a peak of 35% in the late 1940s to early 1950s, then drops fairly steadily to 8% today. He uses this data to show that the oft-stated belief that the Reagan decertification of PATCO (the union of air traffic controllers) in 1981 broke the union movement is wrong.
As I said above, I think the trend predated Reagan, but he gave it respectability, making it acceptable to hate the union movement. Another unmentioned factor is that, for many Americans at that time, having a job that did not fall within union purview was seen as "making it." I would say that the beginning of union decline came about as more jobs became white-collar and were not even potentially unionized. If this isn't factored in, the drop in membership will be understated. (Ironically, some of those same jobs have the characteristics of the blue-collar jobs of yesteryear. It's probably accountants and computer programmers who need union protection now, but this is culturally a non-starter.)
I said above that Reich doesn't spend much time trying to reconcile the conflict between the consumer/investor and the employee/citizen sides, that each of us plays both roles. There is some discussion on this on p. 98, which eventually Reich concludes by arguing for our complicity in the rise of supercapitalism. This may well be true, and may be related to the oft-noted lack of community in our society, but it still doesn't explain why. He cites [p. 97] that the average shareholder owns $5,000 worth of stock; why, though, would that investor relate to business more as an investor than as an employee? To over-simplify, if the choice is between seeing your $5K grow to $10K, but having a greater chance to retain a long-term career, or seeing the money grow to $20K, but being in perpetual job insecurity, why would anyone choose the latter? I can't answer that, and, apparently, Reich can't either.
I'm not entirely certain about the implicit cause and effect in Supercapitalism. The assumption throughout is that companies are pressured by consumers for better deals, and investors for higher returns, and these have brought us to our current state.
More importantly, we have created a culture of relentlessly short-term thinking. The distinction that Reich is seeking may be explained in this way: The consumer and investor are short-term in their outlook, the employee and citizen long-term. This is a change from before, in that the first two roles used to have a long-term component. People were less likely to go into debt to finance purchases of non-durable goods, and investors used a buy-and-hold strategy. At the same time, it was assumed that our institutions were long-term thinkers, so decisions were made with full costs in mind.
Now short-term is in the ascendancy. Risks and costs are externalized and deferred, but institutions have much more power to accomplish this. We see this in today's mortgage crisis, where individuals have to pay the piper now, while financial institutions will likely "get help." The government runs up a deficit, with no real plan to pay it back; indeed, we pass a stimulus package that can only increase it.
Reich spends some time trying to debunk the myth that CEOs are paid too much. Once again, he's trying to demonstrate that the commonly-held belief that executive compensation is responsible for supercapitalism is wrong, again in an attempt, I guess, to convince us that we are at fault. He does concede,
Along these same lines, Reich, as others have, tries to demonstrate that, measured as a portion of added value, most CEOs are not really overpaid. He cites a study that showed that Lee Raymond, while head of ExxonMobil, brought $16 billion of extra value to the company. Poor Lee walked away, over this time, with just 4% of this $16 billion - "seems economically reasonable." [p. 111]
I might buy into this reasoning if I had ever seen any other employee of a company paid by some percentage of value added. The researcher who has garnered 20 patents, which are still generating income for the corporation, is given the heave-ho because China is producing cheaper engineers - does he get some percentage of the patent revenue as a severance payment? Ha, ha.
The best attempt in the book to reconcile the duality of the modern-day American is when Reich tells us [p. 127-8] what he would be willing to give up (as long as he knew he wasn't alone in doing so). He'd support a laundry list of policies (better unemployment compensation, job training, paid family leave, and so forth), even if each one cost him some money. But he concedes that others would not share his list, and that only the political process can mediate the collection of lists into policy.
The chapters on how the political process has been co-opted by corporate interests are particularly strong. I won't go through a detailed examination of this part, the book should be read. But, once again, I think Reich misses the extent to which people's indifference comes from genuine belief, rather than lassitude.
Whether as a result of nearly 30 years of "Reaganomics" or not, the average American has been conditioned to believe that "the market" solves all problems, that government intervention is counter-productive. This is believed so thoroughly that even such non-market mechanisms as cap-and-trade are seen as market-esque, therefore superior to other solutions to our environmental crisis. Until faith in government is restored, until it is seen as the citizen's representative at the table instead of just another outlet for big business, nothing is going to change.
Unsurprisingly, the weakest section of the book is the conclusion, a near-obligatory section of proposed remedies. As I made clear above, I don't think that tinkering with the tax code (e.g., eliminating the corporate income tax), enhancing the "competitiveness" of Americans, or eliminating the belief that corporations are legal persons will accomplish the goal of reducing the negative effects of supercapitalism. That will take a major change in the attitude of the "man on the street," and, unfortunately, I think we're still a few crises away from that day.
Nonetheless, read this book. If it does nothing else, it will cure you of the notion that capitalism and democracy are a unified system, conferred upon the greatest nation on the history of the world, and requires its spreading through the rest of the world, no matter the cost.
One of the very interesting interviews I have read was William Greider's 2006 interview of Robert Rubin, Clinton's Secretary of the Treasury. There are a number of interesting exchanges; this interview goes beyond the usual Charlie Rose fare. (I'm deliberately avoiding criticizing Greider for the flaws in his book, One World, Ready or Not; Paul Krugman already did that in 1997, and subsequent events have not entirely cleared up that controversy.) In a response to a question as to possible downsides of globalization, Rubin says:
Bob and I used to have a discussion--if you could trade off some part of growth to have some better distribution, would you do that? I always said I wouldn't, because I figured you want to get maximum growth and then try to figure out how to get the distribution. Bob used to feel--and look, it was a reasonable position, it wasn't where I was--that if you have somewhat less growth and better distribution, that was a better place to be.Bob, of course, is Robert Reich, Clinton's Secretary of Labor. It is fairly well-known that Rubin and Reich had disagreements over economics. I believe it is one of the strengths of the Clinton administration that, as far as I know, both men's views were heard, a strong contrast to the "unified front" of the current administration.
My feeling on the specific issue noted above, where Rubin believes that, "I'd get the most pie I could and then figure how to get the distribution that results in everybody getting it," is that Reich is far closer to the mark. Many economists believe that you make the pie bigger, then worry about who's getting how big a slice later.
But growing the pie is not a very difficult problem, at least in theory. In general, moving toward consumer-based capitalism is the most efficient way of making a bigger pie, which we've seen time and again. It's the real problem of ensuring that everyone gets a piece which presents the dilemma. And whenever you focus on the easier problem and defer the harder, the likelihood that you'll ever get to the harder grows very small indeed. In short, if we focus on growth and ignore distribution, we may never get to distribution (especially as powerful institutions count on that growth).
So I was pleased to find that Reich was to tell his side of that story in the 2007 book, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life. And I was even more pleased to discover that the book did not disappoint. I will try to summarize Reich's basic premises, then offer a few specific criticisms. However, I want to be clear (if I haven't been already) that this is a great book, an important book, and any negatives I thought I found are more in the way of quibbles than basic flaws.
Supercapitalism refers to our current system, in which the forces of free-market capitalism have much the greater influence over events than democracy (I wrote a post about my feelings on that conflict here). Reich's essential premise is that modern technologies of communications and transport allowed the creation of global supply chains. The rise of computers and the Internet allowed the old oligopolistic system to be replaced by more competition, fomented by entrepreneurs who fought for deregulation. Investors were able to buy into the system as never before, and their involvement forced companies to deliver returns and cut costs. The old democracy-oriented institutions, particularly labor unions and government, were not able to cope as power "shifted to consumers and investors" [p. 87].
I've just boiled a fairly involved argument down to four sentences, which is unfair, but you get the drift. The critical lens through which to view the text is that the consumer/investor is well-served by supercapitalism; we've seen the stock market explode, we've seen a greater number of goods and services at lower prices than we ever thought possible.
But the other side is the employee/citizen. We know the litany by now: job loss (which in my view is more properly called career loss in many cases), income inequality, a sense of insecurity about the future, the prospect that our children and grandchildren will have no shot at a good life (let alone a better one). The employee/citizen has little power, no matter what the theory of democracy says, and government is such a captive to corporate interests that their proper function, that of representing democracy, has been lost in contributions and lobbying.
Of course, the consumer/investor is the employee/citizen, so why does pretty much every American favor the former role to the latter? Reich doesn't really explore this question in any great detail, he assumes it and moves on. And I won't either, at least not right now, but I will point out one thing.
Reich discounts three ideas that have been proposed to explain this shift in people's thinking: the rise of powerful multinational corporations, the rise of conservative leaders, and the acceptance of certain ideas such as "neoliberalism" or "neoconservatism." He believes that, since some of the changes in technology and deregulation predate these, that they have had no effect worth mentioning. I disagree - while it is true that industries started to push for deregulation before Reagan, what I saw was that the Great Communicator made these ideas palatable. The '70s were a difficult time for America, and Reagan offered hope. The only thing he asked is that we buy into some simple ideas, government is bad, the free market solves all problems, etc. I can't say that Reich's supercapitalism wouldn't have occurred in much the same way, but Reagan helped people believe that it was right, that government shouldn't be responsible for limiting it in any way. And a large number of Americans bought into that.
As is clear by now, I am in basic agreement with the premises of this book in principle, so, rather than continuing to rehash the book itself, I'll mention a few things that I believe were underemphasized or elided over (granting that not everything could be covered in 272 pages).
Reich spends time talking about the "Not Quite Golden Age," the era that ended in the 1970s. This time featured few large companies in each industry, government-supported barriers to entry, union involvement (and salaries in non-union industries were maintained by the presence of unions), corporate responsibility. These factors added up to the broadest-based prosperity that any nation has ever known, and one from which we've been retreating ever since. The major labor troubles of the 1930s is not mentioned, but that reality wouldn't detract from the facts.
One note here - while there is no explicit criticism of the Clinton administration, in fact there is almost nothing negative about any specific person, neither does Reich shy away from letting us draw the conclusion that the trend to supercapitalism was pretty constant through the 1990s. This restraint is remarkable, given the way we've seen other former Clinton staffers attempt to burnish the image of the Clinton years as a mini-Golden Age. Part of this is probably related to the current Clinton campaign, part to self-aggrandizement, but Reich properly, if subtly, demonstrates that the 1993-2001 period was no deterrent to the rise of powerful corporate interests.
Reich believes that labor unions presented an important counterweight to the power of the large corporation. He shows a chart [p. 81] from the U.S. BLS where union membership in the private sector rose from about 13% in 1929, to a peak of 35% in the late 1940s to early 1950s, then drops fairly steadily to 8% today. He uses this data to show that the oft-stated belief that the Reagan decertification of PATCO (the union of air traffic controllers) in 1981 broke the union movement is wrong.
As I said above, I think the trend predated Reagan, but he gave it respectability, making it acceptable to hate the union movement. Another unmentioned factor is that, for many Americans at that time, having a job that did not fall within union purview was seen as "making it." I would say that the beginning of union decline came about as more jobs became white-collar and were not even potentially unionized. If this isn't factored in, the drop in membership will be understated. (Ironically, some of those same jobs have the characteristics of the blue-collar jobs of yesteryear. It's probably accountants and computer programmers who need union protection now, but this is culturally a non-starter.)
I said above that Reich doesn't spend much time trying to reconcile the conflict between the consumer/investor and the employee/citizen sides, that each of us plays both roles. There is some discussion on this on p. 98, which eventually Reich concludes by arguing for our complicity in the rise of supercapitalism. This may well be true, and may be related to the oft-noted lack of community in our society, but it still doesn't explain why. He cites [p. 97] that the average shareholder owns $5,000 worth of stock; why, though, would that investor relate to business more as an investor than as an employee? To over-simplify, if the choice is between seeing your $5K grow to $10K, but having a greater chance to retain a long-term career, or seeing the money grow to $20K, but being in perpetual job insecurity, why would anyone choose the latter? I can't answer that, and, apparently, Reich can't either.
I'm not entirely certain about the implicit cause and effect in Supercapitalism. The assumption throughout is that companies are pressured by consumers for better deals, and investors for higher returns, and these have brought us to our current state.
The main culprit has not been corporate greed or CEO insensitivity...We can safely ignore these developments as long as we don't connect the consumer and investor half of our brain with the citizen half. It's easier to cast rhetorical blame on the intermediaries between the two halves - corporations, CEOs, Wall Street, Wal-Mart. [p. 103]This seems facile to me. To argue that corporations are innocent victims of consumers and investors seems preposterous, as they have become expert at manipulating both groups for their own benefit. I believe that this is one of those real-world situations in which simple cause-and-effect analysis is insufficient to explain what is happening.
More importantly, we have created a culture of relentlessly short-term thinking. The distinction that Reich is seeking may be explained in this way: The consumer and investor are short-term in their outlook, the employee and citizen long-term. This is a change from before, in that the first two roles used to have a long-term component. People were less likely to go into debt to finance purchases of non-durable goods, and investors used a buy-and-hold strategy. At the same time, it was assumed that our institutions were long-term thinkers, so decisions were made with full costs in mind.
Now short-term is in the ascendancy. Risks and costs are externalized and deferred, but institutions have much more power to accomplish this. We see this in today's mortgage crisis, where individuals have to pay the piper now, while financial institutions will likely "get help." The government runs up a deficit, with no real plan to pay it back; indeed, we pass a stimulus package that can only increase it.
Reich spends some time trying to debunk the myth that CEOs are paid too much. Once again, he's trying to demonstrate that the commonly-held belief that executive compensation is responsible for supercapitalism is wrong, again in an attempt, I guess, to convince us that we are at fault. He does concede,
[S]ome CEOs reap giant rewards even as their share prices plummet, and some pocket huge goodbye gifts even if they're sacked. But this is unlikely to last long. Only the rare company today can remain competitive headed by a CEO who is unworthy of his pay, including exit bonuses. [p. 110]This belief does not conform to today's reality. These exit bonuses are negotiated, usually by well-paid compensation consultants, at the very beginning of the CEO's tenure. To think this will change due to competitive pressures is unlikely.
Along these same lines, Reich, as others have, tries to demonstrate that, measured as a portion of added value, most CEOs are not really overpaid. He cites a study that showed that Lee Raymond, while head of ExxonMobil, brought $16 billion of extra value to the company. Poor Lee walked away, over this time, with just 4% of this $16 billion - "seems economically reasonable." [p. 111]
I might buy into this reasoning if I had ever seen any other employee of a company paid by some percentage of value added. The researcher who has garnered 20 patents, which are still generating income for the corporation, is given the heave-ho because China is producing cheaper engineers - does he get some percentage of the patent revenue as a severance payment? Ha, ha.
The best attempt in the book to reconcile the duality of the modern-day American is when Reich tells us [p. 127-8] what he would be willing to give up (as long as he knew he wasn't alone in doing so). He'd support a laundry list of policies (better unemployment compensation, job training, paid family leave, and so forth), even if each one cost him some money. But he concedes that others would not share his list, and that only the political process can mediate the collection of lists into policy.
The chapters on how the political process has been co-opted by corporate interests are particularly strong. I won't go through a detailed examination of this part, the book should be read. But, once again, I think Reich misses the extent to which people's indifference comes from genuine belief, rather than lassitude.
Whether as a result of nearly 30 years of "Reaganomics" or not, the average American has been conditioned to believe that "the market" solves all problems, that government intervention is counter-productive. This is believed so thoroughly that even such non-market mechanisms as cap-and-trade are seen as market-esque, therefore superior to other solutions to our environmental crisis. Until faith in government is restored, until it is seen as the citizen's representative at the table instead of just another outlet for big business, nothing is going to change.
Unsurprisingly, the weakest section of the book is the conclusion, a near-obligatory section of proposed remedies. As I made clear above, I don't think that tinkering with the tax code (e.g., eliminating the corporate income tax), enhancing the "competitiveness" of Americans, or eliminating the belief that corporations are legal persons will accomplish the goal of reducing the negative effects of supercapitalism. That will take a major change in the attitude of the "man on the street," and, unfortunately, I think we're still a few crises away from that day.
Nonetheless, read this book. If it does nothing else, it will cure you of the notion that capitalism and democracy are a unified system, conferred upon the greatest nation on the history of the world, and requires its spreading through the rest of the world, no matter the cost.
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