Robert Reich

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On the topic of political economy, the prophetic Cassandra genre has a long lineage in American letters. Thinkers such as Thorstein Veblen, John Kenneth Galbraith, and Lester Thurow periodically issue calls for repentance lest the United States careen toward economic collapse. Through it all, of course, the American economy has continued to grow, creating wealth and a standard of living never before experienced—indeed, never before imagined—in human history.

The tradition nevertheless persists. Several recent books—Jacob Hacker’s The Great Risk Shift, Louis Uchitelle’s The Disposable American, and Steven Greenhouse’s The Big Squeeze, among them—argue that the U.S. economy has backed itself into an unsustainable corner of inequality, diminished opportunity, and dim prospects.

Somewhat related to these, but with greater depth and insight, is Robert Reich’s most recent book, Supercapitalism, published a year ago and now out in paperback. The timing is fortuitous. Reich, a former labor secretary under Bill Clinton and prominent author and commentator, explores the neglected side of topics featured in the current campaign season.

His basic thesis is that the link between capitalism and democracy has become attenuated: “Capitalism has become more responsive to what we want as individual purchasers of goods, but democracy has grown less responsive to what we want together as citizens.” As a result, “capitalism has invaded democracy” and created what Reich calls “supercapitalism.”

Here, Reich owes a debt to Galbraith, who first explored what he saw as the paradox of private affluence and public squalor in the 1950s. That link, in fact, is somewhat amusing—for Reich, the late 1950s and early 1960s represent the zenith of American democratic capitalism, what he calls our “Not Quite Golden Age.” Since then, he writes, all things economic and democratic have changed dramatically.

This is not, however, the conventional account about the machinations of a wealthy cabal, or the evils of globalization, or the dastardly effects of Reaganomics. Reich handily dismisses such superficial explanations for America’s transformation, focusing instead on more subtle drivers of change and how to respond to them. For the most part, Reich celebrates the economic achievements of the last 30 years. His concern lies with the sociopolitical context of those achievements. “Markets have become hugely efficient at responding to individual desires for better deals, but are quite bad at responding to goals we would like to achieve together. … [T]he institutions that used to aggregate citizen values have declined.”

So what has caused this “crisis of democracy in the age of supercapitalism”? Why do “our values as citizens have virtually no effective means of expression”? Reich’s answer is “you and me.” His constant refrain is that business competition has intensified and executive pay has risen because of “the increasing pressure on companies from consumers like you and me who want better deals, and from investors like us who want better returns.”

Largely as a result of new technologies that created global supply chains, lowered production costs, and enhanced capital markets, the economy became democratized. Consumers and investors, stifled in the 1950s and 1960s by oligopolistic companies, labor unions, and regulators, were now able to demand better, faster, and cheaper products and services. Established firms stumbled and entrepreneurs rose in their place, helping to create a new, more prosperous form of capitalism.

From the democratic perspective, Reich argues, these gains have had unfortunate consequences: less economic security, fewer checks on the excesses of the market, and less solicitousness of citizen interests from Washington. Newspapers run daily stories on the first two; Reich covers familiar ground here. But on the third topic Reich offers more sophisticated thinking than standard explanations that usually involve a political conspiracy by “big business.”

In the Not Quite Golden Age, competition between firms was minimal because bureaucracy and oligopoly were the rule of the day. In the era of supercapitalism, however, competition has become supercharged. The economic result has been an explosion of opportunity, but the logical extension of that competition into politics has meant the sucking of power and money to Washington. Google Inc. and Microsoft Corp., for example, now fight their technological battles as much in Washington as on our computers. Anyone interested in the health of democracy should be concerned at such concentration in the seat of government.

The corollary, Reich argues, is that “a kind of faux democracy has invaded capitalism.” He is not kind to the faddish ideas of “corporate social responsibility” and “stakeholder capitalism,” because they do not do what a democracy should: “create rules that balance the interests of consumers and investors with the broader interests of the public.”

As in his previous books, Reich’s prose flows smoothly, though he sometimes lapses into repetitive paragraphs that grate on the reader. Reich may also overplay his central opposition between consumers/investors and citizens. I find it hard to believe that most people in this country walk around in a constant state of cognitive dissonance, as he seems to imply. And in some cases, what’s good for us as consumers is also good for us as citizens. Take health care: Moving toward greater consumer choice will increase access and equity, points on the scorecard for capitalism as well as democracy.

Unlike other authors, Reich acknowledges that the past cannot, and should not, be recreated. “Supercapitalism” has changed the rules and thus demands new ideas. He makes a strong case, for instance, for abolishing the corporate income tax. Yet his suggested solutions largely involve timeworn ideas: make better laws and regulations, and reduce the role of money in the political process. In the end, his main culprit, the “largest impediment to reform,” is a familiar one: politicians.

Still, Supercapitalism is a necessary corrective to the gratuitous populism that consistently creeps into political rhetoric. If the recent past has taught us anything, it is that change is a basic element of capitalism. Reich himself makes clear that even as the postwar social bargain of democratic capitalism seemed to reach full strength, it was eroding. The brilliant economist Joseph Schumpeter (who also explored the relationship between democracy and capitalism) put it this way: “Stabilized capitalism is a contradiction in terms.” An economy that does not change cannot grow, with even more devastating consequences for democracy.

CARL SCHRAMM has served as president and CEO of the Kauffman Foundation since 2002. He is the author of The Entrepreneurial Imperative and coauthor of Good Capitalism, Bad Capitalism.