Robert Reich’s “Saving Capitalism”

By Jake Strickler, Staff Writer

Robert Reich, I should start by saying, is not an anti-capitalist. Unlike his ideological cognate Bernie Sanders, who made the enormous political blunder of describing himself in that manner during Tuesday night’s first Democratic Party debate, Reich does subscribe to the virtues of free trade. But (and of course there has to be a qualification here), as he explains in his new book Saving Capitalism: For the Many, Not the Few, he is vehemently opposed to the modern form of hyper-capitalism, which engenders an ever-expanding division between rich and poor, and puts the global economy at risk through the elevation of the financial sector to a massive web of interdependency that, in the words of Karl Marx describing the spread of global capitalism, “must nestle everywhere, settle everywhere, establish connections everywhere.”

Saving Capitalism. Courtesy Knopf/Doubleday.
Saving Capitalism. Courtesy Knopf/Doubleday

If Robert Reich is to have an ideological classification slapped onto him, the most appropriate one would be populist, in the classic way that Thomas Paine was a populist. He believes that every human being deserves to be treated with dignity and respect, and that everyone should have a fair shake; the deck shouldn’t be stacked in anybody’s favor. Over the length of his career thus far, he has strived to transform those principles from lofty rhetoric to social truth.

Born and raised in Scranton, Pennsylvania, Reich grew up around his family’s small, independent, Main-Street-USA dress shop. As he describes, the family was by no means rich, but the shop brought in enough money for them to buy a house, buy a car, and live comfortably; the very embodiment of the American middle class. After taking a degree in politics and economics from Dartmouth and a J.D. from Yale Law – along with college buddies Bill and Hillary (Rodham) Clinton – Reich cut his teeth in Washington as a law clerk, and went on to an appointment by Jimmy Carter as FTC Policy Planning Director. Following this, there was a long professorship at Harvard, ending when his old pal Bill Clinton won the 1992 presidential election and tapped Reich as his administration’s Secretary of Labor. Upon completing this stint of full immersion in the inner workings of the American executive branch, Reich returned to academia, and has published over a dozen books, mostly dealing with economics and politics. Due to the power-to-the-people stance that he takes on virtually every issue, Reich has become the most unlikely of figures: a political economist with a cult following.

Saving Capitalism starts from the premise that most of the either/or debates that cleave this country in two – especially the one surrounding free market efficiency vs. government bureaucracy – are at best distractions from other issues, and at worst a smokescreen used to intentionally veil other issues. The question to ask, says Reich, is not whether the laissez faire sink-or-swim free market is best equipped to handle economic issues, but who makes the rules governing how the market operates, and who benefits? In Reich’s view, the answer to both is simple: global corporatocracy and the financial services industry. “The rules have been altered over the past few decades as large corporations, Wall Street, and wealthy individuals have gained increasing influence over the political institutions responsible for them,” Reich posits.

Graph of US income growth. Courtesy Washington Post.
Graph of US income growth. Courtesy Washington Post.

To back up this claim, Reich presents a good amount of hard data showing that, although the economy has seen incredible growth since the 1980s, the lion’s share of the gains has conclusively gone to those at the very top. Most damning is a graph showing the proportion of economic gain going to the bottom 90% as compared to the top 10% from 1949-2012. We see the bottom slowly declining and the top steadily increasing, up until the period of 1982-1990 – not so coincidentally the years in which Ronald Reagan held the presidency and began the deregulation of the financial services industry that culminated in Bill Clinton’s 1999 repeal of the Glass-Steagall Act of 1933, which removed the wall separating commercial banking and investment banking. During this period, the bottom falls straight off a cliff and the top shoots up to astronomical heights. Through the George W. Bush years, the bottom barely registers, with about 98% of economic gain going to the top 10%. And in the period from 2009-2012 – the first half of the Obama years – we actually see the bottom go negative, with the top picking up the difference.

Michael Douglas in "Wall Street." Courtesy Wikipedia.
Michael Douglas in “Wall Street.” Courtesy Wikipedia.

At the heart of this, says Reich, is a shift in the conceptual basis of the corporation from holding a duty to all stakeholders (employees, customers, etc.) to holding a duty to the shareholder and the shareholder alone. This shift coincides with the American fiscal downturn of the late 1970s, the implementation of Reagan’s neo-liberal, hands-off economic policies, and Michael Douglas as Gordon Gekko in the 1987 film Wall Street proclaiming that “Greed is good.” Echoing Marx, whose theory that capitalism leads naturally to widening inequality Reich distances himself from early in the book, he says that “this trend is not sustainable, neither economically or politically.” The reasoning behind this is extraordinarily simple: the American working and middle classes necessarily play the dual role of producer and consumer, and if they are not seeing any financial gain (and are in fact losing their share), then they will not have the purchasing power to pump their labor income back into the economy. Says Reich, “As ever-larger numbers of Americans conclude that the game is rigged against them, the social fabric will start to unravel.”

Unfortunately, this book went to print before the incredible upheavals in the run-up to the 2016 election that we’ve seen over the past few months, and so doesn’t comment on just how accurate this statement has proven to be. The American public has turned on the establishment, as evidenced by the meteoric rise of socialist-populist Bernie Sanders on the left, and opportunist-posing-as-a-populist Donald Trump on the right. People are frustrated. Even without graphs and formulas and figures, it’s pretty evident that something has happened to this country over the last few decades when you look at our abandoned malls, crumbling infrastructure and the corporatization, uniformitization and monopolization of everything. In my opinion, the mere fact that Donald Trump has the slightest chance at the presidency, let alone a pretty good shot at securing the party nomination, shows conclusively that the social fabric is already rending, and that it might be time to start paying attention to people like Robert Reich.

With so many problems, where does one even begin to search for solutions? According to Reich, the answer is straightforward: elect “an activist government that raises taxes on the wealthy, invests the proceeds in excellent schools and other means people need to get ahead, and redistributes to the needy.” While many will read this and scream communism, it is critical to remember that this description does not fit the Soviet Union, but it does fit America during the postwar period of incredible industrialization and economic growth: the Golden Era. Tax rates on the wealthiest went above 70%, and as a result the country was able to build an astounding infrastructure and become a model of success for the rest of the world. Corporate CEOs were not hurt by these high tax rates; instead of fighting them, they simply drew more reasonable salaries and put profits back into the business. As Reich describes, the ratio of CEO pay to the pay of their company’s average worker has gone “from a ratio of 20 to 1 in 1965, to 30 to 1 in 1978, 123 to 1 in 1995, 296 to 1 in 2013, and over 300 to 1 today.” Is this type of behavior really necessary or justified? Reich thinks not, and a great proportion of the country is beginning to agree with him. What’s needed is moderation and sensibility; a return to the economic policy of those relatively stable years enjoyed for the middle half of the 20th century. With attitudes, norms, and regulations so ingrained in our government and population, doing so will involve a massive shift in priorities, but it’s a shift that seems to be already beginning.

The preview for a great 2013 documentary featuring Reich, which is available for streaming on Amazon but can probably be found for free somewhere with a bit of Google sleuthing:

If you want to borrow my copy of Saving Capitalism and can promise not to drop it in the pool or anything I can be reached at jake.strickler@tbird.asu.edu