Saving Capitalism: For the Many, Not the Few

by Robert B. Reich

globalization and technological change have made most of us less competitive. The tasks we used to do can now be done more cheaply by lower-paid workers abroad or by computer-driven machines.

My solution—and I’m hardly alone in suggesting this—has been 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. These recommendations have been vigorously opposed by those who believe the economy will function better for everyone if government is smaller and if taxes and redistributions are curtailed.

markets depend for their very existence on rules governing property (what can be owned), monopoly (what degree of market power is permissible), contracts (what can be exchanged and under what terms), bankruptcy (what happens when purchasers can’t pay up), and how all of this is enforced.

There can be no “free market” without government.

Civilization, by contrast, is defined by rules; rules create markets, and governments generate the rules.

Government doesn’t “intrude” on the “free market.” It creates the market.

In practice, therefore, the freedom of speech granted by the court to corporations would drown out the speech of regular people without those resources.

“Free enterprises” designed to maximize shareholder returns have been known to harm the environment, endanger the health and safety of consumers and others, and defraud investors.

corporate power will infringe on individual liberties if the potential financial returns are sufficiently high.

The Republican Party in the United States was founded in the 1850s in direct opposition to wealthy slaveholders and those Democrats who asserted that ownership of slaves was a property right protected by the Constitution.

Substantial market power provides strong incentives to invest and innovate but also raises consumer prices.

like any new monopoly, has strategically used its economic power to gain political power and used its political power to entrench its market power.

the real power and profits lie with the owners of the platform rather than with the innovators who make use of it. And as that power and those profits increase, the innovators who depend on it have less and less bargaining leverage to negotiate good prices for their contributions.

If there are men in this country big enough to own the government of the United States, they are going to own it.”

Bankruptcy is the system used in most capitalist economies for finding the right balance—allowing debtors to reduce their IOUs to a manageable level while spreading the losses equitably among all creditors, under the watchful eye of a bankruptcy judge.

Property must be protected. Excessive market power must be constrained. Contractual agreements must be enforced (or banned). Losses from bankruptcy must be allocated. All are essential if there is to be a market. On this there is broad consensus.

the rules of a market create incentives for people. Ideally, they motivate people to work and collaborate, to be productive and inventive; they help people to achieve the lives they seek.

Economic dominance feeds political power, and political power further enlarges economic dominance.

“If we are very generous with ourselves,” economist Herbert Simon once said, “I suppose we might claim that we ‘earned’ as much as one fifth of [our income]. The rest is the patrimony associated with being a member of an enormously productive social system.”

Overall, CEO pay climbed 937 percent between 1978 and 2013, while the pay of the typical worker rose just 10.2 percent.

CEOs play large roles in appointing their corporations’ directors, for whom a reliable tendency toward agreeing with the CEO has become a prerequisite.

By 2014, IBM showed signs of reaching the end of the game. As its stock price finally began to sink, The New York Times said that “all these ‘shareholder friendly’ maneuvers have been masking an ugly truth: IBM’s success in recent years has been tied more to financial engineering than actual performance.”

the longer a highly paid CEO was in office, the more the firm underperformed. “The performance worsens significantly over time,”

Workers who are economically insecure are not in a position to demand higher wages. They are driven more by fear than by opportunity.

CEOs seeking profits in a lackluster economy have continued to slash labor costs, often by outsourcing the work, substituting automated machines, or forcing workers to accept lower wages.

Assets appreciate for many reasons, such as population growth, limits on the supply of a valued commodity, or, as we have observed with share prices, changes in the incentives and bargaining relationships underlying a corporation. Politics and policy can play significant roles here, as well.

no one should confuse income for virtue, net worth for worthiness.

comparative lack of power or influence on the other side. There is no longer any significant countervailing power, no force to constrain or balance the growing political strength of large corporations, Wall Street, and the very wealthy. The middle class and poor—and the economic interests they encompass—have little or no agency.

eras of significant technological change, workers are typically displaced, social systems become destabilized, and the economy goes through rapid cycles of boom and bust.

The so-called recovery from the Great Recession has been among the most anemic recoveries in American economic history, especially given how far the economy fell in 2008 and 2009. The ongoing problem is inadequate overall demand, the same impediment that had delivered the economy into the Great Recession in the first place.

if America’s distributional game continues to create a few big winners and many who consider themselves losers by comparison, the losers will try to stop the game—not out of envy but out of a deep-seated sense of unfairness and a fear of unchecked power and privilege.

Again and again we have saved capitalism from its own excesses by making necessary corrections. We have counteracted whatever political and economic power has become too concentrated for the system to sustain itself.

It is impossible to reform an economic system whose basic rules are under the control of an economic elite without altering the allocation of political power that lies behind that control.

But in fact the rich have quite different priorities from average Americans. Dueling billionaires are no substitute for countervailing power.

almost all incentives operating on the corporation have resulted in lower pay for average workers and higher pay for CEOs and other top executives. The question is how those incentives can be reversed. One possibility would be to make corporate tax rates depend on the ratio of CEO pay to the pay of the median worker in the firm.

CEOs do not create jobs. Their customers create jobs by buying more of what their companies have to sell, giving the companies cause to expand and hire.

benefit corporation—a for-profit company whose articles of incorporation require it to take into account the interests of workers, the community, and the environment, as well as shareholders.

The model of the future seems likely to be unlimited production by a handful for consumption by whoever can afford it.

the demand for well-educated workers in the United States seems to have peaked around 2000 and then fallen, even as the supply of well-educated workers has continued to grow.

Many who call themselves libertarian are also attracted to a basic minimum income because it eliminates the need for welfare or another form of government transfer to the poor that tells them how to spend the funds or otherwise demeans or stigmatizes them. It would likewise reduce people’s dependence on private employers, thereby freeing them to express their views without fear of retaliation.

a basic minimum payment would be only enough to ensure recipients and their families a minimally decent standard of living.

likely to see a reversion to a time when many jobs were considered “callings,” expressing a deeply personal commitment rather than simply a means of acquiring money.

kind of society John Maynard Keynes foresaw in 1928, when he claimed that in a century technological advances would create an age of abundance in which no one would need to worry about making money, leaving us with the challenge of how best to use the resulting freedom and leisure. Keynes left out the crucial mechanism for distributing the gains from technological advances in such a way that nearly everyone would have the means of benefitting from them. A basic minimum, financed through reduced property rights for the future heirs of owners of breakthrough technologies, would realize Keynes’s vision.