Saving Capitalism: For the Many, Not the Few

by Robert B. Reich

the richest 1 percent of Americans took home 9 to 10 percent of total income; today the top 1 percent gets more than 20 percent.

capitalism is no longer communism or fascism but a steady undermining of the trust modern societies need for growth and stability.

Put simply, 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.

In truth, income and wealth increasingly depend on who has the power to set the rules of the game.

The problem is not the size of government but whom the government is for.

My conclusion is that the only way to reverse course is for the vast majority who now lack influence over the rules of the game to become organized and unified, in order to re-establish the countervailing power that was the key to widespread prosperity five decades ago.

Few ideas have more profoundly poisoned the minds of more people than the notion of a “free market” existing somewhere in the universe, into which government “intrudes.”

There can be no “free market” without government. The “free market” does not exist in the wilds beyond the reach of civilization. Competition in the wild is a contest for survival in which the largest and strongest typically win. Civilization, by contrast, is defined by rules; rules create markets, and governments generate

A market—any market—requires that government make and enforce the rules of the game. In most modern democracies, such rules emanate from legislatures, administrative agencies, and courts. Government doesn’t “intrude” on the “free market.” It creates the market.

The “free market” is a myth that prevents us from examining these rule changes and asking whom they serve.

benefits of every significant action it takes. But big corporations and large banks have an inherent advantage in the weighing: They can afford to pay for experts and consultants whose studies will invariably measure costs and benefits in the way big corporations and large banks want them to be measured.

Thirty-two states hold elections for judges of state supreme courts, appellate courts, and trial courts. Nationwide, 87 percent of all state court judges face elections. This is in sharp contrast to other nations, where judges are typically appointed with the advice and consent of legislative bodies.

After the Supreme Court’s Citizens United decision in 2010 opened the floodgates to corporate campaign donations, spending on judicial elections by outside groups skyrocketed. In the 2012 election cycle, independent spending was $24.1 million, compared with about $2.7 million spent in the 2001–02 election cycle, a ninefold increase. A 2013 study by Professor Joanna Shepherd of Emory University School of Law showed that the more donations justices receive from businesses, the more likely they are to rule in favor of business litigants.

Economic dominance feeds political power, and political power further enlarges economic dominance. To an ever-growing extent, large corporations and the wealthy influence the political institutions whose decisions organize the market, and they benefit most from those decisions. This enhances their wealth and thereby their capacity to exert more influence over such decisions in the future. What I have described is not the same as corruption. Few if any public officials in the United States solicit or receive direct bribes. The seduction is more subtle. It is simply easier for officials to choose a path that’s been carefully laid out for them by lobbyists, paid experts, and smart and experienced lawyers than to strike out on their own through territory often regarded by the establishment as menacing. The lures of campaign contributions and well-paying jobs after government service only make the preferred path more enticing. Widening inequality of wealth and income, then, is not due solely to globalization and technological changes that reward the very well educated and well connected while punishing those without these advantages. Nor is it due mainly to successful lobbying by corporate and wealthy elites for lower taxes, wider loopholes, and more generous government subsidies. As I have noted, government taxes and subsidies constitute a small part of the overall picture. Rather, widening inequality has become baked into the building blocks of the “free market” itself. Even ...

There are several reasons for the growth of America’s working poor. First, wages at the bottom have continued to drop, adjusted for inflation. By 2013, the ranks of the working poor had swelled to forty-seven million people in the United States, one out of every seven Americans. One-fourth of all American workers were in jobs paying below what a full-time, full-year worker needed in order to support a family of four above the federally defined poverty line. The downward trend of low wages continued even in the so-called recovery following the Great Recession. Between 2010 and 2013, average incomes for the bottom fifth dropped 8 percent, and their average wealth declined 21 percent. According to a study by Oxfam America, more than half of America’s forty-six million users of food pantries and other charitable food programs in 2013 had jobs or were members of working families.

Six of today’s ten wealthiest Americans are heirs to prominent fortunes. As I’ve noted, the Walmart heirs have more wealth than the bottom 40 percent of Americans combined.

the old debate over “free market” versus “government” diverts attention from how these decisions are made and hides the growing influence of large corporations, Wall Street, and wealthy individuals over them. As those at the top have gained economic power, their political influence over these basic rules of the game has also increased—which in turn has enhanced their economic power still further. Many of those who most loudly and adamantly celebrate the “free market” are among the largest beneficiaries of this hidden process. By removing the central reality of power from public understanding of how the economy functions, they conveniently remove themselves.

In reality, most redistribution in recent years has been in the other direction—upward from consumers, workers, small businesses, and small investors to top corporate and financial executives, Wall Street traders and portfolio managers, and the major owners of capital assets. But this upward redistribution is invisible. The main conduits for it are hidden within the rules of the market—property, monopolization, contract, bankruptcy, and enforcement—rules that have been shaped by those with substantial wealth and political clout. It is, in this sense, a predistribution upward that occurs inside the market mechanism itself, a small portion of which government later redistributes downward to the poor through taxes and transfer payments.

The essential challenge is political rather than economic. 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.

Gilens and Page analyzed 1,799 policy issues in detail, determining the relative influence on them of economic elites, business groups, mass-based interest groups, and average citizens. Their conclusion: “The preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.”

voting. The largest political party in America is neither the Republican Party nor the Democratic Party; it’s the party of nonvoters. Only 58.2 percent of eligible voters cast their ballots in the 2012 presidential election.