Introduction
In "Saving Capitalism," Robert B. Reich presents a compelling analysis of the current state of capitalism in America and offers a roadmap for its reformation. Reich, a former U.S. Secretary of Labor and renowned economist, argues that the current economic system is rigged in favor of the wealthy and powerful, leaving the middle class and working poor struggling to make ends meet. This book challenges the notion of "free markets" and exposes the ways in which government rules and regulations shape the economy to benefit the few at the expense of the many.
Reich's central thesis is that capitalism, as it exists today, is unsustainable and needs to be saved from itself. He contends that the increasing concentration of wealth and power in the hands of a small elite is not only morally wrong but also economically damaging. The book offers a comprehensive look at how we got here and what can be done to create a more equitable and prosperous society for all.
The Myth of the "Free Market"
One of the key ideas Reich presents is the fallacy of the "free market." He argues that there is no such thing as a truly free market, as all markets are created and shaped by government rules and regulations. These rules determine what can be owned and traded, the terms of employment and contracts, and how the economy functions overall.
Reich identifies five building blocks of capitalism that are all dependent on government rules:
- Property
- Monopoly
- Contracts
- Bankruptcy
- Enforcement
He explains that these building blocks are not natural or inevitable but are the result of political decisions. For example, intellectual property rights, such as patents for pharmaceuticals, are not inherent but are granted by the government. The duration and extent of these rights are political choices that have significant economic consequences.
Similarly, the rules governing monopolies and antitrust regulations are political decisions that shape the market. Reich uses the example of Amazon's dominance in the book market to illustrate how a company can achieve near-monopoly status through political and legal maneuvering.
The Rigged System
Reich goes on to demonstrate how the current rules of the game are tilted in favor of the wealthy and powerful. He argues that large corporations and rich individuals can use their financial clout to influence the creation and enforcement of rules that benefit them at the expense of everyone else.
For instance, he points out how bankruptcy laws protect corporations and wealthy individuals from financial ruin while offering no such protection to ordinary workers. He cites the example of Donald Trump's Atlantic City casino, which declared bankruptcy, leaving thousands of workers jobless while Trump himself suffered minimal personal financial consequences.
The author also highlights how contract laws often favor large corporations over individuals. Many employment contracts, for example, include mandatory arbitration clauses that effectively strip workers of their right to sue their employers in court. These clauses are often non-negotiable, leaving workers with little choice but to accept unfair terms.
The Myth of Meritocracy
Another crucial idea Reich explores is the myth of meritocracy in capitalist societies. He argues that the widely held belief that people are paid according to their skills and efforts is fundamentally flawed. This belief, he contends, has led many low-wage workers to internalize the idea that their low pay is a reflection of their personal failings or lack of intelligence.
Reich challenges this notion by pointing out that many factors beyond individual ability determine a person's income. These include inheritance, personal connections, discrimination, luck, and even marriage. He argues that if pay truly reflected social benefit, professions like teaching, nursing, and social work would be much more highly compensated.
The author also highlights the absurdity of extreme pay disparities, such as CEOs earning hundreds of times more than average workers. He notes that in 1965, CEOs earned about 20 times more than the average worker, while today, that ratio has ballooned to over 300 times. Reich argues that such vast increases in executive pay cannot be explained by increased skills or productivity alone.
The Decline of Middle-Class Bargaining Power
A significant portion of the book is dedicated to explaining how the bargaining power of the middle class has eroded over the past few decades. Reich traces this decline to several factors:
The weakening of labor unions: With fewer than 7% of private-sector workers unionized, most employees lack the collective bargaining power to negotiate for better wages and working conditions.
High unemployment: Economic insecurity has forced many workers to accept lower wages and poorer working conditions out of fear of losing their jobs.
Globalization: The threat of outsourcing has further weakened workers' bargaining position.
Technological change: Automation and artificial intelligence have displaced many middle-class jobs, putting downward pressure on wages.
Reich argues that this decline in bargaining power has led to wage stagnation for the middle class, even as productivity and overall economic output have continued to grow. He points out that while the economy has expanded significantly since the 1980s, the average household income has remained largely flat when adjusted for inflation.
The Rise of the Working Poor
One of the most troubling trends Reich identifies is the increasing number of full-time workers who still struggle to make ends meet. He notes that in 2013, a quarter of all American workers held jobs that, even when worked full-time, paid below the poverty line for a family of four.
This rise in working poverty is attributed to several factors:
- The decline in real wages for low-skilled workers
- The shift from manufacturing to service sector jobs
- The erosion of labor protections and benefits
- The increasing cost of essentials like healthcare, education, and housing
Reich argues that this trend is not only morally unacceptable but also economically unsustainable. A large population of working poor lacks the purchasing power to drive economic growth, creating a vicious cycle of economic stagnation.
The Concentration of Wealth and Power
Throughout the book, Reich emphasizes the dangerous concentration of wealth and power in the hands of a small elite. He presents stark statistics to illustrate this point:
- The richest 400 Americans hold more wealth than the bottom 50% of the population combined.
- The wealthiest 1% own 42% of the nation's private assets.
- A study by Princeton and Northwestern University professors shows that the preferences of average citizens have almost zero impact on policy decisions.
Reich argues that this concentration of wealth and power is not only unfair but also threatens the very foundations of democracy and capitalism. He contends that when a majority of people view the economic system as rigged against them, it undermines trust in institutions and can lead to social and political instability.
The Unsustainability of the Current System
A key argument Reich makes is that the current economic system, with its extreme inequalities and concentration of power, is unsustainable. He identifies several reasons for this:
Economic instability: As the middle class loses purchasing power, the economy becomes more volatile and prone to recessions.
Loss of trust: When people believe the system is rigged, they're more likely to engage in unethical behavior themselves, eroding the trust that underpins economic transactions.
Political instability: Extreme inequality can lead to populist revolts and social unrest, as seen in historical examples like the 1890s in America.
Inefficiency: As wealth becomes more concentrated, resources are allocated less efficiently, leading to slower economic growth and innovation.
Reich argues that these factors combine to create a system that is not only unfair but also economically inefficient and politically unstable. He contends that if left unchecked, these trends could lead to the collapse of the capitalist system itself.
Saving Capitalism: Proposed Solutions
In the final sections of the book, Reich offers a series of proposals for reforming capitalism and restoring economic and political power to the middle class. His suggestions include:
Creating a new political party: Reich proposes the formation of a third party that could unite disenfranchised voters and advocate for policies that benefit the majority of Americans.
Reforming campaign finance: He argues for stricter limits on political donations and increased transparency to reduce the influence of wealthy individuals and corporations on politics.
Raising the minimum wage: Reich advocates for a significant increase in the minimum wage to ensure that full-time workers can support themselves and their families.
Strengthening labor protections: He calls for policies that make it easier for workers to unionize and negotiate for better wages and working conditions.
Breaking up large banks: Reich argues for limiting the size and power of financial institutions to reduce systemic risk and increase competition.
Reinventing the corporation: He proposes tying corporate tax rates to the ratio of CEO pay to average worker pay, incentivizing companies to increase wages for ordinary workers.
Investing in education and infrastructure: Reich emphasizes the importance of public investment in education, research, and infrastructure to drive long-term economic growth and create opportunities for all.
Implementing a universal basic income: He suggests exploring the idea of a guaranteed minimum income for all citizens to provide a safety net in an increasingly automated economy.
Reich argues that these reforms are necessary not only to create a more just society but also to save capitalism from its own excesses. He contends that by restoring balance to the economic system and empowering the middle class, we can create a more stable, prosperous, and sustainable economy for all.
The Role of Government in Markets
Throughout the book, Reich emphasizes the crucial role that government plays in shaping markets. He argues against the libertarian notion that markets can function effectively without government intervention. Instead, he contends that markets are always and everywhere shaped by rules, and these rules are created and enforced by governments.
Reich points out that even the most basic elements of a market economy, such as property rights and contract law, are creations of government. He argues that the question is not whether government should be involved in markets, but rather how it should be involved and whose interests it should serve.
This perspective challenges the common narrative that pits "free markets" against government regulation. Reich contends that this is a false dichotomy, as all markets are regulated in some way. The real issue, he argues, is ensuring that these regulations serve the interests of society as a whole rather than a privileged few.
The Importance of Economic History
Reich frequently draws on economic history to support his arguments. He points out that the period from the end of World War II to the late 1970s was characterized by strong unions, high taxes on the wealthy, and significant government investment in education and infrastructure. During this time, the American middle class thrived, and economic growth was broadly shared.
He contrasts this with the period from the 1980s onward, which has been marked by deregulation, tax cuts for the wealthy, and the weakening of labor protections. Reich argues that these policy changes, often justified in the name of "free market" principles, have led to the concentration of wealth and power that we see today.
By examining this history, Reich challenges the notion that extreme inequality and corporate dominance are inevitable features of capitalism. Instead, he argues that they are the result of specific policy choices that can be reversed.
The Global Context
While "Saving Capitalism" primarily focuses on the United States, Reich also touches on the global context of these economic trends. He notes that many of the challenges facing American workers, such as wage stagnation and job insecurity, are also being experienced in other developed countries.
Reich argues that globalization has played a role in these trends, as it has allowed corporations to pit workers in different countries against each other, driving down wages and working conditions. However, he also points out that some countries have been more successful than others in maintaining a strong middle class in the face of these pressures.
For example, he notes that countries like Germany and the Scandinavian nations have maintained stronger labor protections and more robust social safety nets, resulting in less extreme inequality than in the United States. Reich suggests that America could learn from these examples in reforming its own economic system.
The Urgency of Reform
One of the most powerful aspects of Reich's argument is his emphasis on the urgency of reform. He contends that the current trajectory of increasing inequality and concentration of power is not only unjust but also unsustainable.
Reich warns that if left unchecked, these trends could lead to social unrest, political instability, and economic collapse. He argues that we are already seeing signs of this in the rise of populist movements on both the left and right, which he sees as expressions of widespread frustration with a system that seems rigged against ordinary people.
However, Reich is not fatalistic. He believes that it is possible to reform capitalism and create a more equitable and sustainable economic system. But he stresses that this will require significant political will and a broad-based movement for change.
The Role of Citizens
While much of "Saving Capitalism" focuses on policy solutions, Reich also emphasizes the crucial role that ordinary citizens must play in bringing about change. He argues that reform will not come from the top down, as those who benefit from the current system have little incentive to change it.
Instead, Reich calls for a grassroots movement to demand economic and political reform. He encourages readers to become more politically engaged, to educate themselves about economic issues, and to work together to push for change.
Reich argues that this kind of civic engagement is not just desirable but necessary for the health of both our economy and our democracy. He contends that a vibrant democracy requires an informed and engaged citizenry, and that economic reform is unlikely to happen without sustained pressure from below.
Conclusion: A Call to Action
In concluding "Saving Capitalism," Reich reiterates his central argument: that capitalism, as currently practiced in the United States, is failing the majority of citizens and needs fundamental reform. He emphasizes that this is not an argument against capitalism itself, but rather a call to save capitalism from its own excesses and restore its promise of shared prosperity.
Reich's vision for a reformed capitalism is one in which markets serve the interests of society as a whole, not just a wealthy elite. It's a system where workers have real bargaining power, where corporations are held accountable to the public interest, and where government actively works to ensure a level playing field and broad-based economic opportunity.
Ultimately, "Saving Capitalism" is a call to action. Reich challenges readers to reject the status quo and work towards building a more just and sustainable economic system. He argues that this is not just a matter of fairness, but of economic necessity and democratic survival.
Reich's book offers a comprehensive and accessible analysis of the challenges facing modern capitalism, along with a roadmap for reform. While some may disagree with his specific policy prescriptions, his central message – that our economic system should work for the many, not just the few – is hard to argue against. As inequality continues to grow and faith in institutions declines, Reich's call for a renewed and reformed capitalism becomes ever more urgent.