Supercapitalism: The Battle for Democracy in an Age of Big Business [Paperback]

Robert Reich (RR) has an interesting take on the development of capitalism in the last 40 years, particularly, though not exclusively, in the US. It's also one that might confound the expectations of critics who recall him as Secretary of Labor under Bill Clinton. Some passages of the book might warm Milton Friedman's heart, were it now warmable. But the book is very weak on proposed solutions.

A rough outline of RR's themes, slightly rearranged from their presentation in the book, is as follows:

@@ We (not just Americans, but most of the developed world) are caught in a paradox today of doing very well as consumers and investors, while feeling increasingly powerless as citizens. "As consumers and investors we want the great deals" that the current form of capitalism brings, while "[a]s citizens we don't like many of the social consequences that flow from them," @ 89. Moreover, we don't know how to act effectively on our feelings as citizens - and we often direct our frustration at the wrong targets (such as at individual companies).

@@ The situation was quite different prior to, roughly, the 1970s (Chapter 1). American industry was dominated by oligopolies, consumers had less choice, the Dow was a fraction of what it is now. Government intervened to control wages and prices, which made established players in industry more secure. (RR points out that as recently as 1994, over half of the Fortune 500 had been founded before 1930, @19.). Citizens belonged to a wider variety of local, regional and national unions and voluntary groups that were "countervailing forces" (in JK Galbraith's phrase) to industry. Government spent more of its time mediating between these countervailing interests.

@@ Today, much of the regulatory framework that was erected to balance these forces has been dismantled, and with it many of the "cross-subsidies" that protected small subgroups of workers and others (@68). While many people are doing better, some people are doing much worse, and inequality has grown since the 1970s (Chapter 3). Government now spends its time mainly mediating between the interests of different segments of industry and different industries. Fewer citizens belong to voluntary groups, and those can't really compete with industry for government's ear anyway. (Chapter 4)

@@ The cause of this shift isn't greed, ideology, or politics but technology. "The real explanation involves the way technologies have empowered consumers and investors to get better and better deals - and how these deals, in turn, have sucked relative equality and stability, as well as other social values, out of the system," @ 51. Container ships, overseas cables, satellites and the Internet all played a part. This also explains why similar shifts are occurring in Europe, Japan and elsewhere. (Chapter 2)

@@ We shouldn't blame companies for this shift, or for bloated CEO pay, or for their intense lobbying of government. They need to do what they're doing to stay competitive. For the same reasons, we shouldn't expect voluntary "corporate social responsibility" (CSR). Corporate responsibility is to shareholders, and while some companies' actions have good effects on others, they should be taking those actions only if they lead to increased corporate profits. If we as a society want to make companies act more responsibly to a larger range of "stakeholders," the way to do so is through government regulation. (Chapter 5)

Up to this point, I felt that RR had a provocative thesis, albeit that many of its parts had been put forward by others previously. (E.g., as to CSR, David Vogel's excellent "The Market for Virtue" (2006), which RR mentions often.) Some may argue about historical points, such as whether regulation in the past 30 years has diminished (RR) or exploded (see other reviews on this page). However, even academic research showing a growing number of pages in the US Code of Federal Regulations (e.g., Dawson, KYKLOS 2007 Feb. @15-36) isn't sufficient to negative RR's point about the shift in *who* is battling over what's printed on those pages today, compared to who did so during most of the 20th Century. RR also has some interesting observations on how antitrust laws are no longer discussed in the context of protecting small competitors, but rather of protecting consumer choice and investor return(e.g., @55n and 163.) Certainly the citizen side of me could identify with the feelings and trends RR describes.

But the last chapter, "A Citizen's Guide to Supercapitalism," was a let-down. Most of it is a list of reasons not to trust politicians or executives who make certain types of claims. E.g., instead of believing executives who say their companies are doing something to advance the "public good," we should remember that "Companies are not interested in the common good. It is not their responsibility to be good," @ 214. Fine, but this is a missed opportunity for some constructive action. Surely there's some benefit if activists and others help or encourage companies to find good stuff to do that also happens to be profitable - this is like low-hanging fruit. RR never makes such a suggestion.

The last section of the chapter is a surprising rant about corporate personhood. RR blasts the "legal fiction," as lawyers call it, that companies are persons. Instead, he claims they are aggregations of contracts between and among individuals. (This theory isn't original, having been described by, e.g., Frank Easterbrook in the 1990s, though RR doesn't cite any predecessors. Nor does he mention any of the less plausible idealizations implicit in this model, e.g. about rationality, utility maximization etc.)

RR draws many conclusions from the non-personhood of corporations, such as they shouldn't have to pay tax (which is shareholder money anyway) (@216ff) and should not have standing to sue (@222). This last notion seemed particularly half-baked. RR doesn't say that only individuals should be subject of regulation. So if corporations are regulated, why shouldn't they have standing to sue about those regulations at least? (Moreover, RR's literal assertion, "Noncitizens should have no right to [seek to overturn American laws and regulations] unless the law or regulations breach some international treaty," (id.) seems to imply that individual non-citizens also should not have standing to sue, e.g., to contest the Constitutionality of any law or regulation affecting their freedom or human rights.) It also seems rather quixotic to think that so many jurisdictions might purge this legal fiction from their laws and jurisprudence in one swoop (and BTW the personhood notion is even stronger in Europe than in the US). The more important issue, it seems to me, is not about personhood, but about balancing the rights of the entity (or of its aggregate of contracting shareholders, if we take RR's view) against the rights of individuals in other roles (as community, consumers, workers, etc.).

Corporate personhood is an old controversy in any event, whose history in the US is nicely summarized in a 2001 article by David Millon freely available on the Social Science Research Network. Millon's conclusion is that the underlying arguments are political ones about what should be the responsibilities of corporations, and that both pro- and anti-"person" points of view can be found on both sides of the political issue. Consequently, there's no need to drag this concept into policy arguments, even when RR's ideas are good ones (e.g., about making Americans more competitive, rather than American companies more competitive, @ 222). That someone of RR's accomplishments and intelligence can't do better than to conclude on such a wobbly and arcane point suggests, sad to say, just how difficult it may be to resolve the paradox he so thoughtfully describes.

Why does the cotemporary capitalist economy appear to be a freight-train, hurling onwards in a seemingly unstoppable fashion, flattening any opposition in its wake? Robert Reich was former Secretary of Labour to Clinton and subsequently member of the Obama Transition Economic Advisory Board and in 'Supercapitalism' he advances a compelling explanation as to the origins of the inequalities, frenzied competition and insecurities of our times. The key according to Reich is not the defeat of organised labour in the 1980s, nor the parallel processes of privatisation and deregulation. Indeed, these are consequences of a process that marks a major shift from the 'Not Quite Gold Age' of the three decades after WWII. During this period, monopolistic corporations ruled the commanding heights of the US economy (and those of the rest of the developed world). Insulated from competition and under pressure from well organised unions, their profits were sufficiently large to share with their workers, which had the beneficial consequence of muting inequality and thus providing a large middle class to consume their goods. With a sufficiently large stake in the US political economy, corporate leaders were something like statesmen, arbitrating between competing interests.

According to Reich, this all changed with he advent of a new wave of technological innovation centred around computerisation and communications beginning in the 1970s. Competition on the basis of quality shook the old corporate dinosaurs out of their cosy complacency. Barriers to entering markets fell, leading to challenges to former monopolies by new upstarts. New technologies allowed consumers to compare products more easily, investors to shift their portfolios more rapidly, and retailers to move between different suppliers more rapidly. In a turbulent marketplace, corporate managers are under much more pressure to conform to the demands of retailers, investors and consumers. This has led to downward pressure on wages as businesses seek to streamline and incorporate flexible working practices, and retailers increasingly rely on global supply chains made possible by new technologies. Democracy becomes overwhelmed as corporations compete to lobby and influence policymakers to shape the regulatory environment that determines who will have the upper hand in new markets. Hence we see public squalor coexisting with private oppulence, most obviously in the US but in Britain and throughout the economically developed world too. This is a vicious circle: seeing their wages stagnate, individuals have little option but to shop around for the best deals to make their paycheques go further, but in doing so force retailers to compete even harder. Because 'Supercapitalism' empowers consumers and investors, the primary benefits flow to those who already have money, leading to the expansion of inequality. Individuals, unable to express their frustrations through a political system dominated by corporate money, turn to 'populist' solutions, blaming 'elites' for their troubles but missing the true source of the problems society faces.

Reich makes a compelling and interesting case that technology has acted as a catalyst in accelerating the process of capitalist competition, leading to the breakdown of the old system of 'capitalist democracy'. He makes some good arguments against the idea that some nebulous process of 'globalisation' or the defeat of the organised working class is to blame for the ills he identifies. Yet I was left wondering if Reich provides a good enough answer as to why wages for the bulk of the population have stagnated for nearly thirty years. Can competition between firms really explain it? An alternative answer is offered by the (sadly) late Oxford macroeconomist Andrew Glyn in his 'Capitalism Unleashed', which summarising very crudely, sees it as the result of the creation of a huge 'reserve army of labour' through the break-up of the unions, deflationary monetary policies and the entry of hundreds of millions of Indian, Chinese and Eastern European workers into the global capitalist economy (indeed, it is striking that wages in the West have merely stagnated, not fallen).

The re-released version of the book states that it provides the essential background on the credit crisis. However, whilst it is easy to see how his arguments could be applied to the crisis (technology superempowered financial actors, household debt rocketed to offset income stagnation, corporate lobbyists convinced policymakers to remove regulatory firewalls in the financial sector), the book itself doesn't really focus on high finance. It seems that Reich will deal with these issues more fully in his take on the crisis, 'Aftershock'. The big problem for Reich, however, is that his solutions to these problems are convincing. If organised labour is dead, if corporations really do have no option but to compete ruthlessly and to disregard all other concerns, and if citizens are locked out of the political process, all as a result of technological changes, then what exactly can we do about it? All in all, though, a compelling if disquieting read.

The main idea in this book is that capitalism has morphed into 'supercapitalism' that has engulfed democracy. The reason for this according to Reich is that the incentives of the market are such that the pursuit of profit empowers investors and consumers as opposed to citizens. As the market caters to the needs of investors/consumers, it undercaters for public goods. These public goods can only be identified via the demcoratic process, but this process has become corrupted as more and more money pours into the system to make political platforms consistent with market needs.

So far so good. Reich expresses well what many others have discovered.

The problem with the book and the argument however is that it seriously underplays the role of ideas and ideology. For Reich, emphasis on ideas is an academic's obsession. I disagree. Reich finds that supercapitalism empowers consumers, but does not discuss the comprehensive manipulation of consumer desires via advertising and marketing. Reich suggests that investors are all powerful because they have a lot of choice and the ability to move their money around. Choice and ability they have, but this does not equate to power. How often have we heard discussions lamenting poor corporate governance as a result of poor involvment of investors (say pension funds) in corporate decision making. This issue is also left unexplored.

Finally, Reich's proposals for exiting this problem and reinvigorating democracy seem incomplete. I guess they are better developed in other publications. The book however would be better if the key idea (that democracy needs to bring capitalism back under its control) was more fully developed.

In summary, a useful and thought-provoking book, but more an identification of a problem, rather a pathway to solutions.