Argument with Saving Capitalism by Robert Reich

I just finished reading Saving Capitalism, by Robert Reich, whose insights and perspective I usually admire. Indeed, there is much to learn from this book regarding the merging of economics and politics in what constitutes a reversal of modern history—i.e., rolling back the clock of time to the era of feudalism in which economics, religion, and politics were undifferentiated. Reich delves into the specifics of how the system operates with insight that few others have provided, and which I will both explicate and argue against in this review. However, there is a significant problem we must deal with first: I still have not found an answer to the question that occurred to me as soon as I saw the title of this book: Saving Capitalism. I asked myself out loud: What do you want to do that for?

Debunking the 1950s Golden Era

At this stage of the first quarter of the 21st century, there appears to be only one good reason to save capitalism: It worked well once in its 500-year history—for about three decades after World War II—and we should try to make that happen again. Writers of all sorts, including Reich, seem to hold up this supposedly golden era as a model of modern capitalism. It seems like a time to harken back to, an image of capitalism at its best. We should save capitalism so we can have that again. The 1950s myth. Again.

Whatever one might say about capitalism in the 1950s, let’s account for the other 490 years or so of its dominance in the west. What can we recall? On one hand, capitalism provided leadership in the innovation of nearly every era, and it enabled modern miracles like rising standards of living, cardiac pacemakers, incredible skyscrapers, and two cars in every garage. On the other hand, the long and ugly history of slavery, labor abuse, pollution, poisoning, rivers on fire, industrial war machines, monopolization, and destruction of indigenous culture and native ecosystems. Really, an illustrious career, wouldn’t you say? Oh, and also, the 1950s, when everything was so balanced and egalitarian—if you were white, and male, and able, and had a job in a factory or office.

To be fair, this 1950s myth is not actually the point of Reich’s book, but the myth needs to be critiqued harshly because it is ubiquitous in so much writing by left-leaning, labor supporting economists. In reality, the 1950s weren’t that good, and even if they were, they constituted the exception, not the rule, when it comes to capitalist harmony between the classes.

The False Dichotomy: Market vs. Government

That said, Reich provides one of the few penetrating analyses into the mechanisms of how capitalism actually works. He begins with a most cogent insight: The debate over free market versus government intervention is a false dichotomy. “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,’” (Reich 3). It is false because markets cannot exist without government. One of the most basic principles of capitalism and modernity is the notion of private property, yet what the purveyors of the free market versus government intervention perspective never admit is that private property is defined by the government so that the market can function. Private property is a fiat, an invention of government to enable a particular system to function. Only things that are owned can be subjected to market forces, and the definition of that ownership not only has significant consequences, but is, in fact, an intrusion into the market. Even more to the point, it actually defines and creates the market. There can be no market without the government.

Most of us don’t realize this is the case because the subtleties of the argument are wiped off the table by the false dichotomy of “free market versus government intrusion.” There is no free market, and there never has been. A market without rules and laws is governed strictly by violence—as we see in black markets like the drug trade, for example. The violence fills the gap where market rules and laws should otherwise govern.

The Threat to Modernity

The new reality Reich is pointing to is best understood in terms of what happened at the birth of modernity several hundred years ago. Until that time, religion, economics, and politics were one big, undifferentiated mass such that a person who criticized authority could, in a single act, be guilty of both treason against the state—a political crime—and heresy against the church—a religious crime—both for the same act. With the differentiation of religion, economics, and politics into separate and abstracted spheres of social activity, the acts specific to religion increasingly had only religious consequences, those specific to economics had economic consequences, and those specific to politics had political consequences. In fact, this separation was decisive for the rise of capitalism because it lifted the religious doctrines against exploitation, debt and usury, and merchant trading from the economic sphere. Those particular differentiations arose from the Protestant Reformation mainly through Calvin, but the overall theme of differentiation continued for hundreds of years.

In this context, Reich is demonstrating that the differentiation at the heart of modern capitalist society is weakening and appears to be reversing itself. Indeed, he is arguing that the hoped for differentiation is at the heart of our self deception. Markets and government (i.e., economics and politics) are virtually merged into one as capitalist powers consolidate, and as long as we believe the fallacy of free markets vs. government intrusion, we can’t see the more subtle, complicated picture of what is really going on. Markets are not free because they are constantly being tilted by economic power expressed as political power in the form of money and corporate influence. The powerful set the rules of the market to their own advantage, hence making it anything but a so-called “free market.”

The Mechanisms: How Capitalism Actually Works

Reich’s argument does not remain as pie-in-the-sky platitudes; he goes deep into the specifics. He lays out a detailed understanding of how markets and capitalism work, including five building blocks of the capitalist system:

  1. Private property
  2. Market power
  3. Contracts
  4. Bankruptcy
  5. Enforcement

The great point Reich makes is this: While most people perceive these building blocks as the assumptions which define reality, all of them are politically determined, and they are politically determined in favor of those with the political power—which is the corporations and the super wealthy in a world where separation between the political and the economic is crumbling.

To me, this gets at the heart of the matter: Until the people are setting the rules again, the system will only get worse. Reich’s brilliant question is not about what is free market or not—it is about who sets the rules. Will it be actual people by majority rule tempered by enduring rights of minorities? Or will it be corporate fictions that are not people at all, but actually a built logic biased in one and only one direction—its own profit?

Reich’s Likely Self-deceit

Reich claims that none of this is inevitable, but this is where I would disagree vociferously. The 1950s image of balance between union and management, as far as it is real, can be best understood as an exception driven by the unique circumstances of the time, rather than a norm to return to. The national esprit d’corps of the postwar America may have hidden the intrinsic tendencies of capitalism for a while, but it was both preceded and followed by political power grabs, distortions, violence, invasions, destruction, and outright theft under rules created by and for the wealthy and powerful. By institutionalizing the concentration of power in the hands of the wealthy, capitalism is inherently engaged in this kind of abuse. Democracy came about to let these elites vote together to protect their property, and democracy has largely continued to fulfill precisely that function. What Reich is railing against is not the distortion of an ideal version of democratic capitalism—he is railing against the only outcome capitalism could possibly produce. If there was a golden age, it was not the rule, but an aberration, and one that is highly unlikely to repeat itself.

The second reason is that the so-called “ideal era” was not that ideal at all. Sure, the “Leave It to Beaver” and “Father Knows Best” mythology is there, but it is exactly that—a mythology. One can point to a better balance of power between unions and management and lower multiples for CEO compensation relative to workers, but non-whites were disenfranchised from even joining unions, blacks could only buy homes in their racially segregated neighborhoods, and don’t even think of women working to exercise their own power and agency. Corporations were well into the poisoning of the world through the chemical industry, so much so that by the early 1960s, birds were disappearing and Rachel Carson had to write Silent Spring as a wake up call. In many cities, including my own in Minneapolis, the car companies corrupted the political leadership to get them to tear out the street car lines, thereby forcing people to purchase automobiles. Reich may view these years as ideal, but if that’s what we are aspiring to, count me out. What kind of “ideal era” is that?

Where Postcapitalism Can be Delayed—The Five Building Blocks

Despite these criticisms, what makes Reich’s analysis useful is this: The building blocks of the market economy, as he outlines them, will also define the critical battle lines in the emerging postcapitalist era. Indeed, they are the battles lines along which many of the critical struggles to save capitalism will, in fact, be waged. Primary among these is private property. What can be owned, who can own it, and for how long can they own it? While the capitalist ideal makes everything privately owned, the postcapitalist idea will challenge that notion. Most postcapitalist production is likely to be collaborative, networked, and owned under the Creative Commons licensure. These notions of property ownership are set up for a colossal clash.

Next is market power. Market power in the early postcapitalist age is being expressed through the total dominance of network infrastructure, much like the railroads in the 19th century. The cable companies like Comcast and the network infrastructure companies like Facebook are the primary actors in this new age of robber barons, and this is why internet neutrality is a critical battle. The companies are already trying to flex their monopolistic power over the activities, access, and connections of people, but so far, they have been held back by government. If there is ever an opening, there should be no doubt they will seize whatever control they can get.

Contracts, which lay out the terms of use of networks and agreements with companies, are increasingly draconian in their demands. Sure, we have privacy laws about healthcare, but as soon as you need some, you quickly find they won’t provide the care unless you remove the privacy restrictions from your file. Most agreements with banks and financial institutions require you to sign away your rights to a day in court, accepting instead the decision of an arbitrator should you have a dispute, or signing away your right to a class action lawsuit. The problem is that if you don’t sign these things, you can’t actually participate in the major activities of modern life.

A fourth building block Reich points out is bankruptcy law—a provision of capitalism so important that the US Constitution specifically assigns Congress with the power to define it. On one hand, bankruptcy is necessary to enable entrepreneurship; it provides the method for handling failure. On the other, it costs creditors money. The purpose is to adequately spread the pain of failure, but the terms of the spread—the bankruptcy code—are mostly determined by large interests on both sides. They influence the government, and the government sets the market rules.

Reich’s final building block of capitalism is enforcement. Enforcement is the last defense for corporations—if you can’t get the law you want, make it impossible or meaningless to enforce, and you have accomplished the same thing. Corporate influence in Congress, which is derived from political money, is used to stop enforcement by removing the budget needed to do so. The Congress-administration-lobbyist-industry revolving door ensures that industry always has “friends” in the respective agencies. These friendships and influences also collude to complicate laws so much as to make them impossible to enforce, or water down consequences such that the companies can view the penalties as merely a “cost of doing business,” which is less than the cost of complying. We never hear the free market ideologues complaining about these intrusions into the market, a fact that should make it very clear what is really going on.

According to Reich, these five building blocks are required for markets to function, and government is the only entity that can set them. In a democracy, government should be doing the business of the people, but the only players engaged in the process today are corporations because they are the only ones with the money to play the game. Using Reich’s formulation, you could say that we have government “…of, by, and for the corporations.” Indeed, it is difficult to conclude any differently after his survey of the problem.

Challenging Capitalism

I believe there is an inevitability to postcapitalism that comes from within capitalism itself. Digitalization in all its forms—digital products, automation, and robots, for example—will erode the pricing mechanism of markets as well as the value of labor, be it on the assembly line or in the operating room. These forces will deeply challenge capitalism. Yet because the new system emerges from the old, there is a need to project the future, to shape it, and probably to advocate. The battle lines will be drawn to determine who controls the networks, builds the algorithms for AI and analytics, creates the rules for UBI, defines data ownership, and so on. In other words, people interested in postcapitalism will need to be prepared for the nitty gritty fight over rules, and not be satisfied with the blockade actions that get all the attention on the media. Awareness through protest may be a good thing, but as any entry-level marketer can tell you, awareness is only the first step. As Reich brilliantly shows, the real change and shaping of the world happens in how laws and rules are made.

A Preview of the Postcapitalist Economy

Reich never points it out, but his argument illustrates the early stages of a postcapitalist economy. As people are replaced by robots and automation in the work force, household income, and therefore overall demand, will continue to decline. That decline in demand will alarm the capitalists because if people cannot buy the goods and services offered, they will not buy them. This decline in demand will inevitably characterize early postcapitalism, and nothing will be done about it until the capitalist classes see it in their interests to do so. I think Reich makes this point loud and clear. The capitalists inherently run everything in a capitalist society, and the decisions to empower people will not occur until the people’s lack of power threatens that of the capitalists themselves.

In other words, from a postcapitalism viewpoint, Reich is describing the early, first stages of postcapitalism when the elites cling to power, and then begin to see that universal basic income (UBI)—an income for everyone provided by government—is the only way they can save their wealth. UBI—often defined as $1,000 per month for everyone—will sedate the people, and give them money to keep buying so that economic and political power can remain in the hands of capitalists. This is a likely part of the transition to postcapitalism, which I have described more in-depth elsewhere.

Near the very end of his book, Reich brings up the possibility and likelihood of universal basic income, but he does it a disservice. The disservice is not in the idea of UBI, but rather, in its justification. Reich, like so many liberal, progressive, and even socialist thinkers, argues for UBI as a method to alleviating poverty for the many who are displaced or for creating a level playing field. This is a profound mistake. Even if you provide UBI to millions and millions of workers displaced by robots, they still have about half the purchasing power. For whom does life get better when their income is cut in half, whether they work or not? Alternatively, UBI may be presented as a program to support purchasing, or to streamline government by removing the bureaucratic checks and balances on “worthiness” (what we otherwise call “qualified”), or as a way to give the poor power over their own lives. Some of these are worthy goals, but all of them derive from a capitalist worldview. UBI needs to be a path to a postcapitalist future of abundance, not a provided poverty wage. We need to overcome, not indulge, the notion of sanctity of work. (Work sucks, unless you actually love what you do. And precious few do.) We do it because we are forced to by the capitalist system.

A Final Thought

This book is worth reading because it presents some of the deepest insights into how capitalism consolidates its power through the workings of our democracy. Anyone interested in the future of the economy and the planet needs to understand these machinations because that is where the power is wielded. And Reich’s book is a good place to start.

On the other hand, the author fails to see that the changes coming actually herald a new and different system. Of course, this is to be expected if your primary goal is to “save capitalism.” With a mind as powerful as Mr. Reich’s, we will all be better off if he now turns it toward that future and avoids the nostalgia for a capitalist past that never was.

Anthony Signorelli founded to explore postcapitalism with other people around the world. Join the blog here. He is also the author of three books including the forthcoming volume Speculations on Postcapitalism.

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Anthony Signorelli is the author of Speculations on Postcapitalism, and other books. They are available as Ebooks on Amazon:

The Postcapitalist Manifesto
Speculations on Postcapitalism Ebook
How to Find Your Purpose, Passion, and Bliss: A Mythological Guide for Young Men