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The Wrecking Ball of Innovation

Supercapitalism is Robert Reich’s account of the way we live now. Its story is familiar, its diagnosis superficial. But there are two reasons for paying attention to it. The author was President Clinton’s first secretary of labor. Reich emphasizes this connection, adding that “the Clinton administration—of which I am proud to have been a part—was one of the most pro-business administrations in American history.” Indeed, this is a decidedly “Clintonesque” book, its shortcomings perhaps a foretaste of what to expect (and not expect) from another Clinton presidency. And Reich’s subject—economic life in today’s advanced capitalist economy and the price we are paying for it in the political and civic health of democracies—is important and even urgent, though the “fixes” that he proposes are unconvincing.

Reich’s theme goes as follows. During what he calls the “Not Quite Golden Age” of American capitalism, from the end of World War II through the 1970s, American economic life was stable and in comfortable equilibrium. A limited number of giant firms—like General Motors—dominated their predictable and secure markets; skilled workers had steady and (relatively) safe jobs. For all the lip service paid to competition and free markets, the American economy (in this respect comparable to the economies of Western Europe) depended heavily upon protection from foreign competition, as well as standardization, regulation, subsidies, price supports, and government guarantees. The natural inequities of capitalism were softened by the assurance of present well-being and future prosperity and a widespread sentiment, however illusory, of common interest. “While Europeans set up cartels and fussed with democratic socialism, America went right to the heart of the matter—creating democratic capitalism as a planned economy, run by business.”1

But since the mid-Seventies, and with increasing ferocity in recent years, the winds of change—“supercapitalism”—have blown all that away. Thanks to technologies initially supported by or spun off from cold-war research projects—such as computers, fiber optics, satellites, and the Internet—commodities, communications, and information now travel at a vastly accelerated pace. Regulatory structures set in place over the course of a century or more were superseded or dismantled within a few years. In their place came increased competition both for global markets and for the cataract of international funds chasing lucrative investments. Wages and prices were driven down, profits up. Competition and innovation generated new opportunities for some and vast pools of wealth for a few; meanwhile they destroyed jobs, bankrupted firms, and impoverished communities.

Reflecting the priorities of the new economy, politics are dominated by firms and financiers (“Wal-Mart and Wall Street” in Reich’s summary) lobbying for sectional advantage: “Supercapitalism has spilled over into politics, and engulfed democracy.” As investors—and above all as consumers—Americans in particular have benefited in ways their parents could not have imagined. But no one is looking after the broader public interest. Investment values have gone through the roof, but “the institutions that used to aggregate citizen values have declined.” Public policy debates in the contemporary US, as Robert Reich observes, “are, on closer inspection, matters of mundane competitive advantage in pursuit of corporate profit.” The notion of the “common good” has disappeared. Americans have lost control of their democracy.

Reich has a nice eye for the instructive example. The wealth gap in the US is now at its widest since 1929: in 2005, 21.2 percent of US national income accrued to just 1 percent of earners. In 1968 the CEO of General Motors took home, in pay and benefits, about sixty-six times the amount paid to a typical GM worker; in 2005 the CEO of Wal-Mart earned nine hundred times the pay of his average employee. Indeed, the wealth of the Wal-Mart founders’ family that year was estimated at about the same ($90 billion) as that of the bottom 40 percent of the US population: 120 million people. If the overall economy has grown “exuberantly” but “median household income has gone nowhere over the last three decades,…where has all the wealth gone? Mostly to the very top.” As for the intrepid boldness of the latest generation of “wealth creators”: Reich lists the tax breaks, pension guarantees, safety nets, “superfunds,” and bail-outs provided in recent years to savings and loans, hedge funds, banks, and other “risk-takers” before dryly concluding that arrangements “that confer all upside benefit on private investors and all downside risk on the public are bound to stimulate great feats of entrepreneurial daring.”

This is all well said. But what is to be done? Here Reich is less forthcoming. The facts he amasses appear to point to an incipient collapse of the core values and institutions of the republic. Congressional bills are written to private advantage; influential contributors determine the policies of presidential candidates; individual citizens and voters have been steadily edged out of the public sphere. In Reich’s many examples it is the modern international corporation, its overpaid executives, and its “value-obsessed” shareholders who seem to incarnate the breakdown of civic values. These firms’ narrowly construed attention to growth, profit, and the short term, the reader might conclude, has obscured and displaced the broader collective goals and common interests that once bound us together.

But this is not at all the conclusion Robert Reich would have us reach. In his version of our present dilemmas no one is to blame. “As citizens, we may feel that inequality on this scale cannot possibly be good for a democracy…. But the super-rich are not at fault.” “Have top executives become greedier?” No. “Have corporate boards grown less responsible?” No. “Are investors more docile?” “There’s no evidence to support any of these theories.” Corporations aren’t behaving very socially responsibly, as Reich documents. But that isn’t their job. We shouldn’t expect investors or consumers or companies to serve the common good. They are just seeking the best deal. Economics isn’t about ethics. As the British Prime Minister Harold Macmillan once observed, “If people want morality, let them get it from their archbishops.”

In Reich’s account, there are no “malefactors of great wealth.”2 Indeed, he contemptuously dismisses any explanation that rests on human choice or will or class interest or even economic ideas. All such explanations, in his words, “collapse in the face of the facts.” The changes recorded in his book apparently just “happened,” in a subjectless illustration of the creative destruction inherent in the capitalist dynamic: Schumpeter-lite, as it were. If anything, Reich is a technological determinist. New “technologies have empowered consumers and investors to get better and better deals.” These deals have “sucked…social values… out of the system…. The story of what transpired has no heroes or villains.”

There is a familiar triangulation at work here. The author gets to display indignation at the downside of modern capitalism, without ever having to attribute responsibility (“we may feel,” etc.) or pass a judgment of his own. Corporations just do what they do. To be sure, if we don’t like what that means for us as a society, Reich would have us don our citizen’s cap and change it. But this doesn’t really square with the book’s repeated insistence on the iron logic of technology and self-interest. And so, not surprisingly, the solutions that Reich proposes to these epochal developments and the risks they pose are curiously humdrum: a few marginal tax changes, trade pacts to contain minimum wage clauses, some legislative regulation of lobbying.

But even these small amendments to current practice are at odds with Reich’s framing assumption: that our interests as “investors” and “consumers” have triumphed over our capacity to act as “citizens.” If his account of the workings of modern economic life is true—if, as he puts it, “under supercapitalism, the ‘long term’ is the present value of future earnings”—then tinkering with campaign finance laws is either irrelevant (because it would change nothing) or else impossible: because it would be opposed by those same “competing business interests” which caused the distortion in the first place. In any case, why would we or our representatives choose suddenly, in Reich’s terms, to act as disinterested “citizens” rather than the self-seeking “consumers” or “investors” we have become? What—for any individual citizen—would be the incentive? At whose behest would we suddenly opt for our “civic” identity over our “economic” one?

Reich’s way of cataloging human behavior—as though our affinities and preferences (“consumer,” “investor,” “citizen”) can be partitioned and pigeon-holed into noncommunicating boxes—is not convincing. It generates good sound bites—“As citizens [we] are sincerely concerned about global warming; as consumers and investors [we] are actively turning up the heat.” But it can’t explain why American citizens are trapped in this paradox while citizens in some other places have begun to address it. The trouble is that Reich’s categories faithfully reflect his epistemologically thin view of society: by “citizen” he means no more than economic man + enlightened self-interest. There is something missing here. Not only are there no “heroes,” no “villains,” and no one to “blame.” There are no politics either.

We live in an economic age. For two centuries following the French Revolution, Western political life was dominated by a struggle pitting left against right: “progressives”—whether liberal or socialist—against their conservative opponents. Until recently these ideological frames of reference were still very much alive and determined the rhetoric if not the reality of public choice. But in the course of the past generation the terms of political exchange have altered beyond recognition. Whatever remained of the reassuring fatalism of the old left narrative—the inspiring conviction that “History” was on your side—was buried after 1989 along with “real existing socialism.” The traditional political right suffered a related fate. From the 1830s through the 1970s, to be on the right meant opposing the left’s account of inevitable change and progress: “conservatives” conserved, “reactionaries” reacted. They were “counterrevolutionary.” Hitherto energized by its rejection of now-defunct progressive convictions, the political right today has also lost its bearings.

The new master narrative—the way we think of our world—has abandoned the social for the economic. It presumes an “integrated system of global capitalism,” economic growth, and productivity rather than class struggles, revolutions, and progress. Like its nineteenth-century predecessors, this story combines a claim about improvement (“growth is good”) with an assumption about inevitability: globalization—or, for Robert Reich, “supercapitalism”—is a natural process, not a product of arbitrary human decisions. Where yesterday’s theorists of revolution rested their worldview upon the inevitability of radical social upheaval, today’s apostles of growth invoke the analogously ineluctable dynamic of global economic competition. Common to both is the confident identification of necessity in the present course of events. We are immured, in Emma Rothschild’s words, in an uncontested “society of universal commerce.”3 Or as Margaret Thatcher once summarized it: There Is No Alternative.

Like their political forebears, contemporary economic writers often tend to the reductive: “In the long run,” three respected economists write, “only one economic statistic really matters: the growth of productivity.”4 And today’s dogma—like other dogmas of the recent past—is indifferent to those aspects of human existence not readily subsumed into its own terms of reference: just as the emphasis of the old thinking was on behavior and opinions that could be categorized as a product of “social class,” so contemporary debate foregrounds interests and preferences that can be rendered in economic terms. We are predisposed to look back upon the twentieth century as an age of extremes and delusions from which we have now, thankfully, emerged. But are we not also deluded?

  1. 1

    This is hardly an original claim, of course. As the Nobel-winning economist James Tobin observed some years ago, “It was a bunch of planners—Truman, Churchill, Keynes, Marshall, Acheson, Monnet, Schuman, Macarthur in Japan—whose vision made possible the prosperous postwar world.” World Finance and Economic Stability: Selected Essays of James Tobin (Edward Elgar, 2003), p. 210.

  2. 2

    Nor is there any talk of the “unacceptable face of capitalism,” as Edward Heath described an earlier generation of super-rich international businessmen. It is telling that both a Republican president, Theodore Roosevelt, and a Conservative prime minister were more willing to condemn capitalist excess than President Clinton’s former secretary of labor.

  3. 3

    Emma Rothschild, Economic Sentiments: Adam Smith, Condorcet and the Enlightenment (Harvard University Press, 2002), p. 250. As Rothschild observes, the “rhetoric of the endlessness of commerce is more unquestioned [today]…than at any time in the nineteenth or twentieth centuries” (p. 6).

  4. 4

    William J. Baumol, Robert E. Litan, and Carl J. Schramm, Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity (Yale University Press, 2007), p. 230.

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