Corporations Are Not Citizens

Supercapitalismby By Robert B. ReichKnopf. 288p $25

So the pharmaceutical industry might try to sell Robert Reich’s new book, albeit with the disclaimer that the economist and Clinton administration secretary of labor is brilliant at diagnosis and at offering medicine that is not mere placebo. But, be forewarned: it may take a change in attitude to ingest his pill.

Reich takes up the familiar U.S. socioeconomic challenges of the 21st century—job off-shoring, mass layoffs, the stagnation of household middle- and low- incomes accompanied by explosive gains among the very, very rich—and refuses to serve commonplace assumptions on silver platitudes. Neither corporate conspiracies, nor Ronald Reagan, nor neocon social Darwinism—in brief, none of the usual suspects are to blame for what fundamentally has been happening to the U.S. economy even during the booming 1990s.

It all began long ago with the end of what he calls the “Not So Golden Age,” the period from 1945 to 1973, in which wages doubled in a generation and productivity soared. The major labor-management pacts of the late 1940s and ’50s, coupled with the National Labor Relations Act, the New Deal regulatory agencies and quiet arrangements among major corporations to avoid price wars created what was once described by Catholic news reporter Arthur Jones, originally a financial journalist, as the “mildly heroic” era of American capitalism.

This was the era of the auto industry’s “little Swedens” of womb-to-tomb employment and social protections that allowed a generation of blue-collar workers’ children to go to college and shed manual labor. The late Msgr. George G. Higgins fought so valiantly, yet with modest success, to expand this to the migrant workers for whom he negotiated.

In September, the United Auto Workers pact with General Motors, allowing the carmaker to relieve itself of pension obligations in exchange for relatively modest assurances of job security, sounded the final death knell of that era. That is if you weren’t watching, Reich explains.

The oil crisis of the early 1970s and Carter administration-era deregulation of major industries, leading to the breakup of even the telephone monopoly, set the stage for the rough-and-tumble competitive environment of today, in which corporations have to move plants to countries where workers will work for pennies of the U.S. wage dollar—or face bankruptcy. All that was needed was an end to the cold war and the start-up of enabling technologies that would make competition possible from all over the globe.

In reading Supercapitalism, the reader will be surprised to learn, for example, that the U.S. auto industry began to face domestic competition as a side effect of the Vietnam War. Reich explains that when the U.S. military built a superport at Cam Ranh Bay to satisfy its gargantuan supply needs, it also unintentionally ushered in a new era of trans-Pacific container shipping. Rather than return empty, the shippers began to pick up Japanese cars and other products for delivery in the United States.

Yet if you really want to find out who is responsible for rising inequality, for the loss of good union jobs and job security for families, for the millions (including children) without access to health care, look in the mirror. It’s our fault. Reich puts it more gently: “The fact is, most of us are consumers and investors, and as such are benefiting enormously from supercapitalism.”

Take Wal-Mart. Its prices make it possible for many more of us to buy consumer goods. The mega-retailer has an enormous influence on the economic behavior of suppliers and very broadly on prices even beyond the doors of its stores. Moreover, any pension plan with investments in Wal-Mart has enjoyed gains.

Should consumers beg to pay more? Should pension fund managers seek to lower the retirement savings of their customers? Reich doesn’t think that is reasonable to ask.

Consumer and capital markets have managed to aggregate our demands very efficiently, so that we can buy the best for the lowest price and achieve the highest possible returns from our savings, all at the same time. The problem is that the decision-making institutions of democratic capitalism are failing to aggregate the demands of citizens nearly as efficiently or responsively.

Again, this is our fault. “The awkward truth is that most of us are of two minds: As consumers and investors we want the great deals. As citizens we don’t like many of the social consequences that flow from them,” Reich writes. “Our desires as consumers and investors win out because our values as citizens have virtually no effective means of expression—other than in heated rhetoric directed against the wrong targets.”

Do not bother attempting to shame corporations, Reich argues. They have no feelings, and their executives must squeeze out profits or be fired. He eloquently and precisely exposes much of the congressional hand-wringing over corporate misdeeds as show trials meant to appease public opinion—stirring but ultimately ineffective. Instead, he says, change the rules of the game. Here I wish Reich had been more prescriptive.

In focusing on solutions, Reich sounds very much like the current House Democratic leadership. In lieu of re-regulating airlines or hobbling trade with China and India, for example, Reich would favor a plan identical to the bill proposed this year by Rep. Jim McDermott, Democrat of Washington, to expand unemployment insurance and offer wage insurance and job training to those who are laid off.

That new rules are needed is widely agreed on by all who see the malaise of widening inequality. The key is how to get from here to there. In that respect, Reich falls short. One gets the sense that he is withholding the detailed advice he has or will give Sen. Hillary Clinton, Democrat of New York, if she is elected.

Nonetheless, Reich’s book provides an acute enough assessment, free of obvious ideological baggage, such as few policy analysts of his level have delivered in years.