The Transformation of Business, Democracy, and Everyday Life
Robert B. Reich
New York: Alfred A. Knopf, 2007
From 1993 through 1997, Robert Reich was President Clinton's Secretary of Labor. He also served in the Ford and Carter administrations, so he knows whereof he speaks with respect to the economy. He has 14 books to his credit; in addition to texts on economics, they include I'll Be Short,1 published for his run for the governorship of Massachusetts in 2002. In Supercapitalism, Reich argues that a restructuring of the U.S. economy set up unbridled competition among businesses. Previously, during the period he calls the Not Quite Golden Age (roughly 1947-1973), informal pacts among businesses led to a more stable situation which gave CEOs the leeway to share more profits with lower-income segments of their employees, to support labor unions, and to act as "corporate statesmen."
Then came a wave of deregulation, enacted by both Democratic and Republican administrations. Government agencies which had previously set certain conditions of business in America, like the Civil Aeronautics Board or the Interstate Commerce Commission, were abolished. Treaties expanding trade possibilities, such as NAFTA and GATT, were enacted. Tariff barriers were lowered. Restrictions on banking practices were relaxed. Reich thinks these were good things; he argues that the only responsibility businesses have is to return the maximum possible return to their shareholders. He points out that if a corporation spends on a civic benefit such as reducing pollution, investors and customers will take their money to its competitors who can offer higher returns and lower prices.
However, the value of dealing with what are called "negative externalities" is not lost on Reich. In addition to the sorts of overhead that companies try to avoid paying for, like pollution-control equipment on coal-fired power plants, these include a poorly educated workforce or one which lacks adequate medical care. The ultimate negative externality may be the way the expanding influence of corporate money on Washington politics2 has undermined our democracy.
Reich devotes considerable space to this (pp 158-63). He writes:
"The corporate takeover of politics also affects how the public understands the issues of the day. [...] Because every side in these contests needs to make the best possible case, large amounts of money are made available to engage experts to provide arguments they may know to be only half-truths or, on occasion, outright deceptions. The result is a broader form of corruption—the corruption of knowledge."
"It is often enough merely to cast doubt on an established fact, thereby opening the way for a company or industry to claim that "experts disagree" or there's a "lively debate" on an issue, and that any public action [...] should wait "until all the evidence is in."
He gives examples: sugary foods, climate change, brand-name vs. generic drugs, video over phone lines vs. cable TV. In all but the last case, it's corporations against consumer or environmental advocates. Hence the huge disparity in lobbying Reich notes.
Blaming corporations for not being good corporate citizens, boycotting their products, or seeking to lay criminal charges on their executives are not ways to address the negative externalities problem, Reich maintains. He says the only thing which will work is to revitalize citizen participation in democratic processes. Citizens must make their voices heard, louder than the lobbyist din on Capitol Hill, to force Congress to pass laws re-regulating practices with undesirable effects. Only thus will the leaders of corporations be empowered to act responsibly, knowing that doing so does not give their competitors a leg up because the playing field has been leveled.
I do not fully agree with Reich. I think holding up an irresponsible CEO to public criticism can be effective in curbing deleterious practices. Take a coal-mining company CEO who feels that miners are like tools: you throw away the broken one and get another. Such a man will care only about "running coal"; he will overwork and underpay his miners and spend as little as possible on safety. The result, as we have seen too many times, is mine accidents. Not only do they hurt people; they also close down the mine, often permanently. This does not help the bottom line. So negative externalities can bite back against the hand that shirks them. As even Reich acknowledges, a company's reputation is more important than ever these days:
"In the Not Quite Golden Age, most companies' book value consisted of physical assets, such as factories and equipment, plus money in the bank. By the early twenty-first century, such hard assets account for only about a third of the typical company's stock market value; the rest is in intangibles—patents, know-how, and the goodwill of a company's brand. This is one reason so-called image advertising has grown so important, and why companies are spending a fortune on public relations, $3.7 billion in 2005. In a world of Internet chat rooms and bloggers, no corporate image is entirely safe."
– Page 178
Reich's book contains a number of charts illustrating the economic changes since the period he calls the Not Quite Golden Age. In general, these changes have given consumers better deals while reducing their spending power — in some cases drastically. The following table tells a great deal. It's derived from Figure 3.3, "Real Family Income Growth, by Quintile" (page 106).
More specifically, it tells of a not-so-great deal for the people in lower income brackets. Consider those at the bottom of the heap: members of the first quintile. Over the period 1947 to 1973, their income grew by 116 percent, on average. In the following period, 1974-2004, they eked out only 2.8 percent growth. The total of inflation over this latter period would have been far greater — meaning they fell behind in real income growth. While these changes may keep products less expensive, they are not the recipe for a thriving economy or for a healthy democracy. If America is to stay competitive among nations, more attention must be paid to maintaining the intangible qualities of life: good schools, comprehensive medical care; a clean environment.
Reich devotes his final chapter to this. His prescription is sound: Vote! I rate his book at the top, for it is well and coherently written, and because it provides a great deal of historical and economic information, I rate it a keeper.