Create a More Inclusive Economy;
Reinvent the Corporation and Restore Moral Worth to Everyone
A Review of
Saving Capitalism for the Many, Not the Few (2015) 279pp.
By Robert Reich
Synopsis: The economic issues of our time are “profoundly moral” ones, according to Robert Reich, Professor of Public Policy who has served in three national administrations and written 14 books. Reich points to the false “myth of meritocracy” which justifies our current economic situation and assumes that “one’s income reflects one’s virtue and [one’s] net worth, one’s moral worth.” This myth endures because the distribution of wealth is said to be the result of the neutral, impersonal laws of the “free market.” But, as Reich details in his book, the free market and its rules are essentially created by government itself. This doesn’t excuse any excesses of government but clarifies how markets work.
Proof of Reich’s claim comes in his detailed demonstration that in the ’80s and ’90s, political and economic elites systematically rewrote market rules in their own favor. This rewrite allowed Wall Street, the big corporations, and the wealthy to transfer vast sums upward from the middle class and poor to themselves but inside the market where such transfers (pre-distributions) are largely invisible. The Left’s traditional program of taxes and (post-distribution) transfers ignores this crucial fact and calls for new strategies. While economic policy may appear to be a partisan issue, it is not only moral but profoundly spiritual.
Economics and Spirituality
Reich, an economist, writes about morality but not spirituality. Yet what may appear as a partisan economic issue can be profoundly spiritual. Economics, often called the “dismal science,” can be hard to understand. In spiritual terms, we can think of money as energy and the distribution of wealth as part of the “divine circulatory flow.” We’ll look more closely at economics as spirituality at the end of this book review.
The Bernie Sanders Campaign
When Bernie Sanders ran for U.S. President in 2016, he called out (often harshly) the 1%, the 1/10th of 1% and billionaire class who own an astonishing amount of U.S. wealth. But his solutions were seen by many on the Left as out-of-date: Sanders advocates an activist government which raises taxes on the wealthy in order to fund education and health care and help people get ahead. In his book, the progressive economist Robert Reich (who supported Sanders) points to a different path to both understanding modern capitalism (it’s changed) and solving the massive inequality it’s generated.
Reich contends that the false political and economic argument between government (its size and scope) and “free markets” obscures the really important fact: that in the 1980s and ’90s, market rules, with the aid of both Democrats and Republicans, were rewritten to favor the wealthy. As with a modern-day Oz, Reich wants to draw back the curtain on what’s really happening in modern capitalism and what we can do about it.
Free Markets
So-called free markets are not a fact of nature like gravity or electromagnetism. They aren’t impersonal and universal “laws” that apply equally to everyone, as their proponents claim. In fact, the rules of any market are a human creation. They differ from country to country and over time. As Reich explains, governments don’t “intrude” on markets; governments create markets. Through legislatures, the courts, and administrative agencies, governments design as well as organize and enforce the rules of any market. Consequently, “free markets” don’t really exist apart from government. This fact doesn’t excuse any excesses of government but clarifies how markets really operate. And where market rules come from. The real question, Reich argues, is not government versus markets but who are market rules designed for?
Stakeholder vs. Shareholder Capitalism
The idea that corporations are “owned” by their shareholders and accountable only to them is a recent one which developed in the ’80s and appears nowhere in the law. In contrast, in the three decades after WWII, corporate managers tried to balance the claims of investors, employees, consumers, and the public. (Today, we’d add the environment.)
Beginning in the ’80s, all that changed. With the help of both Democrats and Republicans, market rules were systematically rewritten to favor Wall Street, the big corporations, and the wealthy. It was the age of deregulation and aid to business. This rewrite of market rules went along with other new developments that brought us the high-tech and information age. With data and intellectual property as the key building blocks of the new economy — genetic material, data, software, platforms, patents, complex financial instruments, etc. — wealth became more intangible and complex and thus easier to manipulate and hide. The result: massive transfers of wealth upward inside the market and thus invisible to the average person unless you have an economist like Reich to point them out.
Upward Wealth Transfers
Here are examples of a few of these transfers upward from you and me to the very wealthy in terms of what Reich calls the five building blocks of the market, transfers allowed by the new rules and therefore completely legal. The issues raised by these new rules are “profoundly moral,” according to Reich, and are based in power.
The New Property: Large corporations claim property (often monopolies) in seed, genetic material, patents, platforms, software, and our personal information. Big Pharma preserves its drug profits by paying off the generics (pay-to-delay agreements), allowing them to extend their patents and keep prices high. Wall Street speculates on commodities, raising food prices, another hidden transfer. A whole new industry arises over patent suits.
The New Monopoly: We see a merging and consolidation (both horizontal and vertical) of ever-larger corporations in every field from health care to cable to farm equipment. This consolidation slows the rate of new business start-ups and hurts small businesses and consumers, many of whom are left with only one provider. With massive ad budgets and fleets of lawyers, the new monopolies engage in predatory litigation to fend off any challenge.
The New Contracts: Corporations enforce bans on class action suits and use non-disclosure agreements and forced arbitration. CEOs use insider information to cash out stock options when the market gives the best returns, driving CEO pay into the stratosphere and essentially transferring money from small investors upward. Instead of investing in Research and Development, CEOs use stock buy-backs to increase share-holder prices and their own salaries. Corporations are allowed to deduct CEO pay from their taxes.
The New Bankruptcy: Large corporations use bankruptcy to void labor contracts and pension obligations; homeowners and students debtors cannot.
The New Enforcement: Congress defunds regulatory agencies. Or in the case of the Trump administration, agency heads publicly oppose their own agencies. The same personnel pass between government and lobbying firms. Agencies and their personnel get sued regularly. Fines for misbehavior by corporations are small and seen only as a cost of business, not a deterrent. Fleets of lobbyists, think tanks, and corporate-sponsored “studies” mold public opinion.
Reich sums up this new market situation: “Widening inequality has become baked into the building block of the ‘free market’ itself.” And he adds, this trend would be going on even without the globalization and technological changes which are making American workers vulnerable to lower-wage countries and an ever-increasing use of computer-driven machines. (Globalization and technology are the usual explanation for the plight of the middle class and the poor.) Simply increasing life-long learning and education (now extremely expensive), as many advocate, won’t work without addressing these new slanted market rules.
Solutions
Reich contends that capitalism doesn’t have to look the way it does now. We have permitted these changes to happen and are responsible for reversing them.
Rebuild a “countervailing force” to oppose the current capitalist model.
In the three decades after WWII, the strength of a countervailing force made stakeholder capitalism possible. The power of this force, made up of small businesses, wage earners, independent contractors, professionals, unions, cooperatives, and grassroots organizations, has been almost completely destroyed, according to Reich. Yet once this group understands what’s going on, he contends, it can find common economic cause. Today, the base of this countervailing force — the voluntary grassroots organizations of civil society — are struggling to survive as people work long hours and/or more than one job. Political parties and advocacy groups have become national money-raising machines, essentially lobbyists. Reviving the countervailing force is to revive American democracy itself.
Return to Stakeholder Capitalism
(See “Reinvent the Large Corporation” below.)
Reverse Upward Distribution.
Design the rules of the market so that the economy generates a fair distribution on its own, without needing large redistributions after the fact. These large tax distributions are easy to see and attack (“tax and spend”), but they’ve kept the current situation from being worse than it could be.
Reinvent the Large Corporation, the central organization of modern capitalism
Here Reich cites ideas from many sources:
- Create “B” or Benefit Corporations in which articles of incorporation include accountability to all stakeholders.
- Base corporate taxation on the ratio of CEO pay to that of median worker pay.
- Lower taxes for corporations which give wage increases linked to the nation’s annual productivity growth.
- Create employee stock ownership and profit sharing.
- Create more employee-owned cooperatives and businesses.
- Make the legal privileges of incorporation available only to companies who share economic gains, especially when robots do more of the work.
- Copy German work councils which represent all stakeholders.
Enact Society-Wide Reform
- Balance the rewards of invention with the public good by giving smaller returns to succeeding generations. This avoids large dynasties of inherited wealth.
- Institute a Basic Minimum Income, one that allows a minimally decent standard of living.
- Give all citizens a small share of patented intellectual property.
- Give every child at birth an endowment of stocks and bonds.
Restoring Moral Worth
An important part of Reich’s argument is to expose the myth, in this case a false and dangerous myth, which justifies our own form of capitalism: the “myth of meritocracy.” According to this myth, as Reich states, “the amount of one’s income is equated with one’s virtue and net worth with moral worth.” This myth persists because the distribution of economic gains appears to be “natural and the result of neutral forces”; i.e. the “free market.” Consequently, those paid very little are assumed, by both themselves and others, to be “worth” no more. This myth generates both shame and a deep anger and doesn’t adequately reflect reality, especially the reality of the new market rules.
Reich is an economist and he doesn’t blame the wealthy for our current economic system. He writes that the wealthy aren’t “doing anything nefarious or intentionally harmful…each has merely behaved rationally in pursuit of his or her private interests.” He goes on to say that “they are no more selfish or greedy than most people.” In this regard, Reich’s view is similar to, but doesn’t go as far as, that expressed by the Simpol Solution [described here] which calls on us to overcome “us/them” thinking in favor of “both/and”. Both Simpol and Reich state that it is our own collective responsibility to understand and change the current situation.
In a book review in the New York Times (What Happened to Us? 7/23/17), Reich expands on the issue of moral worth. The greatest threat to Western Liberal Democracy, he writes, comes from our widening economic inequality because such inequality erodes its two foundations: openness to new ideas and opportunities, and a conviction that all citizens are morally equal. Reich favorably reviews two books which call for a restored vision of equality, one author calling for an equality based on a citizen’s rights and voice; another on the fact of our shared humanity, not talent or wealth. To Reich, the danger of economic inequality is that it leads to political inequality which, in turn, leads to more economic inequality, so that “we will become ever more closed and authoritarian societies…Without openness, the West cannot thrive. Without equality, the West cannot last.”
Economics as Spirituality
Spiritually speaking, the esoteric tradition tells us, Humanity is essentially One, and we are consequently collectively responsible for what we have created in the way of political and economic institutions. While Reich points to the wealthy as merely pursuing rational self-interest, haven’t we gone beyond such simple self-interest and on to a more enlightened self-interest which thinks long-term and for the good of the whole? In fact, our emerging collective consciousness may be vastly more enlightened than our current institutions which may be lagging behind and holding us back. This situation would thereby call upon us to change these institutions to reflect a wider view of ourselves and others, what the Simpol Solution calls a more “world-centric consciousness.” Or what spiritually-minded folk call “Universal Brotherhood and Sisterhood.”
For me, spiritual writer Alice Bailey sums up our current situation. According to her, “the key to humanity’s trouble…has been to take and not to give, to accept and not to share, to grasp and not to distribute.” We can see this quite clearly in the case of today’s economics with its vast disparities of wealth. A higher spiritual view requires a free flow of divine energy, yet humanity keeps interrupting the “divine circulatory flow” in pursuit of acquisition rather than contribution, of separation rather than cooperation, and division rather than synthesis.
We can do better. And Reich and others are giving us the tools.
*********
Here are two voices, not from Reich, who also illuminate our current situation.
In 1951, in her book, Understanding Fear in Ourselves and Others, Benare W. Overstreet, an author, poet, and psychologist, wrote the following:
It has become hard in our culture to gain a firm sense of belonging. The standard of competitive success has robbed the modern individual of what we might call “natural status” and has left him feeling he has to “earn” approval, love, friendship, popularity, a place in the human enterprise much as he has to earn a living.
In 2010, in his book, Freefall: America, Free Markets, and the Sinking of the World Economy, Joseph Stiglitz, former World Bank Chief Economist, Nobel Laureate, and left-leaning economist, wrote about
The “moral deficit” that American’s “unrelenting pursuit of profits” and self-interest have created.
In the 59 years between Overstreet and Stiglitz, we humans have come up with some new ways to get a sense of belonging. But we’re still struggling to achieve a true Brotherhood and Sisterhood and especially so in the field of economics, which determines so much else in our societies. Surely, we can do better.
—Linda W. Phelps
The Theosophical Society in Portland is not responsible for any statement on this website made by anyone, unless contained in an official document of the Society. The opinions of all writers are their own.