It was doubly frustrating to read a book of such sensible policy analysis during an election season that is practically devoid of any discussion of real policies and their effects on real people.
Saving Capitalism — a dramatic title for a book that otherwise mostly avoids hyperbole — begins with the premise that we must drop the typical way we frame liberalism and conservatism as big government versus small government. Ostensibly, Reich wants to appeal to both Bernie supporters and the Tea Party disenfranchised, but this is clearly a book by a progressive for progressives. He would rather us think about a government that works on behalf of the 99% — the middle class and poor — regardless of whether it is a very large government or a very small government.
To create such a government, Reich argues, we need to reform some very basic laws that set the rules of the market — things like bankruptcy laws, intellectual property, contracts, and financial and anti-trust regulation. Reich calls the effects of these regulations that favor the wealthiest “predistributions” — a play on “redistributions,” borrowing the term from Jacob Hacker’s paper, The Institutional Foundations of Middle Class Democracy. Unlike Joseph Stiglitz and Thomas Piketty, who have focused on tax reform as the most effective way to reduce economic inequality, Reich argues that we must first set fair rules of the game that don’t discriminate against the non-rich working class. If you’d like a condensed summary, Reich touches on the major points with some illustrative examples in this blog post. Our intellectual property and antitrust policies, he points out, cause Americans to “pay the highest pharmaceutical costs of any advanced nation” and to “pay more for broadband Internet, food, airline tickets, and banking services.” (For a maddening overview of the current state of American monopolies, including sunglasses, cat food, plastic hangers, syringes, take a look at this 2015 American Prospect piece by David Dayen.)
This is a very different argument from Reich’s earlier work, which focused on the need to improve education and skills training for adult workers in order to adapt to technological change. Paul Krugman, comparing Reich’s first and latest book, writes: “economists struggling to make sense of economic polarization are, increasingly, talking not about technology but about power.”
Saving Capitalism is enlightening with its clear re-telling of 20th century US economic history. By looking back in time, the gravity of our current economy comes alive. Sure, life is still good, but we realize that it could be so much better and that our current state will only accelerate with continuing technological displacement of middle class jobs while the wealthiest individuals and companies further their own interests through lobbying, campaign finance and tax evasion. In addition to the benefit of historical comparison, Saving Capitalism helpfully compares how the United States has decided how to regulate its market with other countries. In the US, for example, the wealthiest neighborhoods have the best schools because we mostly finance education through property tax. Other countries invest more money in schools in the poorest neighborhoods. “The bottom line is that the vast majority of O.E.C.D. countries either invest equally into every student or disproportionately more into disadvantaged students,” notes Andreas Schleicher. “The U.S. is one of the few countries doing the opposite.”
Reich is equally enlightening in his survey of reports from think tanks and journal articles from economists on the expected effects of the policy adjustments he proposes. By comparing our present state with our past, our peers and our potential future, it is clear what must be done.
But how to get it done? Only then does the no-nonsense, fiercely intelligent Reich veer off into a fantastical world of political theory that only seems believable at a Berkeley coffeeshop or a Bernie Sanders rally. Skimming the surface of John Kenneth Galbraith’s notion of countervailing power, Reich proposes with a straight face that the disenfranchised on the far left and far right come together to build institutions that take on the power of the 1%. He’s intentionally vague about what these institutions might look like. It could be a new political party, or a reformed party (in the way that Teddy Roosevelt reformed the Republican Party in 1901 or how FDR reformed the Democratic Party in 1933). Or it could be a resurgence of workers’ unions. Or it could be some new platform connecting all gig workers to stand up to the dominant power of monopolistic firms like Uber, Task Rabbit and Etsy.
Reich’s call to arms for a countervailing political force seems so out of touch with the current political reality — which has divided the country based on fear, identity and personality types — that it’s hard to take seriously. Krugman’s review offers an observation that is as fundamental as it is simple and obvious:
Anyone hoping for a reversal of the spiral of inequality has to answer two questions. First, what policies do you think would do the trick? Second, how would you get the political power to make those policies happen?
Reich has me sold on his answers to question one. But he comes up short in his effort to tackle question two. Given Hillary Clinton’s close relationships to Wall Street and the most powerful and influential of our country, I’m doubtful (as is Reich, who served as Secretary of Labor under Bill Clinton and went on a date with Hillary Clinton in college) that she is positioned to “rewrite the rules of the American economy.” But a recent New York Times Magazine article highlighting the work of Felicia Wong and the Roosevelt Institute leaves me feeling more hopeful. Regardless, Reich is a model of what we need from our economists: a recognition of the importance of power in shaping policies and a recognition of policies in shaping the market.