Supercapitalism Really Is Super

Robert Reich’s latest book, Supercapitalism, is a fantastic analysis of the current relationship between corporations, citizens, and politics.

I put Supercapitalism on my wish list after Prof. Lawrence Lessig’s glowing recommendation. While I make no pretense of being such a gifted writer as either of these scholars, here I attempt to summarize the book and follow with a few minor points.

Reich, the former Labor Secretary and current Professor of Public Policy at Berkeley, describes us all as being of two minds. On one hand, we are all consumers and (most of us are also) investors. As such, we’re always seeking to minimize our costs and maximize our profits. This leads to lower costs and higher profits; companies that cannot deliver lose customers and investors.

On the other hand, we are also all citizens and employees. In that capacity, we are generally frustrated by the effects of our growing collective power as consumers and investors. Those low prices and high profits squeeze employees, main street family-run stores, and the environment.

Our civic selves object to these negative effects, but we know that our individual purchasing and investing power cannot reverse these trends. Even were we to make the sacrifices of paying higher prices and earning lower returns by supporting more “socially responsible” businesses, we cannot make a difference with our dollars alone. Even social movements calling for corporate responsibility fail because, even if the companies comply, they leave an economic vacuum to be filled by other companies; otherwise, companies just revert to their old ways once the heat is off.

In the “Not Quite Golden Age” of postwar America, companies could pay high wages and CEOs could act on what they saw as the public interest. Most major industries were composed of cozy oligopolies with little product variation. The high cost of industrial production set high barriers to entry, leaving companies with plenty of room to negotiate relatively good deals for employees and the public.

Thanks in large part to new information technologies, as well as the growth of worldwide shipping infrastructure, we have entered what Reich calls supercapitalism over the past 30 years. Companies can design a product on a computer in Denver, buy parts from Brazil, Egypt, and Hungary, and subcontract with a factory in Korea to follow the computerized assembly instructions.

The increasingly fierce competition between companies has led to the squeezing along every part of the supply chain. Main Street retailers can’t sell refrigerators for $1200 when the same icebox is $799 at the big box store 2 miles away. Ford can’t stay profitable by paying its workers $70 per hour in salary and benefits when comparably skilled Koreans will do the same job for half. Suppliers get squeezed, too; ask any of WalMart’s suppliers about this process.

In the era of supercapitalism, companies have little choice but to minimize prices and maximize profits. In the Not Quite Golden Age, a system of cozy oligopolies gave consumers and investors little choice; both groups had mediocre but predictable deals all around. Now, consumers and investors who do not get the best possible deals will take their money elsewhere. Companies that do not ruthlessly squeeze their costs go bankrupt or get bought out.

This process has also led to the corruption of the democratic process. In the ever-accelerating contest for strategic advantage within and between industries, companies have begun to game the system to a degree that was generally not necessary 30 to 50 years ago. Reich’s own experience in government illustrates the impact of the rapid influx of money into the DC area:

Even by the mid-1970s, when I worked there as a political appointee at the Federal Trade Commission, much of the downtown was still run-down. I’d take any lobbyist who insisted on a lunch to a cockroach-infested sandwich shop on the other side of Pennsylvania Avenue, after which I would never see the lobbyist again. But when I returned to Washington in the 1990s, the town had been transformed. … The flow of money had inflated everything in its path. (p. 132)

Corporations are the primary folks funding this influx of capital. NGOs and labor make just a drop in this rapidly growing bucket of lobbyists, PR firms, campaign donations, “expert” consultants, hotels, and fancy restaurants with leather menus and $75 steaks.

Corporations spend this cash in the search for competitive advantages within or between industries. They may not even want to play, but they have to in an attempt to counterbalance other companies’ or industries’ efforts. Competition for customers and investors is too fierce, and one bill can kill a company’s bottom line.

The result is the increasingly impenetrable Beltway we all know and love. Corporate cash has purchased such a cacophany that citizens’ voices are drowned out.

Reich does offer some hope for a cure. Some of the usual suspects are here, from policy changes such as stronger labor protections to procedural reforms such as publicly funded campaigns. The really interesting recommendations, though, center on Reich’s argument against the anthropomorphic view of corporations as people.

Corporations are nothing more than bundles of contracts, so he insists we should neither give them standing to sue to overturn duly enacted laws nor find them criminally liable nor tax their income as though it is the company that owes. Their shareholders and employees would still retain all their rights and responsibilities, which is proper, since a corporation is just a collection of shareholders and employees.

He makes a compelling case for the feasibility and benefits of taxing shareholders instead of companies; corporations would withhold taxes on shareholders’ behalf and give them something like a W-2 form at the end of the year. This would be feasible in the era of computer-processed financial transactions, and it would be progressive, since the wealthiest would pay a higher rate on this income. It would also eliminate corporate inefficiencies caused by some wrinkles in the tax code.

The jaded may initially blow these off as politically impossible (I certainly did), but Reich points out that most companies would rather not be shaken down. A coalition of likeminded corporations helped leverage McCain-Feingold into law, and combined with public pressure, a similar coalition could create even greater reforms.

The prospect for procedural reform in particular is not impossible, but it is quite optimistic. A few industries with a history of winning backdoor negotiations with little effective opposition would fight tooth-and-nail against anything that would reduce their unique power position: oil, telecom, and the entertainment industry all come to mind.

For instance, he perpetuates the mistaken notion that the net neutrality debate was just another contest between corporate interests. In fact, tech companies were seriously outmatched on The Hill, and it was only due to the outstanding work by NGOs such as Free Press and the mobilization of over 1 million citizens that Sen. Ted Stevens’ (R-AK) 2006 telecom bill died as a net neutrality hostage.

Additionally, Reich regrettably fails to consider the potentially obstructionist role of the corporate media in blocking political reforms. The media have an obvious economic incentive to keep campaign funding the way it is: teeming with corporate cash that winds up buying tons of ads for several months every two years.

Any attempt to tie campaigns’ spending to taxpayers’ willingness to pay would generate substantial media opposition, and a bill mandating free airtime would drive media companies to break out every political tool they have. Congress speaks to its constituents through the media; these same media will turn on them (even if not as overtly as, say, Fox) in a heartbeat, and politicians know that.

Finally, Supercapitalism could better integrate theory generally and political economy more specifically. This is ironic; the book is itself an excellent introduction to political economic analysis. But theories about the flow of political information (such as Oscar Gandy’s theory of information subsidies) and the policymaking process (perhaps Baumgartner and Jones’ theory of punctuated equilibriums) could add some heft to Reich’s analysis. This is clearly a trade press book, but it is not impossible to drag a little theory into a book with wide appeal. Paul Krugman’s highly readable book, The Age of Diminished Expectations, is a fine example, and he was using economic theory.

All told, though, Reich’s book is nothing less than a beacon of hope in a world of dark political realities. This should be on your must-read list, and I’m already thinking about how I could use it in the classroom.