Academic journal article The American Journal of Economics and Sociology

Reich, Robert. 2007. Supercapitalism

Academic journal article The American Journal of Economics and Sociology

Reich, Robert. 2007. Supercapitalism

Article excerpt

Reich, Robert. 2007. Supercapitalism. Knopf Publishers. New York. 288 pages. ISBN 9780307265616.

The central thesis of Supercapitalism is quite simple: democratic capitalism won out over Soviet socialism, but globalization and deregulation have now eclipsed democracy. From 1945 to 1975, America benefited from democratic capitalism. Since 1975, consumers and investor interests have overshadowed citizen interests. Reich sees a need to restore the balance between our private and public interests.

There are several problems with the reasoning behind the author's arguments. First, Reich believes that there is a distinct and unchanging divide between the political and economic aspects of our lives. The purpose of capitalism is supposedly to enable us to "enlarge the economic pie" and "to get us great deals" as consumers and investors. The purpose of democracy is to "accomplish ends which we cannot achieve as individuals" (p. 224). More specifically, Reich claims that while capitalism enlarges income, society decides how to divide income (p. 4). The assumption that "society" decides how to divide income is absolutely central to Reich's understanding of democracy. Reich sees democratic government as the ultimate arbiter between labor and business in determining incomes.

Democracy and capitalism are better thought of as imperfect institutional alternatives for realizing any given set of values. Reich sets up a false distinction with his claim that we have distinct economic and political lives. Politics is to some extent, as James Buchanan put it, a form of exchange. Reich claims that increased lobbying has resulted in an overwhelming corporate takeover of democracy, so we "must separate and guard the border between capitalism and democracy" (p. 167, emphasis added).

In a crucial passage Reich explains why supercapitalism has won out over democracy:

   Markets have become hugely efficient at responding to individual
   desires for better deals, but are quite bad at responding to goals
   we would like to achieve together.... While the Wal-Mart and Wall
   Street aggregate consumer and aggregate investor demands [are]
   formidable power blocks, the institutions that used to aggregate
   citizen values have declined. No longer do negotiations between
   oligopolies and industry-wide labor unions have much significance.
   No longer do regulatory agencies define the public interest. (p.
   126, emphasis in original)

Reich wrongly sees capitalism as an individualistic institution. Trade based on division of labor is social in nature. Reich himself hints at this when he mentions consumers and investors as power blocks with aggregate demands. Reich fails to see that market prices are the product of a social process. It is especially important to remember that wage determination is a social process, whereby marginal productivity hinges upon the value that consumers attach to final products of labor. Once we see the role of markets in determining income, we must reject Reich's claim that income determination is solely political.

The false distinction that Reich makes between capitalism (as an individualistic institution) and democracy (as a social institution) carries over into his discussion of wages and prices. Reich's thinking on income and wages is similar to John Stuart Mill's proposition that the laws of distribution are separate from the laws of production. From 1945 to 1975, democratic capitalism maintained a good balance between our interests as citizens and our interests as consumers or investors. More recently, global competition has delivered great deals on consumer goods, but at the expense of labor income. Reich wants capitalism to continue delivering "good deals," but democratic government must do something to maintain worker incomes. Reich draws upon U.S. history to make his points clear.

The author points to the rise of big business during the Gilded Age as an example of how capitalism has overshadowed democracy in the past. …

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