Saving Capitalism: For the Many, Not the Few

In Chapter 21, Reich discusses the ways to reinvent “the central organization of modern capitalism—the large corporation” (196). He points out that for roughly the last 30 years, incentives have created higher executive pay and lower worker pay. As a first step, Reich suggests that corporate tax rates should depend on the ratio of CEO pay to the median worker’s pay. In other words, corporations would have an incentive to either lower CEO pay or raise workers’ pay, or both, because they could pay a lower tax rate. Another idea is to lower taxes on employers who provide workers with wage increases commensurate with the nation’s productivity growth and raise taxes on corporations who do not. Reich argues that this proposal “would go some way to reconnecting worker income to the nation’s overall economic gains” (197).

In the latter half of the chapter, Reich discusses how the concerns of shareholders now take prominence over the concerns of stakeholders. While the former term refers to owners of company stock, the latter refers to investors, employees, customers, the community, or anyone who has an interest in the company’s operation. He provides examples of so-called “benefit companies,” companies that take into account the interest of their workers, community, and the environment, alongside shareholders. Reich argues that “we may be witnessing the beginning of a return to a form of stakeholder capitalism that was taken for granted in America sixty years ago” (200). While the shareholder capitalism that started in the 1980s will have a legacy of outsourced jobs, abandoned communities, and skyrocketing CEO pay, the stakeholder capitalism that was prominent in the years after World War II left a legacy in which corporations had a responsibility to stakeholders.

In Chapter 22, Reich examines how technological change has affected capitalism. Reich examines previous predictions he made on this subject. In 1991, he predicted that routine production service jobs, such as those on an assembly line, would drop in numbers and pay because of labor-saving technology and outsourcing. He also predicted that in-person service jobs, such as retail sales and security guards, would grow because technology would not be able to replace them and that the pay would drop because of increased job competition. A final prediction made by Reich was that symbolic-analytic service jobs, such as engineers, lawyers, and bankers, would grow both in number and compensation because “the demand for people to do these jobs would continue to outrun the supply of people capable of doing them” (206). Each of the predictions was largely correct, but Reich did not anticipate how quickly the latter prediction would take shape and the extent to which it would drive widening inequality.

With the latter of these predictions, Reich also failed to anticipate how digital technology would affect the economy, specifically how these technologies with huge networks would push the ratio of employees to customers to extraordinary lows. The popular social media site Instagram, for example, had 13 employees and 30 million customers when it was sold to Facebook in 2012. Reich also points out that America’s most valuable companies in 1964 employed an average of 430,000 people and had a capitalization of $180 billion, compared to America’s largest companies today, valued at twice as much but employing less than a quarter of the people. According to Reich, “we are faced not just with labor-replacing technologies but with knowledge-replacing technologies” (207). Another prediction was that new technologies would increase the demand for highly educated workers, which has held true, but that has not translated to higher wages for well-educated workers. Reich argues that “while a college education has become a prerequisite for joining the middle class, it is no longer a sure means of gaining ground once admitted to it” (210).

In Chapter 23, Reich suggests that instead of directly taxing the wealth of few and distributing it to many now, it would be wiser to share future wealth. What he means is that rules concerning intellectual property, patents, copyrights, and market power should be altered to better pre-distribute income and wealth. A balance must be struck that continues to stimulate new inventions and investments while not concentrating wealth to the degree that now exists. For example, even if the market richly rewards founders of new technology, “it need not lavish similar rewards on their descendants” (212). Reich argues that this means that “the market rules affecting wealth and income in the long term could generate smaller and smaller returns to each succeeding generation of heirs to inventors without reducing the original inventors’ motivation” (213).

Because America currently lacks countervailing power, Reich argues that society has moved in the opposite direction, shown by the fact that in 2014, six of the 10 wealthiest Americans inherited their wealth. According to Reich, countervailing power would not only reverse this but also use the proceeds from the changes in market rules to guarantee all citizens a share in future economic growth. A basic minimum income for all adults is a possible way to do this and would eliminate the need for government assistance programs to the poor, but many will object because it could destroy work ethic and the meaning of work. Regardless of how it is accomplished, “the rules must be adapted toward creating a more inclusive economy” (217).

In his closing chapter, Reich argues that “we are on the cusp of a wave of inventions and innovations that can vastly improve our lives” (218). While these inventions and innovations will undoubtedly replace countless jobs and drive down wages, “we have the capacity to reorganize capitalism so the gains are shared widely” (218). Reich once again reiterates his point that “the market is a human creation,” and over the last three decades, its rules have been shaped by large corporations and the wealthy in order to channel a large portion of the total wealth and income to themselves (218). The challenge in correcting this is not technological or economical, but rather democratic.