Saving Capitalism: For the Many, Not the Few

Reich begins Chapter 17 with a historical analysis of past threats to American capitalism. He references the economic changes that took place during the first industrial revolution, leading to the reforms of the Jacksonian era in the 1830s, and the technological advances of the second industrial revolution in the late 1800s. This in turn led to the progressive income tax, aimed at limiting the concentration of wealth. Reich argues that this was a rejection of aristocracy, not capitalism, and that systems sought to “improve the lot of ordinary people rather than merely the elites” (159). In the 1920s, as mass production of goods became standard, wealth again became concentrated at the top, driving the Great Crash of 1929. This led to a host of reforms with the New Deal (1933-1938), concentrated around the rights of organized labor to collectively bargain with employers.

Reich further illustrates that with each economic expansion since World War II, the portion going to the top 10% of the population by income rose, while the portion going to the bottom 90% dropped. This rise and drop was most dramatic between 1982 and 1990. Additionally, the real incomes of the bottom 90% dropped for the first time during the recovery that began in 2009, the first time that median household incomes dropped during an economic recovery. According to Reich, this trend is not sustainable, either economically or politically. He warns that “[i]n economic terms, as the middle class and poor receive a declining share of total income, they will lack the purchasing power necessary to keep the economy moving forward” (163).

In Chapter 18, Reich discusses the decline in countervailing power and explains that the problem is a political one rather than an economic one. A recent study of 1,779 policy issues in detail showed that the preferences of the average American have a “statistically non-significant impact on public policy” (168). This is because lawmakers respond to policy demands made by wealthy individuals and business interests rather than average citizens. This was not always the case, however. Reich explains that after World War II, a form of interest-group pluralism took shape in which most Americans belonged to clubs, organizations, local political parties, or trade unions, to which politicians were responsive. Additionally, Reich argues that the federal government’s success from the New Deal through the decades after World War II was significant in creating new centers of economic power, or countervailing power, that offset the power of Wall Street and giant corporations.

Since the 1980s, however, as big corporations, wealthy individuals, and Wall Street became more potent politically, the centers of countervailing power began to wither. By the 1980s, most of the organizations that established American pluralism were falling apart, and by the 21st century, they had all but disappeared. In the 1980s, union membership began dropping, and corporations began actively working against unionization by sending jobs abroad. Reich argues that “the loss of American workers’ collective economic power has thereby compounded the loss of their political power, which in turn has accelerated the loss of their economic power” (173). Added to the loss of the countervailing power of average Americans is the fact that the super wealthy are now providing 40% of all political campaign contributions, compared to only 10% in 1980. The rise in campaign contributions by the wealthiest 0.01% of Americans conveys who policy makers listen to and why.

Reich makes the case that restoring countervailing power to our political economic system is the “central challenge of our time” (183). While the moneyed interests would prefer that the bottom 90% continue to be preoccupied with battles over the size of government, or noneconomic issues such as guns, abortion, race, or sexuality, Reich considers it is possible that new alliances and a new type of politics can take shape. Many people who are now typically on the right politically may discover that they have much in common with people typically on the left because they deal with the same problem: the rules of the market have been shaped by the powerful. While Reich acknowledges that it is impossible to predict when such an alliance might form, he points out that signs of a movement are already apparent.

Reich predicts that American politics will shift from a focus on Democrat versus Republican to “antiestablishment versus establishment” (187). If this takes place, it will likely be in the form of a third party, for which there appears to be increasing interest. In closing the chapter, Reich suggests that a new countervailing power would seek to reform campaign finance in order to reduce the influence of big money in politics. Doing this would necessitate public financing for elections and lead to other reforms, such as eliminating the revolving-door network between elected government service and Wall Street.