Saving Capitalism: For the Many, Not the Few

Saving Capitalism: For the Many, Not the Few is a 2015 nonfiction book by Robert B. Reich. Reich, who served as the United States Secretary of Labor in the administration of President Bill Clinton from 1993 to 1997, takes a critical look at capitalism, with a focus on America’s political-economic system. The book is structured as 24 chapters broken into three sections: “The Free Market,” “Work and Worth,” and “Countervailing Power.” Reich’s primary focus is on America’s shrinking middle class (i.e., society’s growing wealth inequality), and he argues that large corporations, wealthy individuals, and Wall Street have manipulated the rules of the market for their own benefit. Throughout the work, three primary themes emerge: Widening Economic Inequality in the United States, The Influence of Money in Politics, and The Myths of the Free Market and Meritocracy. In 2017, Netflix released the documentary film Saving Capitalism, which is based on the book and features Reich speaking on the subject.

This study guide refers to the 2015 edition published by Vintage Books.

Summary

In Part 1 of Saving Capitalism, Reich addresses the prevailing right-left political debate concerning the free market versus government. He describes it as a distraction because it fails to recognize that the government creates the rules of the market and that those rules have been manipulated by the powerful. Reich lays out what he describes as the five building blocks of capitalism and dedicates a chapter to each. These include property, or what can be owned; monopoly, or what degree of market power is permissible; contract, or what can be bought and sold and on what terms; bankruptcy, or what happens when purchasers cannot pay; and enforcement, or how to make sure that no one cheats on any of the rules. The rules underlying these building blocks are required for capitalism and free enterprise, but Riech emphasizes that they can be manipulated for the benefit of the few rather than the many.

Riech argues that, despite the common belief that workers are paid what they are worth and that CEOs earn their enormous compensation because the free market appropriately determines it, the reality is that wages have dropped drastically in recent years while CEO pay has skyrocketed because of market manipulation rather than market forces. In Part 2, Reich examines the hidden mechanism of CEO pay, which has led to CEOs today earning more than 300 times what their typical workers earn, whereas that ratio was only 20-to-1 in 1965. The earnings of Wall Street inhabitants have skyrocketed as well, thanks primarily to a hidden subsidy flowing to Wall Street’s biggest banks since they were deemed “too big to fail” after the economic meltdown of 2008 and subsequent bailout.

Reich explains that in the three decades after World War II, wages for American workers rose in lockstep with productivity gains, leading to a middle class that expanded alongside the economy. Wages then began to flatten in the late 1970s, even as the economy continued to grow. The reason for this change was that the middle class began to lose bargaining power as a new type of corporate ownership emerged and unions declined. The combination of skyrocketing CEO and Wall Street pay and the declining bargaining power of the middle led to a drastic rise in the number of the working poor (people who live in poverty despite working full-time jobs) and the non-working rich (people who enjoy great wealth despite not working at all).

In Part 3, Reich discusses the decline of countervailing power (i.e., buy bargaining power), how it can be restored, and the changes that will take place when it is. The decline of countervailing power and its restoration are political issues rather than economic ones. As unions began declining in the 1980s, large corporations, wealthy individuals, and Wall Street began to gain more influence because of the astronomical rise in their political contributions. Riech argues that restoring countervailing power will require new alliances to be formed among groups typically on opposite sides but that doing so can end the upward pre-distributions currently baked into market rules. Additionally, restoring countervailing power can return antitrust law to its original purpose, prohibit corporations from binding employees into forced arbitration, raise the minimum wage, get big money out of politics, and, most importantly, reinvent the corporation so that both stakeholders and shareholders benefit from a company’s success.