Supercapitalism by Robert Reich – A Review

Elizabeth Warren, the senator from Massachusetts who engineered the creation of The Consumer Protection Bureau recently gave a speech that “slams Uber and Lyft”.

The Financial Times commented that, “Warren, a liberal firebrand, accused them [Uber and Lyft] of undermining economic security.”

What gives? Shouldn’t Elizabeth Warren, US Senator, a progressive, the one who gave birth to the new US Consumer Financial Protection Bureau (CFPB), be on the side of lower prices for consumers?

Robert Reich’s 2007 book, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life, suggests why the answer to this question is “no”!

The main theme of economist Reich’s book is that consumers and investors are dominating politics while workers and government are lagging way behind in political influence.

As a result, while cheaper goods are nice for shoppers, there is a price to be paid for those things. Workers wind up with increasingly low wages and government loses out because it collects less taxes from low-wage earners.

Reich starts with the 1950s and ‘’60s and works his way up into this century to show how consumers and investors gained such political power in the US as well as in the rest of the world.

One way was the rise of corporate lobbyists in DC.

We’ve gone from a few companies at the top of each industry (i.e. oligopolies) that could agree to fix prices—to a world where many multinational corporations are seeking favors from US politicians in order to offer lower prices to their customers.

Walmart is a good example. Walmart, like other ‘big box’ stores, has driven smaller competitors out of business by taking an anti-union stance and offering lower wages, as well as bargaining with its suppliers to pay below-market prices for their goods.

As a result of lobbying in DC, Walmart and other anti-union stores have forced national and local government welfare programs to subsidize the existence of their employees.

All of us are paying worker benefits that these corporations do not pay for.

An example I’ve noticed is that in California’s urban areas, many workers cannot afford to live near the place they work and must drive to work. State taxes for road maintenance each year cost each Californian about $500 apiece. Shoppers too are tearing up our roads.

And as consumers of cheap goods, we all are spending money that quickly goes into the pockets of wealthy lobbyists in Washington DC.

Walmart and many other corporations hire lobbyists to engage in the practices of “rent-seeking” from government to get a cut of our tax money and/or acquire legislative privileges from Congress.

Reich says members of Congress make a show of chastising heads of these corporations but do nothing to stop them.

These giant companies aren’t just competing with smaller corporations within their own industry sectors. They are also competing  with dominant corporations in all other sectors of the economy to gain from government largess.

For example, Reich points out when Walmart wanted to offer banking services in its stores, banking industry lobbyists fought back. Bankers ultimately won over Congress and hung onto their dominance.

Reich’s point is that when we demand cheap goods as consumers, we are cheating ourselves as workers and taxpayers. Money received in one hand just gets paid out with the other hand.

Last Wednesday in the Financial Times, “Christine Lagarde, director of the International Monetary Fund, said the US economy was facing four forces ‘that pose a challenge to future growth’ — the declining labour force participation rate, falling productivity, increasing polarisation in income distribution and a high share of the population living in poverty.”

This echoes what Elizabeth Warren’s speech about Uber and Lyft: Warren said the US was suffering from an “outdated employee benefits model” that makes it “hard for temporary and contract workers in the tech sector and beyond to build any personal economic security.”

Warren suggested that every worker, even if self-employed:

(1)  get paid sick leave
(2) be covered by  “catastrophic insurance”
(3) pay into a retirement system such as Social Security

These are Elizabeth Warren’s suggestions to counter the supercapitalism born of too much political power for consumers and investors at the expense of workers and taxpayers. Reich offers other ideas.

Even if you disagree with things Reich says in his book, if you read Supercapitalism you’ll never look at the field of economics the same way.

In Supercapitalism Reich has humanized and politicized the core of early 20th century Keynesian economics by hearkening back to the practice of the original form of economics called ‘political economy’ by defining how different groups of people’s financial interests conflict with each other.

Unlike many other economists today, Reich takes into account not only politics, but also the impact of national economics on the global economy—and vice versa.

Most importantly, this is a down-to-earth book about economics that doesn’t use any jargon. That’s refreshing in and of itself!


#1 Raoul A. Martinez on 07.01.16 at 4:16 pm

I always enjoy reading Robert Reich’s comments. I also reviewed all your other entries Nancy and found them interesting, current, and relative. RAOUL

#2 Nancy Humphreys on 07.06.16 at 1:05 pm

Raoul, thank you. Gillian Tett, in her new Financial Times article, “One small step for gig economy workers,” reveals Uber has just allowed its drivers in NYC to form an Independent Drivers Guild to lobby for benefits. Telt notes that “The Freelancers Union, for example, estimates that there are nearly 54m people in America — 34 per cent of all workers — who are freelancing at least part of the time. A different study from the Pew Research Center put this total nearer to 10 per cent, using a very narrow definition of self-employment. The Aspen Institute suggests it may be 22 per cent. Either way, no one disputes that the number is growing — and that America’s benefits, pensions and union system is utterly ill-equipped to respond.”

As I’ve said in previous posts, freelancers have the additional burden of paying twice as much for Social Security tax and Medicare (SE tax) as employees pay for FICA tax.

Moreover, as someone who was one of thousands of self-employed professionals belonging to several American guilds that were scammed by the biggest health care insurance con in US history, I’d urge those in the new guilds such as Uber’s to use every means possible to make sure their guild health benefits are on the up and up.

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