CONNECT
NationofChange / Op-Ed
Published: Monday 7 May 2012
“In the United States, almost all the gains from productivity growth have been going to the top 1 percent.”
The Answer Isn’t Socialism; It’s Capitalism that Better Spreads the Benefits of the Productivity Revolution
Francois Hollande’s victory doesn’t and shouldn’t mean a movement toward socialism in Europe or elsewhere. Socialism isn’t the answer to the basic problem haunting all rich nations.
The answer is to reform capitalism. The world’s productivity revolution is outpacing the political will of rich societies to fairly distribute its benefits. The result is widening inequality coupled with slow growth and stubbornly high unemployment.
In the United States, almost all the gains from productivity growth have been going to the top 1 percent, and the percent of the working-age population with jobs is now lower than it’s been in more than thirty years (before the vast majority of women moved into paid work).
Inequality is also growing in Europe, along with chronic joblessness. Europe is finding it can no longer afford generous safety nets to catch everyone who has fallen out of the working economy.
Consumers in China are gaining ground but consumption continues to shrink as a share of China’s increasingly productive economy, while inequality in China is soaring. China’s wealthy elites are emulating the most conspicuous consumption of the rich in the West.
At the heart of the productivity revolution are the computers, software, and the Internet that have found their way into the production of almost everything a modern economy creates. Factory workers are being replaced by computerized machine tools and robotics; office workers, by software applications; professionals, by ever more specialized apps; communications and transportation workers, by the Internet.
Some work continues to be outsourced abroad to very low-wage workers in developing nations but this is not the major cause of the present trend. This work now comprises such a tiny fraction of the costs of production that it’s becoming cheaper for companies to do more of it at home with computers and software, and even bring back some of it (“in-source”) from abroad.
Consumers in rich nations are reaping some of the benefits of the productivity revolution in the form of lower prices or more value for the money – consider the cost of color TVs, international phone calls, or cross-country flights compared to what they were before.
But most of the gains are going to the shareholders who own the companies, and to the relatively small number of very talented (or very lucky and well-connected) managers, engineers, designers, and legal or financial specialists on whom the companies depend for strategic decisions about what to produce and how.
Increasingly, via stock options and bonuses, the owners and the “talent” are one and the same. While many other people indirectly own shares of stock through their pensions and 401-K plans, 90 percent of the value of all financial assets in the U.S. belongs to the richest 10 percent of the American population.
Meanwhile, a large number of low-paid service workers sell personalized comfort and attention – something software can’t do — in the retail, restaurant, hotel, and hospital sectors (most U.S. job growth since 2009 has occurred here.) Others – temps, contract workers, the under- and partially-employed, fill in where they can. A growing number are not working.
The problem is not that the productivity revolution has caused unemployment or under-employment. The problem is its fruits haven’t been widely shared. Less work isn’t a bad thing. Most people prefer leisure. A productivity revolution such as we are experiencing should enable people to spend less time at work and have more time to do whatever they’d rather do.
The problem comes in the distribution of the benefits of the productivity revolution. A large portion of the population no longer earns the money it needs to live nearly as well as the productivity revolution would otherwise allow. It can’t afford the “leisure” its now experiencing involuntarily.
Not only is this a problem for them; it’s also a problem for the overall economy. It means that a growing portion of the population lacks the purchasing power to keep the economy going. In the United States, consumers account for 70 percent of economic activity. If they as a whole cannot afford to buy all the goods and services the productivity revolution is generating, the economy becomes stymied. Growth is anemic; unemployment remains high.
That’s why “supply-side” tax cuts for corporations and the wealthy are perverse. Corporations and the rich don’t need more tax cuts; they’re swimming in money as it is. The reason they don’t invest in additional productive capacity and hire more people is they don’t see a sufficient market for the added goods and services, which means an inadequate return on such investment.
But more Keynesian stimulus won’t help solve the more fundamental problem. Although added government spending has gone some way toward filling the gap in demand caused by consumers whose jobs and incomes are disappearing, it can’t be a permanent solution. Even if the wealthy paid their fair share of taxes, deficits would soon get out of control. Additional public investments in infrastructure and basic research and development can make the economy more productive – but more productivity doesn’t necessarily help if a growing portion of the population can’t absorb it.
What to do? Learn from our own history.
The last great surge in productivity occurred between 1870 and 1928, when the technologies of the first industrial revolution were combined with steam power and electricity, mass produced in giant companies enjoying vast economies of scale, and supplied and distributed over a widening system of rails. That ended abruptly in the Great Crash of 1929, when income and wealth had become so concentrated at the top (the owners and financiers of these vast combines) that most people couldn’t pay for all these new products and services without going deeply and hopelessly into debt – resulting in a bubble that loudly and inevitably popped.
If that sounds familiar, it should. A similar thing happened between 1980 and 2007, when productivity revolution of computers, software, and, eventually, the Internet spawned a new economy along with great fortunes. (It’s not coincidental that 1928 and 2007 mark the two peaks of income concentration in America over the last hundred years, in which the top 1 percent raked in over 23 percent of total income.)
But here’s the big difference. During the Depression decade of the 1930s, the nation reorganized itself so that the gains from growth were far more broadly distributed. The National Labor Relations Act of 1935 recognized unions’ rights to collectively bargain, and imposed a duty on employers to bargain in good faith. By the 1950s, a third of all workers in the United States were unionized, giving them the power to demand some of the gains from growth.
Meanwhile, Social Security, unemployment insurance, and worker’s compensation spread a broad safety net. The forty-hour workweek with time-and-a-half for overtime also helped share the work and spread the gains, as did a minimum wage. In 1965, Medicare and Medicaid broadened access to health care. And a progressive income tax, reaching well over 70 percent on the highest incomes, also helped ensure that the gains were spread fairly.
This time, though, the nation has taken no similar steps. Quite the contrary: A resurgent right insists on even more tax breaks for corporations and the rich, massive cuts in public spending that will destroy what’s left of our safety nets, including Social Security and Medicare and Medicaid, fewer rights for organized labor, more deregulation of labor markets, and a lower (or no) minimum wage.
This is, quite simply, nuts.
And this is why a second Obama administration, should there be one, must focus its attention on more broadly distributing the gains from growth. This doesn’t mean “redistributing” from rich to poor, as in a zero-sum game. It doesn’t mean socialism. The rich will do far better with a smaller share of a robust, growing economy than they’re doing with a large share of an economy that’s barely moving forward.
This will require real tax reform – not just a “Buffet” minimal tax but substantially higher marginal rates and more brackets at the top, with a capital gains rate matching the income-tax rate. It also means a larger Earned Income Tax Credit, whose benefits extend high into the middle class. That will enable many Americans to move to a 35-hour workweek without losing ground – thereby making room for more jobs.
It means Medicare for all rather than an absurdly-costly system that relies on private for-profit insurers and providers.
It will require limiting executive salaries and empowering workers to get a larger share of corporate profits. The Employee Free Choice Act should be an explicit part of the second-term agenda.
It will require strict limits on the voracious, irresponsible behavior of Wall Street, from which we’ve all suffered. The Glass-Steagall Act must be resurrected (the so-called Volcker Rule is more ridden with holes than cheese), and the big banks broken up.
And it will necessitate a public educational system – including early child education – second to none, and available to all our young people.
We don’t need socialism. We need a capitalism that works for the vast majority. The productivity revolution should be making our lives better — not poorer and more insecure. And it will do that when we have the political will to spread its benefits.
This article was originally posted on Robert Reich's blog.
Get Email Alerts from NationofChange
ABOUT Robert Reich
ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.
Top Stories
By Ronnie Cummins
88 comments on "The Answer Isn’t Socialism; It’s Capitalism that Better Spreads the Benefits of the Productivity Revolution"
May 09, 2012 9:05pm
I have no problem with socialism, but shmapitalism, shmocialism! I don't care what you call it. Let's tax the rich at a higher rate like Hollande is proposing until we have income equality. Hollande's 75% tax rate on incomes over 1M Euros leaves 250,000 Euros at least for 1M Euro earners, which is about $400,000/year. Anyone could easily live on that.
May 09, 2012 2:52am
@ Belleville...Progressive income taxes are fine, except for those who earn $20,001... But the fundamental question is... why is anyone earning $20m? Do they really contribute that much to the society that such a reward is in proportion?
May 09, 2012 4:07pm
Apparently you don't know much about progressive Tax Rates. If a person earns $20,001. he pays 3% on the $20,000, and 6% on $1. This comes to $600. plus $0.06= $600.06 Total taxes. There has been this fallacy running around for years, and it doesn't make any sense, that you make so much, that you jump into a higher bracket. It doesn't work that way. If a person earns $100,000 they would pay taxes of 3% of $20,000=$600., plus 6% of the next $20,000= $1,200., plus 9% of the next bracket of $20,000= $1,800., plus 12% of the next $20,000= $2,400., plus 15% for the next $20,000= $3,000. The sum of these separate brackets totals your tax obligation of $9,000.00 This equals a effective tax rate of 9%, when you have added up the 5 separate brackets. Everybody would pay the 3% and those over $20,000. would also pay into more brackets, and those earning (if you can even use that term), over $20,Million would pay the sum of all those separate brackets.
May 08, 2012 5:27pm
I am always astounded at the lack of invention.....
WHY PEOPLE ALWAYS THINK THAT IF IT IS NOT CAPITALISM, THEN IT MUST BE SOCIALISM???
What about NEITHER?
What about going about in a totally different way but applying the best features of BOTH systems and more?
Something that rarely is discussed is the incredible ability of SOME individuals to be entrepreneurs. Not everybody can do it and it is something that seems invisible to most of those who propose Socialism.
And what about those capitalists who are so individualistic that forget when we work together can achieve so much more than mere little units in a society.
BOTH systems offer good qualities and selfdestructive seeds as well.
Ideally we would want the support of the collective energy (capital) to support ANY valid endeavor ANY individual proposed that would bring an activity, a company that would satisfy individual and social needs... without the greed that is so self destructive.
Greed brings incentives to lie, to deceive, to cheat, to enrich one self at the expense of others, always overlooking the common ground that makes our project possible within a sophisticated society. THIS IS WHY OUR WORLD IS CRUMBLING AROUND US and to think we can just twik a few rules we are going to solve the terrible mess we're in?
I think Mr Reich means well, but he's been too much inside the "monster" and in fact still lives from the Status Quo that would never allow him to truly suggest a NEW way.
He's caught into THE System, so the solutions will never come from someone already compromised as he is.
A NEW PARADIGM will only come from those who truly are willing to loose it all, to die for it even, by proposing something totally out of the box, and there are solutions being floated.
One is by Jaques Fresco with a Resource Based society, where we plan according to the realities around us, not some simple mental formula based on primitive desires that fail to take into consideration the source of wealth. NATURE.
THOSE WHO STILL HAVEN'T REALIZED THE "MARKETS" ARE NOT RATIONAL, NEEDS TO BE EXAMINED.
May 08, 2012 2:00pm
Mr. Reich needs to provide an honest rebuttal to the following – or his good intentions will be wasted:Capitalists make money by creating or manufacturing products or providing some service and then selling the product or service for more than it costs them. The spread between what something costs them and what it can be sold for defines the amount of profit and it also indicates whether a company is likely to attract investment or not. The greater that spread between costs and price the more successful the Capitalist enterprise. A company that produces widgets for X and sells them for 2X is less competitive than a company that produces equal widgets for X and sells them for 3X. Also, a company that produces equal widgets at 1/2X and sells them at 2X will be more successful than the company above. If a company can produce equal widgets at ½ X and sell them for 3X that company quickly dominates the market. The other companies risk insolvency unless something can be done to make them more efficient than their competition.Now, I am not suggesting here that capitalist competition is a good or a bad thing because that discussion would be beside-the-point for the particular argument concerning whether or not a softer more equitable form of capitalism is a sustainable possibility. I am saying it is not. I am stating that where there is no competition, de facto, there is no Capitalism. I am contending that because we exist in a competitive economic environment, companies have little choice but to seek to minimize their costs and maximize their selling prices because if they don't do so they risk insolvency. Thus companies close factories where the cost of production (all things considered) are comparatively high and open factories where the cost of production is low. My point is that this tendency is really not a choice. Why? Because to be successful bosses need to run efficient businesses. For a business efficiency is mostly about the difference between costs and selling price - and whatever the market can bear determines that ultimately. Unless you wish to go out of business, moving towards efficiencies in terms of robotics, computers, and machinery that undercut the various costs of human labor, is NOT a real choice. Equally, NOT adopting efficiencies that, all PR spin aside, boil down to setting up shop where the labor force is subject to higher levels of exploitation is NOT a choice – a point which evidently Steve Jobs directly made to President Obama. These on-going efficiency projects are not and cannot be optional under the present economic system. Robert Reich seems to be deaf dumb and blind to this rather obvious economic lesson and yet he seems well-intended, courageous, and intelligent. The interesting question is how did such a logical disconnect come to be in such a man?
May 13, 2012 1:26pm
"A company that produces widgets for X and sells them for 2X is less competitive than a company that produces equal widgets for X and sells them for 3X."
Obviously, it would go the other way here, than you said it would. The company selling the widget for 2X WILL SELL MORE of the widget, and will thus OUTCOMPETE the 3X seller -- so long as production costs are similar.
"If a company can produce equal widgets at 1/2 X and sell them for 3X that company quickly dominates the market."
New words, same mistake. If one assumes that by "3X," you mean one and a half times 2X, the 3X-priced product is MORE EXPENSIVE, and thus will lose in the market.
The rest of your arguments seem to hold water, but the above terminology needs work, as in its present form it is NONSENSE.
"Robert Reich seems to be deaf dumb and blind to this rather obvious economic lesson and yet he seems well-intended, courageous, and intelligent."
OR... you are not getting what he is saying. Your whole argument is that business acts the way it does BECAUSE IT HAS NO CHOICE. Well, Reich understands that, and he is saying that GOVERNMENT must make that choice FOR business, by changing the tax incentives. Once it is, say, CHEAPER to give out good wages, and use that fact to pay lower taxes, then by God we will SEE good wages paid.
THAT is the sort of incentive Robert Reich is promoting. Government is indeed the privileged actor when it comes to setting incentives for business (which is why business is attempting to Colonize government in the first place; and why, if they succeed in doing so, we will NEVER see equity in wages).
May 08, 2012 12:40pm
I agree with Robert Reich that the way the global economy has been allowed and encouraged by the State to develop, "is, quite simply, nuts."
However Reich's prescription to "reform capitalism" does not go nearly far enough. At the most fundamental level, how can we expect the global economy to continue growing when we have far surpassed ecological limits to growth?
Robert Reich says, "And this is why a second Obama administration, should there be one, must focus its attention on more broadly distributing the gains from growth. This doesn’t mean “redistributing” from rich to poor, as in a zero-sum game. It doesn’t mean socialism. The rich will do far better with a smaller share of a robust, growing economy than they’re doing with a large share of an economy that’s barely moving forward."
Excuse me, Robert Reich, but the limits of the planet's natural resources ARE a zero-sum game. Unless we can somehow import the biodiversity created from billions of years of evolution from asteroids (as U.S. mining companies are now planning to do for rare earths so we can continue to "stimulate the economy" by purchasing iPhones), the Economy is absolutely dependent upon the limited (and over-strained) resources provided by planet Earth.
That means that we must not just divide the economic pie differently, but consider HOW we're making the pie in the first place. Are we using barely-legalized slavery? Oil? Coal? Non-recyclable, toxic solar panels and wind turbines made from rare metals most abundantly found in war-torn parts of Afghanistan and the Congo?
Capitalism is NOT reformable, and never was. But the answer is also not socialism, given the intrinsically corrosive and corrupting nature of concentrated political power...
Might it be towards "economic/ecological democracy" using principles of worker-ownership, in a kind of "democratic cooperativism"? We, the people, must re-align our economy to be in alignment with the way that Nature works - wasting nothing, recycling and valuing everything. In Nature, there is no unemployment, no excessive consumption, no waste... In Brazil, I am studying what's called "Solidarity Economics" - find out more at http://www.solidarityeconomy.net, or at http://en.wikipedia.org/wiki/Solidarity_economy. Interesting possibilities for the search for a positive way forward, outside of the defunct and anachronistic dualistic paradigm, of "Capitalism vs. Socialism".
For additional interesting and thought-provoking reading, check out Noam Chomsky's article in The Nation, Working Toward Factory Takeovers: Plutonomy and Precariat.
May 10, 2012 2:48pm
A Christian is anyone who accepts the premise that Christ was the divine Son Of God. A Socialistic is anyone who accepts the premise: "From each according to his ability, to each according to his/her needs." It seems to me that if you logically extend from your premise you still end up with a socioeconomic form of that S word. The real question is how to minimize exploitation of one human of the other, our species of all the others, and the planet itself. Can there be a non-exploitive version of Capita;ism? No.
May 08, 2012 12:16pm
For the economy to work money needs to flow through all sectors of society. It is government's job to make sure that it keeps flowing and when there is a bottleneck to unblock it.
May 08, 2012 10:30am
People are not equally competitive at any time or in any event. Even those of us that liked playing basket ball when we were younger, have long ago given up any illusion of being really competitive at it. We're OK with that. Most of us try to find something else we are good at. We try to make ourselves useful to others. This is a good impulse. Capitalism facilitates the competition of those inspired to 'build a better mouse trap'.
But, as with any competition, the higher the level the fewer the players. Think of farming or manufacturing. It creates more and more, with fewer and fewer hands. And since the wealth that is created does give the Nation lots more competitive options, no matter who's hand it ends up in, there is no compelling national security interest in wealth fairness.
But of all the areas to be competitive in - to try and make your self 'useful' - fewer and fewer are available to more and more people. We tell more and more people to just 'get a job', 'make money'. Forget about doing a job that makes sense in terms of being good at producing something, or being otherwise useful to others. Just make money. Make money with the belief that somehow that is your point of convergence with the larger society.
One area of competition keeps growing as other options diminish. Money grubbing is increasingly the primary game. But, like basketball, people are not equally competitive. An increasingly huge majority are forced to play a game they don't like/are not good at.
With more and more collective wealth created, and fewer and fewer hands actually producing it, the 'top parasite' wins. And that is largely the game that more and more people are playing. Collective wealth is like a giant dead cow, just lying there. The top parasite wins. Those that are not good at money grubbing, or find it distasteful, are handicapped. Instead of focusing on money grubbing, they dream of making a living in any other way that allows them some dignity.
The sad result of this pinnacle of competition is that the people on top are fewer and fewer, and of that group, fewer and fewer are actually contributing anything useful. The super producers like Bill Gates, or the farmer that can efficiently produce crops on 10,000 acres of land are as awesome as sports heros. But the super skimmers and parasites that make up over half of the top 1% don't actually produce anything. Warren Buffet candidly declared that his skills at seeing advantage in the money grubbing game made him extremely wealthy, but contributed very little.
We can't just tax the rich without adversely effecting our best producers. But we can draw attention to unearned wealth and the responsibility that any wealth demands. "To whom much is given much is required". Let the competition in good works begin!
May 08, 2012 9:41am
You can't reform capitalism - I'm getting sick and tired of countries betting on the same dying horse claiming this time's the good one. It never is and that is the name of the game.
May 08, 2012 7:44am
This just shows that The Nation of Change is really about the status quo. Here is your milk but leave the meat of the matter to those of "US" that know better. Reich is the bourgeois that is allowed to speak for "us". I say NOT FOR ME! He is no better than an infiltrator or conspirator that needs to be routed, identified and his head shaved. How any one with half a brain can say that things will turn around and we will get better wages under capitalism is stupid or lying . Profit is and always will be the motive no morals involved. How many homeless families, schools shut down, prisons built do you need before this is obvious?
Socialism IS what we need. We need to stop being afraid of the word and stop allowing the powers twist and mis-define their meanings.
Read Marx for yourself www.marxists.org
The workers/ all of us need solidarity. The so called American way of life has driven the environment to the breaking point for profit. The citizens are no longer able to sustain themselves without government/bourgeois support thanks to the greed of capitalism.
The time is now so we can be... guaranteed housing, food, education and medical. Human rights! We have nothing to lose but our chains!
May 08, 2012 9:35am
Although I agree with much of what Redstew says, I still wonder how it unfolds if and when you get the masses "organized." The loss of chains does not always lead to the betterment of those who need it most. These fiscal issues are complex and without the masses (your supposed power base) understanding what it's all about, they will have to be led; and I guess you're saying: led by people like you with your ideas. I'm stuck on this. Just who decides how much and whose blood is shed in any struggle? Reich, I'm assuming, is more of a gradualist; something I'd side with knowing full well that if gradualism doesn't satisfy the masses, blood may be spilled in one way or the other. I will always hope, however, that education and transparency will create enough power such that those forces of a greedy nature can be marginalized long enough to unfold a bit of progress for those who most need it. Truth cannot be kept too long by the greedy away from the masses and will eventually out. These are cycles and sometimes bloodless. Let's at least try to go in this direction.
"Do not be deceived by the drug called GRADUALISM...." MLK
Did not the revolutionaries of the October Revolution understand that sharing is better than the status quo? How many people die everyday in their homes because they could not afford medicine or food? How many rivers of fish and oceans are polluted seemingly beyond repair? How many peoples water is putrefied in the name of " moral capitalism"?
There is blood shed now. It may not be in the form of overt war but hunger, pollution, foreclosures, homelessness is a war on the masses here at home. But it is covertly. The overt bloodshed is in Honduras, Libya, Peru and elsewhere. If you watch OWS that is pretty overt bloodshed and intimidation without death...yet.
May 08, 2012 5:05am
May I tell you how wrong he is? What America needs is a Social Democratic socialist party. Socialism is the answer. Social Deomocrats still support a reformed capitalism. I hope he is refferring to Revolutionary Socialism.
May 08, 2012 1:43am
Mr. Reich, Thanks for that very lucid and thoughtful article! If even half of your suggestions happened we would be in a much better place! God help us if they don't!
May 08, 2012 12:35am
What some see as Corporate interests in bed with Government are often a convergence of different interests. The corporate interest is to be competitive. The Government interest is security for its' citizens. Where these two things converge a lot may be sacrificed. You may be homeless, but you are supposed to draw some reassurance from being homeless in a 'secure' Nation? The idealist in us rebels.
May 08, 2012 12:04am
The competition is global, but the rules and referees have not caught up. Nation States are survival units. Their primary mission is to come out on top in any competition. We abolished Glass Steagel because other parts of the world were not so restrained. Competition always seeks the level of the most irresponsible competitor. That is why in soccer we have international rules and referees.
Unfortunately, world soccer is infinitely easier to referee than competition between Nation States. Competition will push till something breaks, then it will regroup, push again until something else breaks. We let all manner of shady dealings slide if it improves competitiveness in the broader world. And, the further down in the competition you are, the more things you are likely to let slide. Think of China or the former Soviet Union.
"We don't know enough to be absolutely pessimistic." But Robert Reich's optimism ignores the incredibly hard conundrum of competitive realities between Nation States.
May 07, 2012 10:56pm
Good luck getting Congress or its owners to do much of anything meaningful to change the rules of private ownership--unless it is to create even more tyranny and imbalance than there is already!
May 07, 2012 10:39pm
While the problem is inequality, looking for a political system as an answer assumes that this will provide a solution. What if this assumption is wrong? My view is that the problem is that there is a privately controlled fractional reserve banking system. This is currently funding around 70% of global income into the hands of the Rothschilds and this is forcing the rest of us to get by on a fraction of what we should be earning. The solution is not a political one but a financial one. Either ban interest and return to an asset backed currency or have governments take control of the right to issue money so the benefits flow back to the public. Should either of these steps occur the problem would disappear.
May 07, 2012 9:29pm
Mr. Reich, thank you for framing this discussion so well. For so many years, the right wing has subtly demonized liberal thought by throwing out the socialism card knowing full well that the word has been identified with the "other" (Europe) and even the "evil other" (the Soviet Union) since just after WWII in America. In my opinion, this correctly frames the debate. Thank you!
May 07, 2012 9:13pm
Sorry Mr. Reich but you are wrong on the capitalism part. Capitalism demands growth and as we are confined to a singular planet with little hope of inhabiting another, even temporarily, unlimited growth is impossible. If we were to graph the financialization of our current economy, what with it's compounding of interest, and the exponential human population growth we would have two graphs which would resemble the growth of cells in a cancer. Sorry for the bad news, but if we don't stop that addictive capitalism habit, no matter how much we love the stuff it makes, well....
May 07, 2012 9:47pm
I do not agree with that all-or-nothing description of capitalism. Capitalism makes use of a short-coming in human nature that we will never be rid of. Using it to do some good should be the goal while putting controls on growth. The growth we should be concerned about the most is population growth.
May 07, 2012 8:50pm
Holy cow! you people must really love to type...
May 13, 2012 1:34pm
Gosh, yes! I get so excited!
Where's my keyboard -- oh, it's right here.
May 07, 2012 7:57pm
At the heart of the problem is a privatized money supply that puts every dollar in circulation because of a bank or a government debt. This is the reason money is swirling up to the top, and safety nets appear to be no longer affordable in Europe. Reich needs to come clean about all this. Letting the money system off his radar in this article is disingenuous. Glass-Steagall Act was only a stop gap measure to protect the private reserve bank system here and its lock on public finances and tax revenues. It has no place in this article as a solution at this time. The American people are not as dumb as they have been. We're reading the books published throughout the Progressive Era about Money Supply and Money Systems despite the fact they were left out of our expensive under-graduate and graduate degrees at the US "finest" universities!
May 07, 2012 7:04pm
Solutions are easy. Getting to a sane, just, sustainable world will not come about without much bloodshed. We also have to learn and practice democracy in our families, communities, and other small scale organizations. If we don't actually experience and practice democracy in our lives, we will never have democratic governments. Those of us who want a better world will not be able to use violence to get it, and the people with power will not hesitate to use violence against us.
May 07, 2012 3:02pm
Greedy Capitalists and Greedy and Corrupt Politicians are what is causing the present form of Capitalism to FAIL.
May 09, 2012 11:50am
Here is a response a posted to a similar statement: Now, you too seem to miss the macro-economic point - and although this might be one of those dancing dialectics it is also not rocket science or something ordinary people can't possibly grasp - as the banksters falsely claimed about the derivative market. Personally, I’ve come to believe that what prevents understanding of the macro-economic kind is psychological rather than intellectual at least in the USA. People here seem to feel that entertaining these kinds of ideas is somehow anti-American and so they absolutely refuse to go there. So, maybe I waste my time, maybe not.
My response ignored “all sorts of issues” because I wanted to concentrate on the matter at hand. The matter at hand was whether there can be some sort of humane Capitalism that can replace the abomination we now have. My response had nothing to do with whether or not there could be measures taken that will slow down or mitigate the collapse of our economic system at least for a while. My answer to that would be, yes, there probably are ways we can keep the juggler’s balls in the air a little longer, but they keep adding balls, don’t they? What I am contending here, however, is that Capitalism's much touted march towards productive efficiency, one of its key virtues, will also do Capitalism in sooner or later. Possibly that's happening with a whimper right now. Yes, there is a grand irony. That grand irony was pointed out two centuries ago by K Marx.
Now, there is a moralistic point of view, that I disagree with, which pins the blame for the present economic disaster on a few greedy nasty rich people, as if this was some sort of melodrama in which 1% of the population were a class of Oil Can Harries. Me, I blame the economic system for giving wing to these sociopaths. There will always be a few sociopaths around after all. The Inuit cannot risk them and so, in age of old, they bound their sociopaths hand and foot, placed them on small ice-flows, and shoved them out to sea.
By all means we need kinder, smarter, saner people to be our political and business leaders but they will hit a wall with Capitalism and that wall will be this: Capitalism is what it and where it is because of its inherent internal contradictions. Yes it creates a productive dynamo for a while, even if at the beginning stages this is at the expense of the hyper-exploited masses (workers) who are forced off their ancestral farmland to fire-up the Capitalist dynamo. (Average life expectancies lost 10 years in England between 1800 and 1900.) But, yes, eventually, although only for a while, our economic system becomes efficient at fulfilling many human needs - but only for humans who have money to pay for their needs being fulfilled – and again there is still that few taking advantage of the rest. The question, I guess, is how few is few. Presently they are a small bunch indeed. In the year 1967 in the USA that few was way more, and the so-called middle-class viewed theselves as among them. They numbered over fifty percent of the American polpulation, arguably. This was a world and historic best. Meanwhile as they were doing quite well way way more folks in the third world were paying for a large part of that elevated lifestyle. But that nasty reality was not one that inevitably leads to the end of capitalism. What is more likely to kill it is that Capitalism is driven to become ever more efficient as it seeks to make money out of fulfilling authentic and, as the system ripens, increasingly social-engineered cunningly implanted imaginary human needs. Consumerism may be a kind of mass insanity but mass insanity is not only under Capitalism. What is different is that in Capitalism nothing is stable for long and that the drive towards ever increasing profitability is married to the drive towards increasing efficiency and so Capitalism passes through distinct stages beginning with mercantile Capitalism that changes to Industrial Capita;ism and ends up in an era of unproductive decadence called Financial Capitalism – where the Western world is now, while a lage part of the developing world has reached the more productive era of Industrial Capitalism. These stages do not just happen. They certainly do not happen because of the failings on those in leadership positions in society. One stage propels Capitalism into the next. The process can be mitigated but only for so long.
When Capitalism does a good job at the task of fulfilling human needs we call that 'progress', which has its worshippers, even its fetishists. But progress of this kind cuts in more than one direction. If you are the boss and you don't need one thousand workers to do something, Capitalism will force you to shed those workers. You can put that off for a while but eventually you will engage the axe-man - or go belly-up. The same thing goes for if you can force a wage reduction on employees and get away with it. That ‘if’ will become your ‘must’. That’s because your competitor will do the nasty deed and if you don’t have the heart to sacrifice humans on the alter of progress you will be one of the losers. They are always trying to get a leg up on you, the competition, the dirty bastards. As the Boss you’ll want to do them before they do you. This IS the system.
The USA had steel mills in the nineteen-twenties employing upwards of 20,000 workers who, because of unions, soon made a fairly decent living, even if they risked their health. Nowadays a factory can be built that employs, say, one hundred workers to create the same output as 20,000 people once did and that too is called "progress". My point is that once that can happen, it will happen. Any factory owner who is employing 20,000 workers in direct competition with someone employing 100 workers (or whatever) cannot be competitive for long; unless, that is, if those 20,000 workers cost less than the competition's 100 workers including capital investment. So outsource or modernize, it comes down to one or the other. In one instance the chappie with the huge overseas labor force wins out. In another instance the opposite strategy, replacing humans with machines, or dead labor as Marx calls it, wins out. but that option (the German model) has little to nothing to do with loyalty your own nation. Not really. Capitalism moves through the nationalists stage to the internationalized global stage, and that is inevitable, as are wars. As the president of the IMF in Europe recently said, the social contract is ended. Social Democracy, the softer funner version of Capitalism, according to the BIG MONEY is unsustainable,. And , alas, I and K Marx and a few others agree. It all comes down to the statement of profit on the bottom line. If it does not come down to that, it is not Capitalism.
Now, in your rebuttal to my original response you did not even attempt to take on the substance of my economic argument. You, in fact, tried to be a little snide - IE the repeated reference to my “essay”, perhaps partly because you had no substance to your rebuttal, I do not know. At the very best I would call what you wrote a statement of faith. But you, sir, just like Mr. Reich, are, in my opinion, obligated to arguing fairly with opposing stated opinions or you betray the rationalism that was the foundation for the great men of the enlightenment, a movement based upon the premise that the human race would be a great better off if people abandoned arguments based on faith in favor of arguments based of empirical data and logical analysis. Would you care to try again?
May 07, 2012 7:48pm
Dr. Reich, I have always loved you but I wonder about this article. Since we've never had real capitalism, as it always (and very quickly) gets taken over by the power elite, whence comes the power to change this current non-capitalism situation? Your suggestions are good but speak to the intellectually sophisticated and their numbers are not enough to change the current situation. How can this then be communicated to numbers large enough to effect change without running into problems of anarchy?
May 13, 2012 2:19pm
"... whence comes the power to change this current non-capitalism situation?"
First, the current situation IS Capitalism ... just naive, winner-take-everything Capitalism, which BY DEFINITION is NOT good for the masses.
Second, the power to change it comes from another human institution: the Government, which CAN decide that the old ways of deriving economic power will no longer hold sway, by simple declaration.
That is where the power comes from, to do what he is proposing. Where the DETERMINATION to make that decision comes from, is the more interesting and cogent point, however.
We may indeed have to become deathly ill as a society, in order to finally take that cure, because it WILL hurt to do so. The only high side, in my opinion, is that it will hurt businesses far more than it hurts workers.
About time for that, I say. My own work history has left me with NO sympathy for business whatsoever. I will be GLAD to see them FINALLY pay their share of the costs of society. I WILL vote for and support such measures, when they finally come due.
May 07, 2012 2:36pm
The key is moral capitalism, but how do we instill that learning into our corporate leaders and politicians who have no concept of the idea, let alone the practice of it.
May 07, 2012 9:34pm
I fully agree.
May 07, 2012 2:22pm
Stocks are owned by the Rich because they can buy them.
Owners of stock don't work for the companies they own stock from, so why should stockholders get the lions share of the profits?
This is why capitalism is a failure, it doesn't recognize the people who work!
May 07, 2012 2:22pm
Stocks are owned by the Rich because they can buy them.
Owners of stock don't work for the companies they own stock from, so why should stockholders get the lions share of the profits?
This is why capitalism is a failure, it doesn't recognize the people who work!
May 07, 2012 2:21pm
Stocks are owned by the Rich because they can buy them.
Owners of stock don't work for the companies they own stock from, so why should stockholders get the lions share of the profits?
This is why capitalism is a failure, it doesn't recognize the people who work!
May 07, 2012 1:58pm
I forgot to meantion in my comment, that Robert Reich is the classical example of what Chris Hedges has written about in his eloquent books of the "Death of the Liberal Class." It's get 'em on the corporate payroll, doesn't it?
Thomas Baldwin
May 07, 2012 1:54pm
Reich has become one with a garbled mind since no one is listening to him. As with a clock on the wall without a battery, he is right about twice a day! Investment from the government in infrastructure, research and development and education IS Keynsian stimulus and the Mr. Reich does not recognize it! Tax policy over the last 30 years has, of course, been a major part of the income distribution problem. The basic problem is that our entire system has become absorbed by corporate fascists and Goldman Sachs and JP Morgan Chase are at the heart of it. This is a sick, defective analysis. It is noteworthy of course that he works in the "Goldman" School of Public Policy, isn't it? His bread is being buttered well, I betcha.
"But more Keynesian stimulus won’t help solve the more fundamental problem. Although added government spending has gone some way toward filling the gap in demand caused by consumers whose jobs and incomes are disappearing, it can’t be a permanent solution. Even if the wealthy paid their fair share of taxes, deficits would soon get out of control. Additional public investments in infrastructure and basic research and development can make the economy more productive – but more productivity doesn’t necessarily help if a growing portion of the population can’t absorb it."
Thomas Baldwin, Ph.D.
May 07, 2012 3:13pm
Doctom - there is nothing garbled about this essay. If wages go up to match productivity and more people have jobs etc. government spending (he never said it wasn't Keynesian) would not need to be a permanent part of the solution (which is what he DID say).
May 07, 2012 1:33pm
Capitalists make money by borrowing money and obtaining additional money from investors and make money on the sweat and equity of others. Short sighted CEO's whose pay is based on quarterly profits will do what is necessary in the short term while sacrificing long term company health. American CEO's make significantly more money than German, Japanese, Chinese, or Korean companies. Several years back it cost 20 cents to make a tee shirt in the USA and 9 cents overseas. The mark up on tee shirts is astronomical in both cases. Corporations are putting individual capitalists out of business. So one either works for a corporation or hopes to find a niche in a service industry. We basically have an oligarchy in the USA with a huge splash of Plutocracy. In an ideal Austrian economic model, I would agree with your assessment but we are far from this. If you argue for a one world economic government run by corporations, I find no fault with your analysis. See: http://www2.ucsc.edu/whorulesamerica/power/wealth.html
May 07, 2012 1:24pm
This the best article Mr. Reich has written on this subject. He has covered every area where reform is needed except "Jobs" He is leaving out that we are still outsourceing jobs (via outsourcing factories), jobs that should stay here! We should produce every damn product we consume right here within this nation We are one of the few nations on earth which has the natural resoursces whereby we can betotally self-sufficient and NEED to import anything! We have completely ignored this fact to our extreme detriment. Insanity! The fact that we have a total trade Deficit every year since the early 70's tells the story We have been running a trade deficit annually of about 500 Billion!
If we didnt import anything, and didnt export anything, we would be $500 billion per year AHEAD OF THE GAME THINK ABOUT IT
May 07, 2012 3:16pm
Food for thought Mr. Avard, but trading partners also make "friends" and one is less likely to go to war with a trading partner.
Also, we are 50 years behind in solar power and electric cars, so I don't think we could be completely self sufficient for long at current oil consumption rates.
May 07, 2012 1:18pm
Logical and easy to understand.
May 07, 2012 1:11pm
Mr. Reich needs to provide an honest rebuttal to the following – or his good intentions will be wasted:Capitalists make money by creating or manufacturing products or providing some service and then selling the product or service for more than it costs them. The spread between what something costs them and what it can be sold for defines the amount of profit and it also indicates whether a company is likely to attract investment or not. The greater that spread between costs and price the more successful the Capitalist enterprise. A company that produces widgets for X and sells them for 2X is less competitive than a company that produces equal widgets for X and sells them for 3X. Also, a company that produces equal widgets at 1/2X and sells them at 2X will be more successful than the company above. If a company can produce equal widgets at ½ X and sell them for 3X that company quickly dominates the market. The other companies risk insolvency unless something can be done to make them more efficient than their competition.Now, I am not suggesting here that capitalist competition is a good or a bad thing because that discussion would be beside-the-point for the particular argument concerning whether or not a softer more equitable form of capitalism is a sustainable possibility. I am saying it is not. I am stating that where there is no competition, de facto, there is no Capitalism. I am contending that because we exist in a competitive economic environment, companies have little choice but to seek to minimize their costs and maximize their selling prices because if they don't do so they risk insolvency. Thus companies close factories where the cost of production (all things considered) are comparatively high and open factories where the cost of production is low. My point is that this tendency is really not a choice. Why? Because to be successful bosses need to run efficient businesses. For a business efficiency is mostly about the difference between costs and selling price - and whatever the market can bear determines that ultimately. Unless you wish to go out of business, moving towards efficiencies in terms of robotics, computers, and machinery that undercut the various costs of human labor, is NOT a real choice. Equally, NOT adopting efficiencies that, all PR spin aside, boil down to setting up shop where the labor force is subject to higher levels of exploitation is NOT a choice – a point which evidently Steve Jobs directly made to President Obama. These on-going efficiency projects are not and cannot be optional under the present economic system. Robert Reich seems to be deaf dumb and blind to this rather obvious economic lesson and yet he seems well-intended, courageous, and intelligent. The interesting question is how did such a logical disconnect come to be in such a man?
May 07, 2012 9:44pm
The universe is a system of opposing forces, yin and yang. The left wing thinks we can run the world as a full-out socialist system (can't work - its been tried) and the right thinks the world works best when you let crazy, greedy capitalists run wild - also cannot work. The way of the universe, yin and yang - that is why a system of left and right can work but it is out of wack right now. It was doing pretty good when you could trust labor unions. The unions were the major force opposing the over-reaching greed of the corporations and then they became greedy. The corporations and many (not all) business people will never really be happy unless they have all the money. Too bad. The working class will never really be happy until they make the same amount as the company owner. Too bad. Lets keep the balance.
May 11, 2012 11:44am
Yin and Yang are not, according to Taoists, simply opposing forces. They represent a dialectic and only appear to be oppositional from one limited point of view. To view Yin and Yang as simply opposite forces is like saying the heads side of a coin is opposing the tails side of a coin, but failing to recognize that they are also two sides of one coin. The Taoists ask us to accept both contentions as part of a unifying higher conception that corresponds much closer to the way things really are. Believe that night is just the opposite of day, without realizing that this is also one process, and you remain in the dark. The way of thinking that views everything as opposing forces is not called Taoism. That is called dualism. Dualism with its either-or way of dividing things is incomplete and simple-minded compared to the nuanced subtle way Taoist philosophy views the world and the universe. So it is not either Capitalism or Socialism, it is rather that they represent one process, a process of historic evolution as Marx saw it. Like Capitalist supporters Marx too was a progressivist but he wanted the world to progress out of Capitalism In his model Capitalism is one important, perhaps even necessary, stage in the evolution of human society - but in many obvious it was also a nasty system based on exploitation that should be, and CAN BE, replaced by a better one: Socialism.
That stated, has Socialism been really tried and found to be a miserable failure? Everything is a failure until it succeeds - OR NOT. Where is the evidence that the failures of Socialism in such places as the former USSR means that Socialism cannot possible work? We are talking about a 70 year experiment in the history of 7000 years of Agrarianism. That would be like saying I went out with three girls before I was twenty and it didn't work, so therefore, marriage is an impossibility for me. Many centuries ago, when Spartacus lead his slave revolt against his Roman masters and lost, probably most Romans would have argued that Spartacus just wasn't a realist. They would insist that it is obvious that chattel slavery will always be with us because it is a manifestation of human nature. Nowadays many people, perhaps most Americans, might equally insist with a great deal of confidence that class oppression will always be with us and that wage-slavery, even if it is mitigated humanely to a degree, will also always be with us.
Why? Why should how things are be the way things always will be? Taoism tells a different story but so does history and social-science.
Finally, there is this hackneyed notion of the truth being in the middle of the two oppositional forces or opinions. These Middle-Of-The-Roaders, these either-or folks, seem to nevertheless want - nae demand - to believe that you get at the truth by finding the middle point between two opposing opinions. This is a simple proposition but entirely dismissible. IE I believe that the Earth revolves around the sun and you contend that the sun revolves around the Earth. But here the truth, clearly, is not in the middle.
The truth is wherever the truth is and the truth is also sometimes not what seems intuitive. Intuitively the Earth seems flat. Quantum mechanics describe the universe as working in what seems to be in strange and counter-intuitive ways indeed. According to quantum mechanics, something can be in two places at once, for example.
Or to cut to the chase, the middle of the road is a good place to be rundown by a bus. What I am heading towards is that Socialism is not only possible but perhaps it will be as Rosa Luxemberg predicted, that the future will either be socialism or barbarism. Sometimes either-or can be spot on.
May 07, 2012 6:20pm
Bravo! Well formulated argument. It has for thousand of years been so that the ones with the most money (or weapons) use their advantages to get better education, tools, (win wars) and keep growing their advantage. Unless we stop that and introduce not-for-profit in larger parts of manufacturing and society, the day will come where robots will be able to ENTIRELY replace working-class humans, and that would be OK, if these humans were taken care of allowed to chose whether they wanted to, say, play, paint, frolic or work on any given day. But as long as profit drives the society, these humans will be relegated to gladiator fights to get rid of as many as possible, because there is no room or need for them, sorry -you and me-, in such a society. And the argument that "ha ha, robots can never replace us" is really not applicable here. We, americans have already been replaced by the Chinese, and the way business is run, the day they can find slave labor (which is actulla cheaper than robots) they WILL go there and they WILL justify, just the way the rekigious (ha ha) South did in USA in the 1800s.. "As Apple said: "What? It's a problem that our assembly line workers work 18 hour days and make $5 a day? We don't see the problem..." Socialism NOW, please.
May 07, 2012 3:26pm
35 hours a week? This is expensive and is not sparkling consumption.
Lowering production cost is a solution but no one will balance our living standard and its wages to the one of any emerging country. And weighing down wages, increasing the social gap is not a solution either.
On another hand, more than 2/3 of the labor is used by small and medium enterprises but the large companies have lobbyists, special conditions, receive bank loans or credit lines while, the banks, despite the TARPs (granted money by the taxpayer) keep not extending credits to small and middle enterprises.
Due to the economic meltdown, government cannot set up a real and sound help for R&D.
Taxes, even corporate, remain disproportionate and compulsory levies are understood as taxes.
Small and medium enterprises NEED to rely on employees and productivity has to be improved thanks to educated people with as less as possible absenteeism which is rather expensive and disturbing.
All of these require a renewed organization at every level but such an organization can only be done when investing money while regulating the finance industry in order to easy credit lines and to avoid non commercial speculation.
You refer to Jobs. In some way it's a good reference. However quite a lot of Apple production is outsourced and even, the engineers trained here, leave to other countries where they can work, educate their children and even, profit of granted bank credits.
The government duty is to ensure security, in and out the country, the best available education, a controlled healthcare system and, last but not least, to avoid any enlarging social gap which implies, strict financial regulations.
May 10, 2012 3:39pm
Good luck.
May 07, 2012 3:26pm
LKurnarsky I'll answer you - Of course, companies need to make a profit, but most companies make ample ones. The wealth of every nation has been spiralling toward the few. So unless there is a rash of companies going out of businesses, apparently most are making a profit. Many were very successful and over extended themselves (Borders?)
Yes, costs need to be contained, etc. but if that is really so why is executive pay so out of line with the rest of the world? Why have gains in productivity gone exclusively to management and none to the workers? Companies routinely ignore worker ideas for improvement and cost savings.
Also, your "essay" ignores that companies seek to manipulate government laws (both tax and worker/environmental safety) at every turn; plus unless you want to live in polluted China, cost is not the only concern. So, this means to me what an acceptable profit is defined as has been warped by greedy producers.
I'm afraid, if you want to live in a civilized world, "what the market will bear" is not the only consideration and never has been. (In short, your essay ignores a lot of factors.)