Saving Capitalism, For the Many, Not the Few

This title attracted my attention when I read it, and I purchased the book written by Robert B. Reich, a professor at the University of California, Berkeley, and a former member of the Clinton administration.

Reich starts by reminding us of the time in  his childhood when middle –class people from the US, like his own parents, had a very decent standard of living and were able to provide their children with a good education. He continues by evoking the everlasting debate in America between the supporters of the “free market”, supposed to solve all the problems in society, and the advocates of more governmental intrusions in the market. This debate according to him is not relevant, because the “free market” is a myth, a “screen of smoke” used by the people who take advantage of the current situation. The rules of the game are strongly determined by governmental regulations, and the real issue is about  knowing who has the power to establish, modify or suppress these regulations, and in whose interest this will be done.

He defines the five buildings blocks of capitalism as follows:

  • Property: what can be owned
  • Monopoly: what degree of market power is permissible
  • Contract: what can be bought and sold and on what terms
  • Bankruptcy: what happens when purchasers can’t pay .
  • Enforcement: how to make sure that no one cheats on any of the rules.

The book then gives a detailed account of how the big corporations and their CEOs, and Wall Street with the big banks and the hedge funds’ managers,  now have the lion’s share in the decision-making process of regulation. It also shows  how they influence legislative activity to increase their benefits through lobbying, the financing of political campaigns and “revolving doors” for retiring US officials.

To give just a few examples of the evolution which has taken place in the last decades, it is useful to mention:

  • The extension of copyrights for corporations like Disney to 95 years (duration of copyright was 14 years when it first appeared in US)
  • The extension of patents and the so-called-pay-for delay to postpone the introduction of generics in the pharmaceutical industry, which is perfectly legal in the US
  • The bail out of banks “too big to fail” sponsored by the tax-payers and
  • Stratospheric stock options packages for CEOs not taxed as income but as gain in capital.

A factor contributing to this evolution is the decline of countervailing powers, like trade unions.

This recent evolution results in an increasing number of working poor (47 million in the US) and of the non-working rich (the Walmart heirs possess the same fortune as the bottom 40 % of American citizens) and the huge disparities in income (the CEOs of big corporations earning in average 300 times the median salary in their company compared to 20 times a few decades ago). Another consequence of this trend is the lower confidence felt by citizens with regards to banks, corporations and government.

This situation, characterized by a huge level of inequality, is not sustainable and has a very negative impact on society.

That Spirit Level, Why Equality is Better for Everyone

An insightful book “The Spirit Level, Why Equality is Better for Everyone”, by Richard Wilkinson and Kate Pickett is based on statistical analysis: if one considers such issues as life expectancy, violence, rates of imprisonment, drug use, teenage births, etc., America fares worse than more egalitarian countries such as Japan or the Scandinavian countries.

So, it is high time, according to Reich, to restore countervailing power to shift to a more equitable situation in the US. As he says: “The bottom 90 % of Americans – regardless of whether they are owners of small businesses or working poor, entrepreneurs or student debtors, small investors or homeowners, white or black or Latino, men or women – have far more in common economically with each other, than they have with the top executives of large corporations, the Wall Street crowd, or America’s wealthy. The bottom 90 %are losing ground mostly because of upward pre-distributions embedded inside the “free market”, rules over which those at the top have great influence. If the smaller players understood this dynamic, presumably they would seek to gain greater influence by becoming allies. This alliance, or set of alliances, would form the new countervailing power.” (OC, page 185)

I can only encourage you to read these two great books as  they are both eye-openers.

Philippe Du Pasquier, President of the Board

 

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