The fall of the Berlin Wall in 1989 led a lot of pundits to talk about “the end of History.” The big battle of our lives, the defining philosophical and political conflict of the century, was over. Communism lost. Capitalism won.
But in the United States, the real war was just getting under way, a conflict between two visions of society: in one, the public sector, operating under a democratic system, dominated economic and political life; in the other, the central players in the game of life were private corporations. This war, which drags on today, poses a profound question: does the capitalist economy work for us -- or are we slaves to its whims? The answer continues to transform almost every aspect of American life.
Clinton-era labor secretary Robert Reich, now a professor at UC Berkeley’s Goldman School of Public Policy, takes on a big piece of this epic struggle in his new book, Supercapitalism: The Transformation of Business, Democracy and Everyday Life. The cogent, well-documented, and critically important argument he makes is that the American people have prospered as consumers and investors at the expense of their role as citizens.
And in the end, we’ve been hurting ourselves.
This is the essential paradox of modern global capitalism: you can buy high-end electronics cheap, get amazing bargains at Wal-Mart, enjoy the growth of your 401(k) plan -- and in the process, become poorer. Because the race to the bottom of the price chain and the top of the market has costs, and in the end, we’re all paying them. The only solution, Reich says, is a more aggressive government: more regulation, higher taxes, and, quite possibly, some consumer and investor sacrifices.
Reich goes back to what he calls the “Not Quite Golden Age,” the roughly 25 years after the end of World War II that were marked by continuous economic growth, relative prosperity, and remarkable (compared with today) economic equality. The top tax rate, for the very rich, was 91 percent (compared with 35 percent today). American industry was controlled by an oligopoly, in which a handful of businesses held the reins -- and because they faced little competition, they were able to share their profits with labor. Back then, companies didn’t distribute their wealth to investors; it went to the employees.
For all the denunciation of socialism and idolization of the free market that goes on in American politics today, Reich points out that cold war America was defined by centralized economic planning. It just wasn’t the government doing that job; it was private industry.
He doesn’t contend that the model in operation back then was perfect -- and anyone who has followed the postwar transformation of San Francisco, driven by secret private-sector planning, knows the painful impacts of such policies. But public resources were adequate to pay for massive infrastructure advances (the interstate highway system), gigantic educational benefits (the GI bill), and phenomenal tax breaks for home ownership. Labor unions, dealing with domestic companies that didn’t face competitors with cheaper offshore labor, were able to negotiate a division of the wealth that helped create the modern American middle class.
The gap between rich and poor was much, much smaller during that period than it is today; as Reich notes, “the potent incentive of great wealth was often absent,” so the economy was far more equitable and stable. High taxes on the rich didn’t slow a period of remarkable economic growth.