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Supercapitalism: The Transformation of Business, Democracy, and Everyday Life Review by Frank DiTraglia Robert Reich
New York: Knopf, 2007.
$15.95/Trade Paperback

Part history lesson, part antidote to the popular economic misconceptions of the present day, Supercapitalism is fundamentally an argument about American democracy. And although its cover evokes the fall of man, the book is far from a denunciation of the market economy. To Reich, capitalism is the most powerful engine of material progress ever devised, but democracy is the only arena in which our conscience can effectively confront our pocketbook. The social ills of the modern era—inequality and lax overseas labor standards to name a few—are real and cannot be left to the market. Supercapitalism is Reich's attempt to put democracy and capitalism in their proper place.

Reich's view of history is broadly materialist. Technology rather than ideology created the stable but comparatively sluggish regulated economy of the 1950s and 60s, and transformed it into the dynamic market economy of the present day. The result has been mixed. While we have gained as consumers and investors, enjoying higher returns, lower prices, and more product variety, income inequality is on the rise and median wages have failed to keep pace with productivity. Corporations, Reich points out, are neither moral nor immoral; their sole purpose is to maximize profits. It is the role of democracy to set the “rules of the game” in a way that satisfies our moral and ethical concerns. Unfortunately, the same forces that have so greatly benefited us as consumers have weakened the democratic process. Increased competition between firms has driven increased lobbying activity, and politicians, easily corrupted by corporate money, have ignored citizens’ voices. Reich wants a more responsive democracy in which we seriously consider the trade-offs between material progress on the one hand, and our morals on the other.

Reich is at his best in the historical sections of Supercapitalism. The book is full of fascinating and carefully referenced examples that may come as a surprise to readers of the younger generation. For someone who grew up in the era of Priceline and Travelocity, it is easy to forget that airfares were once controlled by the federal government. And along the way, Reich dispels a number of widely circulated myths. Deregulation, for example, did not start with Reagan; it was well underway in the Carter administration. And contrary to popular opinion, firms have become less, not more powerful over time. Lobbying activity in Washington is an indication of weakness, not strength. In Reich's hands, the tale of the modern economy is an enthralling one.

But at times the story begins to sound a bit repetitive. Reich's frequent summaries certainly make his argument easy to follow, but risk undermining his exposition. If three paragraphs are sufficient to encapsulate a major point, why spend fifteen pages making it? The point is not that the book is too long, but that it could have done more with less. Reich wants us to have a serious policy conversation, an attempt to balance our concerns as citizens and consumers, but Supercapitalism is remarkably short on positive proposals. A leaner version of the book could have left Reich the space to start this conversation. Yet these concerns are secondary to evaluating Supercapitalism. The book should stand or fall on the strength of its argument. And although Reich's case is convincing in parts, it ultimately fails. Supercapitalism is intriguing but flawed.

Income inequality in America is a preoccupation for Reich, but his treatment of the topic is remarkably shallow. For one, the majority of world inequality is between, not within countries (Goesling). If Reich really cares about inequality, the U.S. is the wrong place to look. But this raises an important question: why should we care about inequality? It is perfectly fair to criticize GDP on the grounds that it fails to account for the distribution of wealth within a nation, but it is equally fair to criticize measures of income inequality on the grounds that they ignore the absolute level of material well being. A highly unequal society could be one of massive privation or one of great material comfort; from this measure alone there is no way to tell the difference. True, some of the world's most unequal societies are also among its poorest. But the real enemy is poverty, not inequality. We instinctively fear inequality because of the perception that one man's gain must be another man's loss, but this is a fallacy. Indeed, Reich admits that most of the recent rise in income inequality has entailed the rich getting much richer without the poor getting poorer. True, median wages have not kept pace with productivity and this has contributed to inequality. But this only troubles us because the median wage is fairly low. If it were $100 per hour, we would have little grounds for complaint.

So why does inequality trouble Reich? The best he can offer is that "it undermines solidarity and mutuality on which responsibilities of citizenship depend ... [and] creates a new aristocracy whose privileges perpetuate themselves over generations" (Reich, 114). Indeed, if Bill Gates dined lavishly while the rest of us starved, if his children attended the best universities while ours were mired in illiteracy, if he enjoyed a long and healthy life while the masses succumbed early to disease and malnourishment, we would probably have a revolution on our hands. But the difference in income between Bill Gates and a member of the American middle class greatly exaggerates the corresponding difference in material circumstances. And though the poor in America do live measurably shorter lives and lack access to a good education, this is not because Bill Gates is so much richer than everyone else. Here, as before, the real problem is poverty.

Yet even if we grant that income inequality is a cause for serious concern, we need not make Reich's tacit assumption that it is a permanent feature of the modern economy. Over fifty years ago Simon Kuznets proposed an influential theory, later dubbed the Kuznets Curve, suggesting that income inequality would initially rise but eventually decline as an economy industrializes (Kuznets). When everyone is a subsistence farmer, inequality it low. The emergence of higher paying factory jobs increases inequality at first, but eventually hardly anyone continues to work the land. Inequality falls. The US may well find itself in an analogous situation today as it transitions from manufacturing to increasingly skill-intensive industries. As the returns to education increase, inequality rises: white-collar workers begin to earn far more than their blue-collar counterparts. But over time, more and more people begin to accumulate the skills necessary to enter high-paying jobs. The trend in inequality may reverse itself. Kuznets curve-type arguments could similarly be made to explain the recent stagnation in median wages, and a several of the other social ills that Reich catalogues. Although he has documented their presence, Reich has not shown that they are here to stay.

The keystone of Reich's argument is that our gains as consumers come at a cost. But his most high-profile example of this circumstance falls under close scrutiny. Citing one study that finds a 3.5% decline in retail wages following Walmart's arrival in a community, and another showing the attendant decline in retail prices, Reich concludes that "consumers get great deals largely because workers get shafted. The irony of it is they're often the same people" (Reich, 117). Jason Furman, the author of the second of these studies and a former campaign adviser to Barack Obama, would likely disagree with Reich's analysis:

Plausible estimates of the magnitude of the savings from Wal-Mart are enormous – a total of $263 billion in 2004, or $2,329 per household. Even if you grant that Wal-Mart hurts workers in the retail sector – and the evidence for this is far from clear – the magnitude of any potential harm is small in comparison. One study, for example, found that the 'Wal-Mart effect' lowered retail wages by $4.7 billion in 2000 (Furman 1).

These figures make it plain that Walmart could not have lowered prices largely by redistributing wealth from workers to consumers; the company has made retail astronomically more efficient, creating new wealth in the process. And since Walmart's customer base consists mainly of lower-income households, the benefits of low prices accrue primarily to the poorer members of society. Even those who see their incomes squeezed by Walmart will come out ahead provided that prices fall by more than wages. The point here is not that working at Walmart provides a decent living -- it most certainly does not. And Furman, like many others, urges increased government assistance for the working poor. But the relevant empirical question is whether Walmart helped consumers mainly at the expense of workers. This does not seem to be the case.

In his discussion of Walmart and inequality, and at various other points in Supercapitalism, Reich's argument is sloppy, but it comes apart completely when he attempts to show that the market cannot provide for the social good while democracy can. The basic idea is simple. Companies only act in a socially responsible fashion if doing so increases profits. Consumers care about social issues but are unwilling to pay a premium for social responsibility: they are "of two minds." Moreover, even if they choose to boycott offending firms, consumers are too shortsighted to do so effectively. Democracy is left to pick up the slack. Like many simple arguments, Reich's is far too simple. The problem lies in his assumptions about consumer behavior.

Reich cites as an example the case of Starkist Tuna. After making its product "dolphin-safe," the company sold a great deal more tuna, but was unable to raise its prices by even a penny. Consumers wanted to save the dolphins, it seemed, but only at no additional cost. This is an especially stark example, but it is also an especially bad one. Canned tuna is what economists call an inferior good, something you buy more of as your income falls. The problem is not that tuna-buyers are unwilling to pay to save the dolphins; it is that they are almost by definition too poor to do so. Indeed, consumers pay a premium for social responsibility all the time: fair trade coffee, recycled copy paper, cruelty-free eggs. These products are on the shelves precisely because consumers want to buy them, and firms can make a profit selling them. Social responsibility is a good, and one we demand more of as we grow richer.

But suppose we grant Reich's point. What does it mean to "want" something if you are unwilling to make any sacrifice for it whatsoever? Saving the dolphins comes at a cost whether we choose Starkist voluntarily or the government passes a law. Would the same people who refuse to pay an extra penny for Starkist really vote to raise the price of all tuna by the same amount? Democracy is a wonderful thing, but it does not eliminate self-interest. One could plausibly argue that voters will not understand that a vote to save the dolphins is a vote for higher tuna prices. But an electorate that cannot understand the effects of legislation combined with a political class that Reich has already argued is easily corrupted hardly seems like a recipe for enlightened policy.

There is much to recommend in Supercapitalism. Even if they see the flaws in his arguments, many readers will find themselves agreeing with the bulk of Reich's conclusions. And Supercapitalism provides a much-needed response from the left to Naomi Klein and others who see the modern economy as a kind of ideological conspiracy. A former member of the Clinton administration and a professor of public policy at Berkeley, Reich is in no danger of being dismissed as a right-winger. Yet Supercapitalism is flawed. Democracy is no panacea, and the market has far more power to promote social responsibility than Reich supposes. Moreover, sloppiness, and a lack of policy focus mar what could have been a truly excellent book. If you only plan to read one book about the modern economy, Supercapitalism should not be it.