How capitalism on steroids influences our lives today

Special to The Times

The Transformation of Business, Democracy, and Everyday

Life

Robert B. Reich

Supercapitalism

Alfred A. Knopf: 276 pp., $25

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THIS spring, a Polish railway worker, Jan Grzebski, awoke from a 19-year coma. He was amazed to find himself in a democracy with a capitalist economy and high-quality consumer goods widely available. After reading "Supercapitalism" by Robert B. Reich, one suspects that had the author similarly awakened from a 19-year coma he would have looked past the positives and remarked in horror, "I see rich people . . . everywhere."

In Reich's view, capitalism has triumphed in the form of hyper-competitive markets, and the transformation merits adding his new word, supercapitalism, to our lexicon. This virulent strain of capitalism, he contends, produces better products and higher stock market returns but comes at the cost of inequality, uncertainty and a decline in democracy. This economic pressure cooker squeezes companies toward ruthless penny-pinching, decimates unions, degrades the environment and pushes government further into the pockets of lobbyists.

Reich, a former secretary of Labor for the Clinton administration and now a professor at UC Berkeley, identifies human nature as a central cause for these woes. Borrowing a line from the comic strip "Pogo," he writes that "we have met the enemy and it is us." Throughout the book, he laments the decline in unionization and the increased variability of income in the United States. Finding the culprit in our greed, he writes, "consumers get great deals largely because workers get shafted."

Reich's view that our own human nature lies at the root of modern woes stands in refreshing contrast to standard left-right rhetoric. On the left, liberals assert a benign and blank-slate human nature manipulated by evil corporations. The right is even sillier, particularly when it propagates the hyper-rational view of neoclassical economics. For example, Nobel laureate Gary Becker published a famous academic article arguing that heroin addicts "maximize utility" when they inject themselves. Reich, however, threads an important distinction between leftist human innocence and libertarian human infallibility. As he notes in the book's strongest chapter, we are "of two minds" about modernity.

Other aspects of "Supercapitalism" are less satisfying. These include bad history, bad politics, bad economics and bad policy.

Reich rushes through economic history and paints a one-sided picture. In his view, the post-World War II era in the United States is an almost golden era marked by equality, liberty and fraternity. Unions promoted the common good and government regulators produced stability, maintained jobs and protected communities. U.S. corporations were so dominant that they could take a public-minded role. This nirvana was shattered in the late 1970s by supercapitalism. (An alternative historical view is that with Europe and Japan destroyed by the war, and China and India shackled by communism and colonialism, America's postwar preeminence was instead unusual and inherently unsustainable.)

Reich finds the sources of modern capitalism not in the rebuilding and renewal of other countries, but in rather odd places such as cargo containers and the ability to ship things more efficiently and cheaply around the globe. And when it comes to politics, he labels as "nonsense" the notion that Ronald Reagan had anything to do with the economic changes in the world. Is it plausible to argue for hyper-competitive capitalism and deny the effect of reducing taxes? Would Jan Grzebski have awoken in a NATO country and not a signatory of the Soviet Union's Warsaw Pact without the pressure Reagan's military build-up put on the Soviet Union?

In the economic area, Reich devotes tremendous attention to companies. Pressed by the forces of supercapitalism, he argues, companies have no choice but to eliminate healthcare benefits, outsource manufacturing to China, Mexico and elsewhere and destroy the environment. However, this is not the fault of the executives whose sole job, he says, is to maximize profit. One wonders who decided that CEOs must pollute and not give a hoot about the environment, even when the savings are measured in pennies.

One of the most glaring inconsistencies is Reich's repeated assertion that corporations have no economic slack. "Competition is so intense that most corporations cannot accomplish social ends without imposing a cost on their consumers or investors." In fact, U.S. corporate profit in 2006 exceeded 10% of GDP, one of the highest figures in decades. By this objective (and unmentioned) measure of slack, corporate America actually is free to choose.

Finally, when it comes to policy, the book offers little that is new. At a Harvard graduation some years ago, students of the John F. Kennedy School of Government, where professor Reich and I have both taught, chanted "tax and spend, tax and spend." To this, professor Reich might urge those students to add regulation as another source of economic prosperity. Beyond such stale prescriptions, Reich's odd view of business leads him to strange conclusions such as, "companies should have no rights or responsibilities in a democracy. Only people should."

Despite its profound flaws, "Supercapitalism" describes important and sweeping economic changes, and is readable (at least to an economist). The rise and fall of unions in America has been dramatic, as has the rise in government lobbying and the recent divergence between worker productivity and pay (an important cause of record profits). Reich has a talent for making economics accessible and sometimes even fun.

On perhaps the most important point, Reich is on target. He notes that we devote far too little attention to these central issues of our day. "Our Democracy as a whole seems incapable of having these debates, though we very much need them." Well said. Most people know far more about Britney Spears' belly than about Federal Reserve Chairman Ben Bernanke's views on sub-prime loans. If "Supercapitalism" helps reduce our structural deficit in economic knowledge, it merits attention.

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Terry Burnham, the author of "Mean Markets and Lizard Brains," is director of economics for Acadian Asset Management Inc. in Boston.

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