Key Takeaways
1. The "Free Market" Is a Myth: Government Creates and Enforces Market Rules
There can be no "free market" without government. The "free market" does not exist in the wilds beyond the reach of civilization.
Markets require rules. Government establishes and enforces the fundamental rules that allow markets to function, including laws around property rights, contracts, monopoly power, bankruptcy, and enforcement. These rules are not neutral or natural, but reflect societal values and power dynamics. The debate between "free market" and "government intervention" is misguided, as government involvement is inherent to all markets.
Rules evolve over time. As technology and society change, market rules must adapt. For example, intellectual property laws have expanded greatly in the digital age. The key question is not whether government should be involved in markets, but how the rules should be structured and who benefits from them. Recognizing the myth of the "free market" allows for more productive debates about market design and regulation.
2. Power Shapes the Market: Those with Influence Determine the Rules
As income and wealth have concentrated at the top, political power has moved there as well. Money and power are inextricably linked.
Wealth buys influence. Large corporations, Wall Street firms, and wealthy individuals have gained increasing power to shape market rules in their favor through campaign contributions, lobbying, revolving doors between government and industry, and ideological influence. This creates a self-reinforcing cycle where economic power leads to political power, which is then used to increase economic power further.
Hidden redistribution upward. While debates often focus on explicit government redistribution through taxes and transfers, the more significant and less visible redistribution occurs through market rules that benefit those at the top. Examples include expanded intellectual property protections, financial deregulation, and corporate-friendly contract and bankruptcy laws. This "predistribution" within the market is largely hidden from public view and debate.
3. Property Rights Are Not Natural: They Are Defined by Law and Policy
Private property is the most basic building block of free-market capitalism. In the conventional debate it's contrasted with government ownership, or socialism. What is left out of that debate are the myriad ways government organizes and enforces property rights and who has the most influence over those decisions.
Property is a legal construct. What can be owned, by whom, and under what conditions is defined by laws and policies, not nature. These rules have changed dramatically over time - for instance, the abolition of slavery redefined what could be considered property. Intellectual property laws create new forms of ownership over ideas and information.
Rules reflect power. Those with economic and political influence shape property rights to their advantage. For example:
- Extended copyright terms benefit media corporations
- Expanded patent protections increase pharmaceutical profits
- Lax financial regulations allow new forms of property in complex derivatives
Recognizing property as a legal and political creation allows for debates about how it should be structured to benefit society as a whole.
4. Monopoly Power Has Evolved: From Physical Assets to Networks and Platforms
Unlike the old monopolists, who controlled production, the new monopolists control networks.
Network effects create new monopolies. While antitrust traditionally focused on market share in production, today's most powerful companies often derive their market power from network effects and control of platforms. Examples include:
- Google's dominance of search
- Facebook's control of social networks
- Amazon's power over e-commerce
Data is the new oil. Control over data and the ability to analyze it has become a key source of market power. Companies like Google and Facebook leverage user data to dominate digital advertising markets.
Antitrust law struggles to adapt. Traditional antitrust metrics like prices and market concentration don't capture the power of network monopolies, which often provide free services to users. New approaches are needed to address market power in the digital age.
5. CEO Pay Has Skyrocketed Due to Stock-Based Compensation and Buybacks
Stock options and restricted stock grants have become by far the largest portion of CEO pay.
Incentives misaligned. Tying CEO compensation to stock price was intended to align executive interests with shareholders. However, it has incentivized short-term stock price manipulation over long-term value creation.
Buybacks game the system. Stock buybacks have become a primary means for boosting stock prices and CEO pay:
- Companies spend billions buying back their own shares
- This reduces share supply, artificially boosting stock price
- CEOs then cash in stock options at inflated prices
- Resources are diverted from productive investment
Vicious cycle. As executive pay rises, CEOs gain more power to influence their own compensation through control of boards and compensation consultants. This creates a self-reinforcing cycle of rising pay disconnected from performance.
6. The Decline of Countervailing Power Has Reduced Workers' Bargaining Power
As unions gained economic power in the late 1930s and 1940s, they gained further political power and wielded it to further enlarge the bargaining clout of American workers.
Unions in decline. Union membership has fallen from over 30% of workers in the 1950s to under 7% today. This has reduced workers' ability to negotiate for higher wages and better working conditions.
Political influence lost. As unions have weakened, workers have lost political influence to shape labor laws and economic policies in their favor. Meanwhile, corporate lobbying power has grown.
Middle class squeezed. The decline of worker bargaining power has contributed to stagnant wages for most workers even as productivity and profits have risen. This has fueled rising inequality and a shrinking middle class.
7. Rising Inequality Threatens Capitalism's Stability and Legitimacy
When most people stop believing they and their children have a fair chance to make it, the tacit social contract societies rely on for voluntary cooperation begins to unravel.
Concentration at the top. A small elite has captured a growing share of income and wealth:
- Top 1% own over 40% of wealth
- CEO-to-worker pay ratio rose from 20:1 to over 300:1
- Inheritance is rising as a source of wealth
Middle class under pressure. Most workers have seen little wage growth despite rising productivity. Many struggle with economic insecurity and declining mobility.
Faith in the system eroding. Rising inequality and sense of unfairness threaten to undermine public support for capitalism and democracy. This can fuel political instability and support for extremist policies.
8. Technological Change Is Widening the Gap Between Capital and Labor
We are faced not just with labor-replacing technologies but with knowledge-replacing technologies.
Automation advancing. Technology is replacing not just manual labor but also many knowledge worker tasks. This shifts income from workers to owners of capital and technology.
Winner-take-most markets. Digital technologies create winner-take-most dynamics where a few superstars capture most gains:
- Instagram sold for $1 billion with just 13 employees
- Tech giants earn massive profits with relatively few workers
Skills premium rising. Demand for highly skilled workers in tech, finance, etc. is driving wage inequality. Many middle-skill jobs are being hollowed out.
Future challenges. As technology advances, maintaining broad-based prosperity will require rethinking how gains from growth are distributed.
9. The Working Poor and Non-Working Rich Challenge Meritocratic Justifications
The simultaneous rise of both the working poor and non-working rich offers further evidence that earnings no longer correlate with effort.
Working but still poor. Many full-time workers don't earn enough to escape poverty, challenging the idea that hard work guarantees prosperity. In 2013, 47 million Americans were classified as working poor.
Inherited wealth rising. A growing share of wealth is inherited rather than earned:
- 6 of 10 wealthiest Americans are heirs
- $36 trillion expected to be passed down by 2061
Meritocracy myth. The simultaneous existence of working poor and non-working rich contradicts the notion that income reflects individual merit and effort. It reveals the influence of power, privilege, and rules rigged to benefit certain groups.
10. Restoring Shared Prosperity Requires Rebalancing Economic and Political Power
The only way back toward a democracy and economy that work for the majority is for the majority to become politically active once again, establishing a new countervailing power.
New coalitions needed. Building countervailing power requires forging alliances among groups with common economic interests, even if they differ on other issues. This could include:
- Small businesses and workers against corporate monopolies
- Rural and urban communities for better infrastructure
- Diverse middle and working class voters for policies that boost wages
Reforming the rules. Key areas for reform include:
- Antitrust enforcement for the digital age
- Campaign finance and lobbying restrictions
- Expanded worker rights and protections
- Progressive taxation and inheritance taxes
Long-term vision. Reforms should aim to create a more inclusive form of capitalism with:
- Broader distribution of capital ownership
- Greater worker voice in corporate governance
- Social supports to enhance economic security and mobility
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FAQ
What's Saving Capitalism: For the Many, Not the Few about?
- Focus on Inequality: The book examines the growing economic inequality in the U.S., arguing that capitalism is rigged to favor the wealthy.
- Role of Government: Reich highlights the crucial role of government in shaping market rules, which are often manipulated by those in power.
- Call for Reform: The author advocates for restoring power to the majority to reclaim economic fairness and democracy.
Why should I read Saving Capitalism: For the Many, Not the Few?
- Economic Insight: It provides a critical analysis of capitalism's impact on society, essential for those interested in economics and social justice.
- Historical Context: Reich places current issues within a historical framework, enriching the reader's understanding of economic struggles.
- Practical Solutions: The book offers actionable ideas for promoting a more inclusive economic system.
What are the key takeaways of Saving Capitalism: For the Many, Not the Few?
- Markets and Rules: Markets depend on rules governing property, monopoly, and contracts, shaped by those in power.
- Concentration of Power: Economic and political power is increasingly concentrated among a small elite, undermining democracy.
- Need for Countervailing Power: Restoring power to the majority is crucial for ensuring the economy works for everyone.
What are the best quotes from Saving Capitalism: For the Many, Not the Few and what do they mean?
- Threat to Capitalism: "The threat to capitalism is no longer communism or fascism but a steady undermining of trust."
- Myth of Free Market: "The ‘free market’ is a myth that prevents us from examining these rule changes."
- Divisive Political Discourse: "The current left-right battle... is needlessly and perversely preventing such an alliance from forming."
How does Saving Capitalism: For the Many, Not the Few address the issue of CEO pay?
- Soaring Compensation: CEO pay has increased dramatically compared to average worker salaries, raising fairness questions.
- Board Influence: Boards, often composed of other CEOs, create a culture of cronyism that inflates executive pay.
- Stock Options: CEO pay often includes stock options, which can inflate share prices at the expense of long-term company health.
What is the meritocratic myth discussed in Saving Capitalism: For the Many, Not the Few?
- Belief in Worth: The myth suggests individuals are paid according to their worth, obscuring systemic issues.
- Impact on Workers: It hides the reality of declining bargaining power for workers, leading to more working poor.
- Critique of Meritocracy: Reich argues that factors like inherited wealth play a significant role in income, not just merit.
How does Saving Capitalism: For the Many, Not the Few explain the rise of the working poor?
- Stagnant Wages: Many full-time workers live in poverty due to stagnant wages and the decline of good-paying jobs.
- Job Insecurity: Increased job insecurity forces workers to accept lower wages, contributing to the rise of the working poor.
- Political Decisions: Policies favoring corporate interests over low-wage workers exacerbate the plight of the working poor.
What solutions does Saving Capitalism: For the Many, Not the Few propose for economic inequality?
- Restoring Power: Reich advocates for restoring power to the majority through collective action and political engagement.
- Reforming Market Rules: Reforming rules governing property, monopoly, and contracts to serve the many, not the few.
- Political Action: Encourages political activism to support policies that promote economic justice.
How does Saving Capitalism: For the Many, Not the Few relate to globalization and technological change?
- Impact on Workers: Globalization and technology have made American workers less competitive, affecting wages and jobs.
- Political Response: Policymakers have often prioritized corporate interests, failing to address these challenges.
- Opportunity for Reform: Reich sees an opportunity to respond to these changes by reforming market rules for shared prosperity.
What is the concept of "countervailing power" in Saving Capitalism: For the Many, Not the Few?
- Definition: Countervailing power balances the influence of wealthy elites and corporations in shaping economic rules.
- Historical Importance: Historically established through unions and regulations, it ensured equitable wealth distribution.
- Call for Restoration: Reich advocates for its restoration to prevent increasing inequality and protect democracy.
How does Saving Capitalism: For the Many, Not the Few address the role of government in the economy?
- Market Shaper: Government shapes market rules that can promote or hinder economic equality.
- Regulatory Reforms: Calls for reforms in campaign finance and labor rights to serve the majority's interests.
- Historical Context: Provides examples of government intervention correcting market failures and promoting fairness.
How does Saving Capitalism: For the Many, Not the Few propose to reform corporate governance?
- Linking CEO Pay: Suggests tying corporate tax rates to the ratio of CEO pay to median worker pay.
- Employee Ownership: Advocates for policies promoting employee stock ownership and profit-sharing.
- Revising Charters: Proposes corporate charters consider all stakeholders, not just shareholders.
Review Summary
Saving Capitalism receives mostly positive reviews for its clear analysis of economic inequality and proposed solutions. Readers appreciate Reich's accessible writing style and historical context. Many find his arguments persuasive, though some disagree with specific policy recommendations. The book is praised for explaining complex economic concepts and challenging common assumptions about capitalism and government. Some reviewers wish for more detailed implementation plans. Overall, it's considered an important read for understanding current economic issues and potential reforms.
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