Saving Capitalism: For the Many, Not the Few

According to Reich, the prevailing view of the free market is that it must be left alone from government intrusion. He argues that “few ideas have more profoundly poisoned the minds of more people than the notion of a ‘free market’ existing somewhere in the universe, into which government ‘intrudes’” (3). Within this view, any attempt to alleviate economic inequality is a bad idea because it does not allow the free market’s natural outcomes. Reich, however, argues that “there can be no ‘free market’ without government” because government rules create the markets (4). He also points out that such rules have evolved over time to reflect the norms of various democratic societies, and they have typically reflected the wishes of those with the power to make them. The notion of the free market, therefore, is a myth that has strategically been used to shift debate away from examining the way that the rules have changed to benefit those in power.

In Chapter 2, Reich lays out what he describes as the five building blocks of capitalism: property, monopoly, contract, bankruptcy, and enforcement. Although property seems straightforward as a concept of ownership, Reich considers it a murky subject because of the new concept of intellectual property. Monopoly refers to the decision concerning what degree of market power is permissible. Contract is the concept of supply and demand and agreement on a selling price, but this also becomes murky because many things cannot be legally sold, and fraud and coercion are not allowed. Bankruptcy refers to the decisions that are made about unpaid debts, while enforcement refers to the role that entities such as police, investigators, and prosecutors play in the proceedings dealing with the various rules.

Reich argues that the decisions that have to be made concerning these five aspects of capitalism do not “intrude” on the free market; rather, they “constitute the free market” (9). According to Reich, when a democracy is working effectively, a free market will produce outcomes that benefit the vast majority of people, but when a democracy is failing, the outcomes of the free market benefit a few at the top while keeping everyone else economically insecure. The latter is the result of power and influence that come in the form of campaign contributions rather than outright bribes. Reich argues that before examining the building blocks of capitalism separately, “it is useful to see how political power shapes all of them and why market freedom cannot be understood apart from how such power is exercised, and by whom” (10).

In Chapter 3, Reich examines how economic and political power influence the market mechanism. He points out that the 2010 Supreme Court ruling in Citizens United v. Federal Election Commission reversed the Campaign Reform Act of 2002, which limited corporate spending on political advertisements. The 2010 ruling effectively said that corporations are people and that unlimited political contributions are their free speech. Another example of how the Supreme Court moved the market mechanism to the direction of the powerful is its ruling from nearly a century earlier when it said in Carter v. Carter Coal Company (1936) that the collective bargaining of workers interfered with the personal liberty and private property of corporations. The few corporations and wealthy individuals who favor rulings such as these use terms such as free speech, free trade, and freedom of contract to justify the shifts in power.

According to Reich, a consequence of the expanding freedom of corporations has been to give bigger slices of the economic pie to top executives and Wall Street banks and smaller slices to everyone else. Not only have ordinary workers lost power and freedom to corporations and their executives, but ordinary consumers have also lost power and freedom as enterprises have been allowed to monopolize markets. He argues that in this context, power is an essential part of meaningful freedom, and he asserts that “[t]hose who claim to be on the side of freedom while ignoring the growing imbalance of economic and political power” are disingenuously promoting power over freedom (15).

In Chapter 4, Reich discusses private property, what he describes as the “most basic building block of free-market capitalism” and what can be contrasted with government ownership, or socialism (16). The debate over private versus public ownership has masked the larger questions of what can be owned, by whom, and for how long. Using the examples of past slavery and land ownership, Reich illustrates that these questions are often both moral and political ones. Additionally, the concept of property has taken on new meaning with advances in modern medicine and technology. Considered intellectual property, information and ideas are the building blocks of modern economies and require governmental decisions concerning their ownership. According to Reich, an entire legal industry has developed around patent protection and patent infringement. The debate behind it is not free market versus government, but rather how governments define property rights and who has the power to determine it.

Reich explains that one of the reasons drug prices are so high in America is that medicines are considered property and become patented. With these patents, pharmaceutical companies are allowed to exist as temporary monopolies for a period of 20 years, but they are then allowed to renew their patents on the basis of small insignificant changes to the drug. This is the reason that many lifesaving drugs have continually been produced by only one company. Copyrights applied to works of art and music work similarly in that their copyrights have continually been extended again and again over the last century. Likewise, these copyrights are typically held by large publishing corporations or trusts rather than individual artists. The result has been that much of the creative output of the last century has been locked away for additional decades. Reich argues that property “turns on political decisions about what can be owned and under what circumstances” (28).

In Chapter 5, Reich discusses the second building block of capitalism: monopoly, or the degree to which market power is allowed. While some degree of market power is needed so that businesses will be incentivized to create and innovate, that power also translates into higher costs for consumers. Likewise, this power also provides large corporations with great influence in governmental decisions and hobbles small businesses who try to compete. As an example, Reich points to the fact that America has some of the highest prices and slowest speeds for broadband internet service among developed nations. This is because most Americans “have to rely on their local cable monopoly in order to connect” (31). In other nations, intense competition among providers has created low prices for consumers and universal coverage.

Throughout the chapter, Reich provides a number of examples to illustrate how monopoly has become standard practice in contemporary capitalism. Among these, he describes how Monsanto, the agricultural biotechnology corporation, has patented its own genetically modified seeds that do not produce seeds of their own. This forces farmers to buy new Monsanto seeds every planting season. Similarly, Reich points to several examples in high tech, where companies such as Google, Apple, Facebook, Twitter, and Amazon create “patented systems that are becoming worldwide standards and network platforms” (36). He argues that when enough people adopt these platforms, “others have no choice but to adopt it as well” (36). In closing the chapter, Reich argues that “unlike the old monopolists, who controlled production, the new monopolists control networks” (40). He explains that antitrust laws do not work in the ways they did a century ago because of the power and influence the new monopolists have gained.