The United States’ political, legal, financial and economic systems are rigged in favour of the financial elite, argues Robert Reich, a Berkeley professor who served as secretary of labour during President Bill Clinton’s first term (1993-97).
He was in Toronto this week to promote his new book, Saving Capitalism: For the Many, Not the Few, and spoke with Advisor.ca about its key themes.
Reich says the idea of a neutral, free market is a myth. “The building blocks of capitalism—property, contracts, bankruptcy laws, enforcement mechanisms—are now tilted dramatically in favour of big corporations, Wall Street and the wealthy against average working Americans. Most people don’t see this tilt because much of it is […] hidden within the rules of the game.”
The financial elite exert “enormous power” over policymakers, and things have gotten worse, Reich argues. “The big difference between when I started [in Washington] in the 1970s and now is that there’s no countervailing power. It’s basically only big corporations, Wall Street and a smattering of billionaires who are influencing all of these decisions.”
Reich borrows the term “countervailing power” from economist John Kenneth Galbraith. It refers to power centres representing the broader population, such as labour unions, that effectively offset the strength of society’s elite.
“We have to re-establish a countervailing power in America. That was the key to widespread prosperity for 30 years after World War II. The [current] lack of countervailing power, and the concentration of wealth and income, has generated more and more political power at the top to rig the game on behalf of the big corporations, Wall Street and the wealthiest.”
If you know what to look for, you’ll see the tilt almost everywhere, suggests Reich. Corporations with “deep pockets and lots of political influence,” as he puts it in the book, have gradually built competition-choking monopolies and oligopolies that squeeze consumers. For instance, “eighty percent of Americans have no choice of internet service provider, which explains why [they] are paying more for internet service, and getting slower speeds than the citizens of any other advanced nation.”
Another example: “Right now, private, for-profit health insurers are merging like mad. That means Americans […] are going to be paying even more [for healthcare] because there’s going to be less competition.”
Reich also says labour faces obstacles to organizing effectively, thanks to right-to-work laws in some states. “In the 1950s, over a third of all working people in America belonged to a labour union. Now, in the private sector it’s down to fewer than 7%, which means the working class, and average working people, don’t have bargaining leverage.”
The largest company in the 1950s, adds Reich, was General Motors, whose workers were paid an average of $35 an hour (in today’s dollars). “Now the largest employer is Walmart, whose employees get an average wage of a little over $9. This is not because the Walmart worker is any less productive, […] it’s because they aren’t organized—they don’t have any bargaining leverage.”
The elite’s influence on bankruptcy law is also apparent, argues Reich. “Why is it that […] big corporations can use bankruptcy to shield themselves from their debtors, including their commitments to the labour unions and workers? The bankruptcy code, particularly in the last 30 years, has been changed to insulate those with a great deal of wealth and power, and at the same time become unavailable to homeowners and student debtors. They have no recourse.”
The net result of the structural tilt, according to Reich, is that “the market is rigged for the benefit of the few”: big corporations, their top executives and their major shareholders.
Reich says Wall Street was “rather tame” in the 1950s, 1960s and 1970s. “Regulations put into place in the 1930s to make sure banking was boring were still very much in place. But then Wall Street began to assert its political clout to get rid of those regulations.”
Especially significant, he suggests, was the repeal of the Glass-Steagall Act in 1999, allowing commercial and investment banking to be combined. Dodd-Frank, the law enacted to rein in the financial sector post-2008, “is being whittled back by Wall Street as we speak.”
The United States appears to be in a pickle. On one hand, the solution to the excessive power of the elite must come from the political sphere, Reich says, since legislators set the rules of the game, and can recast them to be more equitable. What do you do, however, when those legislators are under the sway of the financial elite?
“It’s always been the pattern that when American capitalism goes off the rails, as it has in recent years, there’s [been] a political movement to get it back on track.”
Though there are no guarantees, Reich isn’t overly concerned the situation will turn violent. “Unlike other nations and societies, where economic stresses, poverty, middle-class stagnation, and enormous wealth at the top have led to revolutions, the United States, Canada, Britain, and a few other nations have avoided these kinds of traumatic and often disastrous revolutions by reforming capitalism from within.”
That reform, argues Reich, will be premised on the idea that the conflict is not between Left and Right, Democrat and Republican, but rather majority versus elite, anti-establishment versus establishment.
“Why is it that Bernie Sanders is surging? Why is Donald Trump also surging? They represent very different ideas, and I hesitate to put them in the same sentence. […] But both are being fueled by this upsurge of disgust toward the ruling class—the insiders, both political and economic.”
Trump represents the Tea Party wing of the Republican Party, while Sanders represents the Occupy element of the Democratic Party, says Reich. “Both the Tea Party and the Occupy group have origins in the 2008 bailout of Wall Street, and the sense that the whole economy has turned into a kind of corrupted form of crony capitalism.”
It isn’t just these groups getting fired up. “Most people know they haven’t seen any increase in their wages in 30 years, […] and yet the people at the top are doing better than ever. Average Americans are coming around to believing that the system is rigged. […] To the extent it’s possible to gain some unity among the anti-establishment forces, we’ll begin to see countervailing power.”