Book: Supercapitalism

Supercapitalism is an interesting economics book written by Robert Reich. The main premise of the book is that starting in the 70's, the United States, and to some extent the world, started transforming economically into supercapitalism. From the 30's to the 60's, the US economic form was capitalism, (Reich terms it Democratic Capitalism), but a more benign form than what we have now. There were large oligopolies that cornered markets, and in so doing were able to obsorb costs which currently would not be allowed. During democratic capitalism, large companies could pay higher wages, better health insurance, etc. because they didn't have to fear competition. This allowed a large middle class, people who stayed at a job forever, etc. At this time, consumers and investors didn't have a lot of choice. There wasn't a lot of inovation because there wasn't the incentive to inovate like there is now. Reich contends that CEO's of companies were more like statemen, rather than the highly competitive leaders they are today.

With the advent of a truly global economy, faster travel, internet, and many firms competing for your dollar, supercapitalism was born. Now we have a choice where to buy things. We can shop around for a better price. Investors can quickly move their money in the stock market to a firm that will give them a better return. This has increased competition, which increases the need for the company to gain competitive advantage over others. This is done by lowering costs by being more efficient (a good thing, right?), cutting jobs (is that good or not?), pressuring suppliers to lower prices (like Walmart does on a large scale). Supercapitalism has increased our power as consumers (we get what we want when we want it) and also investors (we get a higher return on our money). It reduces the goodwill a company can have. For example, in the car industry. Originally GM could give great benefits to the unions, but once more competition came, they had to streamline. That meant better, cheaper, more efficient cars for us, as well as better return for investors, but it also meant layoffs and worse benefits for the employees.

Another problem with supercapitalism is that companies are trying to gain competitive advantage over others through politics. Industrial PACs (political action committees) have increased dramatically and there are more lobbiests than ever before. Even when legislation is debated that doesn't seem to deal with industry, they still get involved. If you remember in 2006 there was a debate over drilling off the coast of Florida and California. The oil companies lobbied for the drilling, and the main force against the drilling? You would think environmental groups, but it was actually the tourism industry. They were worried about potential oil spills that would ruin the tourism in those states.

Reich only had a few suggestions on what could be done about the bad side effects of supercapitalism. His main solution is that we need to stop treating companies like people. When there is criminal conduct, it's not the "company" who does wrong, it is the people who make the decisions. Companies should not be taxed, because they just pass it on to consumers. If we agree that a company is simply a legal contract between investors and workers, than you tax the investors, rather than "the company". With this definition, that a company is not an entity equal to a person, than rules could be inacted to limit the ability of companies to affect government. Reich states we need to seperate capitalism and democracy. Limit corporations from donating money to politicians (shareholders still can, because they are covered under the constitution, but companies have no constitutional rights), and then the government can make the rules without the influence of the corporations whose only focus is to make money for their shareholders.