Supercapitalism: The Transformation of Business, Democracy, and Everyday Life

October 10, 2007

Supercapitalism: The Transformation of Business, Democracy, and Everyday Life


JOANNE MYERS: Good morning. I'm Joanne Myers, Director of Public Affairs Programs. On behalf of the Carnegie Council, I would like to thank you all for joining us.

Today it is a great pleasure to welcome back to the Carnegie Council one of our country's most thoughtful and admired economic and political thinkers, Robert Reich. Professor Reich is also a very distinguished public servant who has served in three national administrations. He is here to discuss his latest book, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life.

Once upon a time in America, capitalism and democracy were almost in perfect balance. It was, for Professor Reich, not quite a golden age from 1945 through the 1970s, but a time when America struck a remarkable accommodation between these two forces. A social contract existed among business, labor, and government, and each one made sure that they received a fair share of the economic pie.

Even more importantly, as citizens, we felt empowered, and as a nation, we trusted our government to look after us.

Today the situation has changed dramatically. In Supercapitalism , Professor Reich writes that mid-20th-century capitalism has morphed into global capitalism, with heightened competition, innovation, and global integration. Although consumers are experiencing many more choices and investors are doing quite well, democracy, charged with caring for all citizens, is becoming less and less effective. Nowadays, companies battle it out with other companies, lobbying our Congress to enact laws and regulations that favor them and disadvantage their competitors. Such pressures make it more difficult for citizens to have a more meaningful say in public policy, as our government becomes more and more beholden to large corporate special interests at the expense of the population—which leads us to ask, who can strengthen our capacity as citizens?

Yet Professor Reich cautions us that, in lieu of government, big corporations cannot and should not be held responsible for the common good of its citizens. He calls for an end to the illusion that corporations can be socially responsible, until laws define social needs.

In order to rebalance the roles of business and government, Professor Reich believes that we need to have a national conversation on these issues, and we need to do it now.

With years of experience, especially while serving as secretary of labor during President Clinton's first term, Professor Reich was part of an administration that presided over the longest economic expansion in history, moving forward on several initiatives to build the skills of American workers. So when he writes that now is the time to get back on track, I believe we all should listen carefully to his proposals, as he explains the world, both as it is and how he would like it to be.

Please join me in welcoming a very special individual, our guest, Professor Reich.


ROBERT REICH:Thank you very much, Joanne.

How many of you saw the Republican presidential debate last night, out of curiosity? Six of you. I won't tell any Republicans that only six of you saw it.

But I'll tell you, I did come to New York and I participated in a debate, actually televised, one of those post-debate punditry debates about what happened in the debate. I was struck, actually, by the failure of the Republican candidates to talk in an advocacy way—that is, to support—free trade. This is the first Republican presidential debate that I remember in which the Republican candidates all backed off of free trade. In fact, it was only John McCain who came out in favor of free trade, very strongly. All the rest of them kind of were uncomfortable with the concept of free trade.

The Democrats are also very uncomfortable with free trade.

The pollsters who are advising all of the candidates are telling the candidates that free trade has become very unpopular in America. In fact, there is a major backlash against free trade. Many people out there—and I know this not only from polls, but from my free-floating focus group around the country—are feeling economically stressed, even though all of the data show that the economy is doing, in an aggregate, quite well. But there is a wider and wider gulf between Main Street and Wall Street. Most people out there are feeling not only the stress of median wages that are not rising—in fact, they haven't risen, adjusted for inflation—but also of increasing health-care costs and energy costs, increasing costs with regard to college tuitions. Some people who are renting feel increasing costs with regard to mortgages. In fact, people who are not renting have mortgage costs directly.

These costs and this kind of backlash against globalization are, it seems to me, a function of a failure—in fact, a very profound failure—of our democracy to help people to express themselves in ways that might have, before we reached this backlash, provided people with a little bit more social insurance, some protection against economic change.

Let me be very specific. This really is the subject of my book.

I went to Washington for the first time in the early 1970s. My first boss in Washington was somebody who some of you may remember, Robert Bork. Does anybody remember Robert Bork? People don't know that he was my first boss in Washington. I enjoyed working for him. I was in the solicitor general's office. I was assistant solicitor general when he was solicitor general of the United States. We disagreed, to be completely candid about it, about the First, Second, Fourth, Fifth, Eighth, and Ninth Amendments to the Constitution. That was all we disagreed about. [Laughter]

But I remember, in those years, there was a different feeling that people had about government and about Washington. In fact, if you go back to polls taken in the early 1970s, when people were asked, "Do you think government most of the time generates outcomes that most people feel to be just?", most people in those polls, about 80 percent of Americans, said yes, that government can be trusted most of the time to do the right thing.

In those years—I was also at the Federal Trade Commission in the Carter administration—I was visited by lobbyists occasionally. They were pestering me. There weren't many. Washington was a kind of seedy town. There weren't too many lobbyists. I would take the lobbyist across the street if the lobbyist wanted a meal. We would go to a little sandwich shop called Barney's.

I don't suppose anybody here remembers Barney's. If you didn't listen to the Republican debate last night, you certainly never went to Barney's on Pennsylvania Avenue.

Barney's was distinguished for the almost-inedible quality of its food and also the number of cockroaches that were on the walls of Barney's. Once I took the lobbyist there and the lobbyist treated me to lunch, I never saw the lobbyist again. That was a sure-fire way of getting rid of all lobbyists.

When I went back to Washington in the 1990s as Bill Clinton's secretary of labor, I was overwhelmed by how different Washington was. It was no longer a seedy town. John F. Kennedy had called it perfectly equidistant between a northern and a southern town: It had all the charms of an industrial northern city and all of the efficiency of a sleepy southern town.

It was not that at all. Washington had become an Emerald City. Barney's was gone. The restaurants and the bistros and the hotels were extraordinarily rich. The five counties immediately surrounding downtown Washington were among the 20 wealthiest counties in America. There were not just a few lobbyists. In fact—I checked this when I wrote the book—in 1975, when I was there, there were 7,000 lobbyists; when I went back in 1993, there were 35,000 lobbyists. Now there are close to 60,000 lobbyists. That does not include the tens of thousands of lawyers and public-relations professionals, most of them working for companies.

I began to worry about the state of our democracy, the dissonance between what people wanted and their degree of cynicism about democracy. But I was also aware of something else. As somebody who had been in the vineyards of economic policymaking for years, I was aware that the economy was doing remarkably well. In fact, apart from and allowing for the business cycle, if you look at the economy between the early 1970s and the late 1990s, or today, you see an economy that is functioning far better than it used to function. Consumers have many more choices.

Between 1945 and 1975, for example, most consumers who wanted to buy an automobile had the Big Three. If we wanted to deal with a telephone company, it was Ma Bell. Not much choice there. If we wanted to deal with a bank, if we wanted to put our savings somewhere, most of us had the local savings banks. There was not the extraordinary range of options that consumers subsequently had.

That is true of investors, too. The Dow kind of channeled along in the 1950s, 1960s, and early 1970s, at maybe 300, 400, 500, 600. There was not much action. Most people didn't pay much attention to their investment portfolios. Suddenly things took off in the 1970s. Now the Dow, notwithstanding recent perturbations over the summer, is 12,000, 13,000.

Is there some relationship, I asked, between the extraordinary dynamism that we have seen over the last three decades in the economy and the decline and responsiveness of our democracy? What are all those lobbyists doing?

There is a left and a right critique of what is going on. I think both of them completely miss reality. What I have attempted to do in this book is to separate myth from reality.

The right-wing critique is, basically, government is over here and the market is over here, and government should stay out of the market. Government is too much in the market. We have too many regulations and so forth.

What that right-wing critique misses—particularly having worked in Washington—is that you cannot have a market without government. Government is setting the rules of the game continuously.

There is a lot of action now in intellectual property, for example. That is government deciding what is property, what is not property. Regulations are there, primarily, not because the public demanded that they be there, but because one segment of business or one industry or one particular business wanted that regulation there.

So the right-wing critique doesn't really square with reality.

On the other hand, the left-wing critique also doesn't square with reality. That left-wing critique is that companies, corporations, big corporations, global capital have somehow conspired against the rest of us to subjugate democracy, overwhelm democracy, and make it very difficult for individuals to be heard.

Yet that doesn't square with my experience of reality and my research as well. In fact, most of the lobbyists are in Washington fighting other lobbyists. It is mostly warfare between businesses, among industries, and the din is so loud, it is true, that it is hard for individuals to speak or get their ideas through. But that is not because business has conspired. It's just the opposite. It's because businesses have been fighting with each other.

Google, in 2004, went public. Before 2004, Google had no presence in Washington. After 2004, Google felt it necessary to hire a platoon of Washington lawyers and lobbyists and public-relations professionals. Why? Because Google's opponents in the marketplace—primarily Microsoft and Yahoo—were already in Washington with their own platoons of lawyers and lobbyists and public-relations people. There were issues like intellectual property or trade or antitrust that were continuously coming up, and Google felt that, now that it was a public company, if it didn't have its Washington representatives, all of these policy issues would be tilted in favor of its competitors. They needed, therefore, to be there.

That is spread across the economy. You see that again and again and again. What look like public-interest battles, like internet neutrality—I could give you many examples; some of them are in the book—are not really public-interest battles. They are battles over which segments of industries, which businesses, are going to prevail.

What is the relationship, therefore, between supercompetitive capitalism of the sort that we saw emerging in the 1970s—"supercapitalism" I call it—in the markets and in politics? It's actually very much the same thing.

Beginning in the late 1970s, technologies came on stream—cargo ships, container ships, satellite communication technologies, eventually the internet—all of which allowed us, as consumers and investors, to have a world of choice. Globalization and technology really did improve the choices available—not three major automakers, but six in the United States and a plethora from around the world; not just one Ma Bell, but a huge number of competitors competing for telecommunications; not just one or two local banks, but Merrill Lynch and Fidelity and a huge number of companies competing for our savings. You go around the economy and you see that consumers have more and more choice, getting more and better comparative information, being able to get better and better deals.

Wal-Mart is a boon to part of the economy, and certainly to consumers that have low incomes. Why do we blame these companies? Why do we assume that they are responsible for undermining democracy or being socially irresponsible? Actually, they are doing exactly what we want of them. To the extent that they are playing by the rules, they are more competitive than ever before. Consumers and investors are huge winners.

In Washington, they continue the same battle. The Washington battlefield is a continuation and an extension of the market battlefield. Why do we expect anything less from them?

The trouble is, when we assume that companies are moral beings, when we assume that they are people, we get way off the mark. Our judgment and our public policies begin being impaired. When we demand corporate social responsibility, we assume that Wal-Mart or any other large company can play the game differently, and should play the game differently. But without changes in rules and laws telling Wal-Mart what to do, it's an absurdity to expect that Wal-Mart or any other company will do something different than what it is already doing.

The heart of the matter—and here I am going to give away one of the basic premises of this book—is that within each of us there is a fundamental conflict. We are consumers and investors on the one hand, and we want the best deals. But we are also, simultaneously, citizens who are concerned about issues like widening inequality or the destruction of Main Streets as everybody goes to big-box retailers or the instability of jobs or the outsourcing of jobs abroad, or even global warming. As citizens, we would like companies to do something differently from what they are now doing, but as consumers and investors, we love the great deals we are getting. That cognitive dissonance between the lobes of our brains that are citizens and the lobes of our brains that are consumers and investors has caused us not only to be confused about what we want, but also to be confused about the only place where that cognitive dissonance can effectively be addressed in society, and that is our democracy.

We did address it in the first decades of the 20th century. In the Progressive Era, we had a lot of laws that were encoded at the state level, but then at the federal level—against child labor, a 40-hour workweek, with time and a half for overtime, and many, many other laws—even the Environmental Protection Act of 1975. But these laws did increase prices to us as consumers, inevitably. We said, in effect, that we were willing to endure that tradeoff.

But now that Washington is so overrun and state capitals are so overrun with supercapitalism, companies competing against each other, we cannot effectively address that tradeoff in our capacity as citizens.

Do you follow me?

Now, what do we do about it? I have a number of ideas. One idea, for example, is that, with regard to political campaign contributions, consistent with the First Amendment, we allow anybody to contribute whatever, but all contributions have to go through a blind trust for every candidate, so that a candidate will never know who contributed what, thereby severing the quid from the quo.

There are a lot of other things that can be done. The problem is, the system will not reform itself from the inside. The lobbyists, the public-relations professionals, the lawyers in Washington, for example, have a very strong vested interest in keeping the system going just as it is, as do the incumbents.

So if anything is going to change, if we are going to have a chance to address the cognitive dissonance that exists in our heads between the consumer/investor on one side and the citizen on the other, we have to clean up politics. What I say to many people who are concerned about whatever—global warming or job instability or affordable health care—or many of my conservative friends, who say, "What we are most concerned about is sex and violence in the media"—and, by the way, I am, too—is, whatever you want from our economy, whatever you consider to be an excess of capitalism, whatever you think needs to be constrained, nothing will be constrained so long as our democracy is still overwhelmed by supercapitalism and overwhelmed by the lawyers and lobbyists that represent the various components of supercapitalism competing against each other.

The only way out of the quagmire is to take democracy back. That requires, I am afraid, much more engagement by citizens, much more citizen involvement, much less cynicism.

I say to my young students—and I have said this for years, but I say it now even more vehemently—the biggest obstacle to the kind of change that I am talking about in terms of taking democracy back is cynicism. Cynicism wraps us up in a very comfortable cloak and engages us in a way that gives us an excuse for not rolling up our sleeves and getting on with what needs to be done. We say, "Nothing will help. The system is just gone. Therefore, I don't have to really do anything about it."

You all, I am sure, are and have been engaged. You wouldn't be here this morning if you weren't engaged. So I am speaking to the converted.

But let me just say, the mythologies on the right and left need to be disputed. Those are the first steps. When people ask me, "What is the first step in getting going?" I say, "Making sure we understand the nature of the problem." We can't improve the situation unless we know what the problem is.

We have shown ourselves over certainly the last 150 years, when it comes to reform of the capitalist system—and we have done it every time—we have understood the nature of the problem, and we roll up our sleeves and get on with what has to be done. We put ideology aside.

The fundamental problem we have is when we get caught up in mythologies that don't really have to do with the problem, essentially, from the beginning.

So the book is about putting aside mythologies and about rolling up our sleeves.

Thank you very much.

Now I will take your questions.

Questions and Answers

QUESTION: One thing you haven't mentioned so far is the impact of labor on all of this discussion. How do you assess the role of labor unions in the whole making of economic policy?

ROBERT REICH: The reason that labor unions have substantially shrunk, from about 35 percent of the workforce that was unionized in 1955 to fewer than 8 percent of the private-sector workforce today that is unionized, has to do not with the stereotypical left view, which is that corporations just decided to conspire against unions and fight unions, just out of their venality—somehow, CEOs became greedier or more venal in the late 1970s and early 1980s. That is really not what happened. Consistent with the narrative, the story that I think is true, is that consumers and investors were armed with much more technology, much more choice and could choose better deals. Those better deals and lower prices often involved non-union goods and services.

So unions, basically, increasingly got priced out of the market. We see that certainly in the auto industry.

How do we bring unions back? The only sector where unions could, I think, consistent with globalization and technological change, and consumers and investors getting great deals—the only sector where they really have a chance to get back is in the local personal service sector, where they are not competing with foreign workers and they are not competing with automated equipment, where they are providing direct services—retail, restaurant, hotel, hospital. That is where we see SEIU [Service Employees International Union] and other unions building and growing.

QUESTION: You opened your remarks right now by talking about this allergy to free trade. I wonder if you could comment about NAFTA [North American Free Trade Agreement] and the World Trade Organization. Dennis Kucinich and others have been advocating withdrawal, saying this has been very bad for American workers and bad for foreign workers—Mexico and so on.

Of course, you were involved in the Clinton administration. This was one of the great achievements, as I remember, that was projected by the president at the time.

I wonder what your assessment is a decade later, whether the United States should leave WTO or NAFTA, or whether these need to be radically altered, and if so, how.

ROBERT REICH: Free trade is good for America. It's good for developing nations. There is no question that in economic terms and the social consequences of those economic realities, free trade is a huge plus.

For Americans now—and two-thirds of Republicans now—to conclude that free trade is bad for us means that there has been a profound failure in terms of public education, in terms of providing individuals who are threatened by trade in terms of their jobs with the wherewithal to get good jobs. We could talk about how people should be able to navigate the new economy. But we have a left/right conspiracy, in a sense. We have Lou Dobbs and Pat Buchanan and others telling America that all of their economic frustrations come from free trade. That is simply not true.

I worry, frankly—again, going back to the themes of the book—that these mythologies, such as, "Free trade is responsible for your job problems," are going to cause us to become ever more isolated. If you combine that with a foreign policy that is, itself, quite unilateral—the capacity to go preemptive anywhere—that potentially isolationist economic policy, which I see growing, is quite dangerous for us and the world.

I, as secretary of labor, when NAFTA was under consideration, was booed off the stage by many union organizers and many union audiences. NAFTA was oversold by its proponents and the dangers of it were overstated by its opponents. NAFTA, it turned out, was probably—and, again, the jury is still somewhat out—a good thing in the sense that it controlled the peso crisis in Mexico. But in terms of trade, it was no big deal. Most manufacturing has gone to China anyway. It didn't go to Mexico. It has had a small positive effect on the economy. It is more of a symbol for most people than it is any kind of reality.

WTO, I think, is an extremely important, good initiative. If I were going to redesign the WTO, I would say the WTO probably has to have a little bit more understanding of health, safety, environmental regulations in any particular country, and not jump to the conclusion that they are non-tariff barriers.

But that is a detail.

QUESTION: I am always wondering—America is so big on pushing WTO, and yet we have subsidies on sugarcane and corn and all these things. How can you push free trade when you don't practice it?

ROBERT REICH: As a matter of fact, the new farm bill is now in the Senate, and I am—I was going to say that I'm astounded. I'm not astounded. I'm not surprised. But I am saddened by the fact that the Democrats, who now control Congress again, are not willing to stand up and say what we all know. The new farm subsidy bill is something on the order of $286 billion. That is hurting the rest of the world. If we wanted to reduce global poverty, the most important immediate step we could take would be to reduce dramatically those farm subsidies.

We also have a tariff of 18 percent, on average, on imported agricultural commodities—18 percent. That is much higher than the average tariff of 5 percent on everything else.

So Americans get a double whammy. As taxpayers, we pay this huge sum for farm subsidies, and also as consumers, we pay $35 billion more than we would otherwise have to pay because of these farm tariffs. At the same time, we are hurting developing nations, we are making the Doha Round impossible to pursue, and we are stimulating illegal immigration into the United States of people who can't even make a living off of farms.

Most Americans don't understand that fewer than 2 percent of Americans are on the farm. Most farm subsidies go to big agribusiness. Half the developing world is on the farm.

QUESTION: What effect is the weak dollar and the strong euro having on the U.S. economy?

ROBERT REICH: The weak dollar and the strong euro and the relatively strong yen—and I expect a stronger won—if the dollar continues to decline gradually, which is what we have seen, then it's not going to have a dramatic effect on the U.S. economy. In fact, if it's gradually, according to economic principles, our exports become more competitive, everything we import becomes more expensive, the balance of trade is improved, and we all are, again theoretically, better off.

The danger occurs if there is a precipitous run on the dollar. And it's not just foreigners; it's American investors, too—Warren Buffett and others—everybody getting out of the dollar very, very quickly, causing OPEC and other international traders to get nervous about the dollar, and thereby move as rapidly as they can into euros. That would destabilize the global economy.

I don't want to suggest to you that a declining dollar has no consequence for us. It does. It means that our standard of living suffers, because everything we buy from the rest of the world costs more. It means that interest rates have to be higher than otherwise here in the United States to attract global capital. It means that we essentially have to begin to live within our means and cannot borrow $3 billion a day from the rest of the world.

Again, if the dollar gradually declines, we gradually wake up to those realities. If the dollar suddenly declines, not only do we suddenly wake up, but everybody else is in the soup with us.

QUESTION: What would you do about rising energy costs and fossil fuel dependency?

ROBERT REICH: If I were running for office, I hope I would say the truth, which is that we have to have a carbon tax. We, alone in the world, are not paying nearly—I say "we," American consumers—the real cost of gas, for example. If you include the social costs, the atmospheric costs, the foreign-policy costs, given what we are doing in the Middle East, the true cost of a gallon of gas is far underpriced here, and it's underpriced relative to Europe and most other places around the world.

So, yes, there has to be a carbon tax or a cap-and-trade system that has the same consequence, which is to increase dramatically the cost of energy to us here in the United States.

The question is, how do you sell that politically, and also how do you do it in a way that does not have tremendously regressive consequences in terms of a distribution of income and wealth that is already becoming terribly maldistributed in the United States? I don't have good answers for that.

I am concerned that no candidate is willing, when it comes to energy and the environment, to tell Americans that they will have to sacrifice. There is no easy way out. There is no free lunch when it comes to fighting global warming or getting out of the oil dependency we are now in.

QUESTION: Fossil fuel issues have generally focused on automobiles, but there is also the issue of home heating. I have to say that my home heating bill has tripled in the last five or six years. I am wondering about that.

ROBERT REICH: Mine hasn't. I moved to the West Coast, and I would urge you to consider that. [Laughter]

If we had a carbon tax, that carbon tax would be on home heating and people would be paying more for home heating.

Again, in economic terms, we would expect that as the cost of oil and natural gas continues to rise and other fossil fuels continue to rise, that would create even more incentives on the part of the private sector to find alternatives to fossil-based energy. That would increase the public's desire to conserve and also to buy products and services that minimize fossil-based energy usage.

But again, getting from here to there is going to be terribly difficult.

The word "sustainability" is often used in the United States. But given that China and India—inevitably, their middle classes are going to grow and they are going to say to themselves, as they already are, "Why shouldn't we have the same standard of living, as a middle class, as America?" Given that, it can't be just sustainability in the United States; it has to be "surpassability." We have to actually do better than we were doing 10 years ago or 20 years ago, in order to accommodate rising middle classes around the rest of the world.

QUESTION: I'm from Queens College. My question relates to education. Essential to an improvement in the economy, of course, is the need for improvement in education throughout the United States. Could you comment on the need for improvement in public education and also improvement in higher education, and how they might interact to improve the economy?

ROBERT REICH: How much time do we have? [Laughter]

Let me just tell you both what I see in the data and also what I understand from a policy perspective.

The biggest payback for our society in terms of education—and this is documented extremely well—is early childhood education. The social science research is undisputed on this point. From zero to five years old, those minds need to be stimulated. If they are stimulated appropriately, the payoff to individuals and the payoff to society is going to be huge. But that is a long-term payback.

For K-12, we don't know all that much. We know that smaller classrooms tend to do better. We know that well-paid teachers—because, after all, the law of supply and demand is not repealed at the classroom door, and we know that if we want talented men, as well as women, to go into teaching, we have to pay them more. We know that talented teachers are important. We know that teachers' unions probably need to agree to merit pay or need to defer providing tenure until teachers actually are proven. I know that is a highly contentious issue with unions. Most politicians don't say that, but that is the other side of the equation with regard to better pay.

We also know that most young people need something beyond secondary school if they are going to be prepared for this globalized, highly technological economy. I don't think everybody needs a four-year liberal arts degree, but most need some sort of technician or technical education.

In my view, tomorrow's middle class—good-paying jobs that don't depend necessarily on a four-year college education—is going to be built around technician-type work. With all of the extraordinary numbers of computers in the workplace, in factories, in laboratories, we need a fleet of people to install and upgrade and service all of that technology. We don't have them. We have to train them.

Community colleges are the great unsung heroes in American education, in my view. We don't support them nearly enough. State higher education—I believe I am now teaching at the best public institution of higher education. Some here in this room may dispute me.

But, regardless, I think the public education through higher education is vitally important.

Most of our young people who cannot afford to go to college cannot nearly afford the carrying charges of college loans. We have to expand Pell grants dramatically. They haven't kept up with the increasing costs of college. We also have to have direct student loans. It's absurd for the government to be guaranteeing student loans and then having the banks take a substantial cut above that, and therefore increasing the cost of those loans to students, who are taking years to pay off their student loans.

So that, in a nutshell, is what I would do.

QUESTION: It's very tempting to ask you a whole range of questions. I would really like to get back to the question of companies and company responsibility, which is the theme of your book.

John Ruggie, the UN Special Representative on Business and Human Rights, is currently in the middle of his mandate to develop a set of standards for businesses and is looking very seriously at the question of business accountability and government accountability.

I am wondering what you think of this mandate, given the thesis of your book, and what your recommendations would be if that were your mandate.

ROBERT REICH: You are talking about the UN mandate?

I think that we have to regard corporate social responsibility and the movement toward it as healthy, but we also have to have a very, very large dollop of skepticism about it. I am all in favor of the general idea of companies being more socially responsible. How can anybody be against it?

The problem comes in the details. Number one, what do we mean by corporate social responsibility? Very conservative evangelical Christians have one view of what corporations ought to do, vis-à-vis how they ought to treat homosexuals and abortion and everything else. I have a different idea. They put pressure on Wal-Mart to do one thing; I would put pressure on Wal-Mart to do something else.

Because many issues in today's world are highly contentious, corporate social responsibility entails, unfortunately, putting responsibilities on corporations to define something that they have very little expertise to define.

More importantly, given supercompetitive capitalism, unlike Milton Friedman's argument in 1970 that companies have no competence and should not be in the business of corporate social responsibility, my evidence shows that they cannot be, in many cases. What they do is look good. They are interested in good public relations. But unless it improves the bottom line, they are not going to do it. And if it improves the bottom line, why call it "corporate social responsibility"? Why not just call it "good business practice"?

QUESTION: Could you go back to the issue of free trade and explain more fully, when we have manufacturing jobs in this country where the pay scale is a fraction in other countries, how we maintain a manufacturing base? Or do we? How do we compete with this tremendous pay scarcity, not only in manufacturing, but now in higher technical jobs as well? Where is our place? What do we do with it?

ROBERT REICH: We compete in two ways. First of all, we understand that pay scales are just one part of what makes another country attractive. It's also productivity. In order for someone to be highly productive—even though they may have high pay, they can still attract global capital if they are highly productive—that requires not only education and job training, but good infrastructure around them, a stable government. It requires a transparency with regard to currency and financial transactions.

If it were all a matter of low wages, all the manufacturing in the world would be in Bangladesh. Obviously, it's not a matter of low wages. In fact, Germany has a very healthy manufacturing sector, as does northern Italy. But they are highly productive, highly trained.

Much of that, again, goes back to infrastructure, education, public investments of a sort that I think are critically important to American workers and to our standard of living.

The second thing to keep in mind is that manufacturing per se—when we talk about it, we have in our heads the notion of the old assembly line. But if you look in a modern factory today and you actually see who is there and what they are doing, increasingly you see numerically controlled machine tools, robotics, technicians behind computer consoles controlling all of these things, but not many people.

That should tell you something. Even China is losing manufacturing workers. How can that possibly be? It's because China is becoming more efficient. Every worker is becoming more efficient. The terribly inefficient state-run factories are disappearing.

The same thing, obviously, is happening to us. In 1900, almost half of American workers were on the farm. Now fewer than 2 percent are, not because we failed at farming, but because we succeeded at farming so well, because productivity soared in farming. It's much the same with manufacturing.

We will specialize, and we are specializing, in all of the invisibles:

  • Design, design engineering —very, very important.
  • Advertising and marketing. Some would say, not so terribly important.
  • Finance, law. Some would say, not terribly important. I think, actually, they are pretty important.
  • Distribution channels.
  • What is called system integration, where an entire global production system is integrated conceptually and on paper and by computer. We do a lot of that.
  • We excel at entertainment. The entertainment industry is one of our major exports.

I could go on and on.

But if you look at the Bureau of Labor Statistics' listing of the major occupational groups in the United States today and compare it to the BLS listing 30 years ago, you see a dramatic difference. Fifteen to 20 percent of what is listed was not even there 30 years ago.

So when people say to me, "What are the jobs in the future?" I have to say, "I don't know." One of my sons is now in New York, and he is doing stuff with computers and streaming video that he tried to explain to me last night. I have no idea what he is doing, but he is doing it and a lot of other young people are doing it.

With manufacturing, if we are highly productive, we are going to keep some of it, but it's not the assembly-line jobs per se.

QUESTION: How do you have a service society without a wealth-producing base? That is part of the question.

The other question is, Wall Street. Wall Street, with their IPOs [Initial Public Offering] and their hedge funds, is sucking out the wealth of corporations, killing jobs to justify the investment they make. How do you overcome that? Could you please comment on the stability of the production sector of our economy?

ROBERT REICH: I will agree with you up to a point. That is, I think, if what you are getting at is that we now have a terrible maldistribution of income, a gap in terms of wealth and income that we haven't seen this large since the 1920s and, by some measures, since the 1890s, the days of the robber barons, there are a number of things that we can do in the short and long term to overcome that—for example, providing a larger earned income tax credit; secondly, because most people pay more in payroll taxes than they do in income taxes, exempting the first $15,000 of income from the payroll tax and raising the ceiling on the payroll tax.

I think health care and health-care reform will help a lot of people. This is one of the biggest worries that people have.

I could go on and on.

But when you say—and you seemed to go beyond that—we have a Wall Street that is sucking jobs out of America, I'm not sure that I would agree with that characterization. I think what is happening is that financial markets and also our corporations are becoming more and more efficient. That efficiency is pushed not by Wall Street, but we, you and I, as consumers and investors, are forcing companies to become more and more efficient at giving us great deals. That is not necessarily a bad thing in terms of the economy, but it has a lot of social consequences, of which widening inequality is one of the most prominent.

The first part of your question about how we can be a service economy without a manufacturing base—

QUESTIONER: A wealth-producing base, primarily manufacturing, in areas of our strength, which is high technology.

ROBERT REICH: Again, we are a service economy right now that has a tremendous technological base and lead. If you are asking me whether I am concerned about the next 30 or 40 years, yes, I am, because I think that the kind of basic research and development that our lead was based on came primarily from our defense expenditures and our government expenditures, through the National Institutes of Health, for example, and those are drying up in terms of basic R&D of the sort that we need to continue to propel our society forward.

If I had one general headline here in terms of American workers, American competitiveness, I would say, public investment—education, job training, early childhood education, basic research and development, infrastructure. All sorts of things that we need to maintain our competitiveness and our standard of living we are not doing. Again, if I were advising—and I am advising some of the candidates for president—I would say that that is something we have to hit home on over and over and over again.

QUESTION: I was interested in your views about campaign finance reform. There are a few states, as you know—Arizona and Maine—that have implemented clean-money elections. I am interested in your opinion about those. Do you think that they are working in the way you would like them to work?

ROBERT REICH: At the state level, many of the clean election reforms are working fairly well. I ran for governor in Massachusetts when the Massachusetts clean election system was ostensibly working, but it really wasn't. You have to have enough money there so that your rivals don't feel that it's easier for them and better for them to give up the public financing system and go and get a lot of money from individual contributors. That is what happened in Massachusetts.

With regard to the federal public financing system—exactly the same thing—it needs to keep up with the current realities of election costs and election financing.

I would also require broadcasters, those who use the public airwaves, to provide free or highly discounted advertising, because that is where most of the money is going. Then I would also throw in a reform such as my lockbox.

QUESTION: You looked back to the 1945-1970 period as sort of a heyday of a proper marriage between capitalism and democracy. Of course, that was the time, especially early in that period, when the United States dominated the world economy, 40 percent of GDP and so on.

I assume the democracy that you would like now would be able to produce for the public a really better way of living—in other words, a higher quality of life—not all of which would help us become more competitive. But we are now thrown into this competitive world economy in which much of the investment we might do through democracy for the public's good might not actually make us more competitive, but might give us a better quality of life or a higher level of citizenship and so on.

My question is, how can we have the kind of democracy that you want to have now, when inevitably at least some of that public investment will not go to making us competitive, and therefore put us at a competitive disadvantage in the neoliberal world economy that we have helped create?

ROBERT REICH: Some of those public investments—in fact, many of the ones I have talked about this morning—would make us more competitive, if we are talking about the productivity of American workers. Investments in education, health care, infrastructure, basic R&D, and the like, all will help increase, and have been responsible in the past for high levels of, American productivity.

But beyond that, you may be asking a question having to do, I expect, with one of the biggest expenditures that may not have to do with productivity, and that is health care, with regard not to young people and younger workers, but health care with regard to some of us who are getting on in our lives. The biggest health-care expenditures are really for people who are older. How do we afford that?

The answer is, other nations—and we could have a debate about how well they do—my experience is that many other nations, through national health-care systems, actually are more efficient at using health-care dollars than we are and have a health-care system that is also better managed and more equitable at the same time.

We have, as you know, a highly expensive, highly inequitable health-care system. It is the only one in the world designed to avoid sick people, which, when you think about it, is a little odd. Insurers—and I understand why they are doing it—are spending a lot of marketing and advertising dollars trying to avoid people who are high-risk or older or more prone to disease, trying to attract younger people, lower-risk.

There is very, very little preventive health care in our system. The system is irrational from every standpoint. We relegate a lot of people who don't have insurance to emergency rooms, which is the most expensive form of health care.

I believe that if we did health care right, we would improve our competitiveness. It would not be a drain on our national competitiveness.

QUESTION: When you were secretary of labor, you promulgated many reforms and improvements in the system. What would you recommend today to be our immigration policy?

ROBERT REICH: I have already suggested one part of the immigration policy, and that is reducing or eliminating farm subsidies and tariffs. Not to see that as part of our immigration policies, not to see how everything in the world, particularly our subsidies that intensify or prolong global poverty, are actually related to legal and illegal immigration—that would be a big part of it.

I think in the short term the bill that the president and Ted Kennedy and others came up with was not bad. I think it was actually a pretty good compromise. I'm sorry that anti-immigrant sentiment and fears, of a sort that are not that far removed from the kind of backlash we are seeing on trade, got in the way and will continue to get in the way.

Which brings me back to my book. Again, I have a great deal of faith and I have a great deal of optimism in the American system, if we understand what is at stake. We are not partisans. As Obama said, we are not Democrats or Republicans. We are actually Americans, who really are very pragmatic. When I compare our politics over the last 150 or 200 years to politics in most other places around the world, pragmatism is the thing that ultimately wins out. But in order to be pragmatic, we have to understand the nature of the problems we face. I am afraid that we don't. We are succumbing to a lot of mythology.

The first step toward reform—whether it's reform of our democratic process, reform of immigration, reform of our schools, reform of competitiveness and our budget process, any other kind of reform—the first step is to understand how the system is now working and what needs fixing, without ideological blinders.

Thank you very much.

JOANNE MYERS: I thank you for being so pragmatic and helping us to understand the problem.

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