Robert Reich testifies before lawmakers in 2014 on income inequality. In his latest book, he partly blames “the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs.” WIN MCNAMEE/GETTYIMAGES
Robert Reich, former secretary of labor under President Bill Clinton and a professor of public policy at University of California, Berkeley, spent years warning of twin demons.
Technology and globalization haunted dreams of American middle-class prosperity. Machines displaced low-skilled (and increasingly middle-skilled) workers whose routine jobs could be automated, and globalization meant the flight of manufacturing and service jobs to factories and call centers in emerging countries. The result was ever-widening inequality.
In his latest book, “Saving Capitalism: For the Many, Not the Few,” he’s changed his tune. While those two factors still play a role in growing inequality, he cites a new culprit: “the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs.” He spoke to Real Time Economics about why capitalism is broken, his shift in thinking, and why economists must study raw power.
Here’s the conversation, edited for length and clarity.
Q: What or who are we saving capitalism from?
A. Capitalism is based on trust. It’s impossible to have a system that works well and is based on billions of transactions if people don’t trust that others are going to fulfill their obligations, or they fear someone will take advantage of them or exploit them. That’s when a system moves from production to protection, and we spend more on everything from lawyers to security guards. That begins to spell the end of a capitalist system that generates widespread prosperity and growth, and that’s the real threat to our democratic capitalist system.
At the macro level, you have only to look at politics to see the anger that is fueling, for example, Donald Trump’s candidacy. That anger is fueled by a sense that polls show very starkly, that people feel the game is rigged against them.
Q. How did you come to see political power as a key force driving inequality in addition to technology and globalization? What were some turning points in your thinking?
A. When I was secretary of labor in the 1990s, I noticed this third factor. I didn’t pay a huge amount of attention to it at the time, but it certainly stuck in my craw. And that was the increasing political power of big corporations, Wall Street, and wealthy individuals.
For example, even the suggestion of an OSHA [Occupational
Safety and Health Administration] rule would bring out the furies. We were looking at repetitive stress injury, for people who spent days behind computer terminals. There were some very simple things employers could do to reduce these injuries, but the mere suggestion that we were thinking about this caused an avalanche of congressional phone calls and inquiries and threats.
The power of the business community to get the kinds of regulatory and legal results they wanted has continued to escalate at a remarkable rate, and it seemed to me there was some relationship between that political power to get the rules and the laws they wanted, and widening inequality.
For years, I had looked at the individual industries, I had looked at individual studies, and I was aware of pieces of the puzzle. But actually seeing the entire reality, pulling the puzzle pieces together, connecting the dots—I was surprised at the enormity of it.