The Culture of Modern Capitalism

As I write, industrial capitalismis undergoing its worst crisis since the Great Depression, possibly a crisis that may become the worst ever. Though completed before the current financial situation exploded, these three books all point to a variety of vulnerabilities in the world capitalist system in the first decade of the third millennium.¹ All three volumes under review here share a basic philosophy: Capitalism is the most open, creative, and dynamic economic system ever devised, and for over two centuries it has been successful in generating a long and sustained period of technology-driven economic growth, in the course of which a large and growing portion of humanity reached living standards beyond the wildest dreams of anyone alive even during the Industrial Revolution of the eighteenth century. But capitalism must always and everywhere be understood in a political context, because there never was or will be a politics-free system of markets and production, and politics remains central to capitalism’s development and survival. At some point in the 1970s or early 1980s, the capitalist system changed quite dramatically. Whether that change made the current crisis in some sense inevitable remains to be seen, but it did make it more likely.

The books reviewed here are written by distinguished academics and policy specialists, scholars who know and understand the system as well as it can be understood. None of them comes from a Marxist or radical tradition that finds capitalism inherently distasteful or inhuman. They are, if anything, more in the tradition of John Maynard Keynes, who recognized the flaws and weaknesses of capitalism and showed how to fix it and make it work better rather than seeking to overthrow it.

Of the authors, Robert Reich is certainly the best known, both to those who recall the Clinton administration’s pugnacious and lively secretary of labor and to those who listen obsessively to the commentariat on NPR airwaves. Reich’s erudition and wit shine through and show why he has become one of the more influential public intellectuals on the medium-left wing of the Democratic Party. His historical model works as follows. After the Depression and World War II, American capitalism was characterized by powerful oligopolies that were huge, secure, and profitable. They kept out competitors through a combination of economies of scale, government regulation, and other devices. Yet their power and income were tempered by democratic institutions, which kept marginal taxes high, executive salaries reasonable, real wages and benefits high, and consumers and workers protected from their worst excesses. It was the age of “democratic capitalism,” and all was well.

This nice and peaceful equilibrium, in Reich’s account, was rudely shocked by technology. Cold war and space-race R&D led to technological changes in the 1970s and 1980s that reduced the power of these oligopolies. A cozy competition that was more symbolic than real evolved into “supercapitalism”—a cutthroat world in which much freer entry of start-up firms and competition from foreign firms upset the status quo. This competition took place at a variety of levels, including labor and capital markets as well as jockeying for position in the regulatory world. Profit margins became thin, and vulnerable firms, no matter how large, were forced to engage in a variety of practices that they would once have found objectionable. As Reich writes, “companies under supercapitalism no longer have the discretion to be virtuous” (p. 173). What evolved is a kind of firm behavior many associate with Wal-Mart—ruthless employment policies, irresponsible environmental attitudes, merciless squeezing of suppliers, disregard for communities and aesthetic values, immoral manipulation of political power. Everything is now sacrificed for lower prices, and lower prices are the key to survival.

Reich does not take an indignant stance toward Wal-Martism. These firms do, he explains, what they are supposed to do. Any means for seeking a competitive advantage, however fleeting, must...