Jandos Rothstein
At the pandemic’s climax, an interview with venture capitalist Chamath Palihapitiya live on CNBC stunned America’s elite.
Asked about government bailouts of the airline industry, Palihapitiya retorted that “on Main Street today, people are getting wiped out. Right now, rich CEOs are not, boards that have horrible governance are not … you have to wash these people out.” The interviewer taken aback, Palihapitiya concluded by reiterating, “Just to be clear on who we’re talking about. We’re talking about a hedge fund that serves a bunch of billionaire family offices, who cares? They don’t get the summer in the Hamptons?”
The fear that the politicians the ultra-rich had purchased wouldn’t return on the investment was a sharp divergence from the 2008 financial crisis, where they were “too big to fail.” Palihapitiya exposed the virus infecting the heart of American capitalism: the duality of an economy with an unemployment rate nearing 15 percent while a cabal of billionaires adds $485 billion to their net worth. The pandemic should reveal to “free market” advocates that the invisible hand is attached to a corporate arm, with a clutch on market rules like bankruptcy to benefit the elite.
This will change. Robert Reich’s Saving Capitalism elucidates how to prevent pre-distribution of wealth during the pandemic. The central tenet of Reich’s work reveals that “the market is a human creation.” A truly free market depends on a democratic economy with countervailing power from the people. In this essay, I’ll examine the rules Reich proposes and how they can be rewritten to not just save capitalism amidst the pandemic, but vaccinate it against future outbreaks of greed.
Saving Capitalism: For the Many, Not the Few, by Robert B. Reich
Reich analyzes the foundations of capitalism: property, monopoly, contracts, bankruptcy, and enforcement. Reich details how corporations abuse intellectual property, using the example of vaccines. While products from nature once could not be patented, “in the 1990s, the rules changed. Pharmaceutical companies were allowed to patent the processes they used to manufacture vaccines and other products from nature.” Additionally, the use of pay-for-delay agreements has prevented cheap alternatives, with approval from the government. “In 2012, Congress authorized U.S. customs to destroy [generic alternatives].” If a pharmaceutical company patents the COVID-19 vaccine, they could exploit the vaccine for profit. This hypothetical demonstrates why we must democratize market rules to revitalize competitiveness within the market of intellectual property.
Modern monopolies have frightening implications. “A handful of giant corporations are reaping the rewards of … network effects. The larger their networks become, the more data they collect, and therefore the more effective and powerful they become.” Amazon presents the perfect example, as Reich describes anti-competitive practices contributing to a cycle wherein “as Amazon’s economic power increases, so does its political clout.” These monopolies use their clout to annihilate competitors. As Reich notes, “Unlike the old monopolists, who controlled production, the new monopolists control networks … the new monopolists have enough power to keep antitrust at bay.” What happens when consumers are trapped at home, and one company has “become the first stop for almost a third of all American consumers looking to buy anything”? A startling headline recently heralded Jeff Bezos as the first trillionaire. This is anathema to the millions of Americans unemployed by the pandemic, but can be prevented if the government enforces antitrust.
As the pandemic began, U.S. senators dumped stocks using advance knowledge about the severity of the recession. Reich details how contracts based on confidential information have created a system whereby the average consumer is unable to compete against the upper class because of their access to this “coin of the realm.” An empowered government would be able to regulate Wall Street by punishing insider trading. Rules on contracts must also protect workers from exploitation, such as contracts forcing worker attendance during a pandemic.
Echoing Palihapitiya’s argument, Reich uses the airline industry to demonstrate the failure of bankruptcy rules. “Over the last two decades, every major U.S. airline has been through bankruptcy at least once, usually in order to renege on previously agreed-upon labor union contracts.” The rules of bankruptcy, coinciding with the promise of being bailed out by the government, have allowed corporations to exploit bankruptcy to fail their workers. What will happen to employees as corporations file for bankruptcy amidst the COVID-19 recession?
The final pillar of capitalism, the enforcement mechanism, is the source of reform. The government is uniquely able to enforce the regulation of corporations. Unfortunately, “wealthy individuals and corporations that can afford … experienced litigators have a permanent, systemic advantage.” This ability to exert influence over the enforcement process has been exposed by the pandemic, as corporations robbed the Paycheck Protection Program with impunity. Reich affirms that “Wall Street has blanketed America in a miasma of cynicism.” This apathy has allowed corporations to continue pushing their candidates into office, who serve as what Reich dubs their “friendly congressional patrons” who write the rules. A government empowered by the people would democratically rewrite these rules, holding corporations accountable.
But the pandemic has exposed that corporate wings of political parties aren’t working. Reich cites a prominent study by professors Martin Gilens and Benjamin Page, concluding that “the preferences of the average American appear to have only a minuscule … impact upon public policy.” This has manifested deep cynicism as both parties squabble over stimulus checks while bailing out big business. As Reich describes in his proposed set of reforms, one catalyst for change would “reform the nation’s system of campaign finance in order to get big money out of politics. That would require that the Supreme Court’s decisions in Citizens United and McCutcheon be reversed.”
We can’t rewrite the rules before expunging the “congressional patrons” from office. Countervailing power for the democratically represented American citizen would “end the upward pre-distributions currently embedded in market rules” that enable corporations to odiously increase their power during this pandemic. By reforming the pillars of capitalism and democracy, we can safeguard against future inequality. Take the hypothetical vaccine creation as an example; Reich stipulates reforms to the rules of property, stating that “the lengths of patent and copyright protection would be shortened … and pay-for-delay agreements banned.” The “free market” has written the rules to make restricted access to a lifesaving COVID-19 vaccine inevitable, so the government must step in to make the rules fairer not just to save capitalism, but to save lives.
As for breaking up Big Tech monopolies that have abused anti-competitive market rules, Reich theorizes that, under a rewrite of the rules of the market, “antitrust would be returned to its original purpose, not only achieving market efficiency and maximizing consumer welfare but also reducing the political influence of large aggregates of economic power.” Contract law would be rewritten to prohibit “all stock trades based on information unavailable to the general public,” thereby banning insider trading and preventing both elected officials and Wall Street from making profit at the expense of an efficient market and consumers. “Bankruptcy law would give labor agreements a higher priority,” which will prove essential as businesses continue to file for bankruptcy, leaving their workers nothing.
As these businesses request bailouts, we must heed Palihapitiya: Companies that pour money into stock buybacks shouldn’t be bailed out. Reich notes that “not only do stock buybacks enrich CEOs … at the expense of smaller investors, they also drain away money the corporation might otherwise spend on research and development.” Stock buybacks have become a tool for wealth expansion at the expense of economic sustainability, and corporations suffering right now because of their investment in stock buybacks should not be bailed out without restructuring to prevent the proliferation of this wasteful manipulation.
Reich’s contention that “instead of directly taxing the current income … of a few and transferring it to the many, a more sensible approach is to more widely share future wealth” may not be enough in a post-pandemic world where the wealthy have exponentially enriched themselves. This is illustrated by the game Professor Reich instructs his students to play, detailed in the book. Rather than accept less money, students (and the majority of Americans) must demonstrate their unwillingness to accept less than what’s fair, and quit the game if the rules aren’t changed immediately. The students “worry that if their partner ends up with more of the money, he’ll also end up with far more power, which will rig the game even more.” The end of the pandemic must not lead to an even further rigged game. We must heed Reich’s words: “If America’s distributional game continues to create a few big winners and many who consider themselves losers by comparison, the losers will try to stop the game … out of a deep-seated sense of unfairness and a fear of unchecked power and privilege.”
Other reforms, from increasing the minimum wage to investing in public education, all stem from the reclamation of the enforcement mechanism, as politicians take back their power to set fair rules of the game derived from democratically distributed political power. If the election of political leaders who rebuke the tether of corporate interest isn’t implemented first, the congressional patrons will continue to rig the game. We return to Chamath Palihapitiya’s treatise: Perhaps this pandemic, in exposing the failures of capitalism, serves as the perfect opportunity to extirpate the congressional patrons and the boards they bail out. If we don’t act, our nation has a lot more to lose than a summer in the Hamptons.
