Executive Times






2007 Book Reviews



Supercapitalism: The Transformation of Business, Democracy, and Everyday Life by Robert B. Reich








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Former Secretary of Labor Robert Reich makes a plea in his latest book, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life. He notes the increased domination of everyday life by corporations and pleas for a separation of capitalism from democracy. Here’s an excerpt, all of section 3 of Chapter 2: “The Road to Supercapitalism,” pp. 60-63:

In the mythic and gratifying simplistic version of globalization, around the 1970s American corporations began to lose their international com­petitiveness. Exporters from other nations began invading America with products made by people content to work for a small fraction of prevailing American industrial wages, thus leading inexorably to the demise of well-paid blue-collar jobs in America. The story is largely incorrect. First, it fails to explain why the job losses began in the 197os and accelerated thereafter. Second, American firms did not, in fact, lose their "competitiveness."

The timing was not accidental. Recall America's focused efforts to revive the economies of war-torn Europe and Japan. It took two decades before that mission was accomplished. But the critical ingredient igniting globalization was a raft of new transportation and communications tech­nologies, mostly associated with fighting the Cold War—cargo ships and cargo planes, overseas cables, steel containers, and eventually satellites bouncing electric signals from one continent to another that drastically reduced the cost of moving things from one point on the world's surface to another.

Containers twenty- to forty-foot-long steel boxes, each capable of holding more than twenty-eight tons—could be shipped easily by train or truck and then lifted onto oceangoing vessels or planes and then placed back on railroad cars or truck beds to be taken to their final destinations, eliminating laborious loading and unloading, and possible theft or dam­age. Containers had been available since the mid-1950s but not widely used until the Vietnam War, when the U.S. military needed a huge supply system to meet its voracious needs in the jungles of Southeast Asia. Tradi­tional shipping crates were too small and unreliable, so the Navy created a container port in Cam Ranh Bay, and American ports were upgraded to support container cargoes (with deep harbors, specially designed cranes, and giant loading decks) .

One inadvertent result was to boost Japanese exports to the United States. Rather than return to America with empty containers, shippers dis­covered they could make more money by stopping in Japan on their way home and picking up tons of Japanese-made watches, televisions, and kitchen appliances for sale in the United States. In 1967, no commercial container service linked Japan and America. A year later, seven companies had entered the business.9From then on, container trade soared. By 2005, more than 3,500 cargo ships plied the seas, loaded with 15 million contain­ers. Worldwide, between 1970 and 2000, the market for containers grew three times faster than the world economy. 10 As a result, the costs of trans­porting things from one spot on the globe to another plummeted.

Transportation costs also dropped as products became smaller and lighter. Tiny semiconductor chips took over more and more of the func­tions inside televisions, appliances, and other common consumer products. New lightweight plastics replaced steel and aluminum. Between 1970 and 1988, for every real dollar of imports, the number of pounds shipped to the United States by vessel and air declined by more than 4 percent a year. 11   The result was a surge of manufactured items into the United States from abroad. Between 1970 and 1980, the value of manufactured imports relative to domestic production skyrocketed from less than 14 percent to 38 per­cent. By 1986, for every $100 spent on goods produced in the United States, Americans were buying $45 worth of imports manufactured abroad. 12

The surge generated a public outcry about American industry's so-called loss of competitiveness. Congress commissioned dozens of reports. Think tanks issued hundreds of white papers. Business associations organ­ized task forces. Governors appointed advisory committees and blue-ribbon panels. The media went on a rampage. "U.S. industry's loss of competitiveness over the past decade has been nothing short of an eco­nomic disaster," wrote the editors of BusinessWeek in June 1980. 13 Univer­sities assessed the extent of the damage. MIT's Commission on Industrial Productivity noted gravely in its 1989 report that "[c]ertain American industries that once dominated world commerce . . . have lost much of their market share both at home and abroad; in a few industries . . . the American presence in the market has all but disappeared." 14

Actually, American firms were doing fine. They had just become more global. They used the new transportation and communication technolo­gies to set up factories abroad or to contract with foreign suppliers for the components they needed. To state it another way, they used containers and advances in telecommunications (including, eventually, the Internet) to create global supply chains. The old production system of the Not Quite Golden Age could now be fragmented and parceled out around the world to wherever pieces could be done best and most cheaply. Even­tually, these supply chains would become so sophisticated that design engineers in one country could come up with three-dimensional proto­types of new products while manufacturing engineers in another country planned assembly lines and equipment needed to make and install them in a third country.

This was the real process of globalization, which the trade numbers by themselves hid from view. From 1969 to 1983, the total value of American imports from American-owned factories abroad rose from $i.8 billion to almost $22 billion, adjusted for inflation.15 These were the same years American companies were supposedly suffering a "loss of competitiveness."

Global supply chains continued to lengthen and deepen. By the 1990s, American companies with operations abroad accounted for about 45 percent of all American imports. By 2006, the portion was up to nearly 48 percent, according to Commerce Department data. Add in compo­nents they purchased from foreign-owned companies before assembling them in the United States and products they bought abroad that they then marketed in America under their own brands, and the percentage is much larger. Whirlpool's global supply chain included microwave ovens engi­neered in Sweden and fabricated in China. General Electric made small jet engines for the commuter planes that Bombardier produced in Canada; almost a quarter of the value of the engines came from components made in Japan. Dell linked its customers directly to its foreign suppliers; when a customer clicked on its Web site to purchase a laptop, the order appeared on a computer terminal in a factory in China managed by Quanta, a Tai­wanese firm, where it was assembled and promptly shipped to the Ameri­can customer who ordered it. The Eaton Corporation produced truck transmissions in Brazil, of which some were shipped to Ohio to be used in Navistar trucks. An increasing percentage of the Big Three's cars also came from abroad. Even if assembled in North America, a steadily larger portion of their innards came from elsewhere. 16

More and more of what American companies sold abroad, they made in their factories there. Data on American exports therefore also dramati­cally understated the "competitiveness" of American companies. At the same time, foreign supply chains found their way into America. More and more of what foreign companies sold in the United States was made in their factories here. Toyota, Honda, Nissan, and BMW built sprawling automobile plants in Kentucky, Tennessee, and Indiana. By 2006, they employed over 20 percent of American autoworkers.

Who was "us"? Who was "them"? Rather than American companies "losing their competitiveness" starting in the 1970s, it is more accurate to say America started losing solely American companies. No longer was there an automatic connection between how well American-owned com­panies performed and how well Americans did. This marked a profound change. The old connection had been a basic premise of democratic capi­talism during its Not Quite Golden Age. Recall "Engine Charlie" Wilson's dictum about General Motors and the nation. The nation's large oligopo­lies had been embedded in a system of tight linkages to labor and govern­ment, so that as the economy became more productive, wages and benefits rose across the board. Now that old system was being transformed into something quite different. Those linkages were coming apart, and being newly forged outside America as well as in it. 17

The media, political leaders, and even many CEOs continued to speak about the American economy as if it was a function of large firms head­quartered in the United States—and as if the trade numbers signified something about the success or failure of both. "Globalization" was understood as a competition between foreign companies and American companies. But it was nothing of the sort. The revolution that began around the start of the 1970s was technological, and its practical effect was to break down America's former oligopolistic production system into worldwide supply chains in which components or services were added depending on wherever they could be done best and most cheaply. These global supply chains terminated in places like Wal-Mart, which aggre­gated the bargaining power of American consumers to get the best possi­ble deals from around the globe regardless of whose brand name appeared on the particular appliance, pillowcase, or whatever else was being sought.


Reich proposes that we separate our role of citizen from our role as consumer and investor, and reclaim the power we have as citizens that we have ceded to corporations. A summary of Reich’s argument is on page 14:


Companies are not citizens. They are bundles of contracts. The purpose of companies is to play the economic game as aggressively as possible. The challenge for us as citizens is to stop them from setting the rules. Keeping supercapitalism from spilling over into democracy is the only constructive agenda for change


Whether a reader agrees or disagrees with Reich’s description of our situation, or with his proposed path for resolution, reading Supercapitalism: The Transformation of Business, Democracy, and Everyday Life will encourage thinking about one’s role as a citizen, and the degree to which too much of that role has been assumed by non-citizens: corporations.


Steve Hopkins, October 25, 2007



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The recommendation rating for this book appeared

 in the November 2007 issue of Executive Times


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