Robert Reich’s “Supercapitalism” Chapter 2 Analysis

Richard (Ben) Dowden

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Analysis of a chapter from Robert Reich’s “Supercapitalism”

Outline of Reich, chapter 2

Introduction, pp. 50-51

Reich asserts his overall argument that democratic capitalism has been replaced by supercapitalism. He sets up this chapter to be an investigation of his assertion.

Section 1, pp. 51-56

Reich summarises the chapter’s overall argument while providing description of a sharp increase in competition between companies as a result of new technologies.

Section 2, pp. 56-60

Reich describes how technology developed for use in the Cold War had influence over American business. He asserts the technology had three indirect outgrowths which accelerated the decline of democratic capitalism.

Section 3, pp. 60-64

Reich argues the innovation of large-scale containerships drastically reduced the costs of international logistics therefore creating global supply chains allowing companies to chase the cheapest possible deal.

Section 4, pp. 64-65

Reich argues that new production techniques could be used by upstart companies to match the traditional oligopolies’ production and enter new, specialised markets resulting from the technology.

Section 5, pp. 65-70

Reich argues that new, profitable technologies brought about deregulation. He describes how different industries became more competitive as a result of deregulation.

Section 6, pp. 70-75

Reich argues that structures in American companies have shifted towards relentlessly pursuing higher profits so shareholders may have the highest possible returns.

Section 7, pp. 75-80

Reich argues that the corporate statesman of the oligopoly era has been replaced by CEO’s who chase the highest possible profit without regarding social responsibilities.

Section 8, pp. 80-86

Reich argues that the decline of unions is attributed to companies reducing payroll costs by whatever means to stay competitive in the share market.

Section 9, pp. 86-87

Reich summarises his overall argument.

Argument outline of Reich, chapter 2
Overall argument
Since the 1970’s competition between corporations grew as technology developed, American companies began to pursue profit to remain competitive resulting in supercapitalism triumphing over democratic capitalism.
Globalisation, new production processes and deregulation increased competition giving consumers and investors more choices.
Increase in investor culture drove companies to compete for shareholders (i.e. highest possible profits) regardless of their social responsibility.
The decline in union membership as a result of pursuits in profit has led to the decline of power workers have over their employers, the corporations.
Evidence for reason 1

In Section 2 (pp. 56-60), Reich describes how technology developed for use in the Cold War had influence over American business. He asserts the technology had three indirect outgrowths: globalisation, new production processes and deregulation (p.60). He argues that each of these outgrowths increased business competition giving concrete evidence for each in the following sections.

Section 3 (pp. 60-63) argues that globalisation has reduced the cost of overseas trade creating opportunities for global supply chains. Reich states that the Vietnam War resulted in the growth of commercial, global logistics. Reich gives concrete evidence of how seven new containership companies entered the market in the year following the war and how industry grew at a high rate thereafter (p.61).

Moreover, Reich argues this created the concept of global supply chains. Reich notes the great increase in American imports from American owned overseas factories between 1969 and 1983 (p.62). He then gives examples describing large companies’ global supply chains (p.62).

Section 4 (pp.64-65) argues new production processes trumped the economies of scale used by the oligopolies resulting in a marketplace growing in complexity. Reich gives examples of how new production processes allows specialisation. He explains how standardised steel gave way to specialised galvanised steels designed for a niche market (p.64). Furthermore, a huge brand like Coca-Cola faced a variety of specialised drinks taking away Coca-Cola’s market share (p.65).

In section 5 (pp.65-70) Reich argues that as businesses innovated, new profitable, yet restricted opportunities were discovered within regulated markets, companies lobbied for deregulation, driving competition. Reich states that in some cases, deregulation put companies out of business since they lost the cross-subsidies from other previously regulated, profitable companies. He gives evidence of the Bell System’s segmented telecommunication companies based in the country becoming unviable, opening business opportunities to smaller, extremely competitive companies (p. 68). Furthermore, trucking and airline deregulation led to added competition, particularly in freight (p.69).

Evidence for reason 2

At the end of section 5 (pp.65-70) Reich quotes Edward E. Furash stating that due to the change in psyche in American’s management of wealth, the American financial system will shift towards competing for investors (p.70). Reich describes the financial deregulation of banking giving new opportunities to investors among others he gave evidence of stock broker, Merrill Lynch setting up mutual funds (p.67). Reich seems to contribute the increase in investment choice and effectiveness because of deregulation to savers becoming investors.

Reich backs the claim with statistics at the start of section 6 (pp.70-75) citing the increase in percentage of households owning stock (pp.70-71). Reich goes on to say this also coincided with the bull market of 1980-2000 (p.71). His overall argument here is that companies had to compete for investors – which meant maximising returns.

Reich gives evidence of how profit margins rose from the beginning of the 1980 to 2000 at a high rate of change (pp.72-73). He also gives evidence of how the number of companies that ran at lower profit margins that were subjected to hostile takeovers increased by a factor of 11 from the 1970’s to the 80’s (pp.73-74).

In Section 7 (pp.75-80), Reich begins by quoting the former CEO of Coca-Cola stating companies have the sole responsibility of generating returns for their investors (p.75). He continues to point out a CEO’s job security is increasingly attributed to the company’s stock price recommendation. 50% of CEOs’ company’s stock was downgraded in investment recommendation were fired in the following six months (p.76). Reich uses evidence of how 60% of senior executives in the Fortune 500 companies had been at their firm for fewer than six years (p.76).

His argument is that CEO’s no longer have room to worry about the social consequences of their organisation. He uses the example of Malden Mills, a family-owned textiles company which ran at a loss manufacturing in New England. Their CEO did not want to close the factory since the local economy had high dependencies on it – he was eventually sacked by the company’s creditors (p.79).

Evidence for reason 3

Section 8 (pp.80-86) focusses on the decline in union membership starting from the 1970’s. He cites evidence from the U.S. Bureau of Labor Statistics of how union membership rapidly declined beginning in the 1970’s (p.80). He explains this is a consequence of employers contesting unions, giving concrete evidence of this through the decrease of uncontested union elections (p.80). Reich also gives evidence of how the rate of illegal dismissals of union members rose through the 1970’s and into the 90’s (p.81).

Reich’s explanation for corporations’ behaviour was related to cutting the costs of the payroll to remain competitive as consumers and investors looked for the cheapest deal. Reich gives concrete evidence of how the nonunionised sector of the American economy grew at a greater rate than the unionised sector (pp.82-83). This increase in opposition arising from nonunionised companies forced unionised corporations fight the unions to remain competitive. Reich uses evidence from a range of industries to describe this citing: the air travel industry (p.83), the ‘Big Three’ American car manufacturers (pp.83-85) and the construction industry (p.85).

Reich goes on to explain how the public services sector was never unionised, consequently suffering low wages. Reich uses the evidence of how members of the public services industry went on strike responding to their wages being cut as anti-union Wal-Mart entered their industry (p.86).

Reflection: How the chapter intersects with my life

The chapter reaffirmed my own opinion that wealth distribution in developed nations, particularly America’s, is unequal. It shows that while deregulation may improve its GDP per capita, it doesn’t guarantee a higher quality of life. In fact, in more regulated economies like in Scandinavia, quality of life indicators are higher since wealth distribution is far more equal (Wilkinson & Pickett, 2009).

The chapter is interesting, considering the debate surrounding the deregulation of tertiary education in Australia. It does give universities ability to form an identity, which is a way of saying it encourages elitism. After all, a university’s ‘prestige’ is generally attributed to how well-endowed it is. But is it just the first step to university privatisation? Will universities eventually just pursue profit like companies?

List of references
Reich, R., 2008. Supercapitalism. New York: Alfred A. Knopf.
Wilkinson, R. and Pickett, K., 2010. The spirit level. London: Penguin Books.