Few review articles are as satisfying as the recent Paul Krugman examination of Robert Reich’s new book, Saving Capitalism: For the Many, Not the Few, in the New York Review of Books (December 17, 2015). To begin with, it was gratifying to find the stark candor behind the title of Reich’s book. “Saving capitalism” assuredly implies that capitalism is on the ropes—in danger of expiring—an implication that I both believe and welcome.
Robert Reich, Paul Krugman, and another colleague, Joseph Stiglitz share lofty accomplishments in academic economics and constitute the intellectual triumvirate informing the non-Marxist left in the US. Although they do not agree on everything, they share a core set of beliefs in the viability of capitalism and its need to reform. It is unusual to see Krugman and Reich suggesting such blatant urgency.
The felt urgency turns on the dramatic increase of economic inequality in major capitalist countries, particularly the US. Krugman stresses that inequality was an issue that Reich and he “were already taking seriously” twenty-five years ago. That may be, but I think it’s fair to say that neither was taking the growth of inequality seriously as a structural feature of capitalism until the important work of Thomas Piketty two years ago.
Krugman takes us on an intellectual journey, outlining in clear, non-technical terms how he, Reich, and other non-Marxist economists modified their understanding of the causes of inequality growth (not simply inequality, but its growth) over the last several decades. Where Krugman arrives is nothing short of amazing: he, no doubt unwittingly, describes an evolved capitalism resembling the capitalism that Marxists described well over half of a century ago.
Decades ago, liberal, mainstream economists believed that rising inequality in the US sprang from a poor match between technological requirements and workers’ skill sets—what Krugman calls “skill-based technological change” (SBTC). Education was seen as the great leveler, restoring wealth and income to those falling behind. But with the correlation between levels of education and compensation broken today, all reject SBTC as an adequate explanation and the key to arresting the growth of inequality. The growth of debt-laden college graduates working in call centers surely shatters that illusion. Or as Krugman smartly puts it: “…hedge fund managers and high school teachers have similar levels of formal training.”
But economists fell back on another technological example: robots and other productivity-enhancing devices replacing workers. But Krugman makes short shrift of this explanation:
…if we were experiencing a robot-driven technological revolution, why did productivity growth seem to be slowing, not accelerating?
…if it were getting easier to replace workers with machines, we should have seen a rise in business investment as corporations raced to take advantage of the new opportunities; we didn’t and in fact corporations have increasingly been parking their profits in banks or using them to buy back stocks.
Krugman thus dismisses a technological explanation for the growth of inequality.
Instead he urges that we consider the centerpiece of Reich’s study: monopoly power.
It is the concentration of economic power in the hands of fewer corporate players that accounts for growing economic inequality, according to Krugman and Reich: “…it’s obvious to the naked eye that our economy consists much more of monopolies and oligopolists than it does of the atomistic, price-taking competitors economists often envision.”
So why did it take Reich and Krugman so long to arrive at this juncture, a place that Lenin visited over a hundred years ago? Marxist writers like Paul Baran and Paul Sweezy devoted an entire influential book to monopoly capitalism nearly fifty years ago.
Krugman apologetically-- “an intellectual and a policy error”--attributes the mainstream economic neglect of monopoly to an influential paper written by Milton Friedman in 1953 that emphatically dismissed the effects of monopoly power on significant economic behavior.
Thus, non-Marxist economists and their political allies have scorned the concept of monopoly power until recently, a concept that Marxists have made a centerpiece of their analyses for most of the twentieth century. What is “obvious to the naked eye…” now informs the theories embraced by our left-leaning reformers.
But Krugman and Reich reveal another crucial linkage—that between economic power (monopoly power) and political power (“And this ties the issue of market power to political power”). They see monopoly power as sustained, protected, and expanded by political actors. At the same time, they see political actors as selected, nourished, and guided by monopoly power. This creates a troubling conundrum for those seeking to reform capitalism. Reich’s conclusion, in Krugman’s words:
Rising wealth at the top buys growing political influence via campaign contributions, lobbying, and the rewards of the revolving door. Political influence in turn is used to rewrite the rules of the game—antitrust laws, deregulation, changes in contract law, union-busting—in a way that reinforces income concentration. The result is a sort of spiral, a vicious circle of oligarchy.
Putting aside the clashing metaphors of circles and spirals, this statement reasonably captures the mechanism behind the socio-economic formation Marxists call State Monopoly Capitalism. For Marxists, concentration necessarily begets monopoly capitalism, which subsequently completely fuses with the state, creating a mutually reinforcing synthesis. The state rules in the interest of monopoly capitalism while policing the economic terrain to maximize the viability and success of monopoly capital. Monopoly capital legitimizes the state and selects and imposes its overseers. Nothing demonstrates the intimacy more than the crisis bailouts of mega-corporations (“too big to fail”) and the increasing establishment of international governing bodies and trade agreements. Nothing demonstrates monopoly capital’s political dominance more than the decisive role of mega-corporate money in the two-party political process.
With the recognition of the vital link of monopoly capital and the state, Krugman and Reich reach an understanding on a parallel with those Marxist theorists who characterized the post-World War II era as one of state monopoly capitalism. While some features of that characterization were and are sometimes disputed (see, for example, Politico-Economic Problems of Capitalism, Y. Varga, 1968), most Marxists would enthusiastically welcome the two economists to their camp on this important issue.
But unlike Marxists, who see the overthrow of capitalism as the final answer to the wedding of monopoly power to political power, Krugman, Reich and their liberal and social democratic colleagues are left with the conundrum that follows inescapably from their conclusions about the source of inequality. The economic reforms that they envision to retard the growth of inequality are altogether blocked by the massive political power stacked against them. And that political power is stacked against reform because political power is the purchase of monopoly power. In other words, their findings confirm that monopoly has the political process locked up and that lock will ensure that monopoly will continue to grow along with inequality.
Krugman clearly recognizes this conundrum and casts serious doubts over Reich’s wistful glance back at the past and faith that a New Deal-like solution will magically emerge from the amorphous “populism” of candidates from both parties (he mentions Ted Cruz!).
Of course Krugman is right in dismissing Reich's nostalgic answer, but he can offer no alternative.
We conclude that the growth of inequality will only be stopped when the program of saving capitalism is put aside for a program that vigorously challenges the capitalist system. We hope that Krugman and Reich will draw the same conclusion in the future.