Robert Reich’s “The System: How We Rigged It, How We Fix It”

Robert Reich, a lifelong Democrat, served in the Carter, Ford, Clinton and Obama administrations, and his views have moved progressively leftwards over time: he endorsed Bernie Sanders for president in 2016 and 2020. He’s currently the Chancellor’s Professor of Public Policy at UC Berkeley. His most recent book, The System: How We Rigged It, How We Fix It, is a manifesto against the increasingly unequal distribution of wealth and power in the United States. It takes direct aim at what Reich sees as the plutocratic oligarchy dominating the country. It also fulminates against what he calls the meritocratic mythology, which allows oligarchs to claim that power and privilege disparities are not only economically inevitable but justified by some superior moral virtue on their part. As an example, Reich presents a case study of Jamie Dimon, the head of JPMorgan Chase. While Reich acknowledges that Dimon comes across as a sincere and personable guy, he describes him as “awash in self-delusion, a condition especially dangerous in people who have significant power over others.” Dimon is “emblematic of an abdication of public responsibility to maintain the health of our political-economic system at a time when a comparative few at the top have more power over it than at any other time in more than a century.” The real foci of Reich’s book are the destructive effect these phenomena are having on the American economic system and his concern that they inspire reactionary politics. He believes that unless major efforts are undertaken to make the American system fairer, more equitable and less oligarchic we are bound to see more Trump-like leaders.

Democracy versus Oligarchy

Reich is one in a long line of commentators who see today’s hyper-capitalism as incompatible with democracy and with an ability to hold government accountable for its actions. Whenever a sufficiently powerful wealthy class forms, he contends, its members will inevitably begin to skew policies and politics in directions that favour themselves. That allows oligarchic elites to further entrench themselves, allowing them to make even more ambitious demands. This in turn further deepens the unequal distribution of wealth and power, leaving ordinary citizens with less and less ability to influence public policy. Reich helpfully references Martin Gilens’ pioneering empirical work on income and political influence, which makes clear that, compared to the affluent, low- and middle-income individuals have virtually no meaningful say in government policy.

Many libertarian critics of the position Reich takes tend to lay the blame for crony capitalism squarely on the government. For instance, Yaron Brook (whom I recently debated) acknowledges that corporate elites have tilted the system in their favour but blames state actors for creating the opportunities for such kleptocratic grift. The typical argument is that under a genuinely free market system this could not happen: it is only the state’s willingness to interfere in the economy that creates the temptation to harness its power. But I agree with Reich that this kind of economistic idealism shows little understanding of how capitalism has always worked in practice. As Adam Smith notes as long ago as 1776 in The Wealth of Nations, “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” After 250 years, it is safe to say that crony capitalism is here to stay, regardless of government policy. Some people assert that we’ve never had real free markets—only blended economies in which firms influence public policy—but this is a bit like a Stalinist complaining that we’ve never had real Marxism-Leninism. Cronyism is endemic to capitalism: the question is only how much of it is inevitable.

Moreover, the impulse to blame the state is one-sided and internally inconsistent. It takes two to tango: state officials should be blamed for allowing themselves to be unduly influenced by economic oligarchs and their interests, and we should take steps to counter the influence of money in politics, but just as much blame lies with those oligarchs and firms who feel free to do whatever it takes to gain a competitive advantage. In addition, if we are as driven by individual self-interest as many dogmatic pro-market apologists claim, then a wealthy oligarch or firm has no motivation to refrain from trying to tilt public policy in their favour. After all, their commitments aren’t to the public—let alone to an economic abstraction like the free market—but to their shareholders and financial backers. Some proponents of an unregulated free market argue that, under their proposed system, the wealthy would refrain from exploiting political power because they are committed to free markets. In this, they are the delusional defenders of an ideal that exists only in the graphs of a few economics textbooks. The invisible hand of the market is not the hand of God, and no one will ever revere it as such.

The Perils of Market Fundamentalism

Much of Reich’s book chronicles how far things have gone in an oligarchic direction. His list of examples is depressingly long. One is that in the mid-1950s, approximately 35% of all private sector workers in the United States were part of a union. Today, only 6.4% are. Reich points out that not all of this decline can be chalked up to globalization and automation: other developed states, such as Germany and Finland, have far higher levels of unionization, and workers enjoy more benefits. The anti-unionization efforts in the America of the late 70s to 90s were partly driven by the political decision to cave to the demands of corporate capitalists. Though profits increased, none of that trickled down to workers—it just increasingly went to upper management and owners in the form of ever-higher executive salaries and soaring share prices, sometimes helped along by stock buybacks. Reich also provides lacerating critiques of the finance industry and its poster boys (such as Jamie Dimon). He points out that by 2008 the deregulation of the finance industry that began in 1980 had led to more than $6.6 trillion being transferred to financial firms. Defenders of deregulation claim that it allowed more market flexibility and an easier transfer of investment to economically productive firms. But Reich paints a more sordid picture: of executives earning nine-figure salaries, taking dangerous risks that helped bring about the 2008 financial crisis, and receiving hundreds of billions of dollars in government assistance after things went pear-shaped—ironically, about as socialist an intervention as can be imagined.

Reich’s chronicle is well-written and backed by empirical sources. This is the kind of book you can only write with years of experience, and Reich wisely never lets his passion for justice outweigh his analytical acumen and gift for a telling example. He differs from many other left-wing critics in having one foot in the world of economic and political elites. The book is addressed to Jamie Dimon in part because Reich knows him personally and thinks he’s not a particularly bad guy. Indeed, he points out that oligarchs who do whatever they need to do to get ahead rarely think that they are hurting others—even when they are lobbying against higher wages and worker benefits while increasing their own salaries, or pushing for further deregulation of the finance sector and the withdrawal of public safety restrictions that constrain economic activity, or ranting against the evils of big government while lobbying for policies favourable to them. Indeed, the milieu they inhabit does not encourage them to think of very much at all beyond the bottom line. A fundamental problem is that many of us buy into the idea that we inhabit a meritocratic system in which when people become wealthy and powerful it must be due to some pronounced competence or effort on their part. But Reich emphatically denies this:

As I’ve said, the oligarchy wants Americans to view the system as a neutral meritocracy in which anyone can make it with enough guts, gumption, and hard work. The standard platitudes of market fundamentalism are that people “pull themselves up by their bootstraps” and that America is a nation of self-made men (and women), both of which translate into a moral code: People deserve whatever they earn in the market … The truth is that in America today your life chances depend largely on where your parents fit in the system—how much they earn, how much education they have, who they know. The phrase “pulling yourself up by the bootstrap” dates back to an eighteenth-century fairy tale, a metaphor for an impossible feat of strength.

Conclusion

I agree with Reich that market fundamentalism is one of the most significant barriers to implementing the radical reforms that justice requires. In those at the top, it inspires a conceited belief in their own accomplishments and merit, while many at the bottom feel shamed by failure and a sense of inadequacy. I think he’s right that these assumptions are almost entirely false. We rise and fall for morally arbitrary reasons. It would be far more in keeping with reality if those who do well would look down and say, “There but for the grace of God go I.” Unfortunately, Reich never explores what kind of outlook it would be healthier for us to adopt, or seriously interrogates why market fundamentalism and meritocratic mythology remain attractive even to those who lose out under them. Conservative critics are right about one thing: people do not like to feel that the outcomes of their lives are largely outside their control. As Michael Sandel observes in his recent book, The Tyranny of Merit, many people find it extremely condescending to be told that their failure is not their fault, that they simply weren’t equipped to cut it, and that they will be cared for as a result.

Thankfully, Reich doesn’t talk that way, and his anger at the stark unfairness of the current situation is entirely justified. But progressives need to develop a more constructive narrative about creating a just world together, instead of simply fixating on the unfairness that exists today. Any thinking person who reflects on her life can see how much she has depended on others. It is by inspiring people to think about what we owe to others, including those we’ve never met, that we will create a better world.