Sunday, March 22, 2009

Supercatialism: superbig, superefficient, superbad?

What is Walmart good for? Walmart is good for investors (100 fold return on 1987 investment) and Walmart is good for consumers ($300 20" flatscreen TV's). What is Walmart not good for: Mainstreet shops, American manufacturers of products, and employees of both. The same can be said for Amazon, Barnes & Noble, Starbucks, McDonalds, and most of American business today: good for investors and consumers, bad for wage earners . . . and bad for politics.

Robert Reich, who served as Secretary of Labor under Clinton, in his 2007 book "Supercapitalism" gives a very readable and persuasive explanation of the transformation of American business from the post World War II decades to the 1999 WTO protests in Seattle (not an event addressed in the book). In 1960 the giants of American business were few and relatively unchallenged by competition. This allowed for a truce between managmenet and labor. Unions were strong, wages were high and rising, and business could pass along the cost to consumers. The middle class was strong. The distribution of wealth was more and more balanced between rich and poor. The lack of competition allowed for luxuries of inefficiency, and relativelyh high production costs. In this equilibrium between top companies and the middle class, what was good for IBM was perceived, and was, good for the country. However, consumers lost out in the quality, selection, and price of products, as well as in their choice of entertainment. Censorship on three available television channels enforced conformity and limited choice. Investors also lost out, because profits, although stable, were not maximized.

Reich describes how the advent of the computer, the bar code, global supply chains, and easy access to capital has changed everything. The world was rearranged and the playing field has tipped, radically, in favor of consumers and investors. Global supply chains and lots of competition has raised the quality of goods, while lowering prices. The losers have been wage earners and citizens. With his long experience in Washington D.C. politics Reich describes vividly how increased competition between businesses has resulted in the lawyers, lobbyists, consultants and money that have come to bear on politics in an effort to gain competitivbe advantage for one business over another. The legitimate concerns of citizens are drowned out in the resulting clamour and noise. Intense competition among businesses calls for superstar business leaders who are paid like sports stars. Price competition requires lower wages. Equality of income has suffered. As in all such efforts, Reich's description is better than the presecription.

Reich can seem a bit churlish in his advocacy of government regulation/legislation and dismissal of all other options, and he fails to explore the merits of citizens exercising their power as consumers for political ends. Notably, in his discussion of wage stagnation and growing income inequalities, he fails to note or discuss the fact that the purchasing power of those wages has increased dramatically over the past 40 years. That $300 Walmart television would have cost $3,000 without the changes. He naively, I think, and without sufficient discussion, takes up the cause that corporations should not be recognized as persons, and that corporations should not pay taxes (a Scott Thurow idea). I highly recommend the book for the insights it provides in viewing a broad spectrum of changes that have occurred in our economy, body politic, and society through the lens of the consumer and the investor.

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