What Happened to the Moral Center of
American Capitalism?
By
Robert Reich
An
economy depends fundamentally on public morality; some shared standards about
what sorts of activities are impermissible because they so fundamentally
violate trust that they threaten to undermine the social fabric.
It
is ironic that at a time the Republican presidential candidates and state
legislators are furiously focusing on private morality – what people do in
their bedrooms, contraception, abortion, gay marriage – we are experiencing a
far more significant crisis in public morality.
We’ve witnessed over the last two decades in the United States a steady decline in the willingness of people in leading positions in the private sector – on Wall Street and in large corporations especially – to maintain minimum standards of public morality. They seek the highest profits and highest compensation for themselves regardless of social consequences.
CEOs
of large corporations now earn 300 times the wages of average workers. Wall
Street moguls take home hundreds of millions, or more. Both groups have rigged
the economic game to their benefit while pushing downward the wages of average
working people.
By
contrast, in the first three decades after World War II – partly because America went through
that terrible war and, before that, the Great Depression – there was a sense in
the business community and on Wall Street of some degree of accountability to
the nation.
It
wasn’t talked about as social responsibility, because it was assumed to be a
bedrock of how people with great economic power should behave.
CEOs
did not earn more than 40 times what the typical worker earned. Profitable
firms did not lay off large numbers of workers. Consumers, workers, and the
community were all considered stakeholders of almost equal entitlement. The
marginal income tax on the highest income earners in the 1950s was 91%. Even
the effective rate, after all deductions and tax credits, was still well above
50%.
Around
about the late 1970s and early 1980s, all of this changed dramatically. The
change began on Wall Street. Wall Street convinced the Reagan administration,
and subsequent administrations and congresses, to repeal regulations that were
put in place after the crash of 1929 – particularly during the Roosevelt
administration – to prevent a repeat of the excesses of the 1920s.
As
a result of that move towards deregulation, we saw a steady decline in
standards – a race to the bottom – on Wall Street and then in executive suites.
In the 1980s we had junk bond scandals combined with insider trading. In the
1990s we had the beginnings of a speculative binge culminating in the dotcom
bubble.
Sad to say, under the Clinton administration the Glass-Steagall Act –
that had been part of the banking act of 1933, separating investment banking
from commercial banking – was repealed.
In
2001 and 2002 we had Enron and the corporate looting scandals. Not only did
this reveal the dark side of executive behaviour among some of the most admired
companies in America – Enron had been listed among the nation’s most respected
companies before that time – but also the complicity of Wall Street. Wall
Street traders were actively involved in the Enron travesty. And then, of course,
we had all of the excesses leading up to the crash of 2008.
II
Where
has the moral center of American capitalism disappeared? Wall Street is back to
its same old tricks. Greg Smith, a vice-president of Goldman Sachs, has accused the firm of putting profits before
clients. Almost every other Wall Street firm is doing precisely the same thing
and they’ve been doing it for years.
The
Dodd-Frank bill was an attempt to rein in Wall Street, but Wall Street
lobbyists have almost eviscerated that act and have been mercilessly attacking
the regulations issued. Republicans have not even appropriated sufficient money
to enforce the shards of the act that remain.
The
Glass-Steagall Act must be resurrected. There has to be a limit on the size of
big banks. The current big banks have to be broken up using anti-trust laws, as
we broke up the oil cartels in the early years of the 20th century.
We’ve
got to put limits on executive pay and have a much more progressive income tax
so that people who are earning tens if not hundreds of millions of dollars a
year are paying at a rate that they paid before 1981, which is at least 70% at
the highest marginal level.
We
also need to get big money out of politics.
These
changes can’t come about unless we have campaign finance reform that provides
public financing in general elections and a constitutional amendment that
reverses the grotesque decision of the Supreme Court at the start of 2010, in a
case called “Citizens United versus the Federal Election Commission.”
None
of this is possible without an upsurge in the public at large – a movement that
rescues our democracy and takes back our economy. One can’t be
done without the other. Our economy and democracy are intertwined. Much
the same challenge exists in Europe and Japan and elsewhere around the world,
where systems profess to combine capitalism and democracy.
Massive
inequality is incompatible with robust democracy. Today, in the United States,
the top 1% is taking home more than 20% of total income and owns at least 38%
of total wealth. The richest 400 people in America have more wealth than the
bottom 150 million Americans put together.
As
we’ve already seen in this Republican primary election, a handful of
extraordinarily wealthy people can virtually control the election result – not
entirely, but have a huge impact. That’s not a democracy. As the great American
jurist and Supreme Court associate justice Louis Brandeis once said: “We can
have huge wealth in the hands of a relatively few people or we can have a
democracy. But we can’t have both.”
ROBERT B. REICH, Chancellor’s Professor of
Public Policy at the University of California at Berkeley and Senior Fellow at
the Blum Center for Developing Economies, was Secretary of Labor in the Clinton
administration. Time Magazine named him one of the ten most effective cabinet
secretaries of the twentieth century. He has written fourteen books, including
the best sellers “Aftershock, “The Work of Nations," and"Beyond
Outrage." He is also a founding editor of the American Prospect magazine
and chairman of Common Cause. His film, INEQUALITY FOR ALL is available on
Netflix, iTunes, Amazon. His new book, "SAVING CAPITALISM: For the Many,
Not the Few" is out 9/29.