Supercapitalism: The Transformation of Business, Democracy, and Everyday Life

Overview

From one of America's foremost economic and political thinkers comes a vital analysis of our new hypercompetitive and turbocharged global economy and the effect it is having on American democracy. With his customary wit and insight, Reich shows how widening inequality of income and wealth, heightened job insecurity, and corporate corruption are merely the logical results of a system in which politicians are more beholden to the influence of business lobbyists than to the voters ...
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Overview

From one of America's foremost economic and political thinkers comes a vital analysis of our new hypercompetitive and turbocharged global economy and the effect it is having on American democracy. With his customary wit and insight, Reich shows how widening inequality of income and wealth, heightened job insecurity, and corporate corruption are merely the logical results of a system in which politicians are more beholden to the influence of business lobbyists than to the voters who elected them.

Powerful and thought-provoking, Supercapitalism argues that a clear separation of politics and capitalism will foster an environment in which both business and government thrive, by putting capitalism in the service of democracy, and not the other way around.

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Editorial Reviews

Robert Frank
In Supercapitalism, Robert B. Reich argues that the current political debate in the United States is drowning in misdirected moral outrage. We cannot hope to solve our problems, he says, without first understanding the forces that have caused them…Supercapitalism is a grand debunking of the conventional wisdom in the style of John Kenneth Galbraith…the main thrust of Reich's argument is right on target. Those who seize their opportunities in highly competitive environments tend to survive and prosper. "To confuse greed with opportunity," he writes, "is to confound desire with availability." It's often useful to get angry when things aren't going well. But moral outrage is counterproductive unless directed at the right targets. By focusing our attention on those who continue to block effective campaign finance reform, Reich shows that he can spot a worthy target when he sees one.
—The New York Times
From the Publisher
"Reich documents in lurid detail the explosive growth of coporate lobbying expenditures and campaign contributions since the 1970s. . . . Supercapitalism is a grand debunking of the conventional wisdom in the style of John Kenneth Galbraith." —The New York Times"Reich turns the standard liberal critique of corporations on its head."—Forbes"A thoughtful and heartfelt critique of the ruthless, hell-bent-for-profit brand of capitalism that has been in vogue under Democrats and Republicans alike since roughly the end of the cold war."—Portfolio"Supercapitalism describes important and sweeping economic changes. . . . Reich has a talent for making economics accessible and sometimes even fun."—The Los Angeles Times
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Product Details

  • ISBN-13: 9781400134618
  • Publisher: Tantor Media, Inc.
  • Publication date: 9/1/2007
  • Format: CD
  • Edition description: Library - Unabridged CD
  • Product dimensions: 6.70 (w) x 6.40 (h) x 0.90 (d)

Meet the Author

Robert B. Reich, the secretary of labor under President Clinton, is a professor of public policy in the Goldman School of Public Policy at the University of California, Berkeley. His writing has appeared in The New Yorker, The Atlantic Monthly, the New York Times, the Washington Post, and the Wall Street Journal. He is the author of ten books, including the bestsellers The Future of Success and Locked in the Cabinet. He lives in Berkeley, California. Reader of over four hundred audiobooks, Dick Hill has won three coveted Audie Awards and been nominated numerous times. He is also the recipient of several AudioFile Earphones Awards. AudioFile includes Dick on their prestigious list of Golden Voices.

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Read an Excerpt

Chapter One: The Not Quite Golden Age

Roughly between 1945 and 1975, America struck a remarkable accommodation between capitalism and democracy. It combined a hugely productive economic system with a broadly responsive and widely admired political system. America in those years achieved its highest degree of income equality (since measurements have been available). It generated a larger proportion of good-paying jobs than before or since, and more economic security than ever for more of its people. Perhaps not coincidentally, in those years Americans also expressed high confidence in democracy and trust in government, both of which sharply declined in subsequent years.[1] That singular success and that powerful promise extended the moral authority of the American system throughout the world. In contrast to Soviet communism, America became an exemplar of both political freedom and suburban middle-class affluence.

The economy was based on mass production. Mass production was profitable because a large middle class had enough money to purchase what could be mass-produced. The middle class had the money because the profits from mass production were divided up between the giant corporations and their suppliers, retailers, and employees. The bargaining power of these latter groups was enhanced and enforced by government action. Almost a third of the workforce belonged to a labor union. Economic benefits were also spread across the nation—to farmers, veterans, smaller towns, and small businesses—through regulation (of railroads, telephones, utilities, and energy supplies) and subsidy (price supports, highways, federal loans). Thus did democracy offset the economic power of large-scale production and widely disperse its benefits.

But it was not quite a golden age. Women and minorities still struggled for political equality and economic opportunity. Much of the nation’s poverty was hidden away in rural hollows or black ghettos. Foreign policy, ostensibly shaped by the perceived threat of Soviet communism, all too frequently pandered to the needs of large American firms for cheap raw materials abroad, such as bananas, tin, and oil. Civil liberties were imperiled during Senator Joe McCarthy’s anti-communist witch hunt. Much of American life was monotonous, conformist, and deadly dull. And yet for all its shortcomings, democratic capitalism seemed to be working remarkably well, and on the way to working even better.

In order to understand what happened to the Not Quite Golden Age, we first need to understand how it came about.

The evolution began as the nineteenth century ended, when large corporations posed a profound challenge to American democracy. They brought a new level of prosperity to the nation but also sweatshops, child labor, and unsafe working conditions, and they monopolized whole industries. The unprecedented economic power of these giant companies made them politically unaccountable. America groped for a way to respond.

It started with outsized personalities whose footprints are still visible—J. P. Morgan, a banker’s son who sold stocks for the railroads, engineered a huge rail combination, and became a wealthy financier (J. P. Morgan and Sons, which evolved into today’s Morgan Stanley); Andrew Carnegie, who began as a telephone clerk, rose to the presidency of the Pennsylvania Railroad, and then made a fortune as a steel magnate (Carnegie Steel); John D. Rockefeller, who started as a bookkeeper in Cleveland, bought his first oil refinery in 1862, cornered the oil market in the 1890s with his Standard Oil Company (whose descendant is ExxonMobil), and then moved into coal, iron, shipping, copper, and banking (Chase Manhattan); and, subsequently, Henry Ford.

With these men and others like them flowed a stream of new inventions—steam engines, railway locomotives, the telegraph, electric turbines, internal combustion engines, and iron and steel machinery with interchangeable parts—that allowed all sorts of things to be made and shipped in very large volume. Costs could be spread over so many units that each single one was cheap to produce. Procter & Gamble devised a new machine for mass-producing Ivory soap. Diamond Match used a machine that made and boxed matches by the billions. A cigarette-making machine invented in 1881 was so productive that just fifteen of them satisfied America’s annual demand for cigarettes. Standard Oil, American Sugar Refining, International Harvester, and Carnegie Steel, among others, gained unprecedented efficiencies through giant furnaces, whirling centrifuges, converters, and rolling and finishing equipment.

Productivity surged. While the typical American worker in the early 1800s had produced a tiny .3 percent more each year (seeding and harvesting crops, logging, fishing, or applying his craft with hand tools), by the last decades of the century his productivity was rising at six times that rate.[2] Output also exploded. Iron production doubled in just a few years; steel production multiplied twenty-fold.[3] Railroad and telegraph networks expanded in tandem. Fast, regular, and reliable transportation and communication brought raw materials from far corners of the country into factories and sent finished goods out to wholesalers and retailers all over the nation.

An economic revolution on this scale inevitably had large social consequence. Supply outran demand, leading to a severe depression that jolted much of Europe and America in 1873. Another depression in the summer of 1893 impoverished thousands of farmers, closed banks, and left more than a quarter of America’s unskilled urban workforce unemployed. A growing chorus of socialists in Europe and America proclaimed the imminent collapse of capitalism. A swelling cadre of western populists in deepening debt to eastern bankers demanded that currencies be converted from gold to silver. With silver far more abundant than gold, this would inflate currency values and thereby shrink the debts. Manufacturers on both sides of the Atlantic wanted higher tariffs to protect themselves from foreign imports. (Only Britain, whose advanced manufacturers were the primary beneficiaries of free trade, declined to raise its tariffs, resulting in what were seen there as German and American “economic invasions.”)[4]

Hundreds of thousands of people moved from farms to factories. In 1870, fewer than 8 percent of America’s adult population worked in a mill and only one in five lived in a place with 8,000 or more inhabitants; a half century later, almost a third were in factories and almost a half lived in cities. During this tumultuous span of time, New York City’s population swelled fourfold; Chicago became ten times its former size. In the 1870s, 280,000 immigrants entered the United States each year. In the 1880s, 5.5 million came; in the 1890s, another 4 million. By the first decade of the twentieth century, the flow of immigrants, most of them destitute when they arrived, rose to a million a year. According to a 1908 government study, almost three-fifths of the wage earners in principal branches of American industry had been born abroad.[5] Immigrants then constituted a higher percentage of the total American workforce than they would a hundred years hence.

As America and every other manufacturing nation began scouring more backward regions of the globe for potential markets, the term “imperialism” entered common speech. Teddy Roosevelt asserted America’s imperial destiny in Latin America.“Territorial expansion,” explained an official of the United States State Department in 1900, “is but the by-product of the expansion of commerce.”[6] Britain and Germany equated their economic prowess with their nations’ global spheres of influence. The British economist J. A. Hobson dourly predicted the logical end-point of such competition: Businessmen, he warned, opt for war when they have exhausted their home markets. Like John Maynard Keynes three decades later, Hobson urged instead that advanced nations increase their domestic markets by making more of their citizens rich enough to buy domestically produced goods. “If apportionment of incomes were such as to evoke no excessive saving, full constant employment for capital and labor would be furnished at home.”[7] But the world war Hobson feared would occur before enough citizens had the wherewithal to buy a substantial portion of what they produced.

In the first decades of the twentieth century, productivity again surged. Sweatshops and mills were replaced by large manufacturing plants, inspired by Frederick Winslow Taylor’s new theories of “scientific management,” which broke down every factory job into highly specialized and repetitive steps. Henry Ford’s assembly line became the model. Not only could workers positioned along the line produce more cars in a shorter time but production could be concentrated in a few giant factories and materials could be bought in bulk at great savings. In 1909, Ford produced 10,607 cars; in 1913, 168,000; the following year, 248,000. By the beginning of World War I, much of American industry had consolidated into giant firms whose names became almost synonymous with America—Ford Motor, U.S. Steel, American Telephone & Telegraph, United States Rubber, National Biscuit, American Can, the Aluminum Company of America, General Electric, General Motors, and Rockefeller’s Standard Oil.

The size of such enterprises became an almost impregnable barrier to entry. They dominated the American, and much of the world’s, economy for most of the twentieth century. Of the Fortune 500 largest corporations in 1994, more than half were founded between 1880 and 1930.[8] A far smaller portion was founded during the long stable period between 1945 and 1975, an important fact to bear in mind as the story unfolds.

Notes
[1] The most useful polling series of American attitudes toward government is The American National Election Studies, undertaken by the University of Michigan. It can be found at http://www.umich.edu/~nes/nesguide/toptable/tab5.
[2] Figures from Simon Kuznets, Economic Growth and Structure (New York: W. W. Norton, 1965), pp. 305-27.
[3] Figures from U.S. Bureau of the Census, Historical Statistics of the United States: Colonial Times to 1970 (Washington, D.C.: U.S. Government Printing Office, 1975), Vol. I, pp. 201-2, 224.
[4] At the end of the nineteenth century, British citizens were treated to a series of lurid accounts of German and American economic onslaught and baleful consequences for Britain. Among them were E. E. Williams, Made in Germany (London: William Heinemann, 1896), and Frederick McKenzie, American Invaders (London: G. Richards, 1902). In form and substance, this literature bore remarkable resemblance to accounts of Japanese "invasions" offered American readers a century later.
[5] Figures from Jerehmiah Jenks and Jett Lauck, The Immigration Problem (New York: Funk & Wagnalls, 1926), p. 148.
[6] Cited in W.A. Williams, The Tragedy of American Diplomacy (Cleveland: World, 1959), p. 44.
[7] J. A. Hobson, Imperialism (London: J. Nisbet, 1902), p. 112.
[8] Selected from Harris Corporations, "Founding Dates of the 1994 Fortune U.S. Companies," Business History Review 70 (Spring 1996), p. 69-90.

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Table of Contents


Introduction: The Paradox     3
The Not Quite Golden Age     15
The Road to Supercapitalism     50
Of Two Minds     88
Democracy Overwhelmed     131
Politics Diverted     168
A Citizen's Guide to Supercapitalism     209
Notes     227
Acknowledgments     253
Index     255
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First Chapter

Chapter One: The Not Quite Golden Age
Roughly between 1945 and 1975, America struck a remarkable accommodation between capitalism and democracy. It combined a hugely productive economic system with a broadly responsive and widely admired political system. America in those years achieved its highest degree of income equality (since measurements have been available). It generated a larger proportion of good-paying jobs than before or since, and more economic security than ever for more of its people. Perhaps not coincidentally, in those years Americans also expressed high confidence in democracy and trust in government, both of which sharply declined in subsequent years.[1] That singular success and that powerful promise extended the moral authority of the American system throughout the world. In contrast to Soviet communism, America became an exemplar of both political freedom and suburban middle-class affluence.
The economy was based on mass production. Mass production was profitable because a large middle class had enough money to purchase what could be mass-produced. The middle class had the money because the profits from mass production were divided up between the giant corporations and their suppliers, retailers, and employees. The bargaining power of these latter groups was enhanced and enforced by government action. Almost a third of the workforce belonged to a labor union. Economic benefits were also spread across the nation—to farmers, veterans, smaller towns, and small businesses—through regulation (of railroads, telephones, utilities, and energy supplies) and subsidy (price supports, highways, federal loans). Thus did democracy offset theeconomic power of large-scale production and widely disperse its benefits.
But it was not quite a golden age. Women and minorities still struggled for political equality and economic opportunity. Much of the nation’s poverty was hidden away in rural hollows or black ghettos. Foreign policy, ostensibly shaped by the perceived threat of Soviet communism, all too frequently pandered to the needs of large American firms for cheap raw materials abroad, such as bananas, tin, and oil. Civil liberties were imperiled during Senator Joe McCarthy’s anti-communist witch hunt. Much of American life was monotonous, conformist, and deadly dull. And yet for all its shortcomings, democratic capitalism seemed to be working remarkably well, and on the way to working even better.
In order to understand what happened to the Not Quite Golden Age, we first need to understand how it came about.
The evolution began as the nineteenth century ended, when large corporations posed a profound challenge to American democracy. They brought a new level of prosperity to the nation but also sweatshops, child labor, and unsafe working conditions, and they monopolized whole industries. The unprecedented economic power of these giant companies made them politically unaccountable. America groped for a way to respond.
It started with outsized personalities whose footprints are still visible—J. P. Morgan, a banker’s son who sold stocks for the railroads, engineered a huge rail combination, and became a wealthy financier (J. P. Morgan and Sons, which evolved into today’s Morgan Stanley); Andrew Carnegie, who began as a telephone clerk, rose to the presidency of the Pennsylvania Railroad, and then made a fortune as a steel magnate (Carnegie Steel); John D. Rockefeller, who started as a bookkeeper in Cleveland, bought his first oil refinery in 1862, cornered the oil market in the 1890s with his Standard Oil Company (whose descendant is ExxonMobil), and then moved into coal, iron, shipping, copper, and banking (Chase Manhattan); and, subsequently, Henry Ford.
With these men and others like them flowed a stream of new inventions—steam engines, railway locomotives, the telegraph, electric turbines, internal combustion engines, and iron and steel machinery with interchangeable parts—that allowed all sorts of things to be made and shipped in very large volume. Costs could be spread over so many units that each single one was cheap to produce. Procter & Gamble devised a new machine for mass-producing Ivory soap. Diamond Match used a machine that made and boxed matches by the billions. A cigarette-making machine invented in 1881 was so productive that just fifteen of them satisfied America’s annual demand for cigarettes. Standard Oil, American Sugar Refining, International Harvester, and Carnegie Steel, among others, gained unprecedented efficiencies through giant furnaces, whirling centrifuges, converters, and rolling and finishing equipment.
Productivity surged. While the typical American worker in the early 1800s had produced a tiny .3 percent more each year (seeding and harvesting crops, logging, fishing, or applying his craft with hand tools), by the last decades of the century his productivity was rising at six times that rate.[2] Output also exploded. Iron production doubled in just a few years; steel production multiplied twenty-fold.[3] Railroad and telegraph networks expanded in tandem. Fast, regular, and reliable transportation and communication brought raw materials from far corners of the country into factories and sent finished goods out to wholesalers and retailers all over the nation.
An economic revolution on this scale inevitably had large social consequence. Supply outran demand, leading to a severe depression that jolted much of Europe and America in 1873. Another depression in the summer of 1893 impoverished thousands of farmers, closed banks, and left more than a quarter of America’s unskilled urban workforce unemployed. A growing chorus of socialists in Europe and America proclaimed the imminent collapse of capitalism. A swelling cadre of western populists in deepening debt to eastern bankers demanded that currencies be converted from gold to silver. With silver far more abundant than gold, this would inflate currency values and thereby shrink the debts. Manufacturers on both sides of the Atlantic wanted higher tariffs to protect themselves from foreign imports. (Only Britain, whose advanced manufacturers were the primary beneficiaries of free trade, declined to raise its tariffs, resulting in what were seen there as German and American “economic invasions.”)[4]
Hundreds of thousands of people moved from farms to factories. In 1870, fewer than 8 percent of America’s adult population worked in a mill and only one in five lived in a place with 8,000 or more inhabitants; a half century later, almost a third were in factories and almost a half lived in cities. During this tumultuous span of time, New York City’s population swelled fourfold; Chicago became ten times its former size. In the 1870s, 280,000 immigrants entered the United States each year. In the 1880s, 5.5 million came; in the 1890s, another 4 million. By the first decade of the twentieth century, the flow of immigrants, most of them destitute when they arrived, rose to a million a year. According to a 1908 government study, almost three-fifths of the wage earners in principal branches of American industry had been born abroad.[5] Immigrants then constituted a higher percentage of the total American workforce than they would a hundred years hence.
As America and every other manufacturing nation began scouring more backward regions of the globe for potential markets, the term “imperialism” entered common speech. Teddy Roosevelt asserted America’s imperial destiny in Latin America.“Territorial expansion,” explained an official of the United States State Department in 1900, “is but the by-product of the expansion of commerce.”[6] Britain and Germany equated their economic prowess with their nations’ global spheres of influence. The British economist J. A. Hobson dourly predicted the logical end-point of such competition: Businessmen, he warned, opt for war when they have exhausted their home markets. Like John Maynard Keynes three decades later, Hobson urged instead that advanced nations increase their domestic markets by making more of their citizens rich enough to buy domestically produced goods. “If apportionment of incomes were such as to evoke no excessive saving, full constant employment for capital and labor would be furnished at home.”[7] But the world war Hobson feared would occur before enough citizens had the wherewithal to buy a substantial portion of what they produced.
In the first decades of the twentieth century, productivity again surged. Sweatshops and mills were replaced by large manufacturing plants, inspired by Frederick Winslow Taylor’s new theories of “scientific management,” which broke down every factory job into highly specialized and repetitive steps. Henry Ford’s assembly line became the model. Not only could workers positioned along the line produce more cars in a shorter time but production could be concentrated in a few giant factories and materials could be bought in bulk at great savings. In 1909, Ford produced 10,607 cars; in 1913, 168,000; the following year, 248,000. By the beginning of World War I, much of American industry had consolidated into giant firms whose names became almost synonymous with America—Ford Motor, U.S. Steel, American Telephone & Telegraph, United States Rubber, National Biscuit, American Can, the Aluminum Company of America, General Electric, General Motors, and Rockefeller’s Standard Oil.
The size of such enterprises became an almost impregnable barrier to entry. They dominated the American, and much of the world’s, economy for most of the twentieth century. Of the Fortune 500 largest corporations in 1994, more than half were founded between 1880 and 1930.[8] A far smaller portion was founded during the long stable period between 1945 and 1975, an important fact to bear in mind as the story unfolds.
Notes
[1] The most useful polling series of American attitudes toward government is The American National Election Studies, undertaken by the University of Michigan. It can be found at umich.edu/~nes/nesguide/toptable/tab5.
[2] Figures from Simon Kuznets, Economic Growth and Structure (New York: W. W. Norton, 1965), pp. 305-27.
[3] Figures from U.S. Bureau of the Census, Historical Statistics of the United States: Colonial Times to 1970 (Washington, D.C.: U.S. Government Printing Office, 1975), Vol. I, pp. 201-2, 224.
[4] At the end of the nineteenth century, British citizens were treated to a series of lurid accounts of German and American economic onslaught and baleful consequences for Britain. Among them were E. E. Williams, Made in Germany (London: William Heinemann, 1896), and Frederick McKenzie, American Invaders (London: G. Richards, 1902). In form and substance, this literature bore remarkable resemblance to accounts of Japanese "invasions" offered American readers a century later.
[5] Figures from Jerehmiah Jenks and Jett Lauck, The Immigration Problem (New York: Funk & Wagnalls, 1926), p. 148.
[6] Cited in W.A. Williams, The Tragedy of American Diplomacy (Cleveland: World, 1959), p. 44.
[7] J. A. Hobson, Imperialism (London: J. Nisbet, 1902), p. 112.
[8] Selected from Harris Corporations, "Founding Dates of the 1994 Fortune U.S. Companies," Business History Review 70 (Spring 1996), p. 69-90.
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  • Posted April 10, 2010

    I Also Recommend:

    A Facinating Analysis of Economics, Politics and Society

    Robert Reich's book "Supercapitalism" was a facinating analysis of the American economy and its interaction with democracy. He surveys the change that has occured in our capitalist economy from the 1940's to the present day and how that has changed our democracy. He begins the book by discussing the "Not Quite So Golden Age" of the late 1940's to the early 1970's. During this time period certain industries were regulated as monopolies by the government, while other industries(in conjunction with the government) regulated themselves. He called these huge corporations oligopolies. These large companies worked with government and labor in order to benefit the nation as a whole. Making a profit was only one of their concerns. Hence, the provided good wages, comfortable retirement packages and insurance for their workers. However, Reich makes sure to mention that not every group benefited fully from this system. African Americans and women were routinely denied their full share in this system. Reich then goes on to discuss changes in technology that allowed corportations to be more competitive and hence provide higher quality, lower priced goods to consumers. As a result, consumers continued to look for the best deal possible forcing companies to find ways cut costs and lower their prices. As a result of this process, workers have lost decent wages and retirement packages. Large corporations are now more concerned with making a profit for their investors than looking out for the general good of society. Reich also mentions that, through lobbying and huge monetary donations, corporations have the ears politicans of both parties. Hence, lessing the effect and advocacy power of citizen groups such as evironmentalists and labor unions. This has lead to a decline in citizen power in government. Reich goes on to discuss the dangers of such a situation and how we as Americans can help change the trend of diminished citizen power and influence in our government due to the effects of supercapitalism. This book is a must read for all American citizens.

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  • Posted November 4, 2008

    I Also Recommend:

    A novel explanation for corporate dominance of politics

    Over the weekend, I finished reading Supercapitalism, by Robert Reich. The main thesis is that corporate interests dominate politics because the hyper-competitive new age of capitalism has brought with it an increase in companies trying to gain an edge from the government. Reich uses the term ¿supercapitalism¿ to designate the increase in competition that has been the result of deregulation and a growing number of businesses in the same space that have occurred since the 1970s. The results of this competition have been lower prices for consumers and higher returns for investors. This result is what we would expect, since, as Reich notes quoting Milton Friedman, ¿the business of business is business.¿<BR/><BR/>Reich concludes that corporations can, and should, do no other. In order to survive in the age of supercapitalism, businesses must do everything in their power to both provide lower prices for consumers and high returns for investors. One such tactic involves ensuring favorable legislation for both their company and their industry as a whole. There are many ways to accomplish this goal, including bundling campaign donations and lobbying. Conventional wisdom tells us that politicians ignore popular groups and pander to corporations because they finance their elections campaigns and have more power. However, Reich argues that the real problem is that the growing influence of businesses in politics is drowning out the voices of other interests. Businesses can spend large sums of money on lobbying, etc to ensure that their voices are heard on the Hill. On the other hand, small non-profits have limited budgets and are unable to compete for the stage with the corporate interests. As a result, much legislation tends to support large businesses since it is their arguments which politicians are hearing. In other words, progressive voices are not loud enough to shout over the corporate clamor.<BR/><BR/>Most of the book focuses on the arguments for these claims. Reich also addresses possible ways to solve the problem. Overall, I think it is a very interesting and different idea of why our politics are currently dominated by corporate interests. Anyone who recognizes this should read this book to understand one potentially way to explain the problem.

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    Posted November 27, 2008

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    Posted December 7, 2008

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    Posted March 17, 2009

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