52 pages • 1 hour read
Robert B. ReichSaving Capitalism: For the Many, Not the Few
Nonfiction | Book | Adult | Published in 2015A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
Part 2, Chapters 13-15Chapter Summaries & Analyses
Part 2: “Work and Worth”
Part 2, Chapter 13 Summary: “The Declining Bargaining Power of the Middle”
In the three decades immediately following World War II, the average compensation for workers rose in lockstep with productivity gains, meaning that as the economy grew, so did America’s middle class. This continued until the late 1970s when wages began to flatten even as productivity gains continued and the economy continued to grow. The standard explanation given for this drastic turn is “market forces,” especially globalization and technological advances that have rendered working Americans less competitive. Reich argues, however, that this does not account for why the change occurred so rapidly, nor why other advanced economies did not have the same rapid transformation when facing similar forces. The reorganization of the market increased the profitability of large corporations and Wall Street while reducing the bargaining power of the middle class, resulting in an upward redistribution in which those at the top altered the rules of the game.
According to Reich, in the 1950s, America’s CEOs acted as industrial statesmen, concerned with their communities as much as personal profit. A “radically different” style of corporate ownership characterized the late 1970s and early 1980s. This included a drastic rise in corporate raiders, hostile takeovers, and leveraged buyouts. During this time, CEOs began to see their primary role as maximizing shareholder returns by driving up share prices. Reich argues that CEOs identified cutting costs as the easiest way to do this, especially from their biggest single expenditure: payroll. As a consequence, both share prices and the compensation of CEOs soared.
Reich explains that 50 years ago, when General Motors was America’s largest employer, the typical GM worker earned $35 an hour. In 2023, with Walmart as America’s biggest employer, the typical Walmart employee earns only $11.22 an hour. The drastic difference in pay is not because the former was more educated or motivated than the latter, but rather because the GM employee was unionized. The decline of unions in America, which started in the late 1970s, has led directly to the decline of the middle class. Reich argues that the underlying problem is not that American workers are worth less than they once were but that they have lost the bargaining power necessary to receive a proportionate share of economic gain.
Part 2, Chapter 14 Summary: “The Rise of the Working Poor”
While there has been a substantial increase in the number of people who work full-time jobs but are still poor today, it was at one time rare for a full-time worker to live in poverty. The primary reason for this is that wages at the bottom have dropped steadily. By 2013, 47 million people were among the working poor, equating to nearly 15% of the population. According to Reich, these workers did not come to be “worth” less but had a lack of economic and political power. Additionally, the federal minimum wage has been steadily eroded by inflation, and conservatives in Congress have chosen not to raise it to compensate for the decline.
While the common argument against raising the minimum wage is that it would cause employers to hire fewer employees, evidence suggests that this is false. Reich argues that few, if any, jobs would be lost if the minimum wage were increased to its 1968 level because, unlike industrial jobs, “retail jobs cannot be outsourced abroad” (136). A raise would translate not only to more local sales, leading to faster growth and more jobs, but also to a large reduction in taxpayer-subsidized public assistance that these employees now receive because they do not earn a living wage. Because big-box retailers and fast food chains compete for customers and have no choice but to keep prices low, a raise in the minimum wage for workers would not be passed on to customers. In reality, wage gains for low-paid workers will likely come from profits, meaning that CEOs will earn slightly less compensation and shareholders will experience slightly less return.
Part 2, Chapter 15 Summary: “The Rise of the Non-Working Rich”
On the other side of the working poor is the non-working rich, a classification that has also seen its numbers swell in recent years. These are people who do not need to work because they earn comfortably from “income-producing assets such as stocks, bonds, and real estate” (143). While some of these people have accumulated their assets through work, a growing number of them have never worked because they inherited their wealth. Reich argues that “America is on the cusp of the largest intergenerational transfer of wealth in history” (144). This is because as income from work has become more concentrated, a small number of the wealthy have invested in capital assets, which will be passed on to heirs. Thanks to legislative and legal changes during the Reagan and George W. Bush administrations, “so-called dynasty trusts” allow successive generations of super-rich families to pass on assets while attracting very little taxation (145).
Reich states that conservatives in Congress have not only worked to lower the tax rate applied to estates but have also worked to lower the rate on capital gains, the primary source of income for the non-working rich. Although the number of non-working rich has swelled, philanthropic giving has risen in recent years as well. However, donors can deduct such donations from their taxable incomes, and the organizations that receive them do not have to pay taxes on the income they generate, which is equivalent to a government subsidy. In addition, charitable donations go overwhelmingly to elite prep schools, universities, and artistic avenues such as operas, museums, and theaters. In closing the chapter, Reich argues that
[t]he meritocratic ideal with which our form of capitalism has been justified does not match the reality in which most of us live and work. The playing field is tilted toward those who have had the resources and power to tilt it in their direction. And as they gain steadily more resources and power, it tilts further (150).
Part 2, Chapters 13-15 Analysis
This section concentrates on Reich’s argument that there is Widening Economic Disparity in the United States, closely linked to The Myths of Meritocracy and the Free Market. These chapters serve to present evidence for rising inequality and the ways in which, in Reich’s view, traditional rhetoric around the nature of capitalism has obfuscated the true effects of modern policy making.
In Chapter 13, Reich examines the declining bargaining power of the middle class and how the demise of unions has led to this and thus to the widening of a gap between top and bottom. He explains that through the 1940s to 1960s, wages rose in proportion with the economy, meaning that the middle class expanded as the economy grew. However, beginning in the late 1970s, wages began to flatten even as the economy continued to grow and productivity continued as before. Reich rejects the standard explanation for this change as “market forces”: For him, the rules of the game were transformed by the powerful, leading to an upward redistribution and the skyrocketing pay of CEOs. Additionally, Reich argues that another key factor in the declining middle class was the “demise of unions” (126). The decline in unions, which has been deliberate and orchestrated by those at the top, has paralleled the decline of the middle class because workers lost the bargaining power and economic clout to keep wages high.
In Chapters 14 and 15, Reich introduces groups that he refers to as the “working poor” and the “non-working rich.” These chapters operate jointly, as the groups have emerged at the same time and have opposite characteristics, demonstrating a widening division. Much of Reich’s discussion concerning the working poor focuses on the minimum wage and how the refusal to raise it to compensate for flattened wages has resulted in the drastic rise in the number of people working full-time jobs but still living in poverty. He also debunks the common arguments against raising the minimum wage, arguing instead that few, if any, jobs would be lost and that it would likely lead directly to more jobs because of increased spending (136). His discussion concerning the non-working rich focuses primarily on how legal and legislative changes have led to a concentration of wealth and America being on “the cusp of the largest intergenerational transfer of wealth in history” (144). These chapters strongly reinforce Reich’s theme of The Myths of the Free Market and Meritocracy. He argues that “the ‘self-made’ man or woman, the symbol of American meritocracy, is disappearing” and says that six in 10 of the wealthiest Americans have inherited their wealth (144).
