The System

by Robert Reich

Last month, we took a look at the Civil War era of American history. This month, I decided to fast forward to more recent times and have placed this book into our American history series. “The System” was written by Robert Reich in 2020. The solutions belong in our political theory posts, but I thought examining just exactly how Reich believes we got here would be a good start. His core idea is that it is not just the market that got us here, it is a power system. The real divide in America is not left vs. right but democracy vs. oligarchy.

Our economy and markets don’t just exist naturally. They are structured by laws, norms, and power. This idea is not new to this Substack. I have covered this by looking at many other books that tell a similar story. The story is simply that over the last 50 years, those rules were changed in ways that favored capital over labor. These weren’t accidents but politically driven changes shaped by those with money and influence.

Reich calls the old model that began after World War II, stakeholder capitalism. It focuses on balancing the needs of workers, communities, customers, and shareholders. The new model is what he calls shareholder capitalism. The sole goal is maximizing shareholder returns. The irony is that the top 20% of older American income earners have benefited greatly from this system. The ones that didn’t were those who suffered during the 2009 financial crisis, often resulting from layoffs. Reich looks at how companies focus only on short-term profits, offshoring, but also the explosion of executive pay.

His point is to tie together everything that is broken in America under this umbrella. He says that healthcare inequality, college admission scandals, tax loopholes and criminal justice disparities are all the results but not the cause of this system. So why does this system stay in place? Simply because people are divided, politically, culturally, and racially. If people fight each other, they don’t challenge the system. He argues economic frustration gets redirected into cultural conflict, which protects the underlying power structure.

Let’s be honest, the system is sustained by both political parties in different ways. Democrats are increasingly the party of educated professionals and asset owners, the 401k crowd who own their own homes. The Republican coalition now includes the billionaire/trillionaire class which is weirdly aligned with working class voters. That creates a political trap. Any attempt to fix the system risks hurting someone’s sense of security, either their assets or their identity.

Reich says that the deeper problem isn’t wealth, it’s risk distribution. The working class bears economic risk like job loss and health issues. The upper middle class bears market risk. Yes, policy sometimes saves this group. The Fed swoops in and rescues the stock market. But this group still feels at risk. Because if the market collapses, their retirement goes up in smoke. So, portfolio people fear market decline and like stability and institutions. Wage people fear what they have left, which is their cultural identity.

These divides might actually be out of date now. But Democrats often feel like security comes from institutions, policy, and shared systems like Medicare. Republicans feel security comes from community structures like churches, and above all cultural cohesion. Right now, it all feels threatening. We can feel the system’s imbalance but many of us also benefit from its current structure. We are trying to preserve a system that has worked for many of us, while making it fair enough that others don’t reject it.

In the book, Reich doesn’t really name names as to who is responsible for creating this system. Other books that I have covered pointed fingers. It sounded at first, like Reich was going to name a clear villain. But the answer is actually even more frustrating. While he mentions Jamie Dimon, who is the CEO of JP Morgan, specifically, he always says that no single group rigged the system. Instead it was reshaped over decades by overlapping elites from both parties, using legal, political and economic power. The whole time voters were distracted by cultural issues. Yet it is clear that corporate executives and the primacy of the shareholder were the primary push. It wasn’t inevitable but a choice. And it may have been a choice but it wasn’t something most people consciously chose as they voted. We all got bamboozled.

Robert B. Reich uses Dimon as less of a villain and more a case study of the system working as designed. Dimon isn’t fringe, reckless, or obviously corrupt. He’s widely seen as smart, disciplined, and one of the best CEOs. That’s the point. He was just responding to the ecosystem. We all benefit from cheap goods and fast delivery. Low prices are driven by scale and efficiency. The same system that we all criticize is one we actively participate in as consumers. Reich says they rigged it but we reinforce it. Finance became powerful because the system increasingly channeled value and influence through capital markets and people like Dimon operate effectively within that structure.

I really liked this book because it is just one more reminder that our current system of inequality didn’t have to be. I have another post coming where I will suggest some answers to the current predicament. But the real answer lies in that we have to put aside our culture wars if we are going to fix our economic system. Right now, culture wars are the distraction.

Let me conclude with a really beautiful story about Robert Reich. As a small boy, Reich was physically vulnerable because of a congenital bone disorder that made him short and fragile. At summer camp, he was relentlessly bullied by older boys. And then one day, a tall, kind, fearless teenager stepped in to protect him. That teenager was named Michael Schwerner. If that name sounds familiar, it may because you know the real-life Civil Rights story behind the movie, “Mississippi Burning.” So, when Schwerner was later murdered by the Ku Klux Klan during Freedom Summer in Mississippi, it was a loss that became a defining moment in Reich’s life.