An Analysis of Saving Capitalism by Robert Reich
Government intervention in economics refers to the extent to which the state influences the market forces and the economy. The involvement of the government in the market occurs due to various reasons depending on a specific state. These include consumer protection, control of the currency as well as the provision of the services that the private sector cannot deliver to the public. The government is supposed to control the market so as to ensure that equality and fairness are exercised. Robert’s argument revolves around how the government is controlled by certain individuals and how the laws that they make influence the free market.
The cause of disagreement in Reich’s argument pertains to persons supposed to influence the operations of the market. He argues that there are individuals within the government who are able to manipulate the building blocks of the economy in their own favor. According to Reich (2015), the market is dependent on five blocks, which the government uses to control the market. They include monopolies, bankruptcy, property, contracts as well as enforcement (Reich, 2015). These building blocks are essential in ensuring the effective operation of the market, and whoever controls them is in control of the market. In his argument, Reich acknowledges that the United States government owns parastatals that are monopolies, which it uses to manipulate the market. It is, therefore, dependent on the governments’ decisions on how it is supposed to run, which, therefore, threaten the free market operation where the market forces are supposed to prevail. It is important that a state’s economy operates under a regulating system, but the influence of the government on the market should be minimal. Some companies in the United States, for instance, JPMorgan Chase, use their influence to evade market forces and create monopolies. This tendency needs to be corrected, and it is, therefore, the responsibility of economists to ensure that free trade prevails over government control in the market.
Reich (2015) also postulates that the government uses parastatal power to take control of the market. Although the government is ideally a non-partisan institution, the fact is that a few individuals who control government funds rule it, sometimes at the expense of the citizens. This issue is the existing threat towards a free market. However, according to Bremmer (2010), the U.S government has ‘soft power’ and, as a result, it is losing its influence on the international trade. The author expresses the idea that the state-capitalists are the threat towards a free market. An illustration is given of China’s trade with the U.S, in which neither country can threaten to pull out since both states benefit greatly out of it. State-capitalists have been on the rise, and their impact on the international trade is quite significant (Bremmer, 2010). One of the most important assets in an economy is crude oil, which, according to Bremmer, is managed by the companies, 75% of whom are run by the state. It gives the state-capitalists a lot of power to control the market. Thus, Bremmer titled his book End of Free Market (2010).
The two writers express their perspectives on capitalism and the free market from different angles. According to Reich, free trade should prevail in the country’s economy, and his contention is on the threat to free market caused by a corrupt state. In turn, Bremmer, however, thinks that it is particularly important for the state to retain the international power of trade, and the most effective way to do so is through control and regulation of the economy by the government, similarly to its counterparts in the East, such as China and Russia. In my view, state economies may have some edge in controlling international trade but not a long lasting one. The developing technology will devalue the existing value of crude oil, shifting the economy from traditional industries to fast-changing technology industries. In the past few years, technology has been seen to create new substitutes for most naturally available resources, and it is just a matter of time before the new substitutes for crude oil will be widely used.
Reich describes each building block of the economy in his book and how each of them are particularly used to influence the market operations. The market, according to him, is organized by the government, and, therefore, the main query is who actually controls the government. Politicians use these building blocks to a create good reputation with their followers to seek re-election. The threat, according to Reich (2015), is the few individuals creating an imbalance in the market. At the same time, Friedman (2010) looks at the issue from a different angle. He focuses on describing how the world is changing and how the battleground in terms of trade is being leveled. The real threat, according to Friedman, is the improving infrastructure and communication among all states in the world. The reason behind his argument is that, in the previous years, the prominent economies such as the United States, China, and Germany, controlled the market due to increased advantage that the other states did not have. He illustrates an example of how information would have cost a lot of money to be moved from the U.S to China. Today, the same information will move easily, fast and cost less. The speed at which the world is developing technologically removes the barriers that gave the U.S an edge over the other countries. Therefore, the writer describes the world as flat. It is the challenge that the U.S economy faces according to him.
Another area differently addressed by the two authors are their opinions on the solution to the prevailing issues. Reich (2015) describes that the only way to handle the situation is by restructuring the existing laws that give certain individuals the advantage of accumulating wealth at the expense of others. He also proposes a universal basic income as a way of handling the income inequalities challenge. Wealth redistribution is also another proposal that he offers to as to curb inequality. According to Freidman (2010), however, the solution is for the citizens of the United States to realize that the other economies are catching up, and they should, therefore, start working harder. An analogy that he uses is that people should get their children to basics and switch off the televisions. To him, the United States should get ready for the wave of power contention in the international trade.
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These authors express their ideas on how the current state of the economy is to be handled. I tend to disagree with Reich’s idea that increasing the universal wage rate would reduce the existing inequality. The effect of his proposal would just cause inflation by the margin that the salary would have increased. The nominal income level will be higher, but the real wages will not be improved. The revision of the laws governing economics is, however, an effective way of handling economic challenges. The separation of political power and the economic activities would relieve the market the burden of being controlled by the rich few and return control to the market forces. Friedman’s idea of awakening the country to the threat of the other economies is perfectly on point. According to the World Bank FY 2014 GDP statistics, China is bridging the gap that exists between its GDP and that of the United States (Friedman, 2006). China’s developed control of the African market is an indication that the battleground has been leveled. The quality of education is also rising due to easy transfer of information using information technology. As noted by Friedman (2006), companies are shifting their investment from the U.S to other countries such as China where the workers are equally skilled but demand for lesser wages. The country needs to reevaluate its stronghold when it is still the largest economy and avoid being negligent of the dynamics of the flattening world.
Market control is very crucial for an economy. The government has the responsibility to oversee and make sure that no inequalities exist and fair market forces are in play. Corruption can bring a lot of damage to an economy if not addressed. The existing oppression in the U.S economy is as a result of corruption and inefficiencies in the government. The income inequalities are a worrying factor that needs to be handled properly. Investment should be scheme-free with the government giving each citizen an equal chance to determine the areas to invest in and make sure that the process is fair and equitable. The role of the government is to protect the investors but not to exploit them as it has recently been observed. The impact of the state-capitalist economy has gained some control with the likes of China, Russia and other Middle East countries that are state-capitalist controlling a great deal of the worlds’ capital. The future of the state-capitalist economy dominance is, however, not bright with the private sector increasing the substituting of the various resources controlled by the government. The leveling ground of the international trade is real, and previously dominant economies risk severe competition. Improvement in technology have taken the world to a new level with resources mobility increasing, fluid labor outsourcing, and the economies becoming more and more integrated (Friedman, 2006). Competition is very high, and it is, therefore, important that each state conserves its economy by strengthening its strongholds a well as eliminating the vices.