The Not Quite Golden Age : Part 1

Supercapitalism: The Transformation of Business, Democracy, and Everyday Life
by Robert B. Reich, Ph.D.

Chapter 1

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. 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.

Copyright © 2007 by Robert B. Reich

About the Author

Robert B. Reich is University Professor at Brandeis University and Maurice B. Hexter Professor of Social and Economic Policy at Brandeis's Heller Graduate School. He is also a visiting professor at the University of California at Berkeley. He served as secretary of labor under President Bill Clinton. His writing has appeared in The New Yorker, The Atlantic Monthly, the New York Times, the Washington Post, and The Wall Street Journal. This is his tenth book. He lives in Cambridge, Massachusetts.