Saving Capitalism

You often hear that the market is a natural, self-regulating force—an invisible hand correcting imbalances and rewarding merit. Robert Reich, in his lucid and urgent argument, dismantles that comforting illusion. He contends that there is no such thing as a “free market” separate from government; all markets are human-made systems governed by rules about property, contracts, monopoly, bankruptcy, and enforcement. Those choices are political, not technical, and they determine who prospers and who struggles.

Reich’s central claim is that over recent decades, political and legal systems have rewritten market rules to favor large corporations, financial institutions, and wealthy individuals. The result is what he calls “upward pre-distribution”—a quiet, structural transfer of income and power before any government redistribution occurs. In this sense, inequality today is not a natural outcome of skill or effort; it is the predictable result of rulemaking guided by concentrated power.

How the illusion of the ‘free market’ persists

Reich reminds you that terms like “deregulation” or “market freedom” are often code for reregulation—a shift in rules to favor particular interests. When Congress relaxed financial oversight in the 1980s and 1990s, it wasn’t shrinking government; it was rewriting the rules to let Wall Street take riskier bets while maintaining implicit guarantees of rescue (as the 2008 crisis proved). Each regulatory change created a new marketplace with its own winners and losers.

As Karl Polanyi noted decades earlier, markets are sustained by law. The question is not whether the state intervenes, but how it intervenes, and for whose benefit. By treating market outcomes as morally deserved or “inevitable,” you stop asking who designs the rules in the first place.

The five building blocks of capitalism

Reich structures his analysis around five institutional pillars—property, monopoly, contract, bankruptcy, and enforcement. These determine how value flows through society. They decide whether you can own software code or genes (property), how much dominance a corporation may wield (monopoly), what rights you have in agreements (contract), who gets to walk away from debt (bankruptcy), and whether laws are actually enforced on the powerful (enforcement). None of these pillars is neutral; each reflects political influence and moral priorities.

As you’ll see across the book, property law increasingly constructs monopolies out of ideas and data; antitrust enforcement has waned in the face of digital platforms; contracts trap workers and consumers in arbitration systems they didn’t choose; bankruptcy lets big firms shed obligations while ordinary debtors sink; and enforcement is routinely underfunded or captured by the very industries it is meant to police.

Freedom and power intertwined

The market myth survives partly because it borrows moral authority from the language of freedom. But Reich asks you to examine whose freedom expands when corporations win the right to spend unlimited money on politics (as in Citizens United) or when an employee must sign away her right to sue in court. Freedom without attention to power imbalances becomes a hollow slogan. True liberty, Reich argues, demands a level playing field—something rules alone can secure.

From fairness to sustainability

When economic and political power concentrate at the top, capitalism undermines itself. Demand weakens, social trust erodes, and political resentment grows. History offers warnings: severe inequality in 1928 and again in 2007 preceded economic collapse. If markets are to endure, rulemaking must once again distribute power broadly. Otherwise, the system devolves into plutocracy—capitalism for the few, insecurity for the many.

Reich’s project, then, is to turn the conversation from “more or less government” toward the real question: Who writes the rules of capitalism, and to whose benefit? Once you grasp that markets are human institutions, you can reclaim them as moral and political choices. The challenge is not to abolish capitalism, but to design it so it serves democracy rather than distorting it.

Core takeaway: The economy is not an act of nature but an act of design. Every rule—about property, monopoly, contract, or enforcement—embeds a moral decision about who counts and who profits. To build a fair society, you must first rebuild the rules of the market itself.

To see how markets structure inequality, look at one layer beneath prices and wages—the legal scaffolding that sets them. Reich shows that what you can own, trade, and enforce defines economic reality as much as any supply-demand curve. Each of the five building blocks—property, monopoly, contract, bankruptcy, and enforcement—makes choices about power distribution.

Property: from land to ideas

Property once meant land, but today it increasingly means intellectual property. Patents and copyrights now define ownership over molecules, algorithms, and media. When laws extend those rights—such as the Copyright Term Extension Act (“Mickey Mouse Protection Act”) or pharmaceutical patents like Pfizer’s Prevnar—they convert public knowledge into long private rents. These are not incentives to innovate so much as permanent tollbooths. (Note: economists like Joseph Stiglitz make similar warnings about IP monopolies limiting innovation.)

Monopoly: scale and network effects

In the digital age, monopoly power stems not from controlling factories but from controlling platforms. Google, Amazon, and Comcast illustrate network dominance: their size attracts more users, which further increases dominance. When antitrust enforcement weakens, these platform giants can squeeze suppliers (Amazon vs. Hachette), influence speech (Facebook’s content reach), and block competitors (Comcast lobbying against municipal broadband). These outcomes reflect policy choices—failure to act is itself a rule.

Contract: the fine print of power

Contracts look mutual, but Reich highlights how one-sided they have become. Employers and corporations routinely insert mandatory arbitration, noncompete, or class-action waiver clauses. Courts (notably in AT&T Mobility v. Concepcion) have upheld them as “freedom of contract,” even though most users simply click “I agree.” This legal formality strips workers and consumers of genuine recourse. What appears as equal bargaining is often coercion disguised as consent.

Bankruptcy: risk without reciprocity

Bankruptcy determines who gets rescued when things collapse. In recent decades, large firms receive lenient restructuring while debt-burdened families and students face near-impossible relief. During the financial crisis, banks were bailed out while mortgage holders could not modify loans in bankruptcy. American Airlines used bankruptcy to void union contracts and pensions even as executives retained protected packages. These patterns convert law into insurance for the powerful.

Enforcement: where law meets politics

Rules without enforcement are illusions. Underfunded regulators like OSHA, the SEC, and the IRS lack staff and mandate; fines like GM’s $35 million penalty barely dent profits. Meanwhile, settlements routinely protect executives from personal liability. When enforcement budgets shrink, law becomes optional for the wealthy and mandatory for everyone else.

Every market transaction depends on these legal foundations. Changing any—patent length, arbitration rules, antitrust standards—redistributes billions. The real economy, Reich insists, is not a contest of talent but a contest of rule-writers.

You’re told capitalism equals freedom. But Reich asks you to probe that claim: whose freedom expands when corporations act without restraint, and whose contracts or voices shrink in response? He finds that much of what passes for “freedom” in modern capitalism is an asymmetry of power disguised as liberty.

Freedom of speech and money power

The Citizens United decision (2010) gave corporations near-human rights to unlimited political spending. Theoretically, this broadened freedom of speech; in practice, it made wealth the amplifier of voice. When Comcast, Google, or Wall Street donors can dominate media and campaign funding, ordinary citizens are drowned out. True freedom of expression requires not only formal rights but capacity to be heard.

Freedom of contract and its fiction

The same logic infects contract. Corporations claim freedom of contract to justify arbitration and wage restrictions, but when workers lack leverage, freedom becomes compulsion. Reich cites that employees win discrimination claims in arbitration only one-fifth as often as in courts. In markets dominated by few employers or platforms, formal choice collapses into forced compliance.

Regulatory capture: freedom for the few

Reich details how agencies meant to constrain power often sympathize with it. The revolving door—Michael Powell moving from FCC chair to cable lobbyist, Meredith Attwell Baker from FCC to Comcast—blurs accountability. The rhetoric of “deregulation” is really the politics of re-regulation by insiders. Freedom for the powerful becomes dependence for everyone else.

Reich’s redefinition of liberty is subtle but profound: genuine freedom requires shared power and institutional fairness, not merely the absence of restraint. Without that balance, the liberty of the strong can consume the freedom of the weak.

Reich introduces the concept of upward pre-distribution—the quiet system of rules and incentives that moves income upward before government even taxes or redistributes anything. It’s the most pervasive—and least visible—cause of today’s inequality.

How pre-distribution works

You encounter it daily: intellectual-property extensions that keep drug prices high, platform monopolies that collect huge rents on digital commerce, arbitration clauses that block lawsuits, and bankruptcy priorities that let big creditors recover while workers lose pensions. These aren’t anomalies. They are features of a rulebook designed by powerful interests. Reich calls them “inside-market transfers,” policies that shift value upward before budget debates even begin.

Financial engineering and executive pay

Pre-distribution also works through corporate finance. The SEC’s 1982 rule change legalizing massive stock buybacks let CEOs use earnings to manipulate share prices. Coupled with stock-based compensation, this system inflated executive pay while starving long-term investment. By 2013, Wall Street’s implicit bailout subsidies totaled an estimated $83 billion, much of which funded bonuses and option exercises. These rules did not emerge spontaneously—they were written with active lobbying by the beneficiaries.

Contracts, credit, and household risk

At the individual level, pre-distribution traps you through contract and credit terms. Students cannot discharge loans in bankruptcy, employees must accept noncompete clauses, and consumers browsing online have unknowingly waived legal rights. Every “I accept” click embeds a wealth transfer in fine print. As Reich notes, this isn’t market efficiency—it’s legalized asymmetry.

Pre-distribution reframes the inequality debate: the critical question is not how to tax the winners afterward but how to prevent the rules from rigging who wins in the first place.

When market rules favor capital and concentration, they redefine what society rewards. Reich takes aim at the meritocracy myth—the idea that pay mirrors moral or social value. He argues that wages are not reflections of merit but outcomes of bargaining power and institutional rules.

The productivity-pay gap

Since 1979, productivity has risen over 60 percent, yet median pay has barely budged. The explanation lies in declining union power, offshoring, shareholder primacy, and weakening labor protections. As bargaining power collapsed, compensation shifted upward: CEOs saw pay ratios soar while real wages stagnated. Reich cites Herbert Simon’s estimate that most income flows from social inheritance rather than individual effort—a stark contrast to the moral story markets tell.

CEO pay and manipulated markets

Stock buybacks and performance pay magnified executive enrichment. After 1982’s SEC rule change and 1993’s tax incentives for “performance-based” compensation, corporate boards systematically inflated rewards. The practice lets firms repurchase shares to lift short-term prices, inflate option values, and create the illusion of performance. The gains accrue to the few; workers and long-term investors are eclipsed.

Decline of countervailing voices

Meanwhile, unions and other counterforces atrophied. In 1955 one-third of private workers were organized; today, fewer than 7 percent remain. Political donations now flow overwhelmingly from the top 0.01 percent, amplifying elite priorities. As collective representation fades, so does the ability of ordinary citizens to shape the rules that determine their pay.

The consequence is two-tiered capitalism: a small investor-manager elite with soaring gains and a broad working majority facing insecurity. Reich insists that rebuilding countervailing power—not just raising taxes—is essential if markets are to be fair and sustainable.

Capitalism stays healthy only when countervailing power exists—institutions that offset corporate and financial concentration. Reich traces how these balancing forces have eroded since the 1980s and what it would take to rebuild them.

The collapse of countervailing institutions

For decades after the New Deal, unions, small banks, cooperatives, and local associations distributed influence. Deregulation, “right-to-work” laws, and financial consolidation dismantled those institutions. The top 0.01 percent now supply around 40 percent of political donations, and policy research (Martin Gilens and Benjamin Page) confirms that average citizens’ preferences have almost no measurable effect on U.S. policy outcomes. The inevitable result: rules and enforcement drift toward those who fund them.

Systemic risk and declining trust

Without counterweight, markets become unsustainable. Shrinking middle-class demand weakens growth; excessive inequality breeds resentment and political volatility. Reich notes parallels between the Gilded Age, the 1920s, and today—each period’s concentration triggered reform or collapse. Trust, once a lubricant of exchange, turns brittle when most people believe the system is rigged.

Rebuilding countervailing power

The solution is not nostalgia but redesign. Reich urges: rebuild unions for modern gig and service economies; fund regulatory enforcement; reform campaign finance (reverse Citizens United and McCutcheon); restrict the revolving door; and strengthen local cooperative enterprises. Democracy, he insists, must reclaim its economic base. Without organized citizen voice, capitalism slides back toward oligarchy.

Markets need democracy as much as democracy needs fair markets. Rebuilding shared power is not utopian idealism—it is the maintenance work of a system that otherwise devours itself.

Reich concludes with a forward-looking challenge: redesign capitalism to share gains from technology and productivity, not just redistribute after the fact. That means reinventing the corporation, expanding worker stakes, and ensuring future wealth benefits everyone.

Reinventing corporate purpose

He calls for ending shareholder primacy and linking taxes or corporate charters to how equitably firms distribute rewards. One proposal ties corporate tax rates to CEO-to-worker pay ratios (already tested in parts of California). Others promote benefit corporations that legally embed stakeholder priorities—community, environment, workers—into governance. Firms like Patagonia or Market Basket show how shared prosperity can reinforce brand and loyalty.

Employee voice and co-ownership

Reich draws from European models where workers sit on boards and share profits. Co-determination and employee ownership align incentives beyond quarterly earnings and soften automation shocks. Stronger tax incentives can spread these models in the U.S. even within private enterprise.

The Citizen’s Bequest and automation

Looking ahead, automation threatens to concentrate wealth even more. Few programmers or founders can now reap billions—Instagram sold for $1 billion with 13 employees. Reich proposes a “Citizen’s Bequest”: a public stake in future wealth, delivered as a basic minimum income financed by inheritance or intellectual-property taxes. Drawing on Thomas Paine’s Agrarian Justice and Keynes’s visions of abundance, he argues that when robots and algorithms do most production, citizens should collectively claim part of that output as their inheritance.

Reich ends not on despair but agency: markets, corporations, and technologies are tools. The question is not whether they exist but whether they serve democratic values. By redesigning institutions now, you can build an economy that supports both innovation and inclusion.