Third Wave Capitalism: An Interview with John Ehrenreich

"Change will happen when people demand it. We need to support the messy and unruly movements that bring about change. That is democracy."
05/10/2016 05:39 pm ET Updated Dec 06, 2017

by Christian Sarkar

John Ehrenreich is an American author, academic, and clinical psychologist who has published books on health policy, US social policy, and US history. He is the author of Third Wave Capitalism: How Money, Power, and the Pursuit of Self-Interest have Imperiled the American Dream (2016).

How did you come to write this book?

I was a 60s social activist. The book came out of some contradictory feelings I was having about the state of the country. There was a sense of nostalgia for some of the good things about the America I grew up in that have now disappeared, combined with a realistic view of how bad things were for many people in the 50s and 60s - for African Americans, for women, for gay and lesbian men and women, for the poor. And there was the realization that we were losing the gains we had made through the sacrifices of so many - students, civil rights and feminist activists, the protests. I wanted to make sense of what is happening now. I asked myself is there a coherent, underlying narrative that explains why our schools are failing, why the improvements in the state of black Americans have halted, why the increased maldistribution of wealth, why the failure to reduce poverty, etc. Was there a pattern to this decline? What was it? That was the starting point for this book.

Let's look at a question you ask at the very beginning of your book: "How did we go from 'how lucky I am to be an American' to the 'American Dream is in trouble'?"

In many ways the United States of today is a far better country than that of the 50s and 60s. We are richer, healthier, better educated, and there certainly have been enormous gains for women, people of color, gay and lesbian and transsexual men and women. And yet despite the gains in wealth and well being, our faith in the American Dream seems long gone. Our politics are gridlocked and impotent in the face of a faltering economy, climate change, increasing income inequality, and racism. Our public schools, once the wonder of the world, seem to lag behind those of a dozen other, poorer countries. Our healthcare system is the most expensive, yet least accessible and one of the least effective in the industrialized world. Racial inequities persist. The poverty level is a third higher than in 1973 and the middle class has slipped backwards - losing the gains made in the past. We may have a black president, but incarceration of black men (mainly for non-violent drug offenses) is five time that for white men, and sixty years after Brown vs Board of Education, well over a third of black students nationwide attend a school with fewer than 10 percent white students. We have re-segregated our schools.

My book is about all this - the changes that are part of what I call "Third Wave Capitalism."

Third Wave Capitalism? What is that?

Historical turning points are not always clear-cut, but in general, we can see three clear phases in the history of American capitalism.

The first phase - Industrial Capitalism - was the era of both small entrepreneurs and the robber barons and extended through most of the nineteenth century. It was a time when, the government's role in the economy was much less than now. This was a turbulent period for the United States, with widespread unrest, populist struggles, and battles between workers and their employers.

Then in the late 19th and early 20th century, we saw the emergence of Corporate Capitalism. Both government and corporations were forced to accommodate to some degree the needs of workers, farmers, and consumers. At the same time corporate leaders began to see the government as a mechanism that could directly serve their needs. The modern welfare state came into being, and business was increasingly regulated. Unions and other advocacy groups provided a counterbalance to the power of big business. There were big, industry-wide strikes that sometimes took on a "class struggle" tone, but after 1946, a general social compact emerged. Unions would accept the underlying class relationships of society, agree to long-term contracts that protected employers for the threat of frequent strikes, and give up the right to bargain over some issues, in exchange for employment stability, a steady increase in real wages, and health and pension benefits.

Since the 1970s, American capitalism has been evolving into a distinctive third phase - what I call "Third Wave Capitalism." This phase saw the dramatic growth of globalization - the rise of multinational corporations with global supply chains. Non-profit organizations became larger as well - now some 10% of the American population working for a non-profit - but the non-profits behave more and more like for-profit businesses. Technological innovation transformed the workplace - from materials to electronics and automation, changing the workplace yet again. Around 1972, we also see a decoupling of productivity and wages. While productivity kept rising, wages did not. This is also when the rise in CEO pay began its dizzying ascent. Inequality grew.


How does Third Wave Capitalism destroy the "commons"?

There is also an ideological shift. There is a decline in the belief that we can solve our problems collectively. The government's role in providing for the common welfare lost out to free-market ideology and a belief in unbridled individualism.

Many social critics have documented a decades-long decline in the sense of community and a rise in rampant greed, litigiousness, consumerism, and belligerent egoism. Freedom seems to have become less about the absence of constraint than about freedom from obligations to one another.

The sense that individual problems and social issues are linked, the notion of public action for the public good has been lost, and in the case of conservatives, totally abandoned. For them government's not the solution, it's the problem. The gap in educational outcomes in poor neighborhoods is explained away with false characterizations about "grit" and character, instead of the impact of povery - both directly on students and on their schools. Poor people are blamed for their own misfortune. Media attention focuses on street crime, the federal deficit, and gun-rights, instead of the real issues.

In Third Wave Capitalism there is the tendency for rewards to go not to those who create wealth, but to those who succeed in using their power over government and private institutions to grab a greater share of the wealth that would have been produced otherwise. This is what some are calling the "rigged economy." Economists call it "rent-seeking."

One of the best examples you have about how an industry becomes a third-wave system is the Healthcare industry. What's really wrong with our Healthcare?

The health care industry has followed a pattern of transformation now becoming common in other industries, as well.

In the 50s, a majority of decisions in the industry were made by individual doctors - who owned their own private practices. By the late 60s and early 70s, this had turned into a "medical-industrial complex., dominated not by the doctors but by giant "non-profit" hospitals, drug and medical equipment manufacturers, giant insurance companies, all more interested in "maximizing shareholder value" than in improving people's health. And the whole thing is heavily financed and subsidized by government.

The close relationships between the profit-driven pharma industry, the private health care organizations, and government policy dictated by lobbyists, together with systematic neglect of public health measures and of efforts to improve what are called the "social determinants of health" - housing, food adequacy, air and water pollution, waste disposal, and the like - have driven our effectiveness down and increased our costs. The result? The highest infant mortality rates in the industrialized world. A life expectancy several years less than in Japan and France. Mortality for women that has actually risen in 43% of our counties across the country. We still have 30 million people without healthcare insurance, despite Obamacare.

It is tempting to blame the overall poor performance of the US on aggregate measures of health status on the effect of poverty (though why that should count as an "excuse" I can't figure out). But even white, insured, college-educated, upper-income Americans have higher rates of heart disease, diabetes, cancer, and other problems than their counterparts abroad.

How is this possible? Third wave capitalism blames the victim for lack of discipline - for example, diabetes is viewed as the fault of the victim because he let himself get obese - while corporations that infuse our foods with unhealthy levels of salt and sugar and governments that tolerate sub-standard housing bear no blame.

You address poverty and racism and the retreat from social justice. Can you tell us what the impact of this has been on our economy and our society?

Let's focus on structural racism. Black communities have historically received less investment and fewer services from local governments. Social services addressing the needs of many people I the black community have been cut back. Lack of medical facilities, inadequate public transportation, infrequent trash pickup - are all factors that turn minority communities into slums. School budgets based on neighborhood property taxes mean that the poor are penalized for being poor - receiving fewer resources for education. For three decades, the tobacco industry targeted black communities, with obvious effects on health. We have backed away from any serious effort to end residential segregation. As a result, we have re-segregated our schools across this country. Banks also deliberately targeted minority communities in the early 2000s for the sale of sub-prime mortgages. As a result, black homeowners were more likely to lose their homes during the housing bust of 2008. And employment discrimination is certainly not a thing of the past.

I already mentioned the incarceration rates for black men. Ideologically, our politicians (increasingly beholden to business interests) have backed away from programs to alleviate poverty, and have, in effect, criminalized poverty.

How is the professional, creative class under stress? What about the CEO class?

The CEOs have seen startling raises in their pay scale. In the mid 60s, the average CEO earned about 20 times what their employees earned. Now the ration is over 300 to 1. Meanwhile, professionals have lost ground. Writers, editors, teachers and professors, social workers, lawyers, even doctors have seen their autonomy undercut, their job security weakened, and their pay stagnating. The American Dream has slipped out of the grasp of most middle class families. unless we change tracks, our children are faced with a worse standard of living than their parents.

What must be done? How can we the people reverse this decline? Where do we start?

For starters, we have to challenge the dominant narratives we are being fed by virtually all Republicans and, unfortunately, by many Democrats. Conservatives insist that our most pressing problem is our unbalanced budget. Higher taxes would burden the "job creators," and would threaten our international competitiveness, so we simply cannot afford to expand or even maintain government programs. They also tell us that the idea that complex social issues can be solved by government action is foolish. And to conservatives, big government is the enemy of freedom and prosperity. They insist that it is not government but the free market that solves social problems, and the only legitimate goals of public policy is to promote growth and serve the needs of businesses.

These narratives are all false.The same naysayers who tell us that government action is bad are happy to intervene on the behalf of their corporate sponsors - for bail-outs, exemptions, and tax loopholes. If taxes are raised to let Medicare subsidize an overly high salary of the CEO of a large hospital, or to permit a drug company to make outlandish large profits, or to let the Defense Department pay for $500 hammers, then yes, taxes are too high. But, if taxes are raised to provide you with drinkable water, or to protect you against the insecurity of unemployment, you have experienced a gain not suffered a loss. Despite the conservative refrain about Americans being overtaxed, taxes of the United States among the lowest in the world. As Oliver Wendell Holmes Jr. once said, "Taxes are what we pay for living in civilized society."

But the Left also has myths that have to be challenged. If we believe that self-interest - economic self-interest and group self-interest - is all there is to politics, we are badly mistaken. People also seek safety and stability, a sense of empowerment, a faith that the community will help take care of them if you need help, a coherent narrative about their own experience and that of their community, a need to ward off feelings of envy and shame, something to believe in, a pride in tradition. The Left has let the Trumps of the world get away with seeming to champion those needs, and if we don't address those needs, I fear what is to come.

Change will happen when people demand it. We need to support the messy and unruly movements that bring about change. That is democracy.

Thanks John!

What do you think? Please tell us in the comments section below.

Christian Sarkar is an artist, activist, and entrepreneur. He is the founder of the $300 House Project and manages a marketing consultancy in his spare time. He is the co-author of Inclusivity: Will America Find Its Soul Again?

FIXCapitalism.com is dedicated to saving Capitalism from itself. Visit us at www.fixcapitalism.com to join the debate. Follow us on Twitter and Facebook.

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