Indian Journal of Human Development, Vol. 2, No.

2, 2008

Review Article

Supercapitalism and
The Indian Corporate Economy
Damien Krichewsky*

This review article of Robert Reich's book Supercapitalism—The Transformation of Business,

Democracy and Everyday Life, brings forth the debate on corporate social responsibility (CSR).
The book, while discussing CSR, also reflects on the relationships between private capital and the
state. After a presentation of the main arguments of Supercapitalism and a brief review of its
shortcomings, the present article confronts Reich's analytical framework with the Indian case, in
order to assess its relevance.

From Democratic Capitalism to Supercapitalism

The author starts with a rather common observation: from the 1940s to the 1970s,
capitalism and democracy seemed to go almost hand in hand. Large corporations such
as General Motors in the United States controlled major shares of the national market
and were able to generate comfortable profits thanks to a rising middle class, without
being pressurized by any fierce competition. In order to reduce uncertainties and
stabilize their manpower, these companies were keen on negotiating with powerful
trade unions, which were able to secure a fair share of benefits for the workers.
Thanks to a scenario of rising productivity and limited competition, the companies
could transfer the burden of rising wages on to their consumers, thus maintaining
reasonable profits. As a result, American consumers were not provided with cheap
and innovative products. However, their living standards were improving steadily
and income disparities within the nation were shrinking, with the result that the vast
majority of households were actually benefiting from this system. Regarding the
government, it was playing a major role in framing the negotiations between various
groups of interests, be it manufacturers’ associations, farmers’ federations, the retail
industry, shareholders, trade unions, consumer associations, political parties, etc.
Moreover, the State was sustaining the national economy through Keynesian policies,
and major investments in the defence sector, wherein technological innovations were
percolating down to the private sector, as well as by granting access to new markets
abroad in the framework of its foreign policy, be it in Europe or in Japan. Finally,
in an oligopolistic configuration, corporate leaders could afford to look after the
national interest, responding positively to some of the government’s requests. Many
of what Reich calls the ‘industrial statesmen’ had had the chance to serve in the public
administration, and thus they were ready—and could afford—to pay attention to the
general interest, beyond the immediate interest of their companies.

* Centre for Sociology of Organization-Science - Po, Paris.

484  Indian Journal of Human Development

In the 1970s, however, democratic capitalism started crumbling. Firstly, huge

investments made by the State in R&D to improve the technology of its defence
sector progressively percolated down to the private sector, thus enabling smaller
firms to compete with the existing oligopolies, thereby forcing them to innovate and
diversify their production. Thus, economies of scale were not sufficient any longer,
with successful business being increasingly achieved through flexibility, constant
innovation of products, and marketing. Secondly, the large logistics networks, which
were put in place to provide supplies to the American army in Vietnam, contributed to
the development of international trade and the flow of Asian products into the domestic
market. Finally, the progress of technologies created new business opportunities in
key sectors such as telecommunications, finance services and civil airlines. In order to
grasp those opportunities, private companies lobbied with the State and succeeded in
bringing about both deregulation and the dismantling of state monopolies.
The combination of those three phenomena resulted in the end of the ‘golden
age’ of democratic capitalism and gave birth to what Reich calls ‘supercapitalism’, a
globalized system based on fierce competition and an unhealthy influence of market
interests on the State. Under the reign of supercapitalism, consumers and investors
have definitely won the lion’s share. Markets are fuelled with innovative products,
and global retail industries such as Wal Mart safeguard the interests of millions of
consumers, thus pressurizing their suppliers for cheaper goods and services. Similarly,
the financial sector has become one of the most lucrative ones, and mutual funds
and pension funds promote the interests of millions of shareholders to pressurize
companies for higher financial returns.
However, the high economic performance of supercapitalism has been achieved at
the cost of employees and citizens. While increasing the flexibility of labour markets to cut
costs and attract new consumers and investors, companies have weakened trade unions:
in the 1990s, one out of four trade union elections triggered illegal retrenchments in the
US. Thus, unions lost their ability to protect the employees from deteriorating working
conditions, higher working hours, increased pressures on productivity, and higher job
insecurity. The author takes the example of Wal Mart, which he describes as “a giant
steamroller moving across the global economy, pushing down the costs of everything in
its path—including wages and benefits—as it squeezes the entire production system”.
Moreover, the quest of companies for new competitive advantages has not stopped at the
doors of democratic institutions, and the pervasive influence of private business interests
on political decision-making has harmed, to a significant extent, the good health of the
American democracy. Reich explains this phenomenon with a classical demand and
supply theory: while demand in corporate funding by political parties has increased,
so as to keep pace with the development of mass media communication, the supply has
followed the same trend—companies push the limits of lobbying relentlessly, in order
to improve their position in the race for market shares.

Is There Any Way Out of The Faustian Pact?

Although the economic performance of capitalism has improved in the short run,
supercapitalism has also increased the social and environmental negative externalities
 Review Article  485

of business. But because of the pervasive influence of private companies on the

production of public policies, the State does not effectively regulate companies, nor
does it force them to internalize those externalities. Hence, the American democracy
seems unable to tackle the issues of social injustice, environmental degradation, climate
change and business-related human rights violations, though these issues appear to
be a major concern for citizens. In order to explain this paradox, Reich underlines
the inherent schizophrenia of the contemporary common man, who has contracted
a kind of Faustian pact: as an employee and a citizen, he is well-informed about the
evils of super-capitalism, but as a consumer and a shareholder, he accepts the trade-
off. In other words, while the market has improved its efficiency in satisfying our
individual economic needs, democratic institutions such as trade unions and elected
representatives, have lost their ability to satisfy our collective social aspirations.
In order to avoid the hardening of public regulation, and to maintain their social
licence to operate, companies have come up with a new mantra: corporate social
responsibility (CSR). Under this vast umbrella, companies claim that they are about
to become good citizens and take the general interest of the public into account. This
is what the notion of ‘triple bottom line’ is all about: on a voluntary basis, adding
social and environmental indicators to the existing financial evaluation of a company’s
performance. While governments tend to encourage the development of CSR, which
lightens their burden and prevents social protest, Reich thoroughly deconstructs the
myth of CSR. His first argument is powerful: in a context of supercapitalism, companies
cannot be socially responsible on a voluntary basis. Quoting several studies, he shows
that apart from a few market niches, consumers and investors do not reward ‘good’
companies, nor do they effectively sanction those companies which perform poorly
in terms of social and environmental practices. Hence, communication and gimmicks
apart, no CEO can afford to truly defend the interests of citizens and employees if this
hampers the short-term business prospects of the company. Secondly, the author shows
that when companies make commitments under the pressure of public campaigners,
the commitments which imply higher production costs and less financial returns are
not put into practice. Hence, according to Reich, CSR is “as meaningful as cotton
candy. The more you bite, the faster it dissolves”.
Moreover, CSR is politically dangerous, insofar as it diverts the focus of citizens
from the real problem. According to Reich, CSR creates the illusion that the root of
the problem lies in the companies, which refuse to safeguard the public interest out of
greed and selfishness. But the root of the problem lies elsewhere, in the inability of the
State to effectively set up the rules of the economic game so as to promote social justice,
fairness, and real sustainable development. As long as providing cheap products and
high financial returns at the expense of what we value as citizens is not made illegal,
companies will continue to provide it. Thus, Reich takes a stand similar to that of
Milton Friedman, arguing that the provision of public goods is not the companies’
business but the government’s business (Friedman, 1970).
Drawing on this analysis, Reich concludes with a ‘citizen’s guide to
supercapitalism’. According to him, the only way out of the ‘Faustian pact’ is that
citizens and campaigners target their government and ask for stringent laws and
486  Indian Journal of Human Development

regulations—starting with measures to drain the corporate money out of their

democratic institutions. However, such a movement would need to clarify the
respective responsibilities of the market and the State. Thus, Reich warns citizens
about the fallacy of business and political discourses, which claim that companies can
and should promote the collective interest beyond their own business interest. The
notion of corporate citizenship, and more broadly of CSR, is part of such discourses.
Defending the definition of companies as impersonal bundles of contracts, Reich
outlines the dangers of the personification of companies—companies as moral subjects,
which entitles them to be represented as such in the democratic institutions. In such
a case, companies would be in a position to downplay the political representation of
citizens while promoting the economic interests of consumers and investors. On the
contrary, according to Reich, only women and men should be entitled to participate as
legitimate citizens in the democratic decision-making process.

A Few Shortcomings of Reich’s ‘Supercapitalism’

While Reich ends his arguments on a positive note, namely the possibility for citizens
to hold their governments accountable in order to restore the balance between private
capital and the fulfilment of their collective aspirations, he overlooks a decisive
phenomenon: States are competing to secure competitive advantages for their national
economies and for attracting investment. Hence, if American citizens, or European
citizens, put pressure on their governments to adopt reforms that hurt the investors’
interests, companies tend to delocalize their activity in more investor-friendly economies.
Therefore, only a supranational regulating agency would be in a position to counter this
‘race to the bottom’, and while preventing any State from adopting a free-rider strategy
(Olson, 1971), protect public interest and democracy from the ills of supercapitalism.
Many attempts have been made in this regard in the past, but they have all failed to
come up with a constraining regulatory framework for private companies (Utting and
Clapp, 2008). Moreover, if we follow Reich in saying that the only solution can come
from a citizens’ movement, such movement would have to be a global one. But as we
have witnessed in the case of the anti-globalization movement, it is highly divided, and
only educated elites have the know-how, as well as the social, technical and financial
resources to organize such movements. Thus, though various citizens’ movements and
public campaigns do make a difference, they do not seem in a position to counter the
influence of private capital on democratic states at a global level.
Another controversial point in Reich’s argumentation is the way he advocates the
isolation between capitalism and democracy—private companies should limit themselves
to economic activities, and democratic institutions should limit themselves to embody
the collective aspirations of citizens. Although Reich is quite convincing when he argues
that the influence of private capital on democratic institutions has gone too far and harms
the realization of collective aspirations, the idea of separating the economic domain from
the political domain seems both impossible and problematic. It is impossible insofar as
economic activities and markets are invariably embedded in society and socio-political
institutions. Hence, the socio-political implications of economic decisions, as well as the
economic implications of public policies and social movements, are de facto discussed
and looked after in negotiations, which are based on the balance of power among the
 Review Article  487

various participants involved. Secondly, as argued by Polanyi, the disembeddedness of the

economic sphere from the non-economic spheres of societies would, in certain contexts, increase
the risks of fascism and of the collapse of social organization (Polanyi, 1944).
Finally, though Reich explicitly looks at the case of American capitalism, he
suggests that because of globalization, the model of supercapitalism has been exported
to most of the world’s market economies. However, social and political institutions
vary significantly from one country to another. Those institutional differences account
for the great variety of capitalisms across the world (Hall and Soskice, 2001). Hence,
it is not obvious that the processes of globalization induce similar transformations of
capitalism and its relationship with democratic institutions in different countries. If
we take the case of India, for instance, has the liberalization and deregulation of its
economy from the mid-1980s onwards brought Indian corporate capitalism closer to
the American model of supercapitalism?

Applying the Notion of ‘Supercapitalism’ In the Indian Context

Applying the notion of supercapitalism to the Indian case first necessitates an
analysis of the similarities and differences between the structures and evolutions of
American capitalism, and those of Indian corporate capitalism. A comparison of the
US democratic capitalism and Indian corporate capitalism under the interventionist
area (from Independence to the era of economic reforms starting in the mid-1980s)
reveals two striking similarities. First, the Indian industry was also dominated by
large oligopolies, which were operating in a context of limited competition, thanks
to the strategy of import-substitution and the severe limitations imposed on foreign
investment. However, whereas American companies were operating in single but
expanding markets, the growth of Indian business houses was limited in each market
by the ‘licence raj’. Thus, encouraged by the structure of joint Hindu families, Indian
companies grew in the form of conglomerates. Secondly, both the American State and
the Indian State supported their national industries in the framework of their respective
socio-economic development strategies. Moreover, as it appears in the Bombay Plan
of 1944, both Indian industrialists and the State shared the vision of an industry-led
development with strong intervention of the State. However, whereas in the US, the
industrial activity was contributing efficiently to the rise of a middle class and the
prosperity of the masses, Indian industry under the interventionist area failed to fulfil
the development objectives of the Nehruvian state, that is, uplifting the masses out of
poverty and modernizing the Indian economy (Mukherjee-Reed, 2001, pp. 94-129).
As outlined by Reich, the model of democratic capitalism started giving way to
supercapitalism in the mid-1970s, resulting in a fierce competition between companies,
as well as high economic performance at the expense of democracy. In India, the
dismantling of the interventionist model, which started cautiously by the end of the 1970s
and took off in the mid-1980s (Panagariya, 2008, pp. 78-109), induced major changes as
far as Indian corporate capitalism is concerned. Exposed to both foreign competition and
new business opportunities, large companies modernized their machinery, restructured
their activities and reorganized internally (Luce, 2006, p. 51). Moreover, the financial
sector and the pattern of corporate investment have somehow reinforced the power of
488  Indian Journal of Human Development

private investors over companies. However, though major sectors such as the automobile
industry, private airlines, or the IT sector, are operating under a supercapitalist scenario,
Indian corporate capitalism seems to be far from the American model of supercapitalism.
First of all, the overall level of competition between companies remains limited, and
apart from a few sectors, it has decreased since the early 1990s (Banerjee, 2005, pp. 70-
72). Secondly, though Indian large companies rely increasingly on private foreign and
domestic investors and stock markets, the structure of corporate governance and the
loopholes of the Companies (Amendment) Act, 1999, have contained the influence of
shareholders. Thus, the managerial control over companies still remains largely in the
hands of the business families (Mukherjee-Reed, 2001, p. 159).
Two other indicators need to be looked at in order to assess the transformation of
Indian corporate capitalism towards a supercapitalist model. The first is the impact of
the economic reforms on the labour market. On this account, it seems that though the
white-collar employees have benefited from the rapid development of the private sector
in India, the situation of the workers has clearly deteriorated: employment growth in
the non-agricultural sector has decreased, the ratio of casual labour/permanent workers
has substantially increased, permanent workers have been massively retrenched
through voluntary retirement schemes, labour departments and the judiciary have shifted
from a pro-employee to pro-employer stand, trade unions are weakened, etc. (Banerjee,
2005; Roy, 2008; Thakur, 2008). The other indicator is about the influence of business
interests on the political decision-making. As Mazumdar has shown recently, though
the intertwining of business, on the one hand, and administrative and political decision-
making, on the other, have been constant features of Indian corporate capitalism, the
post-interventionist area has witnessed an increasing influence of industrial and financial
private capital on the State, and more largely on the path and strategies of national socio-
economic development (Mazumdar, 2008).
In other words, though most of the Indian companies are not as exposed to pressures
from consumers and investors as are their American counterparts, they have adopted
similar practices of pressurizing the employees and influencing the State in order to
maximize their profits. This could be explained by the proximity between the big
investors and the managers, both of whom have an interest in doing so. Other factors do
facilitate such practices, such as the weak level of State governance, the high prevalence
of corruption at all levels of the State apparatus, the parochial and clientelist nature
of the Indian electoral democracy, as well as the lack of economic, socio-political and
knowledge-based resources of those who are directly affected by such practices. It is
thus difficult for them to protest or to defend their rights in the courts.
Beyond the analysis of corporate capitalism and its relation with democratic
institutions per se, Reich underlines the schizophrenic position of American individuals
towards supercapitalism: most of them both benefit from supercapitalism as
consumers and investors, but suffer from supercapitalism as employees and citizens.
An assessment of the Indian context reveals a fundamental difference between the
‘developed’ countries and emerging countries. The benefits and costs of the economic
activity seem to be far more polarized in India, so that we can speak of a social divide
rather than an individual schizophrenia. While about 10 per cent of the population
 Review Article  489

directly benefits from the transformations of Indian capitalism through higher salaries,
better products and new investment opportunities, almost 70 per cent of the people
still have insufficient incomes to access essential goods and do not directly benefit, as
workers, consumers, or investors, from the transformations of the Indian corporate
economy (Guruswamy and Abraham, 2006). Moreover, in a context of deficient social
and environmental regulation of companies by the State, those who bear the social and
environmental costs of the booming private sector are part of the weakest sections of
society and do not obtain significant benefits from Indian corporate capitalism: migrant
and casual workers, displaced farmers and adivasis, victims of industrial pollution,
and rural populations in terms of the impacts of climate change, among others.
Considering the above-mentioned major differences between the American and
the Indian scenarios, how does the critical analysis offered by Reich on CSR apply
to India? Exploring such a question necessitates drawing back on a brief review
of the historical features of Indian CSR. As underlined by Sundar, big business
houses have had a long tradition of philanthropy, community development, and
paternalistic management (Sundar, 2000). Thus, CSR has for long been considered
as a positive contribution of business to national development. However, for the
past ten years or so, the Indian CSR agenda has undergone tremendous changes.
While ‘traditional’ patterns of CSR still dominate companies’ practices, new issues
(including environmental management, climate change, employment of disabled
persons, etc.), new strategies (such as a shift from charity to participative and
sustainable development initiatives, public-private partnerships, etc.), and practices
(such as publication of annual CSR reports, social and environmental certification,
participation in international initiatives such as the Global Compact, etc.) have
emerged and tend to spread among companies.
Although a comprehensive assessment of the way in which these changes relate
to the evolutions of Indian corporate capitalism would exceed the scope of this article,
several points can be made.1 First, the rapid development of the CSR agenda can be
understood as a direct response by companies to rising social discontent regarding the
social and environmental impacts of their activities. Conversely, as in the US, there is
a large discrepancy between the CSR strategies and practices of companies, on the one
hand, which tend to focus on communication and brand-building, and the concrete
social and environmental impact of their activities, on the other hand. Secondly, the
development strategy of the State, and most of its recent public policies, are clearly
in favour of industrialization and the growth of the private sector (Reed, 2004).
Hence, CSR is used both by private companies and by the State to legitimize such
pro-investment public policies, in order to keep the social demand for stronger public
regulation of companies at bay. However, while CSR can effectively foster synergies
between the companies’ interests and the public interest, it appears to be inappropriate
when business interests are conflicting with public interests. This is all the more true in
view of the weak enforcement of labour laws, environmental laws, and rehabilitation
and resettlement policies. In other words, it seems difficult to conceive that companies
which are not complying with the existing legal provisions, in order to reduce their
production costs and take advantage of a deficient regulation by the State, will adopt
and respect stringent social and environmental standards on a voluntary basis.
490  Indian Journal of Human Development

This last argument brings us back to Reich’s major criticism of CSR, which appears
to be perfectly relevant in the Indian context. Only a strong and independent State can
prevent, as much as possible, the private sector from harming the collective interest.
And contrary to the claims made implicitly or explicitly by companies in the framework
of their CSR policies, the elected government is the sole legitimate social body, which
can define the balance between economic growth, social justice, and the protection of
the environment. This requires a well-functioning democracy, the autonomy of political
decision-makers and bureaucrats from private companies, an active civil society and
educated citizens, a functioning welfare State, as well as a strong judiciary and a state of
law. In other words, though some forms of CSR can constitute a valuable contribution
when both business interests and the collective interest happen to meet, the achievement
of ‘inclusive growth’ seems to require the Indian society to take up the challenges
mentioned above. Otherwise, the widening gap between the beneficiaries of the current
model of corporate capitalism, and those who bear the social and environmental costs of
economic growth, might lead to increased violence and social unrest.

Note
1. Most of the statments made hereunder are based on an extensive fieldwork on CSR in India, with a focus
on the cement sector. This fieldwork included more than 150 qualitative interviews, a field survey with
180 questionnaires, as well as both primary and secondary documentation. Unfortunately, the findings of
this fieldwork have not yet been published in any English language publication.

References
Banerjee, D. (2005). Globalization, Industrial Restructuring and Labour Standards, Sage Publications,
New Delhi.
Friedman, M. (1970). ”The Social Responsibility of Business is to Increase Profits”, New York Times.
Guruswamy, M. and R.J. Abraham (2006). “Redefining the Poverty Line in India”, Public Policy
Research, Vol. 13, No. 3, pp. 191-99.
Hall, P.A. and D. Soskice (2001). Varieties of Capitalism: The Institutional Foundations of Comparative
Advantage, Oxford University Press, Oxford.
Luce, E. (2006). In Spite of the Gods, Little Brown, London.
Mazumdar, S. (2008). Crony Capitalism and India, Before and After Liberalization, ISID Working Paper
No. 2008/04. New Delhi.
Mukherjee-Reed, A. (2001). Perspectives on the Indian Corporate Economy, Palgrave, New York.
Olson, M. (1971). Logic of Collective Action, Harvard University Press, Cambridge.
Panagariya, A. (2008). India—The Emerging Giant, Oxford University Press, New Delhi.
Polanyi, K. (1944). The Great Transformation, Beacon Press, Boston.
Sundar, P. (2000). Beyond Business: From Merchant Charity to Corporate Citizenship, Tata McGraw-Hill,
New Delhi.
Reed, D. (2004). “Corporate Governance Reforms in Developing Countries”, in D. Reed and S.
Mukherjee (eds) Corporate Governance, Economic Reforms and Development, Oxford University
Press, New Delhi.
Roy, S. (2008). Structural Change in Employment in India since 1980s, ISID Working Paper No. 2008/05.
New Delhi.
Thakur, C.P. (2008). “Labour Policy and Legal Framework in India”, in T.S. Papola (ed.) Labour
Regulation in Indian Industry, No. 1, Bookwell, New Delhi.
Utting, P. and J. Clapp (2008). Corporate Accountability and Sustainable Development, Oxford University
Press, New Delhi.
 I SSN 0 9 7 3 - 7 0 3 0

9 770973 703000