Commanding Heights: The Battle for the World Economy
Encyclopedia
The Commanding Heights: The Battle for the World Economy is a book by Daniel Yergin
and Joseph Stanislaw
, first published as The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the Modern World in 1998. In 2002, it was turned into a documentary
of the same title, and later released on DVD
.
Commanding Heights attempts to trace the rise of free markets during the last century, as well as the process of globalization
. The book attributes the origin of the phrase "commanding heights" to a speech by Vladimir Lenin
referring to the control of perceived key segments of a national economy.
, the world effectively lived in a state of globalization, which they term the "First Era of Globalization."
The authors define globalization as periods where free markets predominate, and countries place few if any limits on imports, exports, immigration
and exchanges of information. Overall, they see globalization as a positive movement that improves the standard of living
for all the people connected to it, from the richest to poorest.
According to the authors, the rise of fascism
and communism
, not to mention the Great Depression
, nearly extinguished capitalism
, which rapidly lost popularity.
After World War II
, the authors believe the work of economist John Maynard Keynes
came to be widely accepted in Western economies. Keynes believed in government regulation of the economy, and the authors underline this as Keynes' great influence and prestige. In the authors' opinion, these so-called "commanding heights" were often owned or severely regulated by governments in accordance with Keynes' ideas.
The authors then discuss how the political change of the 1980s ushered in a change of economic policy. The old trend changed when Margaret Thatcher
became prime minister
of the United Kingdom
, and when Ronald Reagan
was elected President of the United States
. Both these leaders parted ways with Keynesian economics. Rather, they were more in the tradition of the work of Friedrich von Hayek, who opposed government regulation, tariffs, and other infringements on a pure free market, and Milton Friedman
, who emphasized the futility of using inflationary monetary policies to influence rates of economic growth
. In practice, Von Hayek's policies were applied only selectively, as Reagan's 1986 income tax reforms substantially increased taxes on the lowest quintile of wage-earners while dramatically decreasing rates for the upper two quintiles. Moreover, in contrast to Von Hayek, Reagan's policies continued and expanded tax write-offs, rebates and subsidies for many large corporations. Friedman's Monetarism
was also abandoned in practice, as government-issued debt as a percentage of GDP rose dramatically throughout the 1980s.
While Thatcher, Reagan, and their successors made sweeping reforms, the authors argue that the current era of globalization finally began around 1991, with the collapse of the Soviet Union
. Since then, they assert, countries embracing free markets have prospered on the whole, while those adhering to central planning have failed.
While strongly in favor of this trend, the authors worry that globalization will not last. More specifically, they believe that if inequality
in economic growth remains high, and if Third World
nations are not offered the proper opportunities and incentives to support capitalism, the movement will end just as the first era did.
The reason the authors place so much emphasis on narrowing economic gaps is because they believe, against many of the people they interview, that there is no ideological support for capitalism
, only the pragmatic fact that the system works better than any other. As they remark:
s was often condemned in the press, America's commitment to industrialization and free markets (compared to other countries) was extremely high in the late 19th/early 20th century. Unlike many countries after WWI, the 1920s saw great economic expansion for upper-income individuals, as well as a growth in median income. Labor unrest continued to mount throughout the 1920s and 1930s, however, as the lack of wage and hour rules, child labor protections, unemployment insurance, the right to organize, workplace safety requirements and social security insurance continued to exacerbate the discontents of the substantial numbers of working poor.
The Great Depression caused massive unemployment
and, with it, massive public distrust of corporations and wealthy individuals (it didn't help that some businessmen took advantage of Depression conditions to benefit themselves). In response, the New Deal
instituted by Franklin D. Roosevelt
went into effect with massive public support. Many lawyers and economists influenced by Keynes worked under the New Deal, and believed that free markets, without proper regulation, would lead to disaster.
While the American economy boomed for about 30 years following World War II with the benefit of Keynesianism, robust anti-trust regulation to promote competition and financial regulations to prevent the most volatile forms of market speculation, high unionization rates and protections promoting the growth of domestic industry, during the 1970s, stagflation
- brought on by the 1973 oil crisis
and the shift from the gold standard
to fiat currency - was made to discredit the policy consensus set in place under the years of the New Deal Coalition
. This culminated in the election of Reagan in 1980, and many of the statutes and organizations created by the New Deal were dismantled.
was the center of the so-called "First Era of Globalization" due to the power and resources of the British Empire
. However, World War I severely weakened Britain, causing massive unemployment. While the United Kingdom successfully held out during World War II and emerged victorious, the war effectively caused the dismantling of its empire.
Winston Churchill
was influenced by the work of von Hayek and opposed heavy government interference in the British economy. However, during the 1945 elections, the Labour Party
, led by Clement Attlee
, came to power in force, and was dedicated to government controls to prevent another economic crisis. The UK's major industries were nationalized, and practically all occupations (and the wages they earned) were heavily regulated and unionized.
This practice became so prevalent that even Conservative governments, elected into power later, did nothing to change it. However, during the 1970s, massive strikes
by unions combined with other economic woes such as the 1973 oil shock almost ground the British economy to a halt. Thatcher, an ardent admirer of von Hayek, began privatization (Thatcherism
). While her results were initially mixed, the Falklands War
brought on a nationalistic fervor that kept Thatcher in office long enough to keep her reforms in place. Although the Labour Party later came back to power, it did not attempt to challenge the key principles of Thatcherism.
, the socialist Soviet economy went into a major crisis. Lenin responded with the New Economic Policy
, a program that allowed limited capitalistic activity, resulting in a type of market socialism
, and the economy began to improve. Lenin's "commanding heights speech" was his attempt to defend himself against accusations that he "sold out" the principles of the revolution by implementing this new policy.
Under Joseph Stalin
, the Soviet agricultural and heavy manufacturing sectors were largely centralized. During the 1940s-1970s, the Soviet Economy grew at a rate that outpaced that of Western European nations.
By the 1980s, the Soviet economy was in shambles. Because of a lack of incentives (and, ironically, a more tolerant central government), workers did not put much effort into their duties. Nonetheless, the Soviets continued to build their military
, even though, at times, such spending took up half the country's revenue. Mikhail Gorbachev
tried to reform the economy, but took only limited steps. When he lifted the Brezhnev Doctrine
and allowed Poland
's Solidarity Party
to usurp that country's communist regime, the entire Warsaw Pact
collapsed, soon followed by the Soviet Union itself.
However, even with the fall of the Soviet Union and the rise of the relatively free market-minded Boris Yeltsin
, communists maintained much power in Russia, blocked free market movements, and forced the resignation of Yeltsin's free-market allies such as Yegor Gaidar
. During the 1996 elections, Yeltsin was forced to accept support from the oligarchs to counter the growing power of the communists. While Yeltsin remained in power, the "privatization" of Soviet industries proceeded in an extremely unequal manner.
caused by the Treaty of Versailles
devastated the German economy and created political instability. In addition to widespread unemployment, this inflation effectively wiped out the country's middle class
. This environment made it easy for the Nazi Party to gain power, and the Nazis practiced central planning (although their leaders were largely incompetent in this area).
Following the war and break-up of Germany, East Germany came under the rule of the Soviets while West Germany
remained part of the Western powers. When economic conditions in occupied West Germany failed to improve, Ludwig Erhard
, without consulting the occupying powers, completely destroyed price controls
in 1948. After this, the Western German economy underwent a massive recovery, although such free market reforms remains largely confined to the country for many years.
By the time of German reunification
, West Germany was an economic power, while East Germany faced many problems due to its communist-run economy.
, who supported a village centric economy, after India's independence in 1947, its first prime minister, Jawaharlal Nehru
, promoted industrialization. However, he supported government-controlled development, and the bureaucracy
that developed stifled innovation (the authors of Commanding Heights sarcastically claim that the British Raj
was replaced by a "permit Raj"). Bribery and delays became commonplace in the Indian economy, while at the same time, many prominent economists studied the country and attempted to "fine tune" its central planning.
By the 1990s, the Indian government, mainly due to the influence of finance minister (now Prime Minister) Manmohan Singh
, began to relax these stringent regulations, and the Indian economy bloomed under the effects of exports and outsourcing
. Political parties since this period have continued to promote these changes; even after the election of a traditionally Marxist government, the free marketer Singh was appointed prime minister.
, a Marxist approach to international economics, many Latin American countries attempted to industrialize by limiting imports of manufactured goods and subsidizing their own industries. However, in the absence of competition, and with government subsidies, these companies had little incentive to become efficient or innovative. By the 1980s, the economic problems of these countries became obvious, and much of the West's investment
in these countries was lost.
Chile
unwittingly became an experiment in free markets when Augusto Pinochet
called in followers of Friedman to evaluate the economy, the so-called "Chicago boys
". The authors argue that these economic reforms proved successful, but since Pinochet was a dictator
who came to power in a coup and had many political opponents murdered, the whole idea of free market reform became linked to fascism
. While the authors (and Friedman) claim that these reforms eventually promoted democracy, they acknowledge that this issue - and their interpretation of events - is extremely controversial.
Bolivia
was hit with hyperinflation as well. During the 1990s, economist Jeffrey Sachs
was sent as a consultant, and a new president, Gonzalo Sanchez de Lozada
, reined in inflation by severely cutting government spending. While Bolivia remained a very poor country, the authors argue that it is better off now because its inflation was curtailed. They also argue that Bolivia's example vindicates the bad reputation free-market economics acquired in Chile, as Bolivia's reforms came after a democratic election.
's economic development was severely hindered by central planning, socialist ideas, and political dictatorships that promoted warfare and other conflicts.
While Japan
was seen for many years as an economic success story as late as the early 1990s, the authors argue that its ongoing recession since then resulted from its governments refusal to stop subsidies to many of its industries and companies (this issue is ongoing).
Poland
's free market reforms, pushed by Solidarity and Lech Wałęsa
, were initially mixed and criticized by its citizens, but by the late 1990s, the Polish economy was doing much better than other former communist states in Eastern Europe
. One feature of the Polish economy that makes it different from other capitalistic countries is that it is dominated by small business
es rather than corporations or conglomerates.
China
is another major ongoing issue. While Deng Xiaoping
, after the death of Mao Zedong
, gradually introduced free market, he did not promote civil liberties
or other freedoms, as demonstrated by his willingness to crush pro-democracy demonstrators
. While the authors hope (according to Milton Friedman's ideas) that free markets will eventually promote a free society, it hasn't happened yet, although China's economy continues to grow.
aired a six-hour documentary based on the book. This documentary was later sold on DVD, and is available for viewing free at PBS' web site for those with high-speed Internet
connections (see external links). The documentary is narrated by David Ogden Stiers
.
Thanks to its later date, the documentary film is able to address many of the items Yergin and Stanislaw missed in their original book, including the recession, the collapse of Asian economies, the anti-globalization movement
, and the attack on New York City
. All told, two of the documentary's six hours—the entire final third—address things that happened since the original book was published. They also include free market solutions to international poverty that was not included in the book - they interview economist Hernando de Soto
, whose book on the subject was not published until after the initial printing of Commanding Heights.
Like the book, the documentary attracted more support and criticism. One example is the anti-globalization movement, which argued they were portrayed unfairly. In the documentary, James Wolfensohn
, then President of the World Bank
, is interviewed and says that such protesters are attacking people "who are devoting their lives to addressing the very questions that these people claim to be addressing." The documentary includes a scene of Wolfensohn getting hit in the face with a pie
by a protester.
Unlike the book, the PBS documentary is far more wary of the possible end of the current era of globalization. For example, they include a parallel between radio
stocks of the 1920s and dot com
stocks of the 1990s - both were industries built on new technology
which had little capital, but which fell prey to a market bubble
. Likewise, the documentary draws an unsettling parallel between the terrorist attacks of Sept. 11, 2001, and the terrorist assassination of Archduke Franz Ferdinand of Austria
in 1914.
The documentary is also accused of further oversimplfying the so-called "Battle of Ideas" between Keynes and Hayek. For example, in the DVD version, Keynes is named together with Karl Marx
and Lenin as supporters of controlled economies. However Keynes saw himself as a liberal, in both the party political and economic senses of the term .
The production was financed by donations from Electronic Data Systems
, FedEx
, BP
, The Pew Charitable Trusts
, John Templeton Foundation
, Smith Richardson Foundation
, Corporation for Public Broadcasting
.
Daniel Yergin
Daniel Howard Yergin is an American author, speaker, and economic researcher. Yergin is the co-founder and chairman of Cambridge Energy Research Associates, an energy research consultancy. It was acquired by IHS Inc...
and Joseph Stanislaw
Joseph Stanislaw
Joseph Stanislaw is a financial adviser on international markets and politics. He is also the co-founder and former president of Cambridge Energy Research Associates, an energy research consultancy that was acquired in 2004 by IHS Energy....
, first published as The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the Modern World in 1998. In 2002, it was turned into a documentary
Documentary film
Documentary films constitute a broad category of nonfictional motion pictures intended to document some aspect of reality, primarily for the purposes of instruction or maintaining a historical record...
of the same title, and later released on DVD
DVD
A DVD is an optical disc storage media format, invented and developed by Philips, Sony, Toshiba, and Panasonic in 1995. DVDs offer higher storage capacity than Compact Discs while having the same dimensions....
.
Commanding Heights attempts to trace the rise of free markets during the last century, as well as the process of globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
. The book attributes the origin of the phrase "commanding heights" to a speech by Vladimir Lenin
Vladimir Lenin
Vladimir Ilyich Lenin was a Russian Marxist revolutionary and communist politician who led the October Revolution of 1917. As leader of the Bolsheviks, he headed the Soviet state during its initial years , as it fought to establish control of Russia in the Russian Civil War and worked to create a...
referring to the control of perceived key segments of a national economy.
Overview
The authors take the thesis that, prior to World War IWorld War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
, the world effectively lived in a state of globalization, which they term the "First Era of Globalization."
The authors define globalization as periods where free markets predominate, and countries place few if any limits on imports, exports, immigration
Immigration
Immigration is the act of foreigners passing or coming into a country for the purpose of permanent residence...
and exchanges of information. Overall, they see globalization as a positive movement that improves the standard of living
Standard of living
Standard of living is generally measured by standards such as real income per person and poverty rate. Other measures such as access and quality of health care, income growth inequality and educational standards are also used. Examples are access to certain goods , or measures of health such as...
for all the people connected to it, from the richest to poorest.
According to the authors, the rise of fascism
Fascism
Fascism is a radical authoritarian nationalist political ideology. Fascists seek to rejuvenate their nation based on commitment to the national community as an organic entity, in which individuals are bound together in national identity by suprapersonal connections of ancestry, culture, and blood...
and communism
Communism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...
, not to mention the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
, nearly extinguished capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
, which rapidly lost popularity.
After World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, the authors believe the work of economist John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
came to be widely accepted in Western economies. Keynes believed in government regulation of the economy, and the authors underline this as Keynes' great influence and prestige. In the authors' opinion, these so-called "commanding heights" were often owned or severely regulated by governments in accordance with Keynes' ideas.
The authors then discuss how the political change of the 1980s ushered in a change of economic policy. The old trend changed when Margaret Thatcher
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
became prime minister
Prime minister
A prime minister is the most senior minister of cabinet in the executive branch of government in a parliamentary system. In many systems, the prime minister selects and may dismiss other members of the cabinet, and allocates posts to members within the government. In most systems, the prime...
of the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, and when Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
was elected President of the United States
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
. Both these leaders parted ways with Keynesian economics. Rather, they were more in the tradition of the work of Friedrich von Hayek, who opposed government regulation, tariffs, and other infringements on a pure free market, and Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
, who emphasized the futility of using inflationary monetary policies to influence rates of economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
. In practice, Von Hayek's policies were applied only selectively, as Reagan's 1986 income tax reforms substantially increased taxes on the lowest quintile of wage-earners while dramatically decreasing rates for the upper two quintiles. Moreover, in contrast to Von Hayek, Reagan's policies continued and expanded tax write-offs, rebates and subsidies for many large corporations. Friedman's Monetarism
Monetarism
Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...
was also abandoned in practice, as government-issued debt as a percentage of GDP rose dramatically throughout the 1980s.
While Thatcher, Reagan, and their successors made sweeping reforms, the authors argue that the current era of globalization finally began around 1991, with the collapse of the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
. Since then, they assert, countries embracing free markets have prospered on the whole, while those adhering to central planning have failed.
While strongly in favor of this trend, the authors worry that globalization will not last. More specifically, they believe that if inequality
International inequality
International inequality is inequality between countries . Economic differences between rich and poor countries are considerable...
in economic growth remains high, and if Third World
Third World
The term Third World arose during the Cold War to define countries that remained non-aligned with either capitalism and NATO , or communism and the Soviet Union...
nations are not offered the proper opportunities and incentives to support capitalism, the movement will end just as the first era did.
The reason the authors place so much emphasis on narrowing economic gaps is because they believe, against many of the people they interview, that there is no ideological support for capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
, only the pragmatic fact that the system works better than any other. As they remark:
International analysis
Within the book, the authors examine briefly many different nations and regions, and their economic development since World War II (in the case of industrialized countries, they often begin before the war). While they admit that the book cannot touch on every single aspect (Yergin remarks that the topic of their book constitutes an entire new academic discipline), they nonetheless make some of the following assertions.United States
While the works of the robber baronRobber baron (industrialist)
Robber baron is a pejorative term used for a powerful 19th century American businessman. By the 1890s the term was used to attack any businessman who used questionable practices to become wealthy...
s was often condemned in the press, America's commitment to industrialization and free markets (compared to other countries) was extremely high in the late 19th/early 20th century. Unlike many countries after WWI, the 1920s saw great economic expansion for upper-income individuals, as well as a growth in median income. Labor unrest continued to mount throughout the 1920s and 1930s, however, as the lack of wage and hour rules, child labor protections, unemployment insurance, the right to organize, workplace safety requirements and social security insurance continued to exacerbate the discontents of the substantial numbers of working poor.
The Great Depression caused massive unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
and, with it, massive public distrust of corporations and wealthy individuals (it didn't help that some businessmen took advantage of Depression conditions to benefit themselves). In response, the New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...
instituted by Franklin D. Roosevelt
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...
went into effect with massive public support. Many lawyers and economists influenced by Keynes worked under the New Deal, and believed that free markets, without proper regulation, would lead to disaster.
While the American economy boomed for about 30 years following World War II with the benefit of Keynesianism, robust anti-trust regulation to promote competition and financial regulations to prevent the most volatile forms of market speculation, high unionization rates and protections promoting the growth of domestic industry, during the 1970s, stagflation
Stagflation
In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...
- brought on by the 1973 oil crisis
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
and the shift from the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
to fiat currency - was made to discredit the policy consensus set in place under the years of the New Deal Coalition
New Deal coalition
The New Deal Coalition was the alignment of interest groups and voting blocs that supported the New Deal and voted for Democratic presidential candidates from 1932 until the late 1960s. It made the Democratic Party the majority party during that period, losing only to Dwight D. Eisenhower in 1952...
. This culminated in the election of Reagan in 1980, and many of the statutes and organizations created by the New Deal were dismantled.
United Kingdom
LondonLondon
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
was the center of the so-called "First Era of Globalization" due to the power and resources of the British Empire
British Empire
The British Empire comprised the dominions, colonies, protectorates, mandates and other territories ruled or administered by the United Kingdom. It originated with the overseas colonies and trading posts established by England in the late 16th and early 17th centuries. At its height, it was the...
. However, World War I severely weakened Britain, causing massive unemployment. While the United Kingdom successfully held out during World War II and emerged victorious, the war effectively caused the dismantling of its empire.
Winston Churchill
Winston Churchill
Sir Winston Leonard Spencer-Churchill, was a predominantly Conservative British politician and statesman known for his leadership of the United Kingdom during the Second World War. He is widely regarded as one of the greatest wartime leaders of the century and served as Prime Minister twice...
was influenced by the work of von Hayek and opposed heavy government interference in the British economy. However, during the 1945 elections, the Labour Party
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...
, led by Clement Attlee
Clement Attlee
Clement Richard Attlee, 1st Earl Attlee, KG, OM, CH, PC, FRS was a British Labour politician who served as the Prime Minister of the United Kingdom from 1945 to 1951, and as the Leader of the Labour Party from 1935 to 1955...
, came to power in force, and was dedicated to government controls to prevent another economic crisis. The UK's major industries were nationalized, and practically all occupations (and the wages they earned) were heavily regulated and unionized.
This practice became so prevalent that even Conservative governments, elected into power later, did nothing to change it. However, during the 1970s, massive strikes
Strike action
Strike action, also called labour strike, on strike, greve , or simply strike, is a work stoppage caused by the mass refusal of employees to work. A strike usually takes place in response to employee grievances. Strikes became important during the industrial revolution, when mass labour became...
by unions combined with other economic woes such as the 1973 oil shock almost ground the British economy to a halt. Thatcher, an ardent admirer of von Hayek, began privatization (Thatcherism
Thatcherism
Thatcherism describes the conviction politics, economic and social policy, and political style of the British Conservative politician Margaret Thatcher, who was leader of her party from 1975 to 1990...
). While her results were initially mixed, the Falklands War
Falklands War
The Falklands War , also called the Falklands Conflict or Falklands Crisis, was fought in 1982 between Argentina and the United Kingdom over the disputed Falkland Islands and South Georgia and the South Sandwich Islands...
brought on a nationalistic fervor that kept Thatcher in office long enough to keep her reforms in place. Although the Labour Party later came back to power, it did not attempt to challenge the key principles of Thatcherism.
Russia/Soviet Union
Within a few years of the rise of the Russian RevolutionRussian Revolution of 1917
The Russian Revolution is the collective term for a series of revolutions in Russia in 1917, which destroyed the Tsarist autocracy and led to the creation of the Soviet Union. The Tsar was deposed and replaced by a provisional government in the first revolution of February 1917...
, the socialist Soviet economy went into a major crisis. Lenin responded with the New Economic Policy
New Economic Policy
The New Economic Policy was an economic policy proposed by Vladimir Lenin, who called it state capitalism. Allowing some private ventures, the NEP allowed small animal businesses or smoke shops, for instance, to reopen for private profit while the state continued to control banks, foreign trade,...
, a program that allowed limited capitalistic activity, resulting in a type of market socialism
Market socialism
Market socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
, and the economy began to improve. Lenin's "commanding heights speech" was his attempt to defend himself against accusations that he "sold out" the principles of the revolution by implementing this new policy.
Under Joseph Stalin
Joseph Stalin
Joseph Vissarionovich Stalin was the Premier of the Soviet Union from 6 May 1941 to 5 March 1953. He was among the Bolshevik revolutionaries who brought about the October Revolution and had held the position of first General Secretary of the Communist Party of the Soviet Union's Central Committee...
, the Soviet agricultural and heavy manufacturing sectors were largely centralized. During the 1940s-1970s, the Soviet Economy grew at a rate that outpaced that of Western European nations.
By the 1980s, the Soviet economy was in shambles. Because of a lack of incentives (and, ironically, a more tolerant central government), workers did not put much effort into their duties. Nonetheless, the Soviets continued to build their military
Military
A military is an organization authorized by its greater society to use lethal force, usually including use of weapons, in defending its country by combating actual or perceived threats. The military may have additional functions of use to its greater society, such as advancing a political agenda e.g...
, even though, at times, such spending took up half the country's revenue. Mikhail Gorbachev
Mikhail Gorbachev
Mikhail Sergeyevich Gorbachev is a former Soviet statesman, having served as General Secretary of the Communist Party of the Soviet Union from 1985 until 1991, and as the last head of state of the USSR, having served from 1988 until its dissolution in 1991...
tried to reform the economy, but took only limited steps. When he lifted the Brezhnev Doctrine
Brezhnev Doctrine
The Brezhnev Doctrine was a Soviet Union foreign policy, first and most clearly outlined by S. Kovalev in a September 26, 1968 Pravda article, entitled “Sovereignty and the International Obligations of Socialist Countries.” Leonid Brezhnev reiterated it in a speech at the Fifth Congress of the...
and allowed Poland
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...
's Solidarity Party
Solidarity Party
The Solidarity Party was an American political party in the state of Illinois. It was named after Lech Wałęsa's Solidarity movement in Poland, which was widely-admired in Illinois at the time .The party was founded in 1986 by Senator Adlai Stevenson III in reaction to the Democratic Party's...
to usurp that country's communist regime, the entire Warsaw Pact
Warsaw Pact
The Warsaw Treaty Organization of Friendship, Cooperation, and Mutual Assistance , or more commonly referred to as the Warsaw Pact, was a mutual defense treaty subscribed to by eight communist states in Eastern Europe...
collapsed, soon followed by the Soviet Union itself.
However, even with the fall of the Soviet Union and the rise of the relatively free market-minded Boris Yeltsin
Boris Yeltsin
Boris Nikolayevich Yeltsin was the first President of the Russian Federation, serving from 1991 to 1999.Originally a supporter of Mikhail Gorbachev, Yeltsin emerged under the perestroika reforms as one of Gorbachev's most powerful political opponents. On 29 May 1990 he was elected the chairman of...
, communists maintained much power in Russia, blocked free market movements, and forced the resignation of Yeltsin's free-market allies such as Yegor Gaidar
Yegor Gaidar
Yegor Timurovich Gaidar was a Soviet and Russian economist, politician and author, and was the Acting Prime Minister of Russia from 15 June 1992 to 14 December 1992....
. During the 1996 elections, Yeltsin was forced to accept support from the oligarchs to counter the growing power of the communists. While Yeltsin remained in power, the "privatization" of Soviet industries proceeded in an extremely unequal manner.
Germany
As predicted by Keynes, the hyperinflationHyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...
caused by the Treaty of Versailles
Treaty of Versailles
The Treaty of Versailles was one of the peace treaties at the end of World War I. It ended the state of war between Germany and the Allied Powers. It was signed on 28 June 1919, exactly five years after the assassination of Archduke Franz Ferdinand. The other Central Powers on the German side of...
devastated the German economy and created political instability. In addition to widespread unemployment, this inflation effectively wiped out the country's middle class
Middle class
The middle class is any class of people in the middle of a societal hierarchy. In Weberian socio-economic terms, the middle class is the broad group of people in contemporary society who fall socio-economically between the working class and upper class....
. This environment made it easy for the Nazi Party to gain power, and the Nazis practiced central planning (although their leaders were largely incompetent in this area).
Following the war and break-up of Germany, East Germany came under the rule of the Soviets while West Germany
West Germany
West Germany is the common English, but not official, name for the Federal Republic of Germany or FRG in the period between its creation in May 1949 to German reunification on 3 October 1990....
remained part of the Western powers. When economic conditions in occupied West Germany failed to improve, Ludwig Erhard
Ludwig Erhard
Ludwig Wilhelm Erhard was a German politician affiliated with the CDU and Chancellor of West Germany from 1963 until 1966. He is notable for his leading role in German postwar economic reform and economic recovery , particularly in his role as Minister of Economics under Chancellor Konrad Adenauer...
, without consulting the occupying powers, completely destroyed price controls
Price controls
Price controls are governmental impositions on the prices charged for goods and services in a market, usually intended to maintain the affordability of staple foods and goods, and to prevent price gouging during shortages, or, alternatively, to insure an income for providers of certain goods...
in 1948. After this, the Western German economy underwent a massive recovery, although such free market reforms remains largely confined to the country for many years.
By the time of German reunification
German reunification
German reunification was the process in 1990 in which the German Democratic Republic joined the Federal Republic of Germany , and when Berlin reunited into a single city, as provided by its then Grundgesetz constitution Article 23. The start of this process is commonly referred by Germans as die...
, West Germany was an economic power, while East Germany faced many problems due to its communist-run economy.
India
Unlike Mahatma GandhiMahatma Gandhi
Mohandas Karamchand Gandhi , pronounced . 2 October 1869 – 30 January 1948) was the pre-eminent political and ideological leader of India during the Indian independence movement...
, who supported a village centric economy, after India's independence in 1947, its first prime minister, Jawaharlal Nehru
Jawaharlal Nehru
Jawaharlal Nehru , often referred to with the epithet of Panditji, was an Indian statesman who became the first Prime Minister of independent India and became noted for his “neutralist” policies in foreign affairs. He was also one of the principal leaders of India’s independence movement in the...
, promoted industrialization. However, he supported government-controlled development, and the bureaucracy
Bureaucracy
A bureaucracy is an organization of non-elected officials of a governmental or organization who implement the rules, laws, and functions of their institution, and are occasionally characterized by officialism and red tape.-Weberian bureaucracy:...
that developed stifled innovation (the authors of Commanding Heights sarcastically claim that the British Raj
British Raj
British Raj was the British rule in the Indian subcontinent between 1858 and 1947; The term can also refer to the period of dominion...
was replaced by a "permit Raj"). Bribery and delays became commonplace in the Indian economy, while at the same time, many prominent economists studied the country and attempted to "fine tune" its central planning.
By the 1990s, the Indian government, mainly due to the influence of finance minister (now Prime Minister) Manmohan Singh
Manmohan Singh
Manmohan Singh is the 13th and current Prime Minister of India. He is the only Prime Minister since Jawaharlal Nehru to return to power after completing a full five-year term. A Sikh, he is the first non-Hindu to occupy the office. Singh is also the 7th Prime Minister belonging to the Indian...
, began to relax these stringent regulations, and the Indian economy bloomed under the effects of exports and outsourcing
Outsourcing
Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
. Political parties since this period have continued to promote these changes; even after the election of a traditionally Marxist government, the free marketer Singh was appointed prime minister.
South America
Under the influence of dependency theoryDependency theory
Dependency theory or dependencia theory is a body of social science theories predicated on the notion that resources flow from a "periphery" of poor and underdeveloped states to a "core" of wealthy states, enriching the latter at the expense of the former...
, a Marxist approach to international economics, many Latin American countries attempted to industrialize by limiting imports of manufactured goods and subsidizing their own industries. However, in the absence of competition, and with government subsidies, these companies had little incentive to become efficient or innovative. By the 1980s, the economic problems of these countries became obvious, and much of the West's investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
in these countries was lost.
Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
unwittingly became an experiment in free markets when Augusto Pinochet
Augusto Pinochet
Augusto José Ramón Pinochet Ugarte, more commonly known as Augusto Pinochet , was a Chilean army general and dictator who assumed power in a coup d'état on 11 September 1973...
called in followers of Friedman to evaluate the economy, the so-called "Chicago boys
Chicago Boys
The Chicago Boys were a group of young Chilean economists most of whom trained at the University of Chicago under Milton Friedman and Arnold Harberger, or at its affiliate in the economics department at the Catholic University of Chile...
". The authors argue that these economic reforms proved successful, but since Pinochet was a dictator
Dictator
A dictator is a ruler who assumes sole and absolute power but without hereditary ascension such as an absolute monarch. When other states call the head of state of a particular state a dictator, that state is called a dictatorship...
who came to power in a coup and had many political opponents murdered, the whole idea of free market reform became linked to fascism
Fascism
Fascism is a radical authoritarian nationalist political ideology. Fascists seek to rejuvenate their nation based on commitment to the national community as an organic entity, in which individuals are bound together in national identity by suprapersonal connections of ancestry, culture, and blood...
. While the authors (and Friedman) claim that these reforms eventually promoted democracy, they acknowledge that this issue - and their interpretation of events - is extremely controversial.
Bolivia
Bolivia
Bolivia officially known as Plurinational State of Bolivia , is a landlocked country in central South America. It is the poorest country in South America...
was hit with hyperinflation as well. During the 1990s, economist Jeffrey Sachs
Jeffrey Sachs
Jeffrey David Sachs is an American economist and Director of The Earth Institute at Columbia University. One of the youngest economics professors in the history of Harvard University, Sachs became known for his role as an adviser to Eastern European and developing country governments in the...
was sent as a consultant, and a new president, Gonzalo Sanchez de Lozada
Gonzalo Sánchez de Lozada
Gonzalo Sánchez de Lozada y Sánchez de Bustamante , familiarly known as "Goni", is a Bolivian politician, businessman, and former President of Bolivia. A lifelong member of the Movimiento Nacionalista Revolucionario , he is credited for using "shock therapy", the economic theory championed by then...
, reined in inflation by severely cutting government spending. While Bolivia remained a very poor country, the authors argue that it is better off now because its inflation was curtailed. They also argue that Bolivia's example vindicates the bad reputation free-market economics acquired in Chile, as Bolivia's reforms came after a democratic election.
Other Countries
The authors argue that AfricaAfrica
Africa is the world's second largest and second most populous continent, after Asia. At about 30.2 million km² including adjacent islands, it covers 6% of the Earth's total surface area and 20.4% of the total land area...
's economic development was severely hindered by central planning, socialist ideas, and political dictatorships that promoted warfare and other conflicts.
While Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
was seen for many years as an economic success story as late as the early 1990s, the authors argue that its ongoing recession since then resulted from its governments refusal to stop subsidies to many of its industries and companies (this issue is ongoing).
Poland
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...
's free market reforms, pushed by Solidarity and Lech Wałęsa
Lech Wałęsa
Lech Wałęsa is a Polish politician, trade-union organizer, and human-rights activist. A charismatic leader, he co-founded Solidarity , the Soviet bloc's first independent trade union, won the Nobel Peace Prize in 1983, and served as President of Poland between 1990 and 95.Wałęsa was an electrician...
, were initially mixed and criticized by its citizens, but by the late 1990s, the Polish economy was doing much better than other former communist states in Eastern Europe
Eastern Europe
Eastern Europe is the eastern part of Europe. The term has widely disparate geopolitical, geographical, cultural and socioeconomic readings, which makes it highly context-dependent and even volatile, and there are "almost as many definitions of Eastern Europe as there are scholars of the region"...
. One feature of the Polish economy that makes it different from other capitalistic countries is that it is dominated by small business
Small business
A small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships...
es rather than corporations or conglomerates.
China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
is another major ongoing issue. While Deng Xiaoping
Deng Xiaoping
Deng Xiaoping was a Chinese politician, statesman, and diplomat. As leader of the Communist Party of China, Deng was a reformer who led China towards a market economy...
, after the death of Mao Zedong
Mao Zedong
Mao Zedong, also transliterated as Mao Tse-tung , and commonly referred to as Chairman Mao , was a Chinese Communist revolutionary, guerrilla warfare strategist, Marxist political philosopher, and leader of the Chinese Revolution...
, gradually introduced free market, he did not promote civil liberties
Civil liberties
Civil liberties are rights and freedoms that provide an individual specific rights such as the freedom from slavery and forced labour, freedom from torture and death, the right to liberty and security, right to a fair trial, the right to defend one's self, the right to own and bear arms, the right...
or other freedoms, as demonstrated by his willingness to crush pro-democracy demonstrators
Tiananmen Square protests of 1989
The Tiananmen Square protests of 1989, also known as the June Fourth Incident in Chinese , were a series of demonstrations in and near Tiananmen Square in Beijing in the People's Republic of China beginning on 15 April 1989...
. While the authors hope (according to Milton Friedman's ideas) that free markets will eventually promote a free society, it hasn't happened yet, although China's economy continues to grow.
Documentary
In 2002, PBSPublic Broadcasting Service
The Public Broadcasting Service is an American non-profit public broadcasting television network with 354 member TV stations in the United States which hold collective ownership. Its headquarters is in Arlington, Virginia....
aired a six-hour documentary based on the book. This documentary was later sold on DVD, and is available for viewing free at PBS' web site for those with high-speed Internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
connections (see external links). The documentary is narrated by David Ogden Stiers
David Ogden Stiers
David Ogden Stiers is an American actor, director, vocal actor, and musician, noted for his roles in Disney movies, as well as his performances in the television series M*A*S*H as Major Charles Emerson Winchester III and the science fiction drama The Dead Zone as Reverend Gene Purdy...
.
Thanks to its later date, the documentary film is able to address many of the items Yergin and Stanislaw missed in their original book, including the recession, the collapse of Asian economies, the anti-globalization movement
Anti-globalization movement
The anti-globalization movement, or counter-globalisation movement, is critical of the globalization of corporate capitalism. The movement is also commonly referred to as the global justice movement, alter-globalization movement, anti-globalist movement, anti-corporate globalization movement, or...
, and the attack on New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
. All told, two of the documentary's six hours—the entire final third—address things that happened since the original book was published. They also include free market solutions to international poverty that was not included in the book - they interview economist Hernando de Soto
Hernando de Soto (economist)
Hernando de Soto is a Peruvian economist known for his work on the informal economy and on the importance of business and property rights. He is the president of the Institute for Liberty and Democracy , located in Lima, Peru.-Childhood and education:Hernando de Soto was born in 1941 in Arequipa,...
, whose book on the subject was not published until after the initial printing of Commanding Heights.
Like the book, the documentary attracted more support and criticism. One example is the anti-globalization movement, which argued they were portrayed unfairly. In the documentary, James Wolfensohn
James Wolfensohn
Sir James David Wolfensohn AO KBE FKC was the ninth president of the World Bank Group.-Early life:James Wolfensohn was born in Sydney, Australia, on 1 December 1933...
, then President of the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, is interviewed and says that such protesters are attacking people "who are devoting their lives to addressing the very questions that these people claim to be addressing." The documentary includes a scene of Wolfensohn getting hit in the face with a pie
Pie
A pie is a baked dish which is usually made of a pastry dough casing that covers or completely contains a filling of various sweet or savoury ingredients....
by a protester.
Unlike the book, the PBS documentary is far more wary of the possible end of the current era of globalization. For example, they include a parallel between radio
Radio
Radio is the transmission of signals through free space by modulation of electromagnetic waves with frequencies below those of visible light. Electromagnetic radiation travels by means of oscillating electromagnetic fields that pass through the air and the vacuum of space...
stocks of the 1920s and dot com
Dot-com company
A dot-com company, or simply a dot-com , is a company that does most of its business on the Internet, usually through a website that uses the popular top-level domain, ".com" .While the term can refer to present-day companies, it is also used specifically to refer to companies with...
stocks of the 1990s - both were industries built on new technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
which had little capital, but which fell prey to a market bubble
Stock market bubble
A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation....
. Likewise, the documentary draws an unsettling parallel between the terrorist attacks of Sept. 11, 2001, and the terrorist assassination of Archduke Franz Ferdinand of Austria
Assassination of Archduke Franz Ferdinand of Austria
On 28 June 1914, Archduke Franz Ferdinand of Austria, heir presumptive to the Austro-Hungarian throne, and his wife, Sophie, Duchess of Hohenberg, were shot dead in Sarajevo, by Gavrilo Princip, one of a group of six Bosnian Serb assassins coordinated by Danilo Ilić...
in 1914.
The documentary is also accused of further oversimplfying the so-called "Battle of Ideas" between Keynes and Hayek. For example, in the DVD version, Keynes is named together with Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
and Lenin as supporters of controlled economies. However Keynes saw himself as a liberal, in both the party political and economic senses of the term .
The production was financed by donations from Electronic Data Systems
Electronic Data Systems
HP Enterprise Services is the global business and technology services division of Hewlett Packard's HP Enterprise Business strategic business unit. It was formed by the combination of HP's legacy services consulting and outsourcing business and the integration of acquired Electronic Data Systems,...
, FedEx
FedEx
FedEx Corporation , originally known as FDX Corporation, is a logistics services company, based in the United States with headquarters in Memphis, Tennessee...
, BP
BP
BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
, The Pew Charitable Trusts
The Pew Charitable Trusts
The Pew Charitable Trusts is an independent non-profit, non-governmental organization , founded in 1948. With over US$5 billion in assets, its current mission is to serve the public interest by "improving public policy, informing the public, and stimulating civic life."-History:The Trusts, a single...
, John Templeton Foundation
John Templeton Foundation
"The John Templeton Foundation is a philanthropic organizationthat funds inter-disciplinary research about human purpose and ultimate reality. It is usually referred to simply as the Templeton Foundation...
, Smith Richardson Foundation
Smith Richardson Foundation
The Smith Richardson Foundation is a private foundation based in Westport, Connecticut, that supports policy research in the realms of foreign and domestic public policy....
, Corporation for Public Broadcasting
Corporation for Public Broadcasting
The Corporation for Public Broadcasting is a non-profit corporation created by an act of the United States Congress, funded by the United States’ federal government to promote public broadcasting...
.