Commanding Heights: The Battle for the World Economy

Commanding Heights: The Battle for the World Economy

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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. It takes its title from a speech by Vladimir Lenin, who used the phrase "commanding heights" to refer to the segments and industries in an economy that effectively control and support the others, such as oil, railroads, banking and steel.


Contents

• 1 Overview
  
• 2 International analysis
  
  
  
  • 2.1 United States
    
  • 2.2 United Kingdom
    
  • 2.3 Russia/Soviet Union
    
  • 2.4 Germany
    
  • 2.5 India
    
  • 2.6 South America
    
  • 2.7 Other Countries
    


• 3 Controversy
  
• 4 Documentary
  
• 5 Current events
  
• 6 References
  
• 7 External links
  

Overview

The authors take the thesis that, prior to World War I, 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.
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 argue, 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:

The market also requires something else: legitimacy. But here it faces an ethical conundrum. It is based upon contracts, rules, and choice -- in short, on self-restraint -- which contrasts mightily with other ways of organizing economic activity. Yet a system that takes the pursuit of self-interest and profit as its guiding light does not necessarily satisfy the yearning in the human soul for belief and some higher meaning beyond materialism. In the Spanish Civil War in the late 1930s, Republican soldiers are said to have died with the word "Stalin" on their lips. Their idealized vision of Soviet communism, however misguided, provided justification for their ultimate sacrifice. Few people would die with the words "free markets" on their lips.

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

Main article: Economy of the United States

While the work of the robber barons 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 conditions and opportunities for its citizens.
However, 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.
Under Roosevelt and his successors, much of the U.S. economy, while not taken over outright by the government, became subject to massive regulations, many of which had the effect of protecting the existing companies in particular industries while stifling competition.
While the American economy boomed for about 30 years following World War II despite Keynesianism, during the 1970s, stagflation appeared to discredit this prevailing view. This culminated in the election of Reagan in 1980, and many of the statutes and organizations created by the New Deal were dismantled. Since then, politicians on both sides tend to support free trade and limited regulation.

United Kingdom

Main article: Economy of the United Kingdom

London 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; during this crisis, Keynes wrote his key work. 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 this practice. However, during the 1970s, massive strikes by unions combined with other economic woes 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.

Russia/Soviet Union

Main article: Economy of Russia

Within a few years of the rise of the Russian Revolution, the communist Soviet economy went into a major crisis. Lenin responded with the New Economic Policy, a program that allowed limited capitalistic activity, 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 economy was completely centralized, often through extremely ruthless means, such as his massive purges and executions of perceived resistors to collectivization.
While this policy did industrialize the Soviet Union, it did not last when Stalin's successors did not use terror tactics to force people to work.
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.

Germany

Main article: Economy of Germany

As predicted by Keynes, the hyperinflation 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.

India

Main article: Economy of India

Unlike Mahatma Gandhi, who supported an agrarian 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.

South America

Under the influence of dependency theory, 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 subsidizes, 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 (see 'Controversy' section below).
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.
See also: Economy of Chile, Economy of Bolivia.

Other Countries

The authors argue that Africa'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 businesses 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.
See also: Economy of Japan, Economy of Poland, Economy of the People's Republic of China.

Controversy

The book's espousal of capitalism put forward by neoliberal economists has been contested by a variety of critics, most notably Marxists, socialists, and the anti-globalization movement.
Because the book examines many countries after the end of World War
II, critics also contend that the authors ignore the history of colonialism, as many of the countries they examine only became independent after the war.
Also, the authors do not fully examine Cold War politics, particularly the use of military force and the suppression of popular democratic, socialist, and nationalist movements in the developing world. One oft-cited example - they talk about the fall of Chilean leader Salvador Allende, as well as the subsequent rise of Augusto Pinochet, but omit any discussion of American pressure and clandestine activities in the military coup that toppled Allende.
Published in 1998, Yergin and Stanislaw have been criticized for failing to foresee and take account of problems that were in the making at the time. Some examples of things the book missed because of its date of publication:

• The so-called "Tiger Economies" of East Asia performed poorly within a year after the book's publication - the "Asian financial crisis". These economies, which embraced free markets, are used by the authors as examples of globalization's benefits.
  

• The world and U.S. economy went into a recession. In particular, the U.S. stock market suffered an extended period of marked decline.
  

• The anti-globalization movement rose and gained power, most notably during the World Trade Organization meeting in Seattle, Washington in 1999.
  

• The attacks on the World Trade Center and The Pentagon on September 11, 2001.
  

The largest criticism leveled against the book is that it failed to foresee the massive corporate scandals that began a few years later. The authors quoted Kenneth Lay and cast him as an entrepreneur who was victimized by India's governmental regulations; not long afterwards, Lay's company Enron collapsed, and Lay was indicted on fraud charges. Because of this gaffe, when the documentary version of the book came out, critics began to attack it as nothing more than corporate propaganda. Many viewers of the PBS documentary film version posted their criticisms on the program's website (see link below).
Supporters of the book argue that the authors should not be blamed for not being able to foresee future events.
In the new edition of the book the authors take note of the attacks and criticisms, but pose them as an irrational reaction to globalization, and therefore do not modify their fundamental thesis.

Documentary

It has been suggested that this section be split into a new article entitled Commanding Heights (film). (Discuss)

In 2002, PBS 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 hosted 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, a WTO representative is
interviewed and says that such protesters are so ignorant of economics that they should not be protesting in the first place (the documentary includes a scene of said representative 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 Franz Ferdinand in 1914.
The documentary is also accused of further oversimplfying the so-called "Battle of Ideas" between Keynes and von 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 ^[1].
Production was funded by the following organizations:

• Electronic Data Systems
  
• FedEx
  
• BP
  
• The Pew Charitable Trusts
  
• John Templeton Foundation
  
• Smith Richardson Foundation
  
• Corporation for Public Broadcasting
  

Current events

References

1. ^
   Keynes sat on the Liberal benches and even Hayek wrote that "Keynes believed that he was fundamentally still a classical English liberal and wasn't quite aware of how far he had moved away from it. His basic ideas were still those of individual freedom" (in Reason Magazine, The Road to Serfdom, Foreseeing the Fall. F.A. Hayek interviewed by Thomas W. Hazlett).
   

External links

• Official Commanding Heights Site at PBS (High-Bandwidth)
  
• Official Commanding Heights Site at PBS (Low-Bandwidth)
  
• Link to view all three episodes at PBS website (High-Bandwidth)
  
• Link to view all three episodes at PBS website (Low-Bandwidth)
  

Source: http://en.wikipedia.org