THE COMMANDING HEIGHTS:
The Battle Between Government and the Marketplace That Is Remaking the Modern World
By Daniel Yergin and Joseph Stanislaw
Simon & Schuster, 457 pages, $26
Ask Americans to identify the most important event of the century, and the answer just a few years ago almost always was the rise of communism. Today the answer just as often is the opposite, its fall.
This reversal is all the more stunning because it seems to many people to parallel a permanent shift away from state involvement in economic planning and toward free markets.
“All around the globe,” write Daniel Yergin and Joseph Stanislaw in “The Commanding Heights,” “socialists are embracing capitalism, governments are selling off companies they had previously nationalized, and countries are seeking to entice back multinational corporations that they had expelled just two decades earlier.”
To their credit, Yergin and Stanislaw, president and managing director respectively of Cambridge Energy Research Associates, are not mesmerized by the changes. They methodically chronicle the transformation country by country, noting both progress and problems.
Although they spice up the story with thumbnail sketches of the architects of economic policy, the book frequently reads like a government briefing paper, albeit an extraordinarily useful one. If our State or Treasury Departments gave book awards, “The Commanding Heights” would be the 1998 winner.
The introduction discusses Vladimir Lenin’s famous 1922 speech in which he said the state would control the “commanding heights” of the economy. Variations on this theme have resonated throughout the world:
– Eager to rebuild their economies after World War II and worried about massive unemployment, Western Europeans wanted their governments to take quick action. About one-fifth of Britain’s work force, for instance, ended up in industries nationalized in the 1940s.
– As they became independent, developing countries looked to Soviet central planning for inspiration. Industrialized countries, though anti-communist, directed their foreign aid at governments, not individual entrepreneurs. The Argentine government, to cite just one example, ended up owning “supermarkets, movie theaters, clubs, airplanes, and even churches.”
– Wary though they were of socialism, Americans embraced Franklin Roosevelt’s New Deal, which offered a way out of the Great Depression. Seeking to protect the public from monopolies and other unfair corporate practice, Washington employed more and more public servants, who oversaw more and more regulations. The authors note that by the time of the Nixon administration, this bureaucracy had established “at least thirty-two different prices of natural gas, a rather standard commodity, each of whose molecules is based on one atom of carbon and four atoms of hydrogen.”
Gradually the commanding heights began to look, instead, like quicksand. John Maynard Keynes, the economist who established the idea that governments are smarter than markets, had said the state should step in when the economy slows. But deficit spending did not help when oil prices quadrupled in the mid-1970s. Both inflation and joblessness increased.
At the same time Third World debt soared. And as would soon be learned, the Soviet Union’s command economy was in worse shape than many of its fiercest Free World critics imagined.
New heroes came forward. Margaret Thatcher busted British unions and denationalized enterprises. The Reagan revolution, which called for less government, became identified with a soaring stock market. Developing countries began to seek their fortunes in the global economy, which was powered by industrial, not communist, nations.
Keynes was no longer the economist of choice. Now it was Milton Friedman of the University of Chicago. To him and his disciples, monopolies were much less harmful than government. For many of those who agree that government should stay out of people’s way, except perhaps to put up street signs, all the big questions now seem settled. Alas, this is dangerously wrong.
The description of the global leap to market economies in “The Commanding Heights” sweeps one along with a sense of well-being. The fine print, however, offers warning signs, such as this observation on economic change in China: “The march is not over. Progress is uneven; the country has moved through periods of boom, bust, and retrenchment.”
Crime is one problem in China, periodic stock-market panics another. Yet another is joblessness, a frightening notion to Chinese raised on promises of a guaranteed livelihood.
As 20th Century history shows, it is much easier to turn Left than Right. People finally decided on the more difficult course because central planning did not produce adequate growth. But growth without democratic distribution of wealth will not satisfy for long either. Many old-fashioned critics of communism never understood this. They assumed that a developing country “went communist” because it was tricked. They did not appreciate the appeal of promises to end a system in which a few feasted and the rest waited at the back door for scraps.
The Asian economic “miracle,” say Yergin and Stanislaw, was miraculous not only because of the speed of economic growth in that part of the world, but because “ordinary people appeared to share in it.”
Similarly, newcomers to free markets may retreat when they see how risky such a journey can be. The global economy is alluring, for it offers a chance to attract foreign capital and to export on a grand scale. But a country or region is also more vulnerable to forces outside its control.
The Asian economic miracle is a case in point. The last chapter of “The Commanding Heights” was hastily rewritten just before publication to take into account the financial crisis in Asia and its repercussions around the world. Now Latin American countries are worried that fickle, easily frightened investors will flee them as they have Asia.
On a recent reporting trip to Jamaica, I saw numerous craftsmen exploiting export opportunities. But there is not much economic security in finding clever ways of making scented candles out of coconuts, especially when such “innovations” are easily copied by another country.
The global economy may operate most efficiently when borders are completely open, but there is no guarantee that each individual country will be better off in such a world. No surprise, then, that foreign-policy experts do not worry any longer that communism will destabilize the world. Globalization is now the great destabilizer, and it will be more difficult to manage.
Communism rose at the beginning of this century and has fallen at the end. But the big question remains: How much government involvement is needed to ensure both growth and equity?
