In This Review

The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the Modern World
The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the Modern World
By Daniel Yergin and Joseph Stanislaw
Simon & Schuster, 1998, 352 pp

Eighteen years after Margaret Thatcher's victory, Paul Volcker's assumption of the Federal Reserve chairmanship, and Deng Xiaoping's initiation of reforms in China, seventeen years after Ronald Reagan was elected President, twelve years after the introduction of glasnost and perestroika, and eight years after the collapse of communism in Eastern Europe, Pulitzer Prize-winner Daniel Yergin and his coauthor, Joseph Stanislaw, make an unassailable case that big government has fallen out of fashion and markets are more powerful than ever before.

Yergin, whose masterful saga of the petroleum industry, The Prize, was acclaimed for both its rendering of history and its insights, is a reporter of formidable gifts. In this book, The Commanding Heights: The Battle Between Government and the Marketplace that Is Remaking the Modern World, he and his coauthor tell with sweep and style of the rise and fall of active government intervention in national economies. They find the drama and human elements in each of their stories, depicting economists and government officials with an eye for color.

Even students of the economic upheavals recounted in this book cannot help but be drawn into what in other hands might be very dry material. Take, for example, the image of Malaysian Prime Minister Mahathir bin Mohammed-now disaffected with global electronic markets after the beating his country's currency has taken-sitting not too long ago at his desk in Kuala Lumpur viewing the world through four computer screens while contemplating the establishment of a Malaysian city of tomorrow called Cyberjaya.

Yergin and Stanislaw take the reader on a whirlwind world tour several times over. But detail is their book's greatest blessing-and its greatest curse. Again and again the authors tell gripping tales of big government gone bad. Again and again they emphasize the same points about governments' shortcomings and markets' strengths. But after all, Yergin and Stanislaw are attempting to chronicle a global transformation, taking readers through the parallel revelations of national leaders and their advisers who watched as local experiments in market intervention produced unwanted results in the face of the emerging market reality the book describes.

Such complaints, however, are carping given the richness of the authors' reporting and the quality of their analysis of how the marketplace forced the reluctant retreat of government from core economic activities that Lenin called "the commanding heights" of national economies. The book is a unique resource for students and an excellent survey for businesspeople and others seeking to understand how the world came to regard markets as the primary regulators of economic interaction.

BUSINESS WITHOUT BUSINESSPEOPLE?

The heroes here are economists, central bank governors, finance ministers, and the occasional head of state. Indeed, reading the book is very much like visiting the joint annual meeting of the International Monetary Fund and the World Bank without the ice sculptures-or the bankers. In fact, it is odd how much credit for the rise of the markets the authors give to government officials and their advisers, and how little to the men and women of the markets themselves. The book devotes precious little space to businesspeople-a couple of pages to the man who privatized Italy's oil company, a couple to a Russian vodka manufacturer, a few to an American telecommunications entrepreneur, and so on. While the book suggests that the growth of global markets has been made possible by a simultaneous revolution in information and transportation technology, it fails to delve into the chicken-and-egg arguments that underlie those developments.

Yes, Ronald Reagan made compelling speeches about rolling back big government and letting the markets work their magic, but if American business had not responded to the challenges of the 1970s and 1980s, if Chrysler had not come out of the bailout a winner, if the American airline industry had turned the air traffic controllers' strike into the plot of a disaster movie, would we be talking about the primacy of market forces today? If Japanese business had not been stultified by the system that created it, wouldn't we be seeing more books like those in the early 1990s prescribing Asian interventionist medicine for the U.S. economy? More of the credit is certainly due those who made markets work, who created the technologies that linked them, who made closed societies impossible, who in many cases-as in the creation of global foreign exchange markets-actually wrested power from governments.

But while the book underplays the significance of market leaders, it makes up for it with its in-depth coverage of the people of the policy world. Friedrich von Hayek and Jeffrey Sachs, Keith Joseph and Manmohan Singh, Domingo Cavallo and Milton Friedman, Yegor Gaidar and Kim Jae-Ik -- each is described not so much as an economist or government official as a crusader. Readers hear of the tragedy of Kim Jae-Ik's assassination, the burden young Gaidar faced living in the shadow of his hero-of-the-revolution-children's-book-writing grandfather, the eccentricities of Keith Joseph, and the courage of Finance Minister Singh, who took on some of India's most powerful special interest groups. It is the triumph of the econogeeks, the technocratic class educated at Harvard, MIT, Chicago, Oxford, and Cambridge who drew up the plans for the dismantlement of bloated state apparatuses that in many cases their teachers or their teachers' teachers had conceived. Recognition of this admirable group and others such as Alejandro Foxley of Chile, Pedro Aspe of Mexico, Sanchez de Lozada of Bolivia, Vaclav Klaus of the Czech Republic, and Leszek Balcerowicz of Poland is well deserved and provides plenty of dramatic stories of new-generation leaders battling entrenched powers.

MORE OF THE SAME?

As a work of economic history, The Commanding Heights has considerable value. No other book describes so thoroughly the scope of the world's economic transformation over the last half century. But the book is also sufficiently good that it demonstrates conclusively to the reader that history is a dialectic, moving like a pendulum-for every swing in one direction, there is a swing back. In the 1890s and the first years of this century, the world enjoyed a golden age of open trade and laissez-faire government. But after that period's excesses, there was a backlash that led to the rise of theorists advocating a greater role for the state: the Fabians in Britain, Lenin in Russia, and the French communists who trained Deng and Ho Chi Minh. Depression supported the arguments of everyone from the National Socialists in Germany to the New Dealers in the United States. After World War II, communism entered its period of greatest success-the 1950s and 1960s-and Western governments vacillated over their economic role as the colonial era came to an end and the first wave of development theories argued for protectionism, deficit spending, and import substitution. Then came the oil shocks of the 1970s, the debt shock of the 1980s, and the collapse of communism. With these three death blows, statism expired and markets became ascendant. For now.

But even as people recognize that markets are progressively more global, in virtually every country there is a backlash against the perceived inadequacies of the market as a custodian of social values. This set of concerns, as Yergin and Stanislaw correctly point out, is what led to the rise of statist models in the first place. These concerns, framed in the book's last few pages, are the fulcrum on which economic history will turn. While a return to systems in which governments control all or most of the economy seems impossible, the degree to which the people of any one country will demand protection from the market remains an open question.

For all the talk about the "end of history" and the adoption of liberal democracy and open markets, it seems clear that the question that divided the world during the Cold War will be the same one that divides it in the decades ahead: how does society ensure the just distribution of its wealth? In the next ten years, between

1 billion and 1.5 billion people will enter the world's work force. They will make $10 to $15 a day and they will be about 80 percent as productive as much better paid workers in the developed world. Will we leave it to the markets to decide whether to keep them out or let them in? Current sentiment in the United States, Europe, and elsewhere in the developed world makes that seem unlikely. But if we resist where markets take us, how will those who are kept out of the world economy react? Already in Latin America, Asia, and the former Soviet Union, economic disparities are producing political turbulence. There is no great swell of support for the idea of the people retaking the commanding heights of the economy, but there is a sense that issues of social equity must be better addressed, that the advocates of shock therapy have failed to acknowledge political realities, and that economic development is truly an interdisciplinary endeavor that should not be left to economists alone.

Some questions the book only touches on. New technologies have challenged the state's command of key areas of economic control, such as taxation. Because more and more transactions take place somewhere in cyberspace, it will become increasingly difficult for government agencies to rake in revenue from traditional sources. Furthermore, globalization has caused economies to spill over borders, and created regional economic entities that do not correspond to political boundaries. While these factors argue for the further decline of the state, two of the three basic building blocks of economics-labor and land-still reside within borders and will require that states exist to serve their interests in ways markets cannot.

All this suggests that the subtitle of Yergin and Stanislaw's book, The Battle Between Government and the Marketplace that is Remaking the Modern World, is apposite. The book frames the stakes of the battle quite well. Unfortunately, it does not give much insight into how this battle is likely to unfold. Perhaps that is to be expected of pure economic history, but this book through its title and cover language promises to do more. Instead, it leaves the reader with the reminder that economic history is the ultimate lagging indicator, telling us where we have been, but not necessarily where we are going.

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  • David J. Rothkopf is Managing Director of Kissinger Associates, Inc., and adjunct professor of international affairs at Columbia University's School of International and Public Affairs and at Georgetown University's School of Foreign Service. His next book, to be published by the Carnegie Endowment for International Peace, is The Price of Peace: Emergency Economic Intervention and U.S. Foreign Policy.
  • More By David J. Rothkopf