Commanding Heights

Posted in: Economics, War

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Episode One: The Battle of Ideas

A global economy, energized by technological change and unprecedented
flows of people and money, collapses in the wake of a terrorist attack
…. The year is 1914.

Worldwide war results, exhausting the resources of the great powers
and convincing many that the economic system itself is to blame. From
the ashes of the catastrophe, an intellectual and political struggle
ignites between the powers of government and the forces of the
marketplace, each determined to reinvent the world’s economic order.

Two individuals emerge whose ideas, shaped by very different
experiences, will inform this debate and carry it forward. One is a
brilliant, unconventional Englishman named John Maynard Keynes. The
other is an outspoken émigré from ravaged Austria, Friedrich von
Hayek.

But a worldwide depression holds the capitalist nations in its grip.
In opposition to both Keynes and Hayek stand not only Hitler’s Third
Reich but Stalin’s Soviet Union, schooled in the communist ideologies
of Marx and Lenin and bent on obliterating the capitalist system
altogether.

For more than half a century the battle of ideas will rage. From the
totalitarian socialist systems to the fascist states, from the
independent nations of the developing world to the mixed economies of
Europe, and the regulated capitalism of the United States, government
planning will gradually take over the commanding heights.

But in the 1970s, with Keynesian theory at its height and communism
fully entrenched, economic stagnation sets in on all sides. When a
British grocer’s daughter and a former Hollywood actor become heads of
state, they join forces around the ideas of Hayek, and new political
and economic policies begin to transform the world.

Episode Two: The Agony of Reform

As the 1980s begin and the Cold War grinds on, the existing world
order appears firmly in place. Yet beneath the surface powerful
currents are carving away at the economic foundations.

Western democracies still struggle with deficits and inflation, while
communism hides the failure of its command economy behind a facade of
military might. In Latin America populist dictators strive to thwart
foreign economic exploitation, piling up debt and igniting
hyperinflation in the process. In India and Africa bureaucracies
established to end poverty through scientific planning spawn black
markets and corruption and stifle enterprise.

Worldwide, the strategies of government planning are failing to
produce their intended results. From Bolivia and Peru to Poland and
Russia, the free-market policies of Thatcher and Reagan are looked to
as a possible blueprint for escape. One by one, economies in crisis
adopt “shock therapy” — a rapid conversion to free-market
capitalism.

As the command economies totter and collapse, privatization transfers
economic power back into entrepreneurial hands, and whole societies go
through wrenching change. For some the demands and opportunities of
the market provide a longed for liberation. Others, lacking the means
to adapt, see their security and livelihood swept away. In this new
capitalist revolution enlightened enterprise and cynical exploitation
thrive alike. The sum total of global wealth expands, but its unequal
distribution increases, too, and economic regeneration exacts a high
human price.

Episode Three: The New Rules of the Game

With communism discredited, more and more nations harness their
fortunes to the global free-market. China, Southeast Asia, India,
Eastern Europe and Latin America all compete to attract the developed
world’s investment capital, and tariff barriers fall. In the United
States Republican and Democratic administrations both embrace
unfettered globalization over the objections of organized labor.

But as new technology and ideas drive profound economic change,
unforeseen events unfold. A Mexican economic meltdown sends the
Clinton administration scrambling. Internet-linked financial markets,
unrestricted capital flows, and floating currencies drive levels of
speculative investment that dwarf trade in actual goods and services.
Fueled by electronic capital and a global workforce ready to adapt,
entrepreneurs create multinational corporations with valuations
greater than entire national economies.

When huge pension funds go hunting higher returns in emerging markets,
enterprise flourishes where poverty once ruled, but risk grows, too.
In Thailand the huge reservoir of available capital proves first a
blessing, then a curse. Soon all Asia is engulfed in an economic
crisis, and financial contagion spreads throughout the world, until
Wall Street itself is threatened. A single global market is now the
central economic reality. As the force of its effects is felt, popular
unease grows. Is the system just too complex to be controlled, or is
it an insiders’ game played at outsiders’ expense? New centers of
opposition to globalization form and the debate turns violent over who
will rewrite the rules.

Yet prosperity continues to spread with the expansion of trade, even
as the gulf widens further between rich and poor. Imbalances too
dangerous for the system to ignore now drive its stakeholders to
devise new means to include the dispossessed lest, once again,
terrorism and war destroy the stability of a deeply interconnected
world.

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