The Commanding Heights (The Battle for the World Economy) by Daniel Yergin and Joseph Stanislaw, Touchstone Books, 2002

In one of his frequent obituaries on capitalism, Orwell wrote that it could not “deliver the goods”. But “goods” are exactly what private enterprise does deliver: what it is less capable of providing is “welfare”, which is where the government comes in, trying to regulate capitalism’s excesses, smooth out its unpredictability, protect those discarded by it, and ensure the nation’s defense. And sometimes politicians seem to think that they can do a better job of making investments and running industry than private enterprise can.

The Commanding Heights traces this worldwide battle between collectivism and free-market theories and practices over the past century. It takes its title from Lenin’s attempt to assuage his detractors upon introducing a measure of private enterprise when his communist experiment floundered in 1922, claiming that the state would still control the “commanding heights” of the economy. While Stalin undid all of that, and more, the phrase has had its allure for socialists the world over, especially during the economic crises of the 1930s, and when the British Labor government adopted its Famous Clause IV of nationalization at the end of World War 2. Yergin and Stanislaw narrate a compelling history of the seesawing, around the world, between the desires for relaxing sclerotic government control, and the fear of inequality and exploitation that frequently accompanied the move to free markets. (Corruption, unfortunately, can be found in both set-ups.) This is a lively story, illuminated by vivid profiles of the key players in the drama, from Keynes to Lee Kuan Yew, from Nehru to Thatcher, and recounted in a refreshingly jargon-free style.

In the USA, “socialism” has long been broadly mistrusted and discredited, but the authors weave a theme of its continuous appeal into their narrative: “The moral appeal of socialism and state intervention is clear and explicit; altruism; concern, sympathy, and solidarity with human beings; dignity and social betterment; justice and fairness; hope”. These attributes cannot be legislated for, however, and socialism in all its guises has always been accompanied by a bureaucracy of trough-feeders as in the worst caricatures of capitalism, as well as by latent totalitarianism. All this was made clear, as the authors briefly remind us, as far back as 1922, when von Mises wrote his classic (and in the universities much ignored) work Socialism, which itself encouraged Hayek, as well as Margaret Thatcher and the Chicago school. Marx and Keynes have had far more influence on the intellectual climate, where any intrusion of economics into discussions of moral philosophy has not done justice to the dynamics of commerce and the realities of competition. In a way, the world is still suffering from the hangover of the 1930s when Nazism was the evil enemy, and the sins of our wartime Communist ally were conveniently overlooked.

 

Yergin and Stanislaw bring their story up-to-date with an accurate assessment of globalization, but in their conclusions lose their way a little, missing an opportunity to make some trenchant observations, and flirting with silly ideas such as “If the Internet is the new commanding heights…”. They identify five tests “that are likely to be decisive in shaping people’s thinking and judgment about the market” (1. Delivering the Goods? 2. Ensuring Fairness? 3. Securing the Environment? 4. Coping with Demographics?, and 5. Upholding Identity?), as if consumers around the world had a choice in voting on such a complex combination of issues. In this, the authors express some contradiction about the effectiveness of democracies in responding to increasing globalization.

For example, they skate over such dilemmas as the ever-increasing expenses of the welfare state in the more-developed countries. As we prepare for presidential elections this year, facing the greatest deficits (and potential welfare shortfalls) this country has ever known, we seem to have a tough choice. One candidate believes lower taxes will alone turn back the tide, but also seems to believe in full employment, while the other, beholden to many conflicting pressure groups on economical matters, from a party with a historical tendency to “tax-and-spend”, recommends protectionism. Moreover, both these politicians appear to think they can seriously influence “the commanding heights” of the economy when the inventiveness and entrepreneurialism of the private American sector, and its ability to create new world-beating products (with domestic labor), and thus fund our social programs, are matters they cannot control.

The authors quote an anonymous prime minister: “You can’t have social justice if you don’t have an economy.” But a world economy is perhaps more anarchic and whimsical than we care to imagine, and its real “commanding heights” would still appear to be in the oil-rich lowland states of the Persian Gulf. Thus the strengths of this very readable book lie more in its historical sweep than in its guidance on future outcomes, and it does not do justice to its subtitle.