Reviewed by Pramit Pal Chaudhuri
The tide has turned. The fortunes of statism are at an ebb. Economics of the marketplace is gaining strength.
The Commanding Heights is a narrative history of this transition: why it happened, how it took place, which individuals served in the ideological trenches. The authors explain, “Where the frontier between the state and the market is to be drawn has never been a matter that could be settled ......It has been the subject, over the course of this century, of massive intellectual and political battles as well as constant skirmishes. Today, the clash is so far-reaching and encompassing that it is remaking our world–and preparing the canvas for the 21st century.’’
The story begins with an explanation of how dirigiste economics came to dominate intellectual debate and government policy in Europe, the US and the developing world. The idea that states should own the core bits of an economy–the commanding heights in V.I.Lenin’s 1922 phrase–swept the world. Converts were impressed by what was perceived to be the Soviet economic miracle. Others admired the experience of a regimented wartime economy.
The United Kingdom put together the first welfare state. A retired English railman, Will Cannon, sold the idea of nationalization to his local union in 1944. Jean Monnet, father of European unity, spent most of his time building France’s corporatist economy. The arguments then made in favour of the public sector sound ridiculous today: the private sector underinvested, was too inefficient and lacked economies of scale.
The book devotes many pages to India. India’s example helped entrench
nationalization and planning in the postcolonial world. And launch the
fiction of so called development economics.
If the highpoint was in the 1970s, it was also the beginning of the
end. The “unexpectedly heavy costs and consequences’’ of so much government
control took its toll. There was chronically low economic growth. The oil
crises spurred along inflation. The book details where the revolt of the
market began: the thoughts of the British politician, Keith Joseph,
and the deeds of his acolyte, Margaret Thatcher. Thatcher held up the anti-state
torch by herself in the early 1980s, famously declaring “This lady’s not
for turning’’ when her own party demurred. But she opened the floodgates.
Other governments began emulating her.
The authors mark 1983 as the watershed, when even the French socialist leader, Francois Mitterrand, intoned, “The state must know when to efface itself.’’ The US began slashing away at the regulatory red tape throttling its economy. Alfred Kahn, the man who freed America’s airlines, is among those who make a cameo appearance in the book.
The third world’s conversion to the market was also influenced by the success of the east Asian tigers and foreign private capital’s sudden interest in what is today called the emerging markets. “What experience taught in the 1970s and into the 1980s was an increasing skepticism about the capabilities of what had become the traditional mixed economy.’’
Some of the best passages are descriptions of market-friendly politicians working overtime to salvage the wrecked economies they inherited. Thus there is Bolivia’s Gonzalo Sanchez de Lozada taming his country’s 24,000 per cent inflation. There is Leszek Balceworicz, finance minister of Poland’s first democratic government, freeing prices and wages and then sweating it out as he waited for the magic of the market to tame inflation. Or Vaclav Klaus, a Czech communist assigned to read free market tomes in order to denounce them, but instead became its leading advocate.
Governments today have a “daunting challenge to figure ways to reduce their intervention is some areas, and to retool and reform their intervention into others.’’ India, the authors write, has to be careful that its Hindu rate of growth is not replaced by an equally glacial Hindu rate of change. “Many forces are driving the shift from state control to market consensus. Yet, fundamentlly, it rests upon a recasting of beliefs and ideas–away from the traditional faith in the state and toward greater credibility for the market.’’
(The reviewer is Assistant Editor, The Telegraph newspaper of Calcutta)
Copyright 1999, Liberty Institute, New Delhi
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