The Commanding Heights
Overview
The authors contend that prior to World War I, the globe underwent what they term the First Era of Globalization, characterized by dominant free market principles and minimal limitations on exports, immigration, imports, and the flow of information exchange. They regard globalization as a beneficial phenomenon that has elevated the standard of living across diverse social strata. Nevertheless, the emergence of communism, fascism, alongside the Great Depression, nearly brought an end to capitalism.
Following World War II, the economic theories of John Maynard Keynes gained traction in Western nations, promoting increased governmental oversight of economic activity. Consequently, key sectors—often referred to as the commanding heights—were frequently under state control or subjected to stringent regulation.
The political realignments during the 1980s ushered in shifts in economic policy under figures such as Margaret Thatcher and Ronald Reagan. These leaders moved away from Keynesian doctrine, embracing ideas influenced by Friedrich Hayek and Milton Friedman. Hayek advocated for minimal government interference and opposed tariffs, while Friedman prioritized curbing inflation through monetary restraint.
In application, Reagan’s 1986 tax legislation raised taxes on the bottom 20% income bracket but significantly lowered rates for the top 40%. Contrary to Hayek’s philosophy, Reagan’s administration expanded tax deductions, rebates, and subsidies benefiting large corporations. Furthermore, Friedman's monetarist approach was largely abandoned as U.S. national debt surged throughout the 1980s. Despite these inconsistencies, the authors identify the current phase of globalization as commencing around 1991 with the collapse of the Soviet Union. Since this turning point, nations adopting free-market economies have generally thrived, whereas those adhering to centralized planning have faced difficulties.
Although endorsing globalization overall, the authors warn it could weaken if disparities in economic growth continue and if developing countries lack motivation to embrace capitalism. They stress the importance of reducing economic inequalities, arguing that capitalism’s validity depends less on ideology and more on practical outcomes:
International analysis
The authors provide a concise overview of various countries and regions regarding their economic progress since World War II, acknowledging the extensive nature of this subject.
United States
During the late 19th and early 20th centuries, the United States exhibited a robust dedication to industrial growth and free-market principles. The 1920s experienced considerable economic gains for wealthier groups alongside rising median incomes. However, labor dissatisfaction intensified due to insufficient regulations on wages and working hours, inadequate protections against child labor, lack of unemployment insurance, limited union rights, poor workplace safety standards, and absence of social security—factors that fueled unrest among lower-income workers.
The onset of the Great Depression resulted in widespread joblessness and growing public skepticism toward corporations. In response, President Franklin D. Roosevelt implemented the New Deal—a suite of comprehensive regulatory reforms inspired by Keynesian economics aimed at market stabilization. For approximately three decades after World War II, the U.S. economy expanded steadily under Keynesian frameworks supported by vigorous antitrust enforcement, financial regulations designed to prevent speculation, high union membership rates, and protectionist policies nurturing domestic industries.
The 1970s introduced stagflation triggered by an oil crisis and abandonment of the gold standard in favor of fiat currency. These developments eroded consensus around New Deal policies. The election of Ronald Reagan in 1980 marked a turning point as numerous New Deal programs and agencies were dismantled.
United Kingdom
During the First Era of Globalization, London served as the central hub under the British Empire's dominance. Although Britain emerged victorious in World War II, the aftermath of World War I had already inflicted severe economic damage, including high unemployment, and the second conflict hastened the empire’s decline.
Winston Churchill, influenced by Hayek’s economic philosophy, resisted extensive state control over the economy. Nevertheless, after the 1945 election, Clement Attlee’s Labour government undertook widespread nationalization of key sectors such as the Bank of England, utilities, railways, mining, telecommunications, oil, shipbuilding, aerospace, automotive production, and steel manufacturing.
Crucial public services like healthcare through the NHS and higher education were brought under state control and offered free of charge; meanwhile, private housing rents were regulated and council housing provided accommodation for roughly one-third of the population by the late 1970s. The labor market was tightly regulated with strong union involvement influencing wages and employment conditions.
These policies continued even under Conservative administrations following nationalization. However, the 1970s witnessed significant union strikes—such as the Three-Day Week and Winter of Discontent—alongside economic difficulties like the 1973 oil shock that nearly crippled the economy. In response, Margaret Thatcher launched privatization initiatives inspired by Hayek’s ideas. Although initial outcomes were mixed, her reforms gained popular backing after the Falklands War, ensuring their persistence. Later Labour governments largely upheld Thatcherism’s foundational policies.
Soviet Union and Russia
The Russian Revolution plunged the Soviet economy into crisis, prompting Lenin to introduce the New Economic Policy, which permitted limited capitalist practices known as state capitalism, leading to economic improvement. Lenin defended this approach in his commanding heights speech against accusations of abandoning revolutionary principles.
Under Joseph Stalin, both agriculture and heavy industry were centralized. Between the 1940s and 1970s, Soviet economic growth outpaced that of Western Europe. However, by the 1980s stagnation set in due to diminished incentives and a more permissive government stance. Military expenditures frequently consumed up to half of state revenues. Mikhail Gorbachev implemented modest reforms (perestroika and glasnost), but removing the Brezhnev Doctrine triggered the disintegration of the Warsaw Pact and ultimately led to the Soviet Union’s collapse.
In post-Soviet Russia under Boris Yeltsin, many former Communist Party officials retained significant power, hindering free-market reforms and pushing out reformist allies like Yegor Gaidar. During the 1996 Russian presidential election, Yeltsin depended on support from Russian oligarchs to counter a Communist comeback. Privatization unfolded unevenly, resulting in wealth concentration among a select few.
Germany
Following Keynes’s warnings, hyperinflation caused by the Treaty of Versailles devastated the German economy, eroding middle-class wealth and creating political instability that facilitated the rise of the Nazi Party. Despite widespread privatization in industry, Nazi Germany implemented extensive central planning.
After World War II, Germany was divided into Soviet-controlled East Germany and Western-occupied West Germany. When West Germany’s economy struggled, Ludwig Erhard unilaterally removed price controls in 1948 without Allied consent, triggering what became known as the economic miracle. These market-oriented reforms were primarily limited to West Germany until reunification in 1989, when East Germany confronted major difficulties due to its failed centrally planned system.
India
Following India's independence in 1947, the nation's inaugural prime minister, Jawaharlal Nehru, championed industrial growth through state-led initiatives. This approach resulted in a bureaucratic framework known as the "permit Raj", which impeded innovation while encouraging corruption and administrative delays. Despite comprehensive economic planning efforts, overall growth remained modest.
During the 1990s, economic liberalization began under Finance Minister and subsequent Prime Minister Manmohan Singh, leading to increased exports and a surge in outsourcing. These reforms have been sustained by later administrations. Singh, a proponent of free-market principles, assumed the prime ministership after the 2004 Indian general election, although he was not initially the chosen candidate of the victorious United Progressive Alliance.
South America
Mid-20th century Latin American nations, influenced by dependency theory, adopted industrialization strategies that involved import restrictions and government support for domestic industries. This protectionism, however, resulted in inefficiencies and limited innovation due to reduced competition, culminating in economic crises during the 1980s that diminished Western investment.
Chile experienced profound free-market transformations under military ruler Augusto Pinochet, advised by economists known as the Chicago boys. While these policies are credited with fostering economic progress and facilitating a return to democracy, their association with Pinochet's authoritarian regime and human rights violations has sparked considerable controversy.
In the 1980s, Bolivia confronted hyperinflation. Economist Jeffrey Sachs counseled President Gonzalo Sánchez de Lozada, who implemented stringent austerity measures during the 1990s to stabilize inflation. Although Bolivia remains economically challenged, these reforms enhanced fiscal stability and helped restore confidence in free-market approaches across Latin America following Chile’s example.
Other countries
The authors contend that economic advancement in Africa was significantly obstructed by centralized planning, socialist policies, and autocratic regimes that exacerbated conflicts.
Japan was long regarded as an exemplar of economic success until the early 1990s; its extended recession is attributed to government reluctance to withdraw subsidies from numerous industries and corporations.
Poland's adoption of free-market reforms, propelled by Solidarity and leader Lech Wałęsa, initially faced skepticism but by the late 1990s had surpassed other former communist state economies within the Eastern Bloc. Notably, Poland’s economy is largely driven by small business rather than dominant large-scale corporations or conglomerates.
China presents a complex scenario. After the death of Mao Zedong, Deng Xiaoping progressively opened up the economy while maintaining political control, exemplified by the suppression of the Tiananmen Square protests of 1989. Although market liberalization has propelled China’s economic expansion, political freedoms have not advanced correspondingly.
Documentary
In 2002, PBS broadcast a six-hour documentary inspired by the book, narrated by David Ogden Stiers. It is accessible both on DVD and through free online platforms.
The series consists of three episodes lasting two hours each:
- Episode 1: The Battle of Ideas, produced and directed by William Cran.
- Episode 2: The Agony of Reform, produced and directed by William Cran with co-production by Peter Sommer and co-direction by Greg Barker.
- Episode 3: The New Rules of the Game, directed, written, and produced by Greg Barker.
Released several years after the book, this documentary addresses events omitted from the original text, such as the 1997 Asian financial crisis, the rise of the anti-globalization movement, and the impact of the September 11 attacks. The final segment explores these developments and discusses free-market strategies to combat global poverty, featuring economist Hernando de Soto, whose influential work emerged after the book’s publication.
The documentary received mixed reactions; for instance, proponents of the anti-globalization movement criticized its portrayal. In response, then-World Bank President James Wolfensohn remarked that protesters were opposing those engaged in addressing global challenges; one scene notably depicts Wolfensohn being struck with a pie by a demonstrator.
Contrasting with the book’s tone, the film adopts a more cautious stance on globalization’s trajectory. It draws analogies between speculative bubbles like 1920s radio stocks and 1990s dot-com companies—industries based on emerging technologies yet vulnerable to market collapses. Additionally, it compares the September 11 attacks to Archduke Franz Ferdinand’s assassination in 1914 as triggers for profound change. Venture capitalist Tim Draper appears discussing early internet ventures such as Hotmail years before his later successes with firms like Tesla, Coinbase, and his notable Bitcoin acquisitions following Silk Road’s shutdown.
Funding for the project was provided by contributors including Electronic Data Systems, FedEx, BP, The Pew Charitable Trusts, John Templeton Foundation, Smith Richardson Foundation, and the Corporation for Public Broadcasting.