The Region

The Commanding Heights: The Battle Between Government and the Marketplace that is Remaking the Modern World

Book Review

David Levy | Vice President

Published March 1, 1999  | March 1999 issue

By Daniel Yergin and
Joseph Stanislaw
Simon and Schuster
457 pages

book cover What books qualify as keepers: ones that belong in your permanent collection? The Commanding Heights may be a terrific candidate, especially if your interest runs to 20th century economic history.

The authors, Pulitzer Prize-winner Daniel Yergin and international business adviser Joseph Stanislaw, claim for their book's title an old military metaphor, the Commanding Heights, first used by Lenin in 1922 as a defense of the New Economic Policy. By Commanding Heights, Lenin meant that the state would control the most important elements of the economy. Of course, his successor Stalin extended that notion to all elements, with the total eradication of all private markets.

Yergin and Stanislaw use the Commanding Heights as their unifying thread to tell the story of the long-standing battle between government and the marketplace. It's a battle they say has been a defining drama in the 20th century. With considerable discipline they stick to their topic by examining the people who played the major roles in this economic tussle, their ideas and the turning points of the overall conflict.

According to the authors, it is the state (national governments) that has been winning for most of the century. The aftermath of world wars, revolutions, economic depressions, among other causes, have given the upper hand to the state to seize and exercise control over their economies. The extreme changes came to places like the Soviet Union and China, while the industrialized nations of Europe gradually adapted the "mixed economy" approach, where the governmental role was strong, but the market mechanisms were still given some air to breathe.

After World War II, capitalism was really in the doghouse in most places around the world, although less so in the United States. The Labour politicians in Britain were intent upon creating a "New Jerusalem" which would have nothing to do with Adam Smith or traditional 19th century liberalism. To that end they adopted as their blueprint the Beveridge Report, prepared by William Beveridge who had been the head of the London School of Economics. It set out a state welfare agenda to do in Want, Disease, Ignorance, Squalor, and Idleness (unemployment). The Beveridge Report's influence reached beyond the United Kingdom to all corners of the world and further fueled the assault on the Commanding Heights.

It was not until the 1970s that the tide began to turn. Margaret Thatcher, along with her idea man, Keith Joseph, set out to overturn Britain's mixed economy. Her challenge to the root assumptions of the welfare state and her successes also spread throughout the world.

The ascendance of free market economies is well known from the Thatcherite revolution until today. Competition, deregulation, openness and privatization have become commonplace and led to the surrender of the Commanding Heights to the capitalist army. In today's economy, the authors note, a mutual fund manager can become a hero.

The entire book sets up the last chapter, which contains the authors' ideas on the future. Will the battle for the Commanding Heights continue or are the new residents permanent? "It depends," they say, on how well the current generals deal with the world's essential economic, political and social issues that present themselves in a global economy where national borders count less and less.

Yergin and Stanislaw did some serious legwork before writing The Commanding Heights. They conducted interviews with a long list of distinguished economic thinkers and/or doers, including: Gary Becker, Domingo Cavallo, Milton Friedman, Alberto Fujimori, Valery Giscard d'Estaing, Robert Rubin, Jeffrey Sachs, Helmut Schmidt, George Schultz, Joseph Stiglitz, Margaret Thatcher and Paul Volcker (and that's not even half the list).

My first approach to The Commanding Heights was to use it as a reference book. I would ask, "I wonder what it says about the Keynesian ideas at Harvard in the '60s or the Chicago School's influence in Latin America, or what about the colonial countries like India after they gained independence?" Then I'd check for the index reference. That works nearly every time because the book is thorough, exploring virtually every aspect of the state vs. the market.

Finally, after reading much of the book part-by-part, out of order, I did the proper thing and began at the beginning. It's neither a casual read nor one for those who haven't already given thought to the role of government in the economy. It's accessible and clearly written with journalistic sensitivities. It goes on my permanent library shelf.