Daniel Yergin and Joseph Stanislaw
Touchstone - 1998

The 1990’s were a decade of RADICAL CHANGE with everyone looking to the market. Time of changing rules, greatest expansion of world trade and globalization.
In the 1990s: stock market grew, barriers to trade down, internet up, communism down, we are all equally friends

JV Notes based on TV documentary by name.

It was Thatcher and Reagan who brought Fabian Socialism into our societies and provided a changing point in history. It was von Hayek – although heralded as a great “free marketer” – in the image of von Mises—who merged capitalism and communism and came up with Fabian Socialism.

Thatcher birthed privatization which is the selling off of state assets. Privatization is the transfer of wealth from the state to a small group of key people. The state is left with high deficits and no assets and therefore the only way to find money is to raise taxes to service debt. This is where we are now. Basically it is the GUTTING OF GOVERNMENT.

This is called “Market Democracy” – the selling of government assets.

--America is on sale
--Games are being played with the value of stock
--Slow economy to stimulate ti – leads to reduction in prices – leads to reduction in profits—affects price of stocks—affects our paper wealth and how we feel (consumer confidence), then the cycle begins all over again.
--1930’s with Keynesian economics—debt stimulates economies
--1990’s countries with too much debt now selling their assets. Since 1985, over $100B in assets have been sold off in Europe.
“The mystique” of the state owned company ahs dissipated. Privatization then requires new non-state institutions, again changing the role of government. This is the RISE of ‘INDEPENDENT REGULATION.”

Who is in control—The market or government?

Part I –
Keynes vs. Hayed,
Keynes: need government to help maintain markets
Von Hayek – “Government intervention is a threat to the market

Adviser to the British government during World War I. He was at the Paris Peace Conference. He embraced socialism which promised more to the poor. Keynes set out to rewrite the rules of economics and save capitalism.. He invested the GDP of macro economics. Roosevelt adopted Keynesian economist with the NEW DEAL which sought to regulate capitalism to protect markets. Roosevelt regulated banks, the stock market and the ICC.
In 1936, Keynes wrote General Theory which was how to fight depression. Government must maintain full employment at all times and put people to work. US Harvard Economist John Kenneth Galbraith imported Keynesian economics. By 1941, Keynesian economist became the U.S. government policy. In 1944, Keynes went to the Bretton Woods meeting to reorder the world economy. He created the IMF/World Bank which he designed to prevent the 1930s, plan the world economy to increase productivity of the future.

Fought in the Austrian military. Von Mises said markets need to be free. And that Socialism does not work because of control. Von Mises used inflation as the cornerstone of his economic policy Von Hayek went to the London School of Economics and wrote “Road to Serfdom” which said government plan first step to totalitarianism. Saw socialism and the planned economy as a threat. He began the Mt. Pelerin society because he saw socialism and the planned economy as threats. Argued that democracy needs a free economy. He then went to the University of Chicago in 1950 which became the intellectual hub. Hayek predicted a long fight of ideas before the world change its mind. There he influenced Milton Friedman who was against planning. When Kennedy was given an honorary degree from Yale, he gave a speech in which suggested socialism had won, “What is at stake in the economy but the practical management of the modern economy.” The US has undreamed prosperity because of debt. After 30 years of growth due to debt, the US economy became sick. Nixon tried to spend his way out. He declared, “Now I am a Keynesian.” Friedman was his Treasury Secretary. Nixon opted for wage and price controls. He declared a “war on prices” .

Britain found that the Mixed economy was in trouble with unemployment and inflation.

In 1974, the world started to move in the direction of Hayek when he was awarded the Nobel prize for economics.

Says nothing about our economy going off of gold standard in 1973 but in 1974, US economy going through worst depression – result of the Yom Kippur War. The Chicago School argued that government is wrong. Need to de-regulate. The first industry to be de-regulated was the airline industry.

Maggie Thatcher turned to Hayek and then Reagan turned to von Hayek – this was a repeat of Roosevelt and Britain in the 1930s.

Reagan’s motto was “Get Government off our backs!” Reagan and Volcker started deregulation—privatization, modest tax reduction. His tax reduction led to huge deficits and de-regulation unleashed the free market.

In 1982 the US came to the aid of Britain in the Falkland War and save “Maggies life.” The push/pull became “state ownership versus private ownership and socialism versus capitalism.

--Thatcher invented privatization and put Britain at Commanding Heights when she sold 1/3’s elected, oil, gas, trains, water and planes. Reagan and Thatcher “were at the same place in time.”

THE GLOBAL MESSAGE OF CHANGE WAS PRIVATIZATION. Privatization is the transfer of wealth from the state to a small group of key people. The State still left with high deficits and no assets and the only way to find money is to raise taxes to service debt.

Today, all countries of the world are on the same page—remember when interviewed the foreign minister of ….. at G8 in Germany and he could not understand why they had to sell off state assets—he just did not get it.


In an interconnected world economy, the old structures and institutions are on working, build a new consensus on trade. FTAA --

He instituted a whirlwind program of reform – “NEW DEAL” At the same time, he regulated capitalism to protect against unfettered market. Under the New Deal, industry subject to new rules. The Government set the prices for airline industry and eliminated the boom/bust cycles.

In Pottsdam, Truman, Stalin and Churchill represented different economic theories. Churchill opposed planning and controls. Attlee and the Labor Government which believed in planning won and a Socialist government was elected. Atlee promised a “New Jerusalem.” The Labor Government nationalized business.

The Welfare state was for the common good with welfare and trade unions. Care from womb to tomb.

In Germany, they combined free markets with socialism.
India – in 1947, given freedom from Britain. Ghandi pushed for “self sufficient villages. Must have state led industrial sector. Steel, coal, capital goods were in the public sector versus the private sector. India became the model for developing countries.

Freddy Laker set the stage for de-regulation as prices went down and demand went up.

Reagan appointed Paul Volcker as chairman of the Federal Reserve during a time when inflation was the worst of all economic evils. Volcker tightened the money supply and the economy went into a nose dive. Reagan just happened to share Hayek’s economic principles.

Reagan said, “vote for me if you believe in yourself. Too much government—get government off our backs.”

Milton Friedman
Tightened the money supply and unemployment hit 10%. Interest rates ate up the profits. It took 3 years to turn around and by 1982, inflation down. REAGAN AND VOLCKER SET A NEW COURSE.

Reagonics: Sound money supply
Modest tax rates
Limited government spending

Reagan’s tax cuts led to huge deficits and deregulation and unleashed the free market.

Thatcher turned to von Hayek. In 1982? The Falklands War in Argentina. Thatcher visited before the war. Her popularity was at an all time low (could it be that she was the first to ”wag the dog?”

Before Thatcher, Atlee (Fabian Socialist) had nationalized core industries. They were no key assets to sell except the coal mines. The cost to keep the coal mines was $3B a year in subsidies. Labor said to keep the mines because 3 million people had work.

A clash of values and ideas followed:
State ownership vs. private
Socialism vs. capitalism.

Thatcher broke the coal mines—today less than 3000 work in the mines. There is no prospect of a job, no future, no work, loss of dignity.

Thatcher invented PRIVATIZATION – The Commanding Heights. 2/3s of the electric, oil, gas, trains, water and planes sold.

WHO SHOULD CONTROL THE COMMANDING HEIGHTS? THATCHER LED THE WAY GLOBALLY. – after all communism and Fabian socialism started in England.

Von Hayek intellectually changed the world. Said Milton Friedman, “It was important that Reagan and Thatcher at same time.”

Within 10 years, government all over the world would change their COMMANDING HEIGHTS.

COMMANDING HEIGHTS is the story of how the new global economy was born.
--The government sought to curb markets and reign in the economy. The first were Ronald Reagan and Margaret Thatcher.
(1) Deregulation
--Start of world revolution – what happened was a capitalist revolution which became the model for the world.
--Moved away from state control. This had led to new global economy.

--The Soviet Union was control, ruthlessness which gave birth to industrial complexes. From every point of economy to collapse in the 1990’s. Prison camps in the 1950s provided hundreds of thousands political prisoners in the factories. Slave labor was crucial component of Soviet economy. -- TODAY WE HAVE CHINA AND IF WANT TO SAVE MORE, HAVE PRISONS.

Because 50% of Soviet economy was devoted to military, the shelves were empty. People no productive because no incentive for future. Economy not working because workers not working.

Said Anatoly Chubais – In the solution not in Marxism but in markets.” Friedman and Hayek were models

Reagan and Thatcher went on ideological offensive. Free world vs. dictatorship /communism.

--uneconomically state owned industries closed.

The 1990’s were a decade of RADICAL CHANGE with everyone looking to the market. Time of changing rules, greatest expansion of world trade and globalization. All of former Comecon countries target for PWBLF and PPP.

As a result of September 11, George Bush said, “I see an opportunity change for nations to rethink and reinvigorate their relationships.”


Global prosperity with crises and risks. Debate about RULES OF THE GAME FOR A NEW ERA.

End of Cold War/gulf Crises – Beginning of world being tied together by trade.
--No economic idea shaped the 90’s more than the belief in open free trade.
--Clinton’s idea was to cut the deficit, embrace free trade with government $4T in debt.
--1994 – NAFTA and GATT
--2002 Bush given fast track
--NAFTA – 60% democrats voted against NAFTA, after it, thousands of companies went to Mexico with 1 million workers finding new jobs in Tijuana. What NAFTA did was to shift bargaining power towards MNC – away from government.
--CALPERS now invests 25% or $150B overseas
--Pension funds became the power houses of global economy with pension funds providing capital.
--In 1990s, more countries adopted capitalism, open markets and free trade with WTO pushing the limits of what countries will give up to have an “open society.”

--Seattle – Old structures, institutions and lines not working. Protest part of coming to a point to manage global economy. Made us more aware.

Conclusion to Commanding Heights:
“Need system of Law for everyone to believe in.
--Need property rights for the system to work
--In developed world, most people locked out of capitalistic system
--Huge paper wall that stops poor from developing legal rights