[Commanding Heights : The Battle for The World Economy] is a documentary film based on a book by the same name written by Daniel Yergin and Joseph Stanislaw. [The Battle of Ideas], the first episode of this 3 parted documentary walks through aspects of 20th century world economy (to the era of Ronald Reagan and Margaret Thatcher to be exact.) and its most significant schools of ideas. ‘The Battle’ is basically a struggle between free market and government control in the era of globalization.
The documentary chose two iconic figures to represent this battle, John Maynard Keynes and Friedrich von Hayek. Keynes is a well-known economist who is thought to have created the concept of macroeconomics. He saw the errors of free market in the post war era and believed that through government regulation of the economy, those errors can be fixed. The film shows how the western civilization was fascinated by this idea and started owning or regulating the so-called ‘commanding heights’ of the economy. During the period between two World Wars, the world has experienced the collapse of capitalism and each parts of the world tried to manage through by adopting fascism, socialism, or communism. After the World War II, Keynesian view became a mainstream in the world economy.
The term <commanding heights> derives from Lenin’s speech. Lenin appealed to those who criticize his amendments regarding the Marxist communist economics, that as long as the government owns the ‘commanding heights’ of economy (major industries such as oil, finance, and steel) it is okay to let individuals have a bit of their properties. The Keynesian idea emphasizes that the government must have control over these ‘commanding heights’, and that is exactly what the most nations have done in the post war era. Whether they had a socialist, communist or capitalist regime, they all started to believe that more regulation means better economic outcome.
On the other hand, Friedrich von Hayek asserted the free market itself is the answer, not the government control. He is well-known by his sensational book called [The Road to Serfdom]. As he said in the interview, as Keynes’ idea became more and more accepted, his arguments became unpopular and unaccepted. The documentary walks through his footsteps from being in company of Ludwig von Mises, the Chicago school, to the Reaganomics and Thatcherism. Mises is described as an extreme libertarian who believes that markets always needed to be free from government meddling. He argued that socialist states cannot be successful because they lack a functioning price system to send the signals to consumers and producers, thus inducing a chaos. Though crude and extreme, this is what Hayek’s idea was based on; a fully functioning free market system without regulations.
The world economy thrived well based on Keynesian system for a while. Until they hit the obstacle called ‘stagflation’. Stagflation is a compound of stagnation and inflation. On the contrast to the traditional concept of relations between economic growth and price, the phenomenon called stagflation became a biggest rut that few Keynesian economists had any idea of getting out. This is where Ronald Reagan and Margaret Thatcher come into the picture. Both of these contemporary leaders of two major nations believed that restraining government spending and cutting regulations can save their economies. And apparently, they succeeded. The old half-century long dominance of Keynesian system was finally over. The film indicates at the end of the first episode, that in Britain and US the outcome of ‘the battle’ was decided at least for the time being.
A documentary film [Commanding Heights] seems like a graphic footnote for the history of modern economics. It emphasizes that in the era of globalization, it took not only technological or scientific breakthroughs, but the revolution of ideas regarding world economics. In this vivid comparison and historical course of the power struggle between market power and government control, one can peek the slightest hint of global economic system. The title itself is quite intriguing. Commanding heights is a term that may occur in combat strategies. It means that the authors of this documentary obviously define the relationship between market and government as a ‘clash’. It may be true. At least till the cold war system ended, a matter of government control was bound to be a major issue.
However, one might say that the real question lies in the balance of power. How much power is not excessive for the government to run its economy to ruins, or how much freedom should be given to the market to function without abnormalities? The question is always about the balance of that scale. There may be a perfect equilibrium, or not. The decision making process of every economic policy has been about finding that perfect spot. (This is bound of course only when the premises of our macroeconomics are assumed to be flawless. Who knows whether some of the variables are not found or considered yet?) A battle can create a whole new structure and chemistry for those who are part of it. I am not sure how the authors concluded the final outcome of the battle, but I am certain that in that process, economists will always learn from their predecessors’ mistakes and move forward.