The Commanding Heights: The Battle Between Government and the Marketplace that is Remaking the Modern World
by Daniel Yergin and Joseph Stanislaw
Simon & Schuster. 457 pp. $26.00

Credit for the phrase “commanding heights” belongs to V.I. Lenin, who used it in a 1922 speech to describe those strategic parts of the Russian economy over which his still-young revolution was determined to maintain control. By the mid-1930′s, the term had made its way to Britain, courtesy of the Fabians and the Labor party, and not long thereafter to India and the Congress party of Jawaharlal Nehru—places where it came to stand, not for a revolutionary vanguard’s domination of heavy industry at bayonet point, but for the humane ministrations of democratic socialists.

As actual history of the expression “commanding heights” goes, that is about the sum of it, according to Daniel Yergin and Joseph Stanislaw in their overview of economic thought and practice in our century. Yet they themselves choose to deploy the phrase more widely, making it a rubric for interventionists of every stripe, however modest or extreme their means. As the authors persuasively reason, if not for the “spell” cast over much of our era by the Soviet model, the self-assurance with which governments on every continent have sought to direct economic life would have been unimaginable.

In The Commanding Heights, Yergin and Stanislaw—the former a Pulitzer Prize winner for The Prize: The Epic Quest for Oil, Money, and Power (1991), the latter his partner in an international energy consultancy—trace the course of this enchantment with state control from its first hopeful postwar expressions to its dissolution in recent decades under the relentless pressure of the marketplace and its partisans. It is a grand tale, and they relate it with admirable ambition and energy, even if in the end they fail to do it full justice.

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Yergin and Stanislaw’s main narrative begins in the aftermath of World War II, at a moment when the industrial powers found themselves on entirely new economic terrain. Still chastened by memories of Depression-era unemployment, and facing daunting evidence of the war’s physical and human devastation, they were certain of only one point: that the material needs of their people could not be entrusted to the unfettered workings of the market. Those who believed in private enterprise, crowed the historian A.J.P. Taylor, seemed to have “no more future than the Jacobites in England after 1688.”

What emerged, as Yergin and Stanislaw recount, were variations on the “mixed economy.” The most favored approach was nationalization, which found capable practitioners in Prime Minister Clement Attlee of Britain, the French master planner Jean Monnet, and Enrico Mattei, the charismatic captain of Italian state industry. In West Germany, economics minister Ludwig Erhard and his “Ordoliberals” opted for corporatist cooperation among business, labor, and government, while in Japan, the redoubtable Ministry of International Trade and Industry (MITI) developed a comprehensive industrial policy. The United States, always the wariest of intervention, rested content with the New Deal status quo of regulation and an open-handed fiscal policy inspired by the universally influential work of the British economist John Maynard Keynes.

For nearly three decades, Yergin and Stanislaw remind us, these government-led economies delivered prosperity in spectacular fashion. Unemployment virtually disappeared, and the swelling incomes of average families brought access to a previously undreamed-of bounty, from cars and appliances to better housing and foreign travel. Even the command economy of the Soviets seemed, through the propaganda and secrecy that enshrouded it, to be thriving, if not in the production of consumer goods then certainly in building up basic industry and—most alarmingly to the West—military power.

By the early 1970′s, however, the juggernaut had begun to slow in the U.S. and Europe. The great problem was inflation, driven inexorably upward by growing government deficits, rising social expenditures, and ever-higher labor costs. After the oil crisis of 1973-74, spiraling unemployment exacerbated the slump as the baneful hybrid of “stagflation” spread throughout the industrialized world.

The most dramatic response to this array of troubles came in Britain, where, as Yergin and Stanislaw tell it, the think-tank toil of Keith Joseph, a much-derided Tory Member of Parliament who had been declaring for years that Britain lacked entrepreneurship and needed, above all, “more millionaires and bankrupts,” finally paid off in the rise to 10 Downing Street of his student and ally, Margaret Thatcher. With Joseph at her side as Secretary of State for Industry, Mrs. Thatcher faced down the country’s powerful trade unions and pushed through a radical retrenchment of the economy, privatizing state-owned industries and reining in the money supply. Roundly condemned at the time, the approach proved tonic, and inspired similar measures across the globe, from the Reagan revolution in the U.S. to the relaxing of state controls in the export-driven economy of Malaysia and the “Great U-Turn” of French socialism under François Mitterrand.

Finally, with the ascent of the market-minded Deng Xiaoping in Communist China during the 1980′s, and the collapse of the Soviet bloc shortly thereafter, the command economy lost whatever prestige still attached to it. Today, as Yergin and Stanislaw point out, what were once the world capitals of state planning are now home to a burgeoning class of American-style entrepreneurs. They introduce us, for instance, to Vladimir Dovgan, a maker of consumables whose quality products and cheerful, mustachioed visage (imprinted on every box and bottle) have made him one of the best-known figures in the new Russia—and a far cry indeed from homo sovieticus.

Yergin and Stanislaw recognize that the worldwide turn to the market has hardly been painless, and remains incomplete. In nations just years removed from Communism, the transition has brought with it dislocation and graft. In much of the third world, state planning is on the retreat but still enjoys a certain vogue. And, as the current crisis in Asia shows, even the most successful developing nations have yet to create the sort of institutional checks and balances necessary for stable integration into the world economy.

For now, however, as Yergin and Stanislaw see it, the market reigns supreme and governments will continue to transform themselves from “managers” of their economies into “referees.” But, they strongly caution in concluding, problems of fairness, national identity, and environmental degradation still lie ahead. The fortunes of statism may yet be restored.

The Commanding Heights brims with personality and incident, and covers the necessary history in a comprehensive and generally satisfactory way. But it is a far from elegant book. Jerking back and forth between eras and places and often repetitious, it moves with a clumsy gait. And though its details can at times be colorful and well chosen, more often they are simply formulaic.

More seriously, the book pauses only reluctantly to deal with ideas. Basic terms like “inflation” and “monetarism” are used as if self-defining, and more complex notions—“aggregate demand,” “public-choice theory,” “marginal cost pricing”—are given perfunctory treatment at best.

The chief exception in this regard concerns the work of Friedrich von Hayek, whom Yergin and Stanislaw rightly consider the leading thinker in the revolt against statism. Paired with Keynes, whose confidence in the efficacy of intervention is legendary, Hayek speaks in their account for the impossibility of giving intelligent direction to economic life from above. When government decision-making takes the place of the market, Hayek believed, resources are inevitably misallocated, innovation stifled, and economic growth brought to a standstill.

The problem with this presentation of Hayek’s views is that it scants their essential aspect, which is political and legal. As Yergin and Stanislaw would have it, the confrontation between market and state basically concerns information, that is, which side knows more. (“The problem of knowledge,” they say in summarizing Hayek’s critique, “defeats central control.”) For Hayek himself, however, the confrontation is still more concerned with questions of authority and coercion. The overriding reason state control of economies is “the road to serfdom” is that it vastly expands the opportunities for the governing class to serve its own narrow interests, acting outside the constraints of general and impartial rules.

Yergin and Stanislaw do make an occasional nod to this very real phenomenon. They tell us, for example, about the “capture” of American regulators by the industries they regulate, and, at the other extreme, about the “black Zil and Chaika limousines” of Soviet officials “roaring down the specially reserved central lanes on Moscow boulevards.” But such messily political matters are not fundamental to their account; they prefer to stick to the technical side of things.

This no doubt explains their strange insistence that, despite the experience of the last 50 years, the state may soon come roaring back to reclaim its place atop the commanding heights. With all due respect for the vagaries of history, that seems unlikely to happen. Whatever misfortunes may befall the newly liberalized economies of the world, far too many people have learned that political power, even when exercised in the name of public-spirited economic ends, corrupts in direct proportion to the ambition of its reach. It is difficult to imagine that the next turn of the economic wheel will shake so hard-earned a lesson.

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