Find out more about The Commanding Heights by Daniel Yergin, Joseph Stanislaw at Simon & Schuster. Read book reviews & excerpts, watch author videos. Daniel Yergin’s and Joseph Stanislaw’s The Commanding Heights Yergin is the Pulitzer-prize winning author of The Prize, the tale of the. Daniel Yergin, Joseph Stanislaw. The Commanding Heights: The Battle Between Government and the Marketplaces That Is Remaking the Modern World.
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Tags Big Government Interventionism. Yergon authors have produced a book that is fundamentally optimistic that markets will continue to be ueights driving force behind world events, and that price decision-making will eventually prevail over political decision-making.
From their experience analyzing interventionist forays into energy markets, they offer a compelling account of market expansionism and how the command economy lost its reputation.
While covering a broad philosophical spectrum, heigghts book irons over divisions within market theory, but it honors a core Austrian principle.
However, in the end, a lack of theoretical rigor, a thin presentation of intellectual history, and too many concessions to the values and priorities of the opponents of market freedom compromise their account.
Yergin is the Pulitzer-prize winning author of The Prize, the tale of the petroleum industry. Stanislaw is a Paris-based advisor to global companies, managing director of Cambridge Energy Research Associates.
The Commanding Heights: The Battle for the World Economy by Daniel Yergin
But over the last seventy years, the authors argue, the desire and ability of states to command these heights has shriveled. The great statist tide has turned during the course of complex interplay between government failures and market innovations. In the s, the push against command economies accelerated. In some cases, advocates of free enterprise simply landed unexpectedly in the command posts as if dropped behind enemy lines.
Margaret Thatcher, the central heroine of the book, was essentially a free-market rebel in her party and a radical in her country.
Even in other parts of the world, including Africa and Latin America where classical-liberal traditions yergih absent, the high ground was seized not for another group of compassionate thugs, but for privatization and freer markets. Parts of this book are quite powerful. The story of Deng Xiaoping is fascinating. Following the Chinese Revolution ofhe was sent to France for further schooling. There, he developed two lasting passions, croissants and communism. InDeng initiated an extraordinary set ehights reforms on practical grounds: In his challenge to the ideologically entrenched in his party, he suggested that they set up special leftist zones, with planning, rationing, travel restrictions, and a ban on foreign investment.
Though Deng started the undoing of Communist Party economic hegemony, the authors concede that it is far from clear how his legacy will play out.
Another feature of the book is the dozens of anecdotes connected with statist hubris. The most startling story comes not from the Soviet Union, as one might expect, but from India, and it concerns the Hindustan Fertilizer Plant built between and with public funds. Civil servants bought machinery from nine countries with financing from export credits. For a dozen years, twelve hundred employees clocked in every day. But during that time, the plant never produced any fertilizer for sale.
The machinery did not fit together; yet everyone pretended, for twelve years, that the plant was operating. It is vivid and captures the sense of isolation that market advocates felt in the early 70s.
It is amazing today to remember that a public figure could be easily demonized and shamed for introducing the basic lessons of Adam Smith and the insights of Hayek and Mises. Like the Chicago School, the Austrian contribution is measured by the actual influence on people close to politics. Mises is less softhearted and more hardheaded commandung socialist values than are Yergin and Stanislaw.
There are problems that cut too deeply, mortally wounding The Commanding Heights as the final word on the Great Turn. The first serious problem is the frequent reliance on conventional wisdom that turns out not to be true.
Did mixed economies deliver the goods, or is that an oversimplification that people believed, rightly or wrongly? Were laws passed to limit manipulation by robber barons, or was that mere perception the question itself smuggles hidden premises?
When the authors drift between describing social perception and explaining economic history, they raise ambiguities. The second problem is their basic framework, stressing that the world has moved from an era where it was believed commandinh markets fail, to one where it is more often believed that government fails. The main issue is failure. They use the term so generally that it pertains to either efficiency or equity concerns or both.
However, their conception of market success—never made explicit—resonates throughout their analysis. Commwnding believe, like many of the people who try to command the heights of the economy, that highly idealized competitive markets are the basis for analyzing real markets and for developing policies that will make real markets more like the ideal.
Yergin and Stanislaw are far more Chicagoan than Austrian, far less inclined to follow the Misesian insight that the starting point of market analysis is the implication of human cognition and action, not mathematics.
Perfect competition is the foundation of their false ideal of market success. This is a preposterous theory made pernicious by its practice.
There is no Wizard of Oz who has special market knowledge outside of those who are creating the market. The desire to grasp the levers and pulleys of the market to fix its allegedly inherent flaws is a gross pretense, almost always the expression of a desire for political discretion over economic outcomes. The standard of perfect competition and market success need not be met because it cannot be met.
In another flagrant confusion of social perception, government propaganda, and tiddlywinks economics, commnading suggest that the Securities and Exchange Commission SEC was set up in the wake of the Depression to make the capital market work better p. Is there a difference between restoring confidence and artificially inducing overconfidence? We never find out. Fundamentally, the SEC regulates business speech to make the market fair for the little guy.
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Infatuated by the idea that no one stockholder should know more than any other, the SEC for years prevented them from meeting together. Then it enforced vigorously laws against people who knew more the insiders than others the outsiders. It is immaterial to the SEC whether those insiders created that information. This agency made it a criminal act for a person who knows more than another to trade on that knowledge and make a profit. Thwarting efficiency in capital markets has its costs: Yergin and Stansilaw note that change accelerated during the s, but they do not even mention the farsighted and dominant agents of change: In the eighties, entrepreneurs discovered gross bureaucratic inefficiencies in large firms.
They found they could capture the value of underused assets by breaking apart diversified firms and consolidating lines of business. These entrepreneurs were unique in the world: Entrepreneurs concentrated financial power and employed information that they themselves created to contest the incumbent management.
Boone Pickens, using investment bank Drexel Burnham Lambert, could compete for the assets of a company by offering a stronger corporate vision. Whose side was the SEC on? It fought the perfectly legitimate activities of the capital markets, tooth and nail. Nearly every step of the way, the agency undermined the power of financial markets and promoted the increased bureaucratization of markets. Attorney Rudolph Giuliani and on the other by sundry state legislators beholden to corporations in their district.
While their rationale for penalizing Drexel was to keep the markets fair for the little guy, in fact, its laws were purely protectionist. In the end, people were put in jail Michael Milken and legitimate techniques vilified like hostile takeover arbitrage—Ivan Boesky because they violated the policy of perfect competition.
Milken and others made the market fall short of its false ideal, by tipping the playing field, by upsetting expectations, concentrating market power. In fact, Drexel, the most successful investment bank of the s, was punished for undermining establishment interests.
The third problem is their conception of the mixed economy, and where the most significant lines between market and government are drawn. Their account of financial market power is weak and leaves far too much of importance out of the picture.
Their oil monomania blinds them. In andpetroleum problems were certainly important and headline worthy. But the percent drop in the value of the stock market triggered huge changes in the way risks are managed in the private sector. That was a turning point in the shift from strong managerial discretion such as that found in the bureaucratic management of the large conglomerates to strong owners by the mids.
The rise in the power of financial markets is incomprehensible without an explanation of the takeover and restructuring movement in the United States. But, here again they miss an opportunity. They fail to apply those lessons fully to U. They adopt a very conventional posture: Their whole argument against state-corporatism seems to collapse at the end when they start sounding like former Labor Secretary Robert Reich.
Yergin and Stanislaw obsessed, as many others are, with the problems of income inequality. Indeed, that is one of their critical tests of the new, free economies: They take several potshots at financial analysts who look to see if quarterly requirements are met. Either they do not find serious problems with the idea of expanding stakeholder power or they think that it is simply a political reality to which we must adapt.
The expansion of stakeholder power is simply a decentralized welfare-state program and is no less pernicious than the centralized federal expansion of rights and entitlements. The fourth and last point is that they tell the story of the fight for economic freedom as bloodless. The fact is that some governments were not well-intentioned. In fact they were evil-intentioned. And where they were not explicitly venal, they were inspired by socialist values and it was those values that provided the bedrock of support for dictatorships all over the globe.
But not nearly as much as they suggest.
The Commanding Heights: The Battle for the World Economy
The willingness to believe in the ideal of socialism can explain the massive self-blinding of the twentieth century. The horrors of dictatorships were evident—anyone could understand them. When Keith Joseph made speeches to students in the seventies, he was perceived as a Don Quixote. Exasperated, lonely, he would ask those students which countries ran their affairs better than Britain. The answers he got: Cuba, China, and Yugoslavia. Such staggering evasions of reality need a better explanation than the story recounted by Yergin and Stansilaw.
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