The Commanding Heights Storyline provides a complete netcast of the six-hour television program as
originally broadcast -- in three two-hour episodes. Each episode is subdivided into chapters listed in the
chapter menu, together with links to additional related content on the site.
The version now being rebroadcast on PBS television, divided into six one-hour episodes, presents some
segments of the story in a different order.
Episode One:
The Battle of Ideas
A global economy, energized by technological change and unprecedented flows of people and
money, collapses in the wake of a terrorist attack .... The year is 1914.
Worldwide war results, exhausting the resources of the great powers and convincing many that the
economic system itself is to blame. From the ashes of the catastrophe, an intellectual and political
struggle ignites between the powers of government and the forces of the marketplace, each
determined to reinvent the world's economic order.
Two individuals emerge whose ideas, shaped by very different experiences, will inform this debate
and carry it forward. One is a brilliant, unconventional Englishman named John Maynard Keynes.
The other is an outspoken émigré from ravaged Austria, Friedrich von Hayek.
But a worldwide depression holds the capitalist nations in its grip. In opposition to both Keynes and
Hayek stand not only Hitler's Third Reich but Stalin's Soviet Union, schooled in the communist
ideologies of Marx and Lenin and bent on obliterating the capitalist system altogether.
For more than half a century the battle of ideas will rage. From the totalitarian socialist systems to
the fascist states, from the independent nations of the developing world to the mixed economies of
Europe, and the regulated capitalism of the United States, government planning will gradually take
over the commanding heights.
But in the 1970s, with Keynesian theory at its height and communism fully entrenched, economic
stagnation sets in on all sides. When a British grocer's daughter and a former Hollywood actor
become heads of state, they join forces around the ideas of Hayek, and new political and economic
policies begin to transform the world.
Episode Two:
The Agony of Reform
As the 1980s begin and the Cold War grinds on, the existing world order appears firmly in place. Yet
beneath the surface powerful currents are carving away at the economic foundations.
Western democracies still struggle with deficits and inflation, while communism hides the failure of
its command economy behind a facade of military might. In Latin America populist dictators strive
to thwart foreign economic exploitation, piling up debt and igniting hyperinflation in the process. In
India and Africa bureaucracies established to end poverty through scientific planning spawn black
markets and corruption and stifle enterprise.
Worldwide, the strategies of government planning are failing to produce their intended results. From
Bolivia and Peru to Poland and Russia, the free-market policies of Thatcher and Reagan are looked
to as a possible blueprint for escape. One by one, economies in crisis adopt "shock therapy" -- a
rapid conversion to free-market capitalism.
As the command economies totter and collapse, privatization transfers economic power back into
entrepreneurial hands, and whole societies go through wrenching change. For some the demands
and opportunities of the market provide a longed for liberation. Others, lacking the means to adapt,
see their security and livelihood swept away. In this new capitalist revolution enlightened enterprise
and cynical exploitation thrive alike. The sum total of global wealth expands, but its unequal
distribution increases, too, and economic regeneration exacts a high human price
Episode Three:
The New Rules of the Game
With communism discredited, more and more nations harness their fortunes to the global freemarket. China, Southeast Asia, India, Eastern Europe and Latin America all compete to attract the
developed world's investment capital, and tariff barriers fall. In the United States Republican and
Democratic administrations both embrace unfettered globalization over the objections of organized
labor.
But as new technology and ideas drive profound economic change, unforeseen events unfold. A
Mexican economic meltdown sends the Clinton administration scrambling. Internet-linked financial
markets, unrestricted capital flows, and floating currencies drive levels of speculative investment
that dwarf trade in actual goods and services. Fueled by electronic capital and a global workforce
ready to adapt, entrepreneurs create multinational corporations with valuations greater than entire
national economies.
When huge pension funds go hunting higher returns in emerging markets, enterprise flourishes
where poverty once ruled, but risk grows, too. In Thailand the huge reservoir of available capital
proves first a blessing, then a curse. Soon all Asia is engulfed in an economic crisis, and financial
contagion spreads throughout the world, until Wall Street itself is threatened. A single global market
is now the central economic reality. As the force of its effects is felt, popular unease grows. Is the
system just too complex to be controlled, or is it an insiders' game played at outsiders' expense?
New centers of opposition to globalization form and the debate turns violent over who will rewrite
the rules.
Yet prosperity continues to spread with the expansion of trade, even as the gulf widens further
between rich and poor. Imbalances too dangerous for the system to ignore now drive its
stakeholders to devise new means to include the dispossessed lest, once again, terrorism and war
destroy the stability of a deeply interconnected world.
Episode One: The Battle of Ideas
Chapters
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
1: Prologue [2:45]
2: The Old Order Fails [8:11]
3: Communism on the Heights [6:16]
4: A Capitalist Collapse [8:48]
5: Global Depression [5:26]
6: Worldwide War [7:00]
7: Planning the Peace [6:47]
8: Pilgrim Mountain [3:43]
9: Germany's Bold Move [4:11]
10: India's Way [3:51]
11: Chicago Against The Tide [7:32]
12: The Specter of Stagflation [6:34]
13.
14.
15.
16.
17.
18.
19.
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
13:
14:
15:
16:
17:
18:
19:
A Mixed Economy Flounders [8:36]
Deregulation Takes Off [7:29]
Thatcher Takes the Helm [3:50]
Reagan Rides In [8:17]
War in the South Atlantic [1:41]
The Heights Go Up for Sale [8:08]
The Battle Decided? [3:26]
Chapter 1: Prologue [2:45]
NARRATOR: As the 20th century drew to its close, and our
new century began, the battle over the world economy
intensified. Some people feared globalization and questioned
the benefits. Others welcomed it.
RICHARD CHENEY, U.S. Vice President: Millions of people a
day are better off than they would have been without those
trade developments, without globalization. And very few
people have been harmed by it.
NARRATOR: As the terrible events of September 11 drove the
world deeper into a recession, new questions emerged about
the perils of the new world economy. Can our now deeply
interconnected world surmount a global downturn and rise
above other crises? And is global terrorism the dark side of
the promise of globalization?
BILL CLINTON, U.S. President, 1993-2001: You can't get away
from the fact that globalization makes us interdependent. So
it's not an option to shed it. So is it going to be on balance
positive or negative?
NARRATOR: This is the story of how the new global economy
was born, a century-long battle as to which would control the
commanding heights of the world's economies -- governments
or markets; the story of intellectual combat over which
economic system would truly benefit mankind; the story of
epic political struggles to implant those ideas on the nations of
the world.
JEFFREY SACHS, Professor, Harvard University: Part of what
happened is a capitalist revolution at the end of the 20th
century. The market economy, the capitalist system, became
the only model for the vast majority of the world.
NARRATOR: This economic revolution has defined the wealth
and fate of nations and will determine the future of the planet.
DANIEL YERGIN, Author, Commanding Heights: This new
world economy is being driven by technological change and by
political change, but none of it would have happened without
a revolution in ideas.
NARRATOR: Tonight, the battle of ideas that still divides our
world.
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Chapter 2: The Old Order Fails [8:11]
NARRATOR: Air-raid sirens sound the alert. German bombers
will pound another British city tonight .
Onscreen title: Cambridge University, 1940
During the blitz, the two most important economists of the
age shared air-warden duty on the roof of King's College, an
English gentleman and an Austrian exile -- personal friends,
but intellectual rivals. How their battle of ideas still shapes our
life and society is our story.
John Maynard Keynes helped the allied governments defend
freedom by planning their wartime economies. Friedrich von
Hayek thought government interference in the economy was a
threat to freedom.
DANIEL YERGIN: The debate over market forces, whether you
have economy that's based upon prices or on state, planning
has been at the very heart of the economic battles of the last
100 years. For decades, the ideas of John Maynard Keynes
dominated the economies of the Western world.
JOSEPH STANISLAW, Co-Author, Commanding Heights:
Keynes felt that the market economy would go to excesses,
and when things were in difficulty the market wouldn't work.
Therefore the government had to step in. Hayek felt that the
market would eventually take care of itself.
DANIEL YERGIN: It was only when Hayek was a very old man
that his ideas began to prevail and the world began to change.
NARRATOR: At the start of the 20th century, Hayek and
Keynes had witnessed the first age of globalization. Every day
life was being transformed everywhere. Technologies like the
telegraph and the telephone revolutionized communications.
Steamships and railways made the world a smaller place.
Tens of millions migrated without the need for passports.
Keynes described this global market in which trade flowed
freely.
JOHN MAYNARD KEYNES: The inhabitant of London could
order by telephone, sipping his morning tea, the various
products of the whole earth, and reasonably expect their early
delivery upon his doorstep. Militarism and imperialism of racial
and cultural rivalries were little more than the amusements of
his daily newspaper. What an extraordinary episode in the
economic progress of man was that age which came to an end
in August 1914.
NARRATOR: Hayek summed it up more succinctly.
FRIEDRICH VON HAYEK: We did not realize how fragile our
civilization was.
NARRATOR: The murder of an Austrian archduke by a terrorist
triggered a world war. It would be almost 80 years before
there was once again a truly global economy.
World War I destroyed 20 million lives. It laid a whole
continent to waste. There was blood and carnage amidst the
beauty of the Italian Alps, where the armies of Austria and
Italy were fighting.
Friedrich von Hayek served in the Austrian artillery. He was
only 17 years old -- still a schoolboy. The fighting was
ferocious. He experienced retreat and defeat.
FRIEDRICH VON HAYEK: The decisive influence was really
World War I. It's bound to draw your attention to the
problems of political organization.
NARRATOR: He vowed to work for a better world.
DANIEL YERGIN: The first world war was a cataclysm. People
were disillusioned. People were bitter. They were looking for
something better. Socialism, communism seemed to promise
that better world.
Onscreen title: St. Petersburg, 1917
NARRATOR: By overthrowing the old order, the Russian
Revolution aimed to deliver that better world. Inspired by the
economic theories of Karl Marx, the Bolsheviks sought to
smash capitalism. Lenin, the revolution's leader, urged the
workers of the world to unite against the global economy. The
revolution made trade, commerce, and private property
criminal acts. Lenin promised to end the economic exploitation
of man by man.
Onscreen title: Cambridge University, 1918
The man who was destined to be Hayek's great intellectual
rival was a brilliant young academic at Cambridge University.
But John Maynard Keynes was much more than that. He
befriended writers and artists. One painted these murals for
him. He was also a familiar figure in the City of London, where
he made a fortune in the stock market, lost it all, and made it
back again.
Familiar with politicians and prime ministers, Keynes spent the
first world war advising the British government on how to
organize its wartime economy. At the end of the war, Keynes
joined the British peace delegation at Versailles in France. The
victorious allies wanted defeated Germany to pay the costs of
the war through what were called reparations.
ROBERT SKIDELSKY, Biographer of J.M. Keynes: All the
statesmen of Versailles could think about was how to squeeze
money out of an already bankrupt Germany.
GEOFFREY HARCOURT, Professor of Economics, Cambridge
University: Keynes felt the reparations were out of all
proportion to what an economy could really take and would
have very destructive social, political, and economic
consequences.
NARRATOR: Angry and disgusted, Keynes resigned. Back in
England, he went to stay with his friend, the painter Duncan
Grant. That summer, Grant painted Keynes writing his
prophetic book, The Economic Consequences of the Peace.
JOHN MAYNARD KEYNES: If we take the view that Germany
must be kept impoverished and her children starved and
crippled, vengeance, I dare predict, will not limp. Nothing can
delay that final war that will destroy the civilization and
progress of our generation.
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Chapter 3: Communism on the Heights [6:16]
Onscreen title: Vienna, 1919
NARRATOR: Austria had lost the war and its empire. Vienna
was a cold and hungry city. Revolution was in the air.
Socialists and Communists were winning the battle for hearts
and minds. Young and idealistic, Friedrich von Hayek enrolled
at the University of Vienna.
FRIEDRICH VON HAYEK: It was during the war that I more or
less decided to do economics. I really got hooked.
NARRATOR: Socialism seemed to promise a more just society.
Albert Zlabinger, a former pupil and disciple of Hayek:
ALBERT ZLABINGER, Economist and Pupil of Hayek: He openly
said that he at one time was a socialist of the mild sort, where
concerns for the poor and concerns for fairness and equity
would help to determine government policy.
NARRATOR: Much of Vienna's intellectual life took place
outside the university, in the coffeehouses across the
Ringstrasse. There were informal seminars for those who
loved discussion and argument. Hayek joined the circle of a
passionate libertarian called Ludwig von Mises. Von Mises
believed markets, like people, needed to be free from
government meddling.
ALBERT ZLABINGER: Ludwig von Mises was the preeminent
economist of the Austrian school. The distinguishing hallmark
of the Austrian school of economic thought is that markets
work and governments don't.
NARRATOR: Von Mises predicted that the new Soviet socialist
economy would never work, precisely because the
government controlled wages and prices.
DANIEL YERGIN: What von Mises said is that the great flaw of
socialism is that it doesn't have a functioning price system to
send all the signals to consumers and producers as to what
something is worth; that these prices are at the very heart of
what makes a functioning economy work.
You can think of them as traffic signals. And if you don't have
them, what you get is a system that doesn't work, or you get
chaos.
ALBERT ZLABINGER: Von Mises argued that free markets do it
best -- why fool with anything else?
Onscreen title: Moscow, 1922
NARRATOR: In Soviet Russia, it seemed as if von Mises's
predictions were coming true. Lenin had abolished what he
saw as the chaos of free markets. The state controlled the
economy. Wages and prices were fixed. But the great Marxist
experiment was in trouble. Lenin had an economic disaster on
his hands. Soviet Russia was a grim place, haunted by cold,
famine, hunger, and death.
DANIEL YERGIN: Lenin knew that he needed a different kind
of policy. and he instituted what would become known as the
New Economic Policy. Lenin says farmers can sell their own
goods and own their own land. He says that small businesses
can operate, and you start to get an economic revival. Well,
his comrades on the left attacked him viciously for selling out
the principles of Bolshevism and Marxism. And Lenin, who by
this time had already had a stroke and was not well,
nevertheless pulled himself up on the platform for one of the
very last times in his life, and he was still the old Lenin. He
was vitriolic; he was sarcastic. His critics, he said, were fools,
were stupid, because the state, the government, the
Bolsheviks would control the overall economy: steel, railroads,
coal, the heavy industries -- what he called the "commanding
heights" of the economy.
NARRATOR: Within a year Lenin was dead. The mourners at
Lenin's funeral believed that history was on their side, and in
less than 30 years, not only Russia, but Eastern Europe, China
-- more than a third of humanity -- would be living according
to the economic tenets of Marxist Leninism.
Lenin's successor would tighten the Communist Party's iron
grip on the commanding heights of the economy. Joseph
Stalin introduced central planning. Under him, the Communist
Party planned and managed every aspect of the economy.
While communism seemed to be forging ahead, capitalism
looked to be doomed.
back to top
Chapter 4: A Capitalist Collapse [8:48]
Onscreen title: Vienna, 1923
NARRATOR: Germany and Austria were living with the
economic consequences of the peace. Forced to pay
unbearable war reparations, the defeated governments simply
printed more money. The result: inflation, more inflation,
hyperinflation. It took a basket full of paper money to go
shopping.
KARL OTTO POHL, President, German Central Bank, 19801991: You saw people carrying their money on wheels
because you had to pay for a piece of bread billions of
reichmarks.
NARRATOR: Hayek, who was working at a statistical research
institute, needed 200 pay raises in eight months. Money was
cheaper than wallpaper. Million-mark notes lit stoves. Shoes
that cost 12 marks in 1913 sold for 32 trillion marks in 1923.
In Hitler's favorite beer keller, a glass of beer cost a billion
marks. Hyperinflation wiped out the savings of the middle
class.
KARL OTTO POHL: And that was one of the reasons for the
success of the Nazis, of Hitler. They got support from these
people who lost their fortunes.
NARRATOR: Hayek would always see inflation as an evil that
corroded society and undermined democracy. The fight
against inflation became a cornerstone of his economic
philosophy.
Onscreen title: New York, The Roaring 1920s
DANIEL YERGIN: During the 1920s, while Europe was
continuing to suffer the wounds of the first world war, in
American cities, at least, it was boom time. Americans were
spending money. They were dancing. They were partying.
They were buying cars. They were buying bathtub gin. And
they were buying stock -- lots of stock.
The stock market, the New York Stock Exchange, had become
a national pastime. The Americans couldn't get enough of it.
And the favorite stock of the day was in these new radio
companies. Radio was like the Internet of the 1920s, an
industry that had come from nowhere. And the number one
glamour stock was RCA, which in just a few years went from a
dollar and a half a share to $600 a share. Americans couldn't
get enough of it.
NARRATOR: It was a classic stock market bubble. Then, on
Black Thursday, October 24, 1929, the bubble burst. Prices
plunged. The downward spiral proved unstoppable. Eight
hours after the market had closed, the tickertape machines
were still tapping out the bad news. The stock market crash
started America's slide into despair.
SPENCER ECCLES, Salt Lake City Banker: During the '30s
here, it was a complete and utter collapse from the people's
point of view. It was despair. As values and prices spiraled
ever onward, downward, it left them with no ability to earn,
no ability to repay, no ability to spend, no ability to consume.
Everything went down. The farm implement seller, the
clothing store, the merchant -- everything spiraled downward,
and of course with it went the banks.
NARRATOR: People panicked. They rushed to withdraw their
hard-earned savings.
KENNETH RANDALL, Chairman of the Federal Deposit
Insurance Corporation, 1964-1970: A run on a bank means
lines through the lobby and out the front door and down
around the block, people waiting day and night to get up to
see if they could withdraw their cash.
NARRATOR: The millions that could not lost everything.
KENNETH RANDALL: If you look at the period of time from '29
on, about half the banks in the United States closed.
NARRATOR: The government failed to halt the downward
spiral. In fact, it made things worse.
NEWSREEL NARRATOR: Private construction virtually ceases.
Mills and factories shut down. Railroads come to a virtual
standstill. Millions of Americans -- men, women, children -wait in the cold on bread lines, in soup kitchens. Three million
Americans are ex-wage earners, unemployed, and the ranks
of the unemployed are to soar to 15 million.
Onscreen title: Europe, 1931
NARRATOR: Banks collapsed. Industry ground to a stop.
Millions were out of work. In Britain, working men, many of
them war veterans, marched the length of the country to
petition the government for the simple "right to work." In
Italy, Spain, and Germany, they marched to a different drum.
With the failure of capitalism, fascism cast its shadow ever
wider. John Maynard Keynes saw his nightmare coming true.
In Cambridge, Keynes set out to save capitalism from itself by
writing a book about what caused the Great Depression and
what to do about it. He aimed to rewrite the rules of
economics, to see a country's economy as a whole, as a
machine that could be managed.
ROBERT SKIDELSKY: Keynes was the real inventor of
macroeconomics. Concepts we take for granted today, like
gross domestic product, the level of unemployment, the rate
of inflation, all to do with general features of the economy,
were invented by him.
GEOFFREY HARCOURT: He was writing a book which he
thought would revolutionize the way we thought about
economic systems. It would also give us the means to make
sure they operated better.
ROBERT SKIDELSKY: It was written against the background of
not only the collapse of the world economy, but the potential
collapse of democratic government. Hitler became chancellor
of Germany in 1933. Democracy seemed to be losing ground,
and with democracy, the system of liberty. So Keynes had to
produce an answer to the Great Depression, or democracy
would be swamped by totalitarianism.
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Chapter 5: Global Depression [5:26]
Onscreen title: Washington, D.C., 1933
NARRATOR: The new American president, Franklin Delano
Roosevelt, was staring economic disaster in the face. His wife,
Eleanor, described Inauguration Day as "very solemn, and a
little terrifying."
FRANKLIN DELANO ROOSEVELT, U.S. President: This great
nation will endure as it has endured, will revive and will
prosper. I shall ask the Congress for the one remaining
instrument to meet the crisis: broad executive power.
NARRATOR: Roosevelt's voice of confidence rallied the nation.
He then embarked on a whirlwind program of reform.
DANIEL YERGIN: For Roosevelt and the New Deal, it was a
war. They were at war with the Great Depression, and they
responded with frenetic activity, relief programs for the
unemployed, for the hungry; programs to get people back to
work. They built dams and highways and national parks. At
the same time they instituted a program of regulating
capitalism in a way that had never been done before, in order
to protect people from what they saw as the recklessness of
the unfettered market.
NARRATOR: Privately, Roosevelt feared the market system
had failed, so he created an entire alphabet of new agencies
to regulate banks, the stock market, capitalism itself. New
headquarters built for the Interstate Commerce Commission
celebrated government regulation, which reined in market
forces and curbed capitalism. Under the New Deal, industry
became subject to a host of new rules and regulations.
DANIEL YERGIN: And the airline industry was a very good
example of that. You had people go into this business, be very
competitive, they'd go bankrupt. New people would come in,
they would go bankrupt. It was very unstable, so the New
Deal stepped in and said, "We're going to stabilize this
industry. We're going to set the prices that you can charge for
tickets. We're going to tell you what routes you can fly." And
with that system they eliminated these very vicious cycles of
boom and bust in the aviation industry, and in a sense, that
was what they were aiming to do throughout the American
economy.
Onscreen title: Cambridge University, 1936
NARRATOR: In 1936 John Maynard Keynes finally published
his General Theory, a brilliant analysis of how to fight the
Depression. By showing governments that it was possible to
manage their economies, Keynes made himself the most
influential economist of the age.
ROBERT SKIDELSKY: Keynes's solution to unemployment was
for the government to spend the money to restore and
maintain full employment.
NARRATOR: Governments, said Keynes, should spend against
the wind. In good times they should reduce their spending
and build surpluses; in bad times, like the Great Depression,
they should step up spending, run deficits, and put purchasing
power into the hands of working people.
ROBERT SKIDELSKY: He gave people hope that
unemployment could be cured without concentration camps.
NARRATOR: Harvard University became an intellectual
bridgehead for Keynes in America. John Kenneth Galbraith
was one of Keynes's leading apostles.
JOHN KENNETH GALBRAITH, Professor Emeritus, Harvard
University: I've said many times I think had something,
maybe quite a bit, to do with bringing Keynes across the
Atlantic. I came back to find a whole group of people here
who had also read The General Theory, and this was a breath
of hope and optimism.
NARRATOR: Keynes's ideas trickled down from Harvard to
Washington, turning the federal government's conventional
economic policies upside down.
JOHN KENNETH GALBRAITH: You resisted conservative
finance, borrowed money, and hired people across the
country, rescuing them from unemployment. That was the
basic essential -- and that you didn't worry about
accumulating debt, or, more precisely, you worried about it,
but did it anyway.
NARRATOR: Keynes's ideas began to gain ground.
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Chapter 6: Worldwide War [7:00]
Onscreen title: World War II, 1941
NARRATOR: It took a world war for Keynesianism to become
government policy. As the U.S. government borrowed money
and pumped it into the war effort, high unemployment ended,
and the Depression disappeared.
NEWSREEL NARRATOR: ... men and women to make the
uniforms; machinists to make the guns and ammunition; auto
workers to produce the jeeps and trucks, to build the ships
and tanks; civilian soldiers to turn out the fighters, the
bombers.
NARRATOR: In charge of wartime wage and price controls,
John Kenneth Galbraith saw the economy rebound.
JOHN KENNETH GALBRAITH: One could not have had a better
demonstration of the Keynesian ideas, and I think it's fair to
say that as a young Keynesian in Washington, in touch with
the other Keynesians there, we all saw that very clearly at the
time.
NARRATOR: In a radio broadcast, Keynes expressed his hope
that what worked in war would work in peace.
JOHN MAYNARD KEYNES: If expenditure on armaments really
does cure unemployment, a grand experiment has begun.
Good may come out of evil. We may learn a trick or two which
will come in useful when the day of peace comes.
Onscreen title: London, 1944
NARRATOR: Now teaching at the London School of Economics,
Hayek feared that Keynes's brave new world was a big step in
the wrong direction. He attacked the growing consensus by
writing The Road to Serfdom. Sarcastically dedicated to
"socialists of all parties," it was a popular success. There was
even a cartoon version of it.
Its message was simple and direct: Too much government
planning means too much government power, and too much
government power over the economy destroys freedom and
makes men slaves. For Hayek, central planning was the first
step to a totalitarian state.
GEOFFREY HARCOURT: Well, Hayek thought that since
freedom was an absolute, you must let a competitive system
just work itself out. And if at times that meant there was
considerable unemployment, well, that's what you had to put
up with
ROBERT SKIDELSKY: Hayek always rejected macroeconomics.
He rejected any government intervention during the Great
Depression itself, whereas Keynes was an activist. He said in
the long run we're all dead, and in the long run if we allow
things to go on without remedy, we get lots of Hitlers, lots of
wars, and lots of Stalins. And who was right?
NARRATOR: Most people would have agreed with Keynes
when he wrote this to Hayek.
JOHN MAYNARD KEYNES: What we want is not no planning, or
even less planning. We almost certainly want more.
NARRATOR: In the battle of ideas, Hayek was on the losing
side.
FRIEDRICH VON HAYEK: I had a fairly good reputation as an
economic theorist in 1944 when I published The Road to
Serfdom, and it was treated even by the academic community
very largely as a malicious effort by a reactionary to destroy
high ideals.
Onscreen title: New Hampshire, 1944
NARRATOR: With the world at war, Keynes traveled to Bretton
Woods and a grand resort hotel. Here, delegates gathered
from all over the world to organize the postwar economy.
The Bretton Woods Conference created the World Bank and
the International Monetary Fund. They were designed to bring
stability to the world economy and prevent the unemployment
and the depression of 1930s.
Keynes's idealism and humanity were an inspiration.
JOHN MAYNARD KEYNES: There has never been such a farreaching proposal on so great a scale to provide employment
in the present and increase productivity in the future. And I
doubt if the world understands how big a thing we are
bringing to birth.
NARRATOR: Keynes did not have long to live. Ill and
overworked, his health gave way, but his reputation and
influence outlived him.
FRIEDRICH VON HAYEK: When Keynes died, Keynes and I
were the best known economists. Then two things happened.
Keynes died and was raised to sainthood, and I discredited
myself by publishing The Road to Serfdom. And that changed
the situation completely. And for the following 30 years, it was
only Keynes who counted, and I was gradually almost
forgotten.
Onscreen title: V-E Day, 1945
NARRATOR: The war was over, and the troops came marching
home.
The final summit conference of the three wartime allies took
place in a palace in the Berlin suburb of Potsdam. Truman,
Churchill, and Stalin came to plan the peace and to redraw the
map of Europe. Their different economic systems offered
alternative paths to prosperity. But the Great Depression
continued to cast its long shadow.
JEFFREY SACHS: There's no doubt that at the end of World
War II there was a tremendous loss of faith in the market
economy. You had a feeling in large parts of the world, "We
don't want to go that way. We want to go a better way."
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Chapter 7: Planning the Peace [6:47]
Onscreen title: Britain, 1945
NARRATOR: In Britain, the troops were coming home to a
general election.
TONY BENN, Labor Candidate, 1945: Well, I came back in a
troop ship in the summer of 1945, and I was a pilot in the
Royal Air Force, and I was picked as a 19-year-old to be the
Labor candidate. All these soldiers said, "Never again. We're
never going back to unemployment, the Great Depression, to
fascism, to rearmament. We want to build a new society."
NARRATOR: During the dark war years, Britain had been
governed by a coalition of conservatives and socialists.
Winston Churchill, the great wartime leader and head of the
Conservative Party, expected an easy victory. Everywhere he
went, huge crowds turned out to cheer the nation's hero.
Heading the campaign against Churchill was Clement Attlee,
leader of the Labor Party. Attlee argued that Britain had
planned the war, and now planning would win the peace.
BARBARA CASTLE, Labor MP, 1945-1979: We knew that our
people would never have withstood the bombardments and
the loss of life and the hardship if they hadn't been confident
that their government was operating a policy of fair shares.
We set out to ensure that this system of fair shares and the
planning and controls continued after the war.
NARRATOR: Churchill, who was influenced by Hayek's book
The Road to Serfdom, opposed planning and controls.
WINSTON CHURCHILL: No socialist system can be established
without a political police, some form of Gestapo.
RALPH HARRIS, Institute of Economic Affairs, 1957-1987: He
got carried away with this Gestapo. And this, of course, was
carrying things to absurdity -- Gestapo in Britain!
NARRATOR: Attlee, a mild-mannered Christian Socialist, gave
Churchill's gaffe a sinister spin.
RALPH HARRIS: Attlee actually went out of his way to refer to
this foreign professor with this august [name], Friedrich
August von Hayek -- this foreign chap with a slightly German
accent.
NARRATOR: Britain went to the polls. The result was
sensational.
BBC RADIO NEWS: Here is the state of the parties up to 3:00,
in detail: Conservatives 180, Labor 364.
NARRATOR: Churchill was out. The people had voted for a
new socialist Britain.
BARBARA CASTLE: The Labor Party swept to power simply
because the vast majority of people, particularly those men
and women in the fighting forces who'd lived through the
dreadful Depression years of the '30s, just said, "Churchill's
done a fine job of war leader, but we don't trust him to win
the peace."
CLEMENT ATTLEE: What kind of society do you want?
NARRATOR: Attlee promised his party that they would build a
new Jerusalem.
CLEMENT ATTLEE: Let's go forward into this fight in the spirit
of William Blake: "I will not cease from mental fight, nor shall
the sword sleep in my hand, till we have built Jerusalem in
England's green and pleasant land."
NARRATOR: William Blake's hymn "Jerusalem" became an
anthem for the Labor movement.
BARBARA CASTLE: You know, it seemed to people who'd been
through a war, it seemed to them natural justice. Why not
pool your resources? And so we broke into the concept of the
sacredness of private property.
NARRATOR: When Labor took power, private owners were
compelled to sell their businesses. Labor created a "mixed
economy" in which newly nationalized industries coexisted
with private enterprise. Now government-owned industries
like coal, rail, and steel no longer enriched owners and
shareholders, but worked for the common good.
TONY BENN: So it was an act of regeneration, of renewal.
That was the hope, and it was the hope that gave us the
welfare state, gave us the National Health Service, gave us
full employment, gave us trade union rights, really rebuilt the
country from the bottom up.
NARRATOR: The welfare state provided care, free of charge,
"from womb to tomb." Nobody, rich or poor, would need to
fear poverty, ignorance, unemployment, ill health, or old age.
TONY BENN: And people said, "This is better than allowing a
lot of gamblers to run the world, where they're not interested
in us, but only in profit."
NARRATOR: Russia ended the war as a military and industrial
giant. With the Red Army and the Secret Police, Stalin
imposed his economic system on half of Europe.
JEFFREY SACHS: The planned economy of Lenin and Stalin
had defeated fascism. Scientific socialism seemed to be in the
ascendancy.
NARRATOR: Socialism was on the march; capitalism and free
markets were on the retreat.
JEFFREY SACHS: So about one-third of the world adopted
socialism, sometimes to internal revolution, sometimes to
brutal imposition by the Red Army.
NARRATOR: The world was divided. The Cold War had begun.
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Chapter 8: Pilgrim Mountain [3:43]
Onscreen title: Switzerland, 1947
NARRATOR: Hayek loved mountains. He said they breathed
freedom. But he saw socialist ideals and the planned economy
as threats to freedom, and so he organized a conference at a
formerly fashionable hotel on the top of Mont Pelerin -- Pilgrim
Mountain.
RALPH HARRIS: Well, what happened in 1947 was that Hayek
at last brought off a great dream, which was to assemble 36,
mostly economists, some historians, and a few journalists, a
handful of what he regarded as survivors, good eggs, good
intellectuals, who understood the market economy and the
whole of the case.
MILTON FRIEDMAN, Professor Emeritus, University of
Chicago: This was Hayek's belief and the belief of other people
who joined him there, that freedom was in serious danger.
NARRATOR: One of the delegates was a young economist
from Chicago, Milton Friedman.
MILTON FRIEDMAN: The point of the meeting was very clear.
Hayek and others felt that the world was turning toward
planning and that somehow we had to develop an intellectual
current that would offset that movement.
NARRATOR: They met downstairs in the cocktail bar. The
room and its furniture are not much changed.
RALPH HARRIS: The whole world was shadowed by the Iron
Curtain, the Russian threat, by the failure to establish
democracies in the Eastern European countries and by the
prevalence everywhere intellectually of these ideas of
collectivism arising from the war. The argument always was
that democracy is impossible without a free economy. You
need a free economy; free economy is a necessary though not
a sufficient condition for democracy.
NARRATOR: The debates were passionate. At one point,
Hayek's former mentor, Ludwig von Mises, stormed out of a
meeting.
MILTON FRIEDMAN: In the middle of a debate on the subject
of distribution of income, in which you had people who you
would hardly call socialist or egalitarian, people like myself,
Mises got up and said, "You're all a bunch of socialists," and
walked right out of the room. (laughs)
NARRATOR: But Hayek told the meeting that they had one
great lesson to learn from the socialists.
RALPH HARRIS: Hayek paid enormous tribute to the socialist
intellectuals and said that the great strength of the socialists
is that they had the courage, he said, to be idealistic; to have
a theory, to have a project, to have a vision, and to go on
working towards that, through thick and thin.
NARRATOR: As the meeting came to an end, Hayek predicted
a long fight, a battle of ideas that might last 20 years or
more, before the world changed its mind. In the meantime,
Hayek could see only one gleam of light.
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Chapter 9: Germany's Bold Move [4:11]
Onscreen title: Berlin, 1947
NARRATOR: The war left Germany in ruins. Its economy had
disintegrated. Markets had broken down. Shops were empty.
Already the Russians occupied East Germany and were
waiting for the rest to fall into their lap. In the American and
British occupation zones, raging hyperinflation had made the
German currency worthless.
In the winter of 1948, the Allies appointed as director of
economic affairs a rotund, cigar-chomping economist named
Ludwig Erhard. A staunch anti-Nazi, Erhard was a free-market
economist who shared many of Hayek's beliefs and ideas. He
also believed the Allies' economic rules were making a bad
situation worse.
MILTON FRIEDMAN: The occupying authorities had imposed a
system under which there were extensive wage and price
controls, supposedly to control inflation, but of course wage
and price controls never control inflation. And you had
essentially an economy that was brought to a halt.
ALFRED BOSCH, Economist and Friend of Hayek: In this
situation the black markets formed, and American cigarettes
were its form of currency.
MILTON FRIEDMAN: Nobody smoked cigarettes. They were for
small transactions. Cognac was a medium of circulation for
large transactions.
NARRATOR: The Allies introduced a new currency, the
Deutsche Mark, to replace the worthless German money. But
for Erhard, that was not enough. So without informing the
Allies, Erhard went on the radio and made a startling
announcement.
KARL OTTO POHL: Ludwig Erhard, a legendary man, he
decided, without asking anybody and against the will of the
American occupation powers, he decided to give up all price
controls.
NARRATOR: Next day, Gen. Lucius Clay, the man in charge of
occupied Germany, demanded to know what Erhard thought
he was doing.
ALFRED BOSCH: Clay said, "What have you done? You have
changed the Allied price controls." Erhard replied, "Herr
General, I haven't changed them; I've abolished them." And
Clay said, "My advisors tell me it is a big mistake." Erhard
replied, "Herr General, my advisors tell me the same thing."
NARRATOR: Overnight the black market disappeared. People
stopped hoarding, and goods not seen for 10 years went on
sale.
MILTON FRIEDMAN: It started the markets working, with free
prices. Instead of nothing being in the windows of the shops,
everything started to come up. And that began the German
economic miracle.
NARRATOR: Germany's "social market economy" combined
free markets with a strong welfare state. Within a few years,
Germany's social market economy overtook Britain's more
planned economy.
But back then, nobody wanted to model themselves on
Germany. Most countries preferred to plan their economies.
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Chapter 10: India's Way [3:51]
Onscreen title: New Delhi, 1947
NARRATOR: India, the jewel in the crown of the British
Empire, the very symbol of imperialism, celebrated its
freedom. Mahatma Gandhi was the father of independence.
His economic ideal was a simple India of self-sufficient
villages. Pandhit Nehru, the first prime minister, wanted to
industrialize and combine British parliamentary democracy
with Soviet-style central planning.
JAIRAM RAMESH, Senior Economic Advisor to India's Congress
Party, 1991-1998: In the 1950s India was the Mecca of all
economists. You talk of any economist in the world, and they
were advising the Indian government. And the advice was,
you must have a state-led model of industrial growth; the
public sector must occupy what came to be called the
commanding heights of the economy. And that's why steel,
coal, machine tools, capital goods, all the areas of heavy
industry were in the public sector and not in the private
sector.
NARRATOR: Nehru put his faith in technology.
MANMOHAN SINGH, Minister of Finance, 1991-1996: Nehru
was a rational thinker, and he wanted to apply science and
technologies to solve the great mass poverty that prevailed at
the time of independence.
NARRATOR: Under Nehru, central planning became a form of
science.
MEGHNAD DESAI, Professor, London School of Economics:
Nehru was always recruiting intellectuals in India on his side
in the cause of planning. And there was this genius
statistician, Mahalanobis, who was head of the Indian
Statistical Institute.
NARRATOR: Nehru asked Mahalanobis to think about how to
plan an economy. The brilliant Mahalanobis succeeded in
expressing the entire Indian economy in a single
mathematical formula.
VOICE OF MAHALANOBIS: Let YT equal national income, CT
equal consumption, and KT equal investment at time, open
bracket, open bracket, one plus lambda K beta K, closed
bracket, minus one, are fractions of investment allocated to
industries producing capital goods; that is K sector and
consumer goods at C sector, respectively.
NARRATOR: People believed this perfect mathematical model
could be applied in a less-than-perfect world.
MEGHNAD DESAI: And at that time, Mahalanobis's model was
hailed as one of the pioneering mathematical models for
planning a mixed economy. And that made Mahalanobis very
influential.
NARRATOR: India became the model of economic
development for newly independent nations. Across the
developing world, socialism, planning, government control,
regulation, and ownership -- these became the gospel. All
over Africa, people looked to socialism to lead them out of
poverty. Across South America, governments chose state
control as the way to modernize. The apparent success of
communist countries like the Soviet Union and China seemed
to show the way.
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Chapter 11: Chicago Against The Tide [7:32]
Onscreen title: Chicago, 1950
NARRATOR: By 1950, Hayek's market economics were so
completely out of fashion that when he sought a full-time
academic job in the United States, only one university was
willing to hire him.
SAM PELTZMAN, Professor, University of Chicago: Chicago has
always been an exceptional place, out of the mainstream.
Chicago is geographically isolated. This affects Chicago's
intellectual influence in many more areas than economics.
NARRATOR: The University of Chicago's intellectual influence
would grow. Eight professors and another 11 economists from
Chicago went on to win Nobel Prizes. Gary Becker is one of
them.
GARY BECKER, Professor of Economics, University of Chicago:
When I came as a graduate student to Chicago 1951, I was
flabbergasted by how stimulating the atmosphere was. I had
been a very good student at Princeton. My first day in
Friedman's class he raised a question. I answered. He said,
"That's no answer; that's just rephrasing the question." That
was the example of how blunt people were.
MILTON FRIEDMAN: Nobody was very polite. People were
interested in ideas and argument and not in making sure you
didn't ruffle anybody's feathers.
ARNOLD HARBERGER, Professor Emeritus, University of
Chicago: If you're sitting in a seminar room and somebody up
there is saying something which if imbibed by your students
who are sitting in that same room is going to lead them
astray, it's up to you to call that guy right now and not later,
and that, I think, is sort of the spirit that prevailed in the
Chicago workshop system. There wasn't that much fighting in
the lunches. They were pretty cordial. (laughs)
NARRATOR: Lunches at the Quadrangle Club were famous for
the intensity of intellectual discussion. And one man came to
dominate those debates.
GEORGE SHULTZ, Dean of the Chicago Graduate School of
Business, 1962 - 1968: Somehow Milton managed to set the
agenda of argument, and so there was a saying, "Everybody
loves to argue with Milton, particularly when he isn't there,"
because he's a good arguer.
NARRATOR: Milton Friedman was becoming the most
articulate spokesman for the so-called Chicago School of
economics.
MILTON FRIEDMAN: The Chicago School meant a strong belief
in minimal government and an emphasis on free market as a
way to control the economy.
LAWRENCE SUMMERS, President, Harvard University: You
know, in many ways Milton Friedman was a devil figure in my
youth in our household of Keynesian economists because he
seemed, with his emphasis on individualism, freedom, and
markets, to be so unconcerned with fairness.
NARRATOR: Liberals may have loathed the Chicago School,
but Hayek felt on home ground in an intellectual atmosphere
so like the Vienna of his youth.
ARNOLD HARBERGER: Our vision is that the forces of the
market are just that: They are forces; they are like the wind
and the tides. If you want to try to ignore them, you ignore
them at your peril. If you find a way of ordering your life
which harnesses these forces to the benefit of society, that's
the way to go.
NARRATOR: But in Washington, Keynes was still king of the
hill. Nineteen years after he died, his face was on the cover of
Time magazine.
SAM PELTZMAN: Keynes's influence on economics at midcentury can't be exaggerated. The economic advice that
economists gave to policymakers said the only reason you
have bad economic outcomes is because the government's not
doing enough. It sounds almost like central planning, doesn't
it?
NARRATOR: Washington's Keynesians saw the economy not
as a force of nature but a sophisticated machine to be finetuned by technocrats like themselves. The Keynesian
consensus was summed up when that most Ivy League of
presidents, John Kennedy, received an honorary degree from
Yale.
JOHN FITZGERALD KENNEDY, U.S. President, 1961-1963: It
might be said now that I have the best of both worlds -- a
Harvard education and a Yale degree.
NARRATOR: For JFK, Keynes had won the argument. The
battle of ideas was over.
JOHN FITZGERALD KENNEDY: What is at stake in our
economic decisions today is not some grand warfare of rival
ideology which will sweep the country with passion, but the
practical management of a modern economy. What we need is
not labels and clichés, but more basic discussion of the
sophisticated and technical questions involved in keeping a
great economic machinery moving ahead.
NARRATOR: Kennedy's council of economic advisors had
drafted his speech along Keynesian lines.
ROBERT SOLOW, Professor Emeritus, Massachusetts Institute
of Technology: We thought it was a great day when Kennedy
decided to give that speech at Yale and to talk about
economic policy. That speech suggested that we had won over
Kennedy. We had won the heart and mind of the president.
NARRATOR: For what came to be known as the "Thirty
Glorious Years," Keynesian economics had been delivering the
goods. Europe, Japan, and America all saw high economic
growth and rising standards of living. People enjoyed a
prosperity undreamed of at the end of the war.
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Chapter 12: The Specter of Stagflation [6:34]
Onscreen title: Austria, 1970
NARRATOR: When Hayek moved back to his native Austria, he
was depressed. The success of mixed economies made his
free-market theories, and Hayek himself, seem more
irrelevant than ever.
LAURENCE HAYEK, Hayek's Son: The world was very much a
socialist world. His ideas were not fashionable. Nobody
seemed to listen to him. Nobody seemed to agree with him.
He was alone.
NARRATOR: Hayek found his ideas shunned by the academic
world.
FRIEDRICH VON HAYEK (interviewed in 1978): Most of the
departments came to dislike me, so much so that I can feel it
to the present day, [and] economists very largely tend to
treat me as an outsider.
NARRATOR: He was living in a provincial town and stuck in a
rut. But the outside world was beginning to change. Skimming
the newspaper in his usual restaurant, Hayek read how
inflation and unemployment were rising at the same time.
There was a new word to describe it: "stagflation."
Onscreen title: USA, 1971
NARRATOR: After 30 glorious years of growth, the American
economy was in trouble.
GEORGE SHULTZ: The economy basically was kind of going
nowhere and had inflation, which didn't seem to get cured -kind of a malaise in the economy.
MILTON FRIEDMAN: Stagflation was the end of naive
Keynesianism. You had two things at the same time, which
under the Keynesian view would have been impossible. You
had stagnation in the economy, high level of unemployment.
You had inflation, with prices rising rapidly.
NARRATOR: President Nixon looked like a Chicago economist's
dream come true. Milton Friedman was a special advisor, and
George Shultz was in charge of the budget.
GEORGE SHULTZ: So I think going back to your comment
about the wholesale price index a moment ago, one of the
areas where prices were going up very rapidly was lumber
and other materials associated with home-building.
NARRATOR: But the president wasn't listening. He tried to
spend his way out of trouble. To add insult to injury, he
declared, "Now I am a Keynesian."
DANIEL YERGIN: This declaration by Nixon horrified his
conservative supporters. Indeed, one congressman wrote to
him and said, "Mr. President, I'm going to have to burn all of
my old speeches." Nixon wrote back and said, "I will, too."
NARRATOR: Nixon decided he hadn't gone far enough, so he
took his top economic advisors off to Camp David for a
working weekend. Ben Stein, the quiz-show host, was a junior
speechwriter in the White House, and his father was at the
meeting.
BEN STEIN, Host, Win Ben Stein's Money: Here's my father,
walking into the president's cabin to meet Mr. Nixon, and
there's George Shultz right behind him. I'm not sure, but I
think it's a fair bet that at any one of these meetings they're
complaining about something being wrong, probably talking
about prices and stagflation. I'm not sure.
NARRATOR: Dick Cheney was a young aide at the time.
RICHARD CHENEY: I always remember the debate we had
during the Nixon administration when the public was
convinced that food prices were going up. So the political
debate was whether or not we should impose a freeze on food
prices.
NARRATOR: The supposedly conservative Republican Nixon
opted for wage and price controls.
BEN STEIN: Nixon was a great one for doing something, I
think in retrospect we now know that it would have been
better to do nothing, but he was in favor of doing something.
GEORGE SHULTZ: I was there, and I opposed them. Wage
and price controls, you could see analytically, would get you in
a lot of trouble.
RICHARD NIXON, U.S. President, 1969-1974: The time has
come for a new economic policy for the United States. Its
targets are unemployment, inflation.
RICHARD CHENEY: At one point President Nixon spoke up and
quoted Nikita Khrushchev, and he said, "Khrushchev once told
me that sometimes in order to be a statesman, you have to
be a politician for a while."
MILTON FRIEDMAN: The problem with him was that he was
willing to sacrifice principles too easily for political advantage.
NARRATOR: The voters liked the president's war on prices.
Nixon was reelected in a landslide. The economy did less well.
DANIEL YERGIN: Right away the economy went out of whack.
People couldn't cover their costs. Ranchers stopped sending
cattle to market; farmers started drowning their chickens.
Instead of controlling inflation, they were creating shortages.
NARRATOR: And prices just kept on rising.
MILTON FRIEDMAN: The last time I saw Nixon in the Oval
Office, with George Shultz, President Nixon said to me, "Don't
blame George for this silly business of wage and price
control," meaning George Shultz. And I said to him, "Oh, no,
Mr. President, I don't blame George; I blame you!"
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Chapter 13: A Mixed Economy Flounders [8:36]
Onscreen title: London, 1973
NARRATOR: Britain's mixed economy, so widely imitated, was
in similar trouble. It, too, was facing the deadly combination
of unemployment and inflation. In theory, the Conservative
prime minister Ted Heath and his Cabinet believed in markets.
In practice, like Nixon, they made a sharp U-turn and used
wage and price controls to combat stagflation.
KENNETH BAKER, Conservative Minister, 1981-1992: I was a
junior minister in Ted Heath's government, and I remember
having to attend meetings with three or four other ministers
where we would actually decide the level of charges plumbers
would charge next week to repair taps and how much taxi
drivers could charge for fares and how much hairdressers
should get in wages. It was absolutely unbelievable. It all
came to a very sticky end, a complete collapse.
NARRATOR: A coal miners' strike and an oil crisis plunged the
country into darkness. Voters blamed Ted Heath and voted
the Conservatives out of office.
SHOP MANAGER: Well, we're virtually out of business while
the power's off. We've got no sets that we can operate at all.
DAVID YOUNG, Conservative Minister, 1984-1989: We were
the sick man of Europe, and the English disease was the
disease of strikes, which we had all over the place. And you
know, it was so bad that Herman Kahn of the Hudson Institute
wrote a book called The Year 2000, and he saw many things,
but the one thing he did see was that the lowest standard of
living in Europe in the year 2000 would be shared between
Albania and the United Kingdom. Albania!
NARRATOR: A minister in the defeated government, Keith
Joseph may have been an unworldly intellectual, but his
search for fresh answers would change the way not only
Britain but the world thought about economics and society.
KENNETH BAKER: Keith wore a hair shirt, he beat his breast,
and said we were to blame; we've got it wrong. And he did
beat his breast. He was called a Mad Monk.
KEITH JOSEPH (interviewed in 1975): I thought I was a
Conservative. I thought I was a Conservative, but all the time
I was in favor of... I was in favor of shortcuts to Utopia. I was
in favor of the government doing things, because I was so
impatient for good things to be done.
KENNETH BAKER: And when he appeared on television, he
had a vein in his head which kept throbbing, and people said,
"Oh, you know, this is a very strange figure indeed, this man."
But nonetheless, he started to rethink the Conservative policy.
NARRATOR: Keith Joseph's search brought him here, where,
with Hayek's encouragement, a group of kindred spirits had
set up a think tank called the Institute of Economic Affairs.
RALPH HARRIS: The institute started in 1957, you could say
the direct result of the Mont Pelerin Society, of The Road to
Serfdom, of Hayek's ideas of freedom and competitive
enterprise.
NARRATOR: With the zeal of a convert, Joseph began to
preach the virtues of free markets. In a series of pamphlets,
he went on the intellectual offensive, attacking the mixed
economy, making the case for capitalism.
Mark Garnett is a biographer of Keith Joseph.
MARK GARNETT, Biographer of Keith Joseph: From the middle
of 1974 Joseph undertakes a crusade to convert the country
to his way of thinking, and what he wants to do is take the
battle to the heart of the enemy camp, and he believed that
the universities were infected with socialist thinking.
KEITH JOSEPH: Because there was a free society in this
country....
CECIL PARKINSON, Conservative Minister, 1981-1983, 19871989: And he was going right into the lions' den, arguing a
case that many people had never heard before.
MARK GARNETT: Joseph felt that it was his duty to fight back
on behalf of the free market.
NARRATOR: To revive the economy, Joseph preached that
Britain needed more risk-taking, which meant more bankrupts
and more millionaires, and less equality.
CECIL PARKINSON: The audience would sort of gasp. They'd
never heard anybody challenging the consensus.
KEITH JOSEPH: Mild inflation seemed a painless way of
maintaining full employment, encouraging growth, and
expanding the social services. So the result is that we're now
more socialist in many ways than any other developed country
outside the Communist bloc.
RALPH HARRIS: He used to be smuggled in the back door. He
was genuinely hurt that the students had reacted to this
penetrating argument by chucking flour bombs at him.
MARK GARNETT: It was almost a badge of honor that he
would come away from these meetings with egg yolk running
down his suit.
NARRATOR: Keith Joseph's most significant adherent was an
up-and-coming Conservative politician named Margaret
Thatcher. In Parliament and politics, Thatcher's closest friends
agree that Keith Joseph's influence on her was crucial.
NIGEL VINSON, Institute of Economic Affairs: She relied on
him to give her deep intellectual support. There's nothing
wrong with intuition. Intuition is reason in a hurry, and Keith
just supported and reinforced her intuition. At the very
moment, she needed that support.
NARRATOR: Margaret Thatcher had a gut instinct for market
economics. Her father had been a grocer, and when she was a
girl, she had helped him in the shop. Hardworking and
studious, she won a place at Oxford University, where she
became interested in student politics.
While she was at Oxford, she read Hayek's Road to Serfdom.
It made a lasting impression on her. Years later, when she
became the first woman to lead the Conservative Party, she
once slammed Hayek's book down on a table and announced,
"This is what we believe."
RALPH HARRIS: (laughs) Thatcher's office came on and said
could she come and drop in to see him. And so she called by,
and there was a period of unaccustomed silence from
Margaret Thatcher as she sat there, intense, attending to the
master's words.
NARRATOR: By 1974, Hayek sensed the world beginning to go
his way.
FRIEDRICH VON HAYEK (interviewed in 1978): As for the
movement of intellectual opinion is concerned, it is now for
the first time in my life moving in the right direction.
Onscreen title: Stockholm, 1974
NARRATOR: In the battle of ideas, 1974 was a turning point.
Hayek's Nobel Prize came as a surprise, but the balance was
now shifting away from Keynes and towards Hayek.
FRIEDRICH VON HAYEK: I like to say when I was a young
man, only the very old men still believed in the free-market
system. When I was in my middle ages I myself and nobody
else believed in it. And now I have the pleasure of having
lived long enough to see that the young people again believe
in it. And that is a very important change.
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Chapter 14: Deregulation Takes Off [7:29]
Onscreen title: Chicago, 1974
NARRATOR: The U.S. economy was going through the worst
downturn since the Great Depression. Industry slowed.
Unemployment rose. The Yom Kippur War was followed by an
Arab oil embargo. Americans waited in gas lines. And the price
of everything kept rising.
Chicago School economists had always argued that rigid
government regulations were keeping prices high and fueling
inflation. Now more people began to wonder if competition
could break the inflationary stranglehold.
SAM PELTZMAN: What is the effect of regulating the airlines?
What is the effect of regulating the trucking industry? And
what is the effect of regulating the railroad industry? Very
often, it raises prices. Instead of allowing competition, it
suppresses competition.
Onscreen title: Washington, D.C., 1974
NARRATOR: In the airline industry, the host of regulations
enacted during the Great Depression were still in force. It was
a classic example of regulated capitalism. But deregulation
was in the air.
Stephen Breyer, now a Supreme Court justice, then a Harvard
professor, was asked by liberal Democratic senator Ted
Kennedy to head a Senate investigation of airline regulations.
STEPHEN BREYER, U.S. Supreme Court Justice: You
discovered that basically the same firms that had been there
in 1938 were still there. Those were the major carriers and
nobody new.
NARRATOR: The hearings began, and officials from the Civil
Aeronautics Board were called to testify.
STEPHEN BREYER: And it turned out that 5 percent of their
time went to stop prices that were too high and 95 percent of
their time went to stop prices that were too low, but always
the effort was to keep the price high and not low.
NARRATOR: Naturally, the established airlines were quite
happy with this arrangement.
STEPHEN BREYER: And we'd say, "When was the last time you
granted a new route? Well?"
NARRATOR: Regulations meant that major carriers like Pan
Am never had to compete with newcomers. But some cutprice charter flight operators wanted to break this club.
Leading the struggle against Pan Am over its profitable transAtlantic flights was an exuberant Englishman called Freddie
Laker.
FREDDY LAKER: I'm Freddy Laker. I own Laker Airways, and
I'm dedicated to low-cost air travel. With Laker you can fly
round trip to the USA or Canada in one of our wide-bodied
DC-10s for less than half the price of a normal economy
ticket. Look, I've got to give you a better deal -- I've got my
name on every plane.
STEPHEN BREYER: The Transportation Department said that
this may hurt Pan Am. And Freddy Laker testified and said,
"The cause of this whole thing is 'Panamania.'" So we said,
"What is that?" And he said, "Well, everybody should do
everything for Pan Am."
NARRATOR: The man who was to sweep away airline
regulations is a lifelong Gilbert and Sullivan fan. Improbably
enough, the bearded poet is played by Fred Kahn, a professor
at Cornell University.
Kahn wanted a leaner, meaner regulatory environment in
which the market was free to chase profits without the dead
weight of bloated government. Democratic president Jimmy
Carter made Kahn head of the Civil Aeronautics Board. Kahn
had spent years studying government regulation; now he had
a chance to do something about it.
ALFRED KAHN, Civil Aeronautics Board, 1977-1978: When I
got to the Civil Aeronauts Board, the biggest division under
me was the division of enforcement -- in effect, FBI agents
who would go around and seek out secret discounts and then
impose fines. We would discipline them. It was illegal to
compete in price. That means it was illegal to compete in the
discounts you offer travel agents. So we regulated travel
agents' discounts. Internationally, since they couldn't cut
rates, they competed by having more and more sumptuous
meals. We actually regulated the size of sandwiches.
NARRATOR: By the time Kahn had finished, the C.A.B. had
nothing left to do but close itself down.
SPOKESMAN FOR THE CIVIL AERONAUTICS BOARD:
Competition is the rule, and because of it, the consumers are
better served than ever.
NARRATOR: Airline deregulation led to painful turbulence as
new carriers came and went. Like her father, Judith Hamill
works in the airline industry.
JUDITH HAMILL, Administrator, Chicago O'Hare Airport: My
dad was a jet mechanic with Braniff. At the age of 59 he found
that his skills were no longer desirable or needed. When
Braniff came back because of the duty to hire, he came back
at half the salary that he had made before. When you live by
the rules and then the rules change, it's sad.
NARRATOR: But 20 years later, the industry was employing
two times as many people to fly almost three times as many
passengers.
STEPHEN BREYER: The industry vastly underestimated the
demand for airfares at lower prices, and what's happened is
that as the prices went down, demand went up dramatically.
ALFRED KAHN: And once they were free to compete, you
began to get super-saver fares and super-apex fares and
potato fares and peanuts fares -- an explosion of discounting
and competition. Well, those were dramatic.
NARRATOR: The stage was set for deregulation of the U.S.
economy, and now these ideas were about to make their
entrance in the very homeland of Gilbert and Sullivan.
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Chapter 15: Thatcher Takes the Helm [3:50]
Onscreen title: Britain, 1979
WORKER: Well, 5 percent's no good to nobody, is it?
INTERVIEWER: Do you think you can win this strike?
WORKER: Yes, I do.
NARRATOR: They called it the Winter of Discontent. It seemed
as if everyone was on strike.
MAN: I think it stinks, like all the other damn strikes in this
country run by the filthy Socialist Communist unions.
NARRATOR: The garbage men were out. So were the
ambulances. And if you died, the gravediggers were out, too.
NARRATOR: With the economy in apparently terminal decline,
the people voted for a new Conservative government headed
by Margaret Thatcher.
LAURENCE HAYEK : Margaret Thatcher was elected prime
minister on the day of my father's birthday, so he sent her
this telegram from Freiburg: "Thank you for the best present
to my 80th birthday that anyone could have given me." A few
days later she wrote back from 10 Downing Street: "Dear
Professor Hayek, I am very proud to have learned so much
from you over the past few years. I am determined that we
should succeed. If we do so, your contribution to our ultimate
victory will have been immense. Yours sincerely, Margaret
Thatcher."
MARGARET THATCHER: And I'll strive unceasingly to try to
fulfill the trust and confidence that the British people have
placed in me and the things in which I believe.
NARRATOR: Determined, and some said strident, she would
revolutionize the economy.
MARGARET THATCHER (interviewed in 1993): The spirit of
enterprise had been sat upon for years by socialism, by toohigh taxes, by too-high regulation, by too-public expenditure.
The philosophy was nationalization, centralization, control,
regulation. Now this had to end.
NARRATOR: Thatcher squeezed government spending and cut
subsidies to business. Thousands of bankruptcies and higher
unemployment followed. Many saw her as uncaring. Britain
had rarely been so divided.
CROWD OF PROTESTERS: Maggie, Maggie, Maggie. Out, out,
out!
NARRATOR: Thatcher had no time for conventional, Keynesian
economists who urged her to use government money to
lessen the pain.
MARGARET THATCHER: Although 364 economists wrote to the
Times and said, "This is outrageous; you'll put us into a deep
depression from a recession," 364 were wrong, and the half
dozen who supported us were right.
And those who urge us to relax the squeeze, to spend yet
more money indiscriminately in the belief that we'll help the
unemployed and the small businessman, are not being kind or
compassionate or caring. I have only one thing to say: U-turn
if you want to. The lady's not for turning.
NARRATOR: In Britain, the battle lines were drawn. In
America, the fight was already under way.
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Chapter 16: Reagan Rides In [8:17]
Onscreen title: USA, 1979
NARRATOR: Things were at a low in the United States.
President Carter spoke of malaise and loss of confidence in
the country. Revolution in Iran had led to a second oil shock
and Americans held hostage in Tehran. Despite the beginning
of deregulation, inflation was still at record heights. Carter's
attempts to follow Keynes's formula and spend his way out of
trouble were going nowhere.
LARRY LINDSEY, Assistant to the President for Economic
Policy: Jimmy Carter was maybe the high point of Keynesian
behavior. And it simply was not working.
GEORGE SHULTZ: Toward the end of the Carter
administration, with inflation out of control, Paul Volcker was
made chairman of the Federal Reserve. He understood the
problems.
JIMMY CARTER: I'm grateful to Paul Volcker for being willing
now to accept the oath of office and the responsibilities of the
Federal Reserve system of our country. Paul?
NARRATOR: Paul Volcker was steeped in the ideas of Austrian
school economics.
PAUL VOLCKER, Federal Reserve Board, 1979-1987: It's
obvious to all of you from what's been said today that we're
face to face with really unique economic difficulties.
NARRATOR: Volcker believed that inflation was one of the
worst of all economic evils.
PAUL VOLCKER: It came to be considered part of Keynesian
doctrine that a little bit of inflation is a good thing. And of
course what happens then, you get a little bit of inflation, then
you need a little more, because it peps up the economy.
People get used to it, and it loses its effectiveness. Like an
antibiotic, you need a new one; you need a new one. Well, I
certainly thought that inflation was a dragon that was eating
at our innards, so the need was to slay that dragon.
NARRATOR: Volcker used a blunt weapon: He tightened the
money supply. The economy went into a nosedive. Facing a
presidential election, Carter was reluctant to back such harsh
measures.
Carter's rival was the Republican Ronald Reagan. Reagan
shared the same economic philosophy as Margaret Thatcher.
For over 20 years, he had been campaigning against the
Keynesian orthodoxy and for Hayek and Friedman's ideas of
free markets and freedom.
NEWT GINGRICH, Speaker, U.S. House of Representatives,
1995-1999: Reagan knew Hayek personally; he knew Milton
Friedman personally. And Reagan was, in a sense, their
popularizer. So he was the person who would take these
people who were very profound but not very easy to
communicate. I don't think you'd ever get Hayek on the Today
show, but you could get Reagan explaining the core of Hayek
with better examples and in more understandable language.
RONALD REAGAN, U.S. President, 1981-1989: Vote for me, if
you believe in yourself, if you believe in your right to control
your own destiny and plan your own life, yes, and have a say
in the spending of your own money.
The president is going to have more government on the backs
of the people and of business and of industry, the working
people, in order to try to solve the problems that were created
by too much government on our backs.
We can get government off our backs, out of our pockets. This
kind of indifference to economic disaster must be ended, and
it'll be ended by having a different kind of leadership.
NARRATOR: The American people voted for change, and
Reagan became president.
MILTON FRIEDMAN: The situation was this: The only way you
could get the inflation down was by having monetary
contraction. There was no way you could do that without
having a temporary recession.
GEORGE SHULTZ: Obviously, who wants a recession? But I
can remember President Reagan using those famous words:
"If not now, when? If not us, who?"
NARRATOR: Reagan offered Volcker his moral support in the
fight against inflation. As Volcker tightened the money supply,
the economy slowed and contracted. Unemployment hit 10
percent. Nobody had realized quite how tough it would be.
All across the heartland of America, ordinary people were
hurting.
DARREN SMITH, Farmer: Well, the interest rates, that just
eats up your profit. It becomes very difficult to keep your
business running right. Nineteen eighties, the interest rates
were up to 20 percent or better. It was very interesting times.
I remember, you know, cash flows got very tight as things got
tighter and tougher. Creditors forced sales -- you know,
"Come up with the cash or we're going to have to liquidate
you." It's a hole that almost seems impossible that you can
get out of.
PAUL VOLCKER: If you had told me in August of 1979 that
interest rates, the prime rate would get to 21.5 percent, I
probably would have crawled into a hole. I would have
crawled into a hole and cried, I suppose. But then we lived
through it. (laughs)
NARRATOR: It had taken three years -- three years of
growing public anger, three years of real hardship for millions
of Americans. But by 1982, the dragon of inflation had been
slain.
PAUL VOLCKER: What changed drastically in the 1980s and
running through today is the kind of presumption that inflation
is bad. The primary job of a central bank is to prevent
inflation. That's a very different environment than the '50s
and '60s.
ANNOUNCER: Ladies and gentlemen, the president of the
United States.
NARRATOR: Reagan and Volcker had set the United States on
a new economic course.
RONALD REAGAN: From our very first day, we have been
working to undo the economic wreckage they left behind.
NARRATOR: They called his policy Reaganomics. It had four
key elements.
LARRY LINDSEY: The first was the concept of sound money.
The second was deregulation. The third was modest tax rates.
And the fourth was limited government spending. Sounds
pretty conventional now, but when Reagan was elected, he
was vilified by his opponents as being some radical extremist.
RONALD REAGAN: They just can't accept that their discredited
policies of tax and tax, spend and spend, are at the root of
our current problems.
NARRATOR: Reagan's tax cuts, the biggest in history, led to
huge deficits. But the economy started to grow steadily again.
MILTON FRIEDMAN: There's no doubt in my mind that those
actions of Reagan, lowering tax rates, plus his emphasis on
deregulating unleashed the basic constructive forces of the
free market, and from 1983 on, it's been almost entirely up.
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Chapter 17: War in the South Atlantic [1:41]
Onscreen title: Atlantic Ocean, 1982
NARRATOR: Far away in the South Atlantic, a British
expeditionary force was at sea. Argentina had seized the
Falkland Islands from Britain. Margaret Thatcher risked a war
to make the islands British once again.
Before the war her popularity was at rock bottom. Victory in
the Falklands ensured the survival of Margaret Thatcher's
government.
CHARLES POWELL, Thatcher's Foreign Affairs Advisor, 19831991: The Falklands saved her. The Falklands gave her a new
lease on life to implement the policies on which she had
embarked which were not yet producing results. In effect, she
gambled all on the Falklands, and she won decisively. And
that of course not only greatly bolstered her standing within
the Tory Party, it bolstered her standing in the country, and it
greatly enhanced her reputation internationally.
NARRATOR: The Falklands War set her up politically to fight
the final battle for the soul of the British economy. The impact
would be worldwide.
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Chapter 18: The Heights Go Up for Sale [8:08]
NARRATOR: In 1945, Attlee's Labor government had
nationalized the commanding heights of the economy,
bringing core industries into state ownership. For
Thatcherites, these state industries were now the primary
target.
JOHN REDWOOD, Head of Prime Minister's Policy Unit, 19831985: A whole lot of people who were left of center thought
that nationalization was Britain's great gift to the world, and
one of my phrases at the time was that having exported the
disaster of nationalization to the world, Britain should offer
them the antidote; it was the decent thing to do, to say we're
very sorry, it didn't work.
MARGARET THATCHER (interviewed in 1993): So the whole
efficiency of nationalized industries was running down. Why
should they be efficient? They had access to the Treasury
purse.
NARRATOR: Thatcher wanted to end their dependence on
government subsidies and submit them to the discipline of the
marketplace.
JOHN REDWOOD: The nationalized industries fell to pieces.
They lost huge sums of money; they put the prices up
massively and still weren't able to make a profit. They were
bleeding the nation dry, the taxpayer dry, and they weren't
doing a good job for their customers.
NARRATOR: The coal mines and the miners' union became
Thatcher's biggest challenge.
JOSEPH STANISLAW: The coal miners represented the last
bastion of the socialist mindset in the UK. One of the
singularly most important economic/political events for the
world economic system was Margaret Thatcher's government
confrontation with the miners.
MARGARET THATCHER: We were quite clear: Uneconomic pits
must close. You could not go on pouring money into
uneconomic pits. It was taxpayers' money.
CECIL PARKINSON: If you look at our coal industry, the coal is
very deep in the earth; it is hugely expensive to get out.
NARRATOR: Seventy-five percent of Britain's coal mines were
losing money. It took government subsidies of $3 billion a
year to keep them going. But these statistics were seen as
irrelevant by men like Ken Capstick, one of the radical
Socialists who led the miners' union.
KEN CAPSTICK, National Union of Miners: What they would
say was that in America, for instance, coal produced at the pit
head was cheaper than coal produced at the pit head here.
NARRATOR: The union leaders argued that the government
subsidies were money well spent if they kept 180,000 miners
at work and able to feed their families.
KEN CAPSTICK: Miners used to say -- and I can remember
them saying it -- "While ever I've got these I'll always have a
job."
NARRATOR: It was a historic grudge match. Both sides knew
the miners had brought down Ted Heath's Conservative
government 10 years earlier. The fiery Marxist who led the
National Union of Miners said no mine should be closed until
the coal ran out.
ARTHUR SCARGILL: Reaffirm the unanimous decision of March
the eighth to declare official in accordance with Rule 41 the
strike action.
The issue before our members is very clear. They either
accept the policies of the Coal Board and the government,
which will result in the loss of 70,000 jobs, or alternatively,
they stand on their feet like men. They fight -- defend the
jobs, defend their pits, and defend their dignity.
NARRATOR: The strike was an epic clash of values which
symbolized the wider battle of ideas: socialist against
capitalist, free market against state ownership. And it was a
question of power: Who ruled Britain?
Illegal mass picketing outside working mines led to violent
clashes with the police.
KEN CAPSTICK: It was the next thing to, you know, to a war.
We were faced with an enemy, and that enemy was out to
destroy our livelihoods, out to destroy our pits, out to destroy
our communities and what our communities stood for. Miners
and their families had a set of values that I don't think
Margaret Thatcher could understand, values of socialism and
Christianity. The two things went hand in hand in many ways.
NARRATOR: For more than a year the miners held out, until
internal rifts and the desire of many to return to work brought
the walkout to an end.
MARGARET THATCHER (interviewed in 1993): And then
suddenly it collapsed, the strike, and the most powerful union
with the most militant leader had failed.
NARRATOR: Britain has changed. Today, less than 3,000 work
in the mines.
KEN CAPSTICK: I feel devastated by what I see. Grimethorpe
had considerable reserves of coal when it was closed, plenty
of work for those miners to continue to do to keep their
families. You can see the wasteland; you can see the social
deprivation that it caused. The children that are coming along
-- no prospects, no future; people despairing because they
can't find employment and the dignity that employment
brings. It's the market forces gone mad.
MARGARET THATCHER: The political consequences of the
failure of the strike were incalculable.
GORDON BROWN, Labor Finance Minister: The coal-mining
strike of the early 1980s was a tragedy for so many of the
mining families that were involved in it.
NARRATOR: Perhaps the greatest political impact was on the
Labor Party that had all along opposed Thatcher's free-market
policies.
GORDON BROWN: I came into politics as someone who lived
in an area which was an old mining community. The problem
for the left in the past was that they equated the public
interest with public ownership and public regulation, and
therefore they assumed that markets were not therefore in
the public interest. What we have had to explain both to
ourselves and to the country -- and now I believe it's possible
to explain this to the rest of the world as well -- is that
markets are in the public interest.
DANIEL YERGIN: One of the most important things that the
government of Margaret Thatcher does is invent this thing
called privatization; that is, taking these state-owned
companies, these nationalized industries, and selling shares to
the public.
NARRATOR: One by one the Thatcher government put the
commanding heights of the British economy up for sale:
electricity, telephones, oil, gas, coal, steel, trains, and planes
-- even water. Before long, two-thirds of the state-owned
industries were removed from government control and sold off
into the private sector. Who should control the commanding
heights -- governments or markets -- in Britain? That battle
was over.
back to top
Chapter 19: The Battle Decided? [3:26]
JOSEPH STANISLAW: What Margaret Thatcher did in Britain
and the principles that she introduced were imitated
worldwide -- Asia, Latin America, even in Africa and to some
degree in the Middle East.
JEFFREY SACHS: The tide had surely swung. The thinkers that
had kept alive the ideas of markets did play their role at that
moment.
NARRATOR: In his lifetime, Hayek saw fascism rise and fall,
communism come and go, and the end of his years in the
intellectual wilderness.
NEWT GINGRICH: Here was a man who had intellectually
changed the world without really ever leaving the university.
It was the power of his books, the power of his ideas as then
captured by Ronald Reagan and Margaret Thatcher that had
changed things.
GEORGE SHULTZ: You had in Reagan and Thatcher at the
same time two, what I call, idea politicians. They had ideas
they were convinced were the right ideas, and they put them
into effect.
MILTON FRIEDMAN: The coincidence of Thatcher and Reagan
having been in office at the same time was enormously
important for the public acceptance worldwide of a different
approach to economic and monetary policy.
LAWRENCE SUMMERS: The old debates were about what the
role of the market was, what was the role of the state. I think
it's now generally appreciated that it's the market that
harnesses people's initiative best. And the real focus of
progressive thinking is not how to oppose and suppress
market forces but how to use market forces to achieve
progressive objectives.
SAM PELTZMAN: If you look at the whole of the 20th century,
there's been a huge cycle. Less government was the
orthodoxy at the beginning of the 20th century, more
government clearly was the orthodoxy for the middle part of
the 20th century, and now the later part, going into the new
millennium, we're back to where we were practically at the
start of the century. And you have to give folks like Hayek,
Friedman, and then later Reagan and Thatcher their due for
pushing all of this along.
MARGARET THATCHER: I remember the foreign minister and
finance minister from another country saying to me: "You're
the first prime minister who's ever tried to roll back the
frontiers of socialism. We want to know what's going to
happen, because if you succeed, others will follow."
NARRATOR: Within 10 years, governments everywhere would
retreat from the commanding heights of their economies. In
the battle of ideas, the pendulum had swung from
government to market, from Keynes to Hayek. Only time
would tell what people would ask of their governments in the
event of a new recession, or a depression, or a war.
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Episode Two: The Agony of Reform
Chapters
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Chapter
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1: Prologue [3:49]
2: The Ghosts of Norilsk [4:27]
3: Behind the Iron Façade [8:18]
4: India's Permit Raj [3:04]
5: Latin American Dependencia [2:03]
6: Counterrevolution in Chile [3:30]
7: Chicago Boys and Pinochet [8:16]
8: Heresy in the USSR [8:08]
9: Poland's Solidarity [7:32]
10: Bolivia at the Brink [7:07]
11: Shock Therapy Applied [4:48]
12: The Miracle Year [6:57]
13: Poland in Transition [2:39]
14: Gorbachev Tries China [7:17]
15: Soviet Free Fall [4:52]
16: Reform Goes Awry [4:26]
17: India Escapes Collapse [3:16]
18: Russia Tries to Privatize [5:33]
19: Property Becomes Theft [6:18]
20: Closing the Deal [3:50]
21: A Decade of Radical Change [7:38]
Chapter 1: Prologue [3:49]
NARRATOR: The terrible events of September 11 showed how
a whole world might be driven deeper into recession.
Argentina's economic meltdown has raised new fears about
the perils of the interconnected global economy.
BILL CLINTON, U.S. President, 1993-2001: You can't get
away from the fact that globalization makes us
interdependent, so it's not an option to shed it. So is it going
to be, on balance, positive or negative?
NARRATOR: This is the story of how the new global economy
was born.
For much of the 20th century, people blamed free-market
capitalism for the ills of inflation, recession, depression, and
mass unemployment. So governments everywhere sought to
curb market forces and rein in their economies. The first to
change direction were Ronald Reagan in America and
Margaret Thatcher in Britain.
In the 1980s, markets were deregulated. State-owned
industries were privatized. It was the start of a world
revolution.
JEFFREY SACHS, Professor, Harvard University: Part of what
happened is a capitalist revolution. At the end of the 20th
century, the market economy, the capitalist system, became
the only model for the vast majority of the world.
NARRATOR: The world changed its mind. In the Soviet Union
and its satellites, in the emerging markets of Asia, and in the
state-dominated economies of Latin America, governments
everywhere moved away from state control and towards free
markets.
DANIEL YERGIN, Author, Commanding Heights: This freemarket revolution has really led to the new global economy. It
excites some and terrifies others.
NARRATOR: That revolution was wrenching. Tonight on
Commanding Heights: The Agony of Reform.
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Chapter 2: The Ghosts of Norilsk [4:27]
NARRATOR: Much of the world once modeled itself on the
Soviet Union. Here, Lenin's revolution industrialized a
backward country within a single generation. The Soviet
system, ruthless and centrally planned, gave birth to vast
industrial complexes like Norilsk.
DANIEL YERGIN: Norilsk symbolized every stage of Soviet
economic history, from the original prison camp and the
beginnings of Soviet industrialization right up to the collapse
of the economy in the 1990s. So much of its history had been
tied up with the fact that it was a prison camp. Even in the
early 1950s, 100,000 political prisoners were working in its
mines and factories.
NARRATOR: Millions rode the slow train to the prison camps.
Vassily Romashkin's crime against the state was to check out
the wrong book from the public library.
VASSILY ROMASHKIN, Former Political Prisoner: They sent
me over to Norilsk after the trial. The trial lasted about 10
minutes. My wife and I said our good-byes.
NARRATOR: The prisoners' slave labor became a crucial
component of the Soviet economy.
VASSILY ROMASHKIN: When they took us to work, they'd
say, "Attention, you enemies of the people. A step to the left
or to the right, and we will shoot you without warning." A chill
went up my spine, and I thought, "You are the enemies of the
people."
NARRATOR: The Soviet system of central planning meant that
the Kremlin controlled every aspect of the economy. The aim
was to make the Soviet Union strong and self-sufficient. The
Soviet Union became an industrial giant, a military
superpower, and a threat to the West.
GEORGE SHULTZ, U.S. Secretary of State, 1982-1989: Russia
looked very formidable. The essence of Soviet power was its
ballistic missiles. They could wipe out any country in the world
in 30 minutes' time. So that's a lot of power.
MARGARET THATCHER, British Prime Minister, 1979-1990:
Communism was gaining the world over, gaining by its main
methods, military threat from military might.
CHARLES POWELL, British Foreign Affairs Advisor, 1983-1991:
We all thought the Soviet Union was still a vast powerful
economy, a huge military power, a threat to world peace,
determined to extend its influence around the world.
NARRATOR: Soviet influence was everywhere in Eastern
Europe, in Africa, and Latin America. Socialism, planning,
state control, government ownership -- these became the
gospel. In Asia, the apparent success of communist China
seemed to show the way.
But the truth about the Soviet economy lay concealed behind
the "Iron Curtain."
back to top
Chapter 3: Behind the Iron Façade [8:18]
Onscreen title: The Iron Curtain
NARRATOR: Minefields, barbed wire, searchlights, and lookout
towers sealed the Soviet bloc off from the outside world.
In the 1980s British intelligence recruited a Russian double
agent to penetrate this wall of secrecy. But Soviet
intelligence, the KGB, became suspicious and put him under
house arrest.
News reached London that its top spy was in mortal danger.
Charles Powell was foreign policy advisor to Prime Minister
Margaret Thatcher.
CHARLES POWELL: The news of the intention to spring him
came to me in Downing Street. I couldn't tell anyone else
because no one else knew about it.
NARRATOR: It was so sensitive that Powell needed the prime
minister's personal approval to activate an escape plan.
CHARLES POWELL: Oleg Gordievsky was perhaps the most
valuable agent, because he understood the Soviet system
from inside.
NARRATOR: In Moscow, the net was closing in on Oleg
Gordievsky.
OLEG GORDIEVSKY, KGB Defector: At that time I decided to
use my secret longstanding plan of escape. I sent a signal to
the British intelligence.
NARRATOR: Gordievsky evaded his KGB watchers and made
his way to a forest near the Finnish border.
OLEG GORDIEVSKY: In the morning, I started to move toward
the site in the woods, and there I waited. I waited for the
arrival of car, driven by two British people who picked me up,
put me in the boat, and drove to the border. It was a very
small car, a very small boat.
On the border, we started to stop. One stop. Second stop.
Third stop.
NARRATOR: They were approaching the moment of maximum
danger.
OLEG GORDIEVSKY: The KGB and Soviet customs checks of
the cars. I heard the voices. I heard even the KGB dogs
barking. And to my great luck, it went without any accident.
NARRATOR: But one of the British agents, a woman, threw
the guard dogs off the scent by feeding them potato chips.
Three days later, Gordievsky was in London and the
debriefings began.
OLEG GORDIEVSKY: When I was a British agent inside the
KGB, the British intelligence service didn't have time to ask
me about economy, because they were interested about
strategic problems. The arms-control questions were so
overwhelming, the West neglected the important foundation
of the argument: the economy.
NARRATOR: Gordievsky told his British spymasters that the
Soviet Union was under great pressure, devoting more than a
third of its entire economy to military spending.
OLEG GORDIEVSKY: And the analyst said no, I can't put such
a huge figure down because nobody would believe it. Later,
economists realized that the Soviet Union had been spending
at least 50 percent on the military.
CHARLES POWELL: Gordievsky's information was shared with
President Reagan and the Americans, and he was able to
play, behind the scenes, a role of extraordinary influence.
NARRATOR: Thanks to Gordievsky's intelligence, Western
leaders realized that Soviet military might rested on a
crumbling economy.
OLEG GORDIEVSKY: The Communist administration reported
that the economy was growing. It was not the case. The
economy started to go down all the time, and the deficit was
covered only with the help of the oil prices. And the extra
money made it possible to claim that they were successful.
And they were deceiving the world.
NARRATOR: Soviet satellites circled the world, and nuclear
submarines prowled the oceans. But after seven decades of
communism, the real story of the Soviet economy was one of
empty shelves and a standard of living that was a fraction of
Western Europe's.
GRIGORY YAVLINSKY, Economic Reformer: Soviet economy
was neither nor. It was not a Stalinist economy anymore, but
it was not a market economy, so it was no water, no fire. It
was a mess.
NARRATOR: An independent-minded young economist,
Grigory Yavlinsky, wrote a report on why workers in state
mines were so unproductive.
GRIGORY YAVLINSKY: The people don't want to work. The
people have no incentives. The economy inside which the
people have no incentives have no future. So you can do two
things: Take a gun and put this gun to his head like it was at
the Stalin's time, or you have to give him incentives, because
he wants to improve the life of his family, and he can't.
NARRATOR: Factory managers at Norilsk could see the
economy was not working, because the workers were not
working.
VALERY KOVALCHUK, Former Norilsk Factory Manager: You
can't work properly under socialism. There is no incentive.
And sadly, that's the only thing that gets us going. People
come to work and just go through the motions. They doze off,
read papers, do the crosswords. The state goes on paying
them, the state gets poorer, the people get corrupted, then
bankruptcy. And that's what happened -- the collapse of a
great empire.
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Chapter 4: India's Permit Raj [3:04]
Onscreen title: New Delhi, India
NARRATOR: Like the Soviet Union, India had used central
planning to industrialize its peasant economy and conquer
poverty. Now India, like government-dominated economies all
over the world, was running into difficulty.
YASHWANT SINHA, Indian Finance Minister: The government
of India went into business in a big way, and they decided to
control whatever was there in the private sector also as firmly
and fiercely as they could.
NARRATOR: The British raj was gone. Now people were
subjected to the "Permit Raj," because everything needed a
government permit. India became a byword for red tape and
bureaucracy. Businessmen found it almost impossible to get
things done.
NARAYANA MURTHY, Chairman, Infosys Technologies: It used
to take us about 12 to 24 months and about 50 visits to Delhi
to get a license to import a computer worth $1,500.
NARRATOR: Since it was impossible to work with the system,
people learned to work around it.
P. CHIDAMBARAM, Indian Finance Minister, 1996-1998: Every
license, every permit, was procured by corrupt means.
INTERVIEWER: A bribe?
P. CHIDAMBARAM: Well, "bribe" is the simpler word, I
suppose.
NARRATOR: Self-sufficiency was India's ideal. To protect its
own manufacturing industry, India shut out foreign imports.
P. CHIDAMBARAM: Because of this protected market, the
Indian people were being given shoddy goods and services at
very high prices. Enterprise was stifled, and growth was
crippled.
JAIRAM RAMESH, Indian Government Advisor, 1991-1998:
The economic environment was simply not conducive to
efficiency or profitability. We were in a shortage economy. My
father waited 15 years to buy a car.
NARRATOR: Take India's beloved Ambassador car. It is made
by Hindustan Motors, which started manufacturing in the
same year as Japan's Toyota. Fifty years later, Toyota makes
five million cars a year. Hindustan sells 18,000 Ambassadors,
and still to the same design.
MANMOHAN SINGH, Finance Minister, 1991-1996: If you have
a controlled economy, cut off from the rest of the world by
infinite protection, nobody has any incentive to, in a way...
nobody has any incentive to increase productivity, to bring
new ideas.
NARRATOR: Overprotected, over-administered, overplanned,
the Permit Raj was quite literally a brake on the Indian
economy.
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Chapter 5: Latin American Dependencia [2:03]
(tango music)
Onscreen title: Latin America
NARRATOR: In Latin America, radically different leaders
shared India's suspicion of the world economy. In the 1940s
and '50s, it was Juan Peron and his wife, Evita. In the 1960s,
it was communist Cuba's charismatic Fidel Castro. And in the
1970s, it was Chile's Marxist president Salvador Allende.
Though rich in raw materials, Latin America seemed doomed
to perpetual poverty. The dependency theory of economic
development seemed to offer a way out.
DANIEL YERGIN: The dependency theory said that if you want
to get high economic growth in your country, what you need
to do is put up barriers, tariffs that restrict the flow of import
into the country, develop and build your own domestic
industries, and that if you don't do that, you're going to be
victimized by world trade.
The theory was very attractive. It said you would develop on
your own, and you would be more self-sufficient. The reality
is that you cut yourself off from flows of technology, flows of
investment, from flows of know-how, and instead of getting
ahead you were falling back.
MOISES NAIM, Editor, Foreign Policy Magazine: Because they
are not threatened by competition, you create very lazy,
noncompetitive companies that produce not very good goods
at higher prices. It may create jobs here and there, but in the
long term it may create even more poverty.
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Chapter 6: Counterrevolution in Chile [3:30]
Onscreen title: Santiago, Chile
NARRATOR: By the early 1970s, Latin American economies
were in trouble. Chile elected the Marxist president Salvador
Allende. Allende's solution was not less government
intervention, but more. Businesses were nationalized or
expropriated. Price controls were imposed. Civil unrest grew
as the economy spun out of control.
RICARDO LAGOS, President, Chile: We have a tremendous
inflation. Chilean society became extremely polarized. It's
true it was polarized before Allende, but during Allende's
period the society was extremely polarized.
NARRATOR: It all ended in a military coup. As air force jets
straffed the presidential palace, Allende was trapped inside.
This was the last picture taken of him alive.
Allende supporters, union leaders, and left-wing students
were rounded up in the national football stadium. Hundreds
were never seen again.
Chile's military junta was led by Gen. Augusto Pinochet. Many
middle-class Chileans saw him as a savior.
JAVIER VIAL, President, Association of Banks, 1973: I think
that Pinochet's plan was basically the plan to manage an
army. He didn't have an economic policy to manage a
country.
ARNOLD HARBERGER, Professor Emeritus, University of
Chicago: After a year, year and half of military government,
you still had 20 percent per-month built-in inflation that
wouldn't go away until something structurally changed.
NARRATOR: One of those who plotted the coup went to talk to
Pinochet face to face.
ROBERTO KELLY, Junta Economic Planner: I told him, "You've
been called Chile's savior, but you will go down in history as
the man that buried Chile." He was very shocked by this, and
he said, "Okay, you've got 48 hours to come up with a
national plan to fix the economy."
ARNOLD HARBERGER: The only people who had a serious
blueprint of how to get out of this were this group called the
Chicago Boys.
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Chapter 7: Chicago Boys and Pinochet [8:16]
NARRATOR: The Chicago Boys were a group of economists at
Chile's Catholic University who had been sent to the
University of Chicago as exchange students. There, they
absorbed the ideas of the "Chicago School" of economics, with
its almost revolutionary belief in free markets.
MILTON FRIEDMAN, Professor Emeritus, University of
Chicago: What characterized the Chicago School was a strong
belief in minimal government and an emphasis on free market
as a way to control the economy.
NARRATOR: Professors like Arnold Harberger and Milton
Friedman taught their students to distrust state planning and
government control. When the Chicago Boys returned to
Chile, they brought with them ideas that were a direct
challenge to the dependency theory.
ARNOLD HARBERGER: This small group stayed together
through the Allende years. And they used to meet I think
every Tuesday for lunch. And they would keep a kind of
running document which said how they would reform this
economy, how this economy has to be reformed, what is to
be done to get out of the swamp that they were putting
themselves in.
SERGIO DE CASTRO, Finance Minister, Chile, 1974-1982:
Unfortunately, due to the idiosyncrasies of the military mind,
the generals preferred a controlled economy; that is, an
economy that would obey orders.
NARRATOR: Javier Vial, an influential businessman
sympathetic to the junta, was trying to push the military in
the direction of the free market.
JAVIER VIAL: So I called Milton Friedman and invited him to
come to Chile.
NARRATOR: So Milton Friedman, the most famous freemarket economist in the world, came to lecture in Chile.
MILTON FRIEDMAN: I went down to Chile and spent five days
giving a series of lectures on the Chilean problem, particularly
the problem of inflation and how they should proceed to do
something about it.
NARRATOR: Friedman's first talk was at the Catholic
University. His theme: the inescapable link between free
markets and freedom.
MILTON FRIEDMAN: The emphasis of that talk was that free
markets would undermine political centralization and political
control.
ARNOLD HARBERGER: He said that that you cannot have a
repressive government for long within a genuinely free
economic system.
NARRATOR: But Friedman was also persuaded to visit the
grim conference center from which Pinochet ruled Chile.
Friedman told Pinochet that he needed to take decisive and
immediate action to defeat inflation.
JAVIER VIAL: Friedman says: "Well, I'm going to give you an
example. If you cut the tail to a dog in pieces, step by step
you will kill the dog. This is the same as inflation. You have to
cut it at once, and then the country will start moving."
ARNOLD HARBERGER: Milton's presence probably helped to
stiffen the spine of people who were trying to insist on better
economic policies. That's the period when the takeoff of the
Chilean economy really began and major reforms were made.
NARRATOR: In Santiago, the junta called on the Chicago Boys
to rescue the economy. Five hundred state-owned businesses
were privatized. Government budgets were cut. Import tariffs
were swept away. The markets were given free rein.
SERGIO DE CASTRO: The basic thrust was to increase exports
and abolish artificial price controls.
MILTON FRIEDMAN: Here was the first case in which you had
a movement toward communism which was replaced by a
movement toward free markets.
NARRATOR: There was much pain for the poorest. The cost of
living went through the roof. The gap between rich and poor
got wider, and stayed that way.
ALEJANDRO FOXLEY, Finance Minister, Chile, 1990-1994:
They were starting a very big process of transformation of the
economy without any regard of what happened to people. And
we ended up at one point in time with 30 percent
unemployment rate.
NARRATOR: According to the Chicago Boys, the gain was
worth the pain. Chile became the fastest growing economy in
Latin America.
ALEJANDRO FOXLEY: They were able to start a process of
deregulating the markets, opening up the economy, so that's
their contribution. They were able to anticipate a global trend,
and Chile has benefited from that.
INTERVIEWER: But at a price?
ALEJANDRO FOXLEY: At a very high price, believe me. At a
very high human price.
MILTON FRIEDMAN: The Chilean economy did very well, but
more important, in the end, the Chilean military junta was
replaced by a democratic society. Free markets did work their
way in bringing about a free society.
NARRATOR: This is the monument to the 2,400 who died or
disappeared during the dictatorship. The brutality of
Pinochet's regime left little enthusiasm for change in the rest
of Latin America.
CLIVE CROOK, Deputy Editor, The Economist: The fact that
the Pinochet regime was politically unsavory allowed the left
to make an association between market reforms on the one
hand and repressive authoritarian governments on the other,
and that was a terribly damaging connection.
MILTON FRIEDMAN: The intellectual elite, as it were, were on
the side of Allende, not on the side of Pinochet. They regarded
me as a traitor for having been willing to talk in Chile.
ARNOLD HARBERGER: Friedman then became a figure of
hate, and they organized demonstrations against him
wherever he went, and this went on for a period of years.
NARRATOR: The protests reached their climax when Friedman
was awarded the Nobel Prize in 1976.
MILTON FRIEDMAN: At the Nobel ceremonies in Stockholm, I
was subject to abuse in the sense that there were large
demonstrations against me. There was a concerted effort to
tar and feather me.
CLIVE CROOK: In the minds of many people, the reforms in
Chile were tainted by the political caste of the regime that did
set back the cause of liberal economics. It made other
countries more resistant to the idea of market reforms than
they otherwise would have been.
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Chapter 8: Heresy in the USSR [8:08]
Onscreen title: The Kremlin, Moscow
NARRATOR: The economic reforms in Chile may have had
little immediate impact on the world, but the ideas behind
them were gaining momentum. In the Soviet Union, where
the aged leadership was dying off and the economy was
moribund, people were starting to question the system.
DANIEL YERGIN: By the 1970s and '80s, it was becoming
clear to the better informed that the Soviet system really
wasn't working, but they couldn't really talk about it publicly.
They talked about it in their kitchens; they talked about it in
small groups. But it was not something that could be talked
about in the public.
NARRATOR: In Leningrad, the cradle of Lenin's revolution, an
economics student was asking if the solution lay not in
Marxism but in markets.
ANATOLY CHUBAIS, Economic Reformer: I'm interested in
what has happened in the economy. I start to feel that there
is something wrong; there is some illness in the economy. But
I try to discuss it with my professors, I get no feedback. You
feel that either the world around you crazy or you yourself
crazy.
NARRATOR: Chubais helped to organize seminars far from the
prying eyes of the secret police. One of his co-conspirators
was a young economist from Moscow.
YEGOR GAIDAR, Economic Reformer: We were all in our 30s,
researchers or teachers who specialized in the Soviet
economy. We could see how it worked and were well aware of
its weak points. I read books by Friedman and Hayek with
great interest. They were our inspiration.
ANATOLY CHUBAIS, First Deputy Prime Minister, 1994-1996:
On that stage, definitely we do understand that this thing
quite risky.
YEGOR GAIDAR: Some of our sessions took place behind
closed doors; we didn't trust everyone at the seminar, so we
kept some people out. Our discussions were not
revolutionary, but they were far beyond the limit of what was
politically permissible.
NARRATOR: After a day arguing the pros and cons of a
market economy, they would sit around the campfire and tell
jokes.
ANATOLY CHUBAIS: There was the idea that Gaidar will
become prime minister maybe, which sounds at that time
absolutely crazy, and everybody laughing and another guy
said that yeah, he will be prime minister or he will be
prisoner.
NARRATOR: But by 1985, it was not just economics students
who were asking what was wrong. When Mikhail Gorbachev
became leader of the Soviet Union, he was appalled by the
economic decay.
MIKHAIL GORBACHEV, General Secretary, Communist Party,
1985-1991: There was a government commission to examine
the problem of women's pantyhose. Imagine a country that
flies into space, launches Sputniks, creates such a defense
system, and it can't resolve the problem of women's
pantyhose. There's no toothpaste, no soap powder, not the
basic necessities of life. It was preposterous and
embarrassing to work in such a government.
DANIEL YERGIN: Mikhail Gorbachev was what the Soviet
Union had been waiting for -- a new, young, dynamic leader
who was going to reform the system. But that system had
been propped up for a decade and a half by high oil prices,
and just after he came in, the price of oil collapsed, which
meant that the economic problems facing the Soviet Union
were even more enormous.
NARRATOR: Gorbachev's attempt to restructure the economy
was called "perestroika."
MIKHAIL GORBACHEV: Perestroika was a reform that aimed
at gradual political change to create an infrastructure for
market economics. We had several generations with no
experience of markets. You can't just announce the markets
and see them appear overnight. I was actually saying it will
take a generation for it to start working.
DANIEL YERGIN: He started to allow a certain amount of
private enterprise, but it was really a very uneven process. He
ended up removing many of the tools of control of central
planning, but didn't really replace them with anything else.
NARRATOR: Gorbachev faced mounting pressure from the
West. The U.S. president believed in the economic philosophy
of Milton Friedman and Chicago.
Ronald Reagan was not alone. He had a political soul mate in
Margaret Thatcher. Britain's prime minister had already
embarked on a radical free-market economic revolution at
home. Thatcher and Reagan were determined to go on the
ideological offensive. Their political rhetoric began to heat up.
RONALD REAGAN, U.S. President, 1981-1989: What I am
describing now is a plan and a hope for the long term, the
march of freedom and democracy which will leave MarxismLeninism on the ash heap of history, as it has left other
tyrannies which stifle the freedom and muzzle the selfexpression of the people.
MARGARET THATCHER: Up to that time, the whole doctrine
had been one of "Contain communism." That wasn't enough
for Ronald Reagan and me, and we thought we should make it
quite clear to communism that it could and would never win,
and that we would go and fight the battle of ideas between
what the free world had to offer, compared with the
dictatorship and tyranny and cruelty of communism.
NARRATOR: Ever since Gorbachev's first visit to Britain,
Margaret Thatcher never missed the opportunity to debate
him on the evils and inefficiencies of communism and its
system of central planning.
OLEG GORDIEVSKY: Speaking to Gorbechev, she said:
"Mikhail, you see how your economy is organized -centralized, entirely led by the Kremlin. Look at me in Britain
and the West. We have market economy, and it is running
itself. I don't have to tell different industries what to do. I
don't deal with it at all. My job compared with your job is
much easier. And you would be able to enjoy your job as
head of the Soviet Union much more if you had a market
economy."
NARRATOR: In 1987 President Reagan carried this war of
words to the most symbolic section of the Iron Curtain: the
Berlin Wall.
RONALD REAGAN: General Secretary Gorbachev, if you seek
peace, if you seek prosperity for the Soviet Union and Eastern
Europe, if you seek liberalization, come here to this gate. Mr.
Gorbachev, open this gate. Mr. Gorbachev, tear down this
wall.
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Chapter 9: Poland's Solidarity [7:32]
Onscreen title: Warsaw, Poland
NARRATOR: Margaret Thatcher carried the free-market
message to Poland in 1988. Mrs. Thatcher had agreed to
meet the Communist leadership provided she could also visit
the port of Gdansk.
Almost a decade earlier, in 1980, shipyard workers here in
Gdansk had taken a stand against Communist rule. They had
struck against the price rises and food shortages caused by a
crumbling economy. Their leader was an electrician named
Lech Walesa.
LECH WALESA, President, Poland, 1990-1995: The country
was so much in debt, with the West refusing to lend us any
more, that the whole system was failing. It was more and
more inefficient, and everybody, even the Communists, knew
it.
NARRATOR: Lech Walesa climbed the shipyard gate to
announce a momentous victory. The workers had forced the
government to recognize Solidarity, the free labor union. "I
declare the creation of a free union of workers. We now have
the right to strike."
FATHER HENRY JANKOWSKI, St. Brygida Church, Gdansk: I
thought they didn't know what they were fighting for. I
thought they were just fighting for a pay rise. Only then did I
learn it was all about freedom.
NARRATOR: Ten million Poles joined Solidarity. Under
Walesa's leadership, Solidarity became the main opposition to
communism. But in 1981, after a year and a half of strikes
and unrest, the government declared martial law. Walesa was
placed under house arrest.
When Thatcher visited Poland in 1988 she demanded that the
Communist government allow her to meet Lech Walesa.
LECH WALESA: You didn't say no to Mrs. Thatcher. No one
refused her, so her noticing us and demanding a meeting with
me and the others, that was a crucial event.
CHARLES POWELL: She came into the city of Gdansk onboard
a small ship, and as she went past the shipyards, all the
cranes on the dockside was lined with shipyard workers, all
cheering and waving, and one began to sense here was an
extraordinary experience in the making.
FATHER HENRY JANKOWSKI: The shipyard workers were not
only sitting on the gate, but they were also on the roofs
surrounding the shipyard. She's a tough lady; she conquered
the hearts of the people of Gdansk.
NARRATOR: Solidarity workers escorted Mrs. Thatcher to a
church.
CHARLES POWELL: Great crowds sang the Solidarity anthem,
a haunting anthem.
FATHER HENRY JANKOWSKI: I could see she was very
emotional about this visit. Her eyes registered everything that
went on around her.
CHARLES POWELL: It's one of the very few times that I saw
tears in Mrs. Thatcher's eyes. She was so moved by this
expression of longing for liberty.
NARRATOR: At the house of Walesa's priest, Margaret
Thatcher met with the leaders of Solidarity. A Solidarity
cameraman recorded this historic meeting -- and Mrs.
Thatcher arguing that economic freedom and personal
freedom go hand in hand.
MARGARET THATCHER: If you have a free society under a
rule of law, it produces both dignity of the individual and
prosperity.
CHARLES POWELL: Although it sounds very bossy and
interfering, I think they were genuinely grateful. "You,
Solidarity," she said, "you must have your own ideas and
plans worked out. It's no good just being popular."
MARGARET THATCHER: How do you see the process from
where you are now to where you want to be? Because
whatever you want to do, it's not only what you want to do,
but how the practical way you see it coming about, if you
were to write down the 10 steps, from where you are now to
where you want to be.
CHARLES POWELL: And at one point, she said to Walesa, "But
how do you get your thinking over to the Polish government?"
And he laughed and pointed to the ceiling and said, "There's
no trouble; they've got this meeting bugged."
FATHER HENRY JANKOWSKI: This meeting with Mrs. Thatcher
made these future politicians recognize the opportunities
within their grasp.
MARGARET THATCHER: Thank you very much.
LECH WALESA: Without this meeting, there would not have
been no victory, that's for sure. There would have been delay,
greater difficulties, or even our destruction.
NARRATOR: Thatcher's free-market message seemed to offer
an escape from a Polish economy that was debt-ridden and
riddled with shortages.
DANIEL YERGIN: As the communist economies got into
deeper and deeper trouble, reformers and economists within
the Soviet world began to look outside for solutions and for
alternative paths. They looked at the miracle economies of
Asia, they looked at what was happening in the United States
and in Western Europe, and they looked even as far as Latin
America.
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Chapter 10: Bolivia at the Brink [7:07]
Onscreen title: La Paz, Bolivia
NARRATOR: One of the poorest countries in Latin America and
with a history of 189 military coups, Bolivia was also one of
the most unstable.
JORGE QUIROGA, President, Bolivia: When I was going
through college in Texas, the first question you'd be asked is
"Who's the president of Bolivia this week?" Second question
down the road was "You're from Bolivia -- what's the inflation
rate in Bolivia this week?," because we had galloping
hyperinflation that destroyed our economic base.
GONZALO "GONI" SANCHEZ DE LOZADA, President, Bolivia,
1993-1997: We found that Bolivia was the seventh highest
inflation in the history of man.
JUAN CARIAGA, Finance Minister, Bolivia, 1986-1988:
Twenty-three thousand, five hundred percent. Prices
increased by the hour.
NARRATOR: The cost of food and clothes kept increasing.
Before it was all over, the total inflation averaged 1 percent
every 10 minutes.
JORGE QUIROGA: Seven out of 10 Bolivians live in poverty.
The poor people get hurt even more. They see their pockets
being eaten away by inflation that is galloping around.
GONZALO SANCHEZ DE LOZADA: It's like a tiger,
hyperinflation: If you don't kill it and you only have one
bullet, it'll eat you.
NARRATOR: The root of the problem was government
finances. The government was spending 30 times more than
it received in taxes.
Across the continent, Latin America's uncompetitive
economies had been piling up debt. In the 1970s, a massive
hike in world oil prices left foreign banks awash with
petrodollars.
ARNOLD HARBERGER: So here were the international banks
with billions of dollars and nowhere to earn interest on it.
They discovered Latin America.
GONZALO SANCHEZ DE LOZADA: We were offered
unreasonable amounts of money. These banks who were very
unwise in their lending policy came to the happy conclusion
that countries don't go broke. It's true, but sometimes they
don't pay.
MOISES NAIM: Guess what? One day, these countries could
no longer afford to repay the debts.
NARRATOR: In 1982 a financial crisis in Mexico triggered a
chain reaction that caused the 1980s to be known as Latin
America's "lost decade".
JOSEPH STANISLAW, Author, Commanding Heights: Bolivia
was probably the most severe case of how things had gone
wrong in Latin America. For decades they just printed money.
They collected no taxes in the country. If you can't collect
taxes, you've got to make the money up somehow, so they
just printed it.
GONZALO SANCHEZ DE LOZADA: Bolivia was a basket case.
We were considered hopeless. We had help from nobody. We
were totally alone. The World Bank had closed its office, the
IMF had pulled out its representative, and the American
government and other friendly nations wouldn't answer the
telephones.
Onscreen title: Harvard University, USA
NARRATOR: At 29, economist Jeff Sachs had just become one
of Harvard's youngest full professors ever.
JEFFREY SACHS: In 1985, some former students sent me a
note asking whether I would be ready to come to a meeting
with a group of visiting Bolivians.
NARRATOR: The Bolivians had come to Harvard to take part
in a seminar on the hyperinflation that was ravaging their
country.
JEFFREY SACHS: I was absolutely fascinated, made a few
observations. Somebody in the back of the room piped up and
said, "Well, if you think you know what to do, you come to La
Paz."
When I got to La Paz in July 1985, the inflation rate was
about 60,000 percent. It was an extraordinary and terrifying
thing to see, actually. It was a society at the edge of the
precipice.
NARRATOR: Bolivia's politicians were paralyzed. Only one
man seemed to know what to do.
JEFFREY SACHS: I met a man at a cocktail party one of the
evenings at work. I didn't know him at all. I introduced
myself. He said, "What are you doing?" I said, "Oh, I'm
writing an economic plan for the next government."
GONZALO SANCHEZ DE LOZADA: And I said, "I'm very, very
pleased that you're studying this, because we're going to beat
these guys, and you can come and work for us." So they all
laughed.
JEFFREY SACHS: He said: "Oh, that's very interesting. What
do you have in mind?" And I described a few elements,
basically how to stop hyperinflation. And he said: "No, no, you
have to go much beyond that. You don't understand. We need
so much more. You're just going on the surface. This country
needs a complete overhaul. We've got to get out of the mess
that we're in." I wasn't sure whether he was provoking me,
whether he was kidding, whether he was sober, whether he
knew what he was doing. It turned out that this was Goni,
Gonzalo Sanchez de Lozada -- a genius.
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Chapter 11: Shock Therapy Applied [4:48]
NARRATOR: Goni's party did win the election, and he became
minister of planning. He told the president that Bolivia was
running out of time.
JUAN CARIAGA: We told him, "You have 90 days before
Bolivia's hyperinflation becomes the highest inflation in world
history." So he told us, "Okay, you have 20 days; you have to
start working now."
GONZALO SANCHEZ DE LOZADA: There was a big discussion
whether you could stop a hyperinflation or an inflation period
by taking gradualist steps. In this Jeff Sachs was influential.
He said: "All this gradualist stuff just doesn't work. When it
really gets out of control you've got to stop it, like a medicine.
You've got to take some radical steps; otherwise your patient
is going to die."
NARRATOR: To avoid leaks, they worked at home. Every few
days, Goni reported to the president.
GONZALO SANCHEZ DE LOZADA: We said: "Look, boys,
you've got one chance. And remember, as Machiavelli said,
'It's all the bad news at once, the good news little by little.'"
So he said, "Get it all done." Shock therapy is get it over, get
it done, stop hyperinflation, and then start rebuilding your
economy so you achieve growth.
NARRATOR: In August 1985, Goni went public with a program
called "shock therapy."
JUAN CARIAGA: It caught everybody by surprise. It had great
credibility. It was a shock.
NARRATOR: Shock therapy spelled the death of dependency
theory. Government spending was slashed. Price controls
were scrapped. Import tariffs were cut. Government budgets
were balanced.
JUAN CARIAGA: We didn't use highly sophisticated economic
theory to deal with hyperinflation. We just used very simple
things, such as from now on the government will only spend
what it gets. You get one peso, spend one peso; you get two
pesos, spend two pesos. If we don't have it, we don't spend
it. No borrowing from the Central Bank, and therefore the
Central Bank did not have to print money.
NARRATOR: Shock therapy meant that the price of essentials
-- transport, food, fuel -- all shot up. Until then people had
thought that only a military dictatorship like Chile's could
impose such tough measures without tearing society apart.
DANIEL YERGIN: Bolivia may be a small country, but it had a
very big impact in terms of kick-starting reform throughout
Latin America. In Brazil, a professor, who actually used to
teach the dependency theory, launched a program of
economic reform that looked a lot like shock therapy.
DANIEL YERGIN: Argentina was suffering from 20,000 percent
inflation and the new president of that country said, you
know, we've seen this movie before.
DOMINGO CAVALLO, Economy Minister, Argentina, 2001: Promarket reforms could be implemented under a democracy,
and we demonstrated that it was possible here in Argentina.
NARRATOR: All across Latin America, governments began to
sit up and take notice.
GONZALO SANCHEZ DE LOZADA: I think the Bolivian
experience did have influence. The fact that we did it in
democracy, we did it without great social violence, had impact
on economic thinkers and on politicians.
JEFFREY SACHS: In late 1985, as we were struggling late into
the night with a problem, he said, "You know, this is
extraordinarily hard, but what's happening here, this is going
to have to happen all through Latin America." I watched it
unfold, one country after another.
NARRATOR: It is a curious fact of history that what happened
in Bolivia was to have a direct impact on the frozen
economies of Eastern Europe.
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Chapter 12: The Miracle Year [6:57]
JEFFREY SACHS: I was approached by a Polish government
official who had watched the Bolivian reforms, and then had
seen the work I had done in Argentina and Brazil. He finally
asked me would I go to Poland and help.
Onscreen title: Warsaw, Poland
The Poles themselves feared that they were descending into
starvation. The shops were utterly empty for miles. I would
see a woman just standing on the street sobbing: "There's no
milk in this city. I can't find any milk for my child. What am I
going to do?" It was terrifying.
NARRATOR: Sachs arrived on the very day that roundtable
talks agreed there should be free elections in Poland.
LECH WALESA: The situation was more than dramatic. One
can change a political system overnight, but an economic
system needs years.
DANIEL YERGIN: Whenever Soviet power was challenged in
Eastern Europe, the response was very clear. It was tanks; it
was the Red Army. That was the case in Berlin in 1953,
Budapest in 1956, Prague 1968. But the answer was different
in Warsaw in 1989. Solidarity won 99 out of 100 seats. The
head of the Polish Communist Party called Moscow for
directions. Mikhail Gorbachev's answer was stunning: "Do
nothing; accept the outcome of a free election." And that was
really the phone call that ended the Cold War. And of course,
the great symbol of the end of the Soviet empire was the fall
of the Berlin Wall. One country after another broke free of
communism -- Poland, Hungary, Czechoslovakia, Romania.
1989 was truly a miracle year.
NARRATOR: Poland was free now. Solidarity had to liberate
the Polish economy. Late one night Sachs met the Solidarity
economist Jacek Kuron in a Warsaw apartment.
JEFFREY SACHS: I was trying to explain how you get out of
this mess that the communist system had left behind. Every
couple of minutes he would pound on the table, "Pah, pah,
pah" -- "Yes, yes, yes, I understand." And we'd gone on -"Pah, pah" -- and it was very, you know... it was really
exciting. We went on for a few hours like this. I was
exhausted. The room was filled with smoke, and he said:
"Okay, clear. Write up the plan." We got up. I said: "Well, this
will be a great honor. We'll send you something just as soon
as we can." "No, tomorrow morning I need the plan." I
laughed, and he said, "I'm absolutely serious; I need this
written down now."
We wrote up a plan that night and delivered it the next
morning. They distributed it to the Solidarity members of the
Parliament.
NARRATOR: Like Sachs, Solidarity's new finance minister,
Leszek Balcerowicz, believed transition had to be rapid and
massive.
LESZEK BALCEROWICZ, Finance Minister, Poland, 1989-1991:
Just after breakthrough, there is a short period, a period of
extraordinary politics. By definition, people are ready to
accept more radical solutions because they are pretty
euphoric of freshly regained freedom. One could use it only in
one way, by moving forward very, very quickly.
JOSEPH STANISLAW: Poland decided to do what Bolivia did,
to introduce shock therapy, cut back on government
expenditure and try and introduce a market system and see if
it could work.
NARRATOR: Prices almost doubled, and shortages didn't end.
All Balcerowicz could do was chew his nails and wait for the
law of supply and demand to kick in. But then, after a few
days, farmers began to bring their produce to market.
LESZEK BALCEROWICZ: I was going for a walk, and we were
looking at the prices in the shops, the prices of eggs.
NARRATOR: His aides told him to concentrate on the price of
eggs. If eggs appeared, if eggs got cheaper, the market
would be working. Eggs did appear. And then the price of
eggs began to fall.
LESZEK BALCEROWICZ: And I remember that very important
day when the prices of eggs are falling. This was one of the
signals that the program, the stabilization program, is
working.
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Chapter 13: Poland in Transition [2:39]
NARRATOR: But reforming state-owned heavy industries
would prove a much bigger challenge.
LESZEK BALCEROWICZ: Once Poland became free, one of the
problems I have to face was a fight about privatization.
DANIEL YERGIN: The big problem was the old industries
inherited from the communist past, and there were wrenching
problems of unemployment, of making them efficient, keeping
them running. And that's where you saw a lot of the pain.
NARRATOR: Making overmanned state-owned industries
efficient or profitable meant wide-scale layoffs for Poland's
blue-collar workers.
JAN BIELECKI, Prime Minister, Poland, 1991: When I became
the prime minister, the euphoria of transition was almost
over. We had 20,000 strikes, sometimes organized by my
former colleagues from Solidarity movement.
NARRATOR: Solidarity began to lose support as workers felt
the pain of reform.
JEFFREY SACHS: I was asked to go to some factories, to meet
with workers to try to explain what my vision of this might be.
FACTORY WORKER: In the beginning we were made to
believe that it wouldn't take long for things to get better.
FACTORY WORKER: Sachs gave us a rosy vision for the future
of our economy.
ZYGMUNT WRZODAK, Union Leader, Ursus Tractor Factory:
We soon found out that the program imposed on us from the
outside most harmed precisely those Poles who had
contributed so much to political freedom.
NARRATOR: But elsewhere, the market was flourishing. Tens
of thousands of small businesses sprung up, and the Polish
economy began to boom.
JAN BIELECKI: You suddenly had thousands of people trading
the same products in front of the state-owned shop, but at a
much lower price. This is phenomenal, because it shows
enormously entrepreneurial drive of the Polish people. When
you have your five minutes, take it. When the Polish people
finally got that opportunity, they took the chance. They used
the chance.
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Chapter 14: Gorbachev Tries China [7:17]
NARRATOR: At the Soviet embassy in Warsaw, a special
observer from Moscow had been monitoring the economic
reform.
GRIGORY YAVLINSKY: The Soviet embassy in Warsaw had a
feeling that this was a disaster for them. They didn't want to
send my telegrams to Moscow. I was describing what was
going on there, and they would completely disagree. I was
very supportive, and they were very negative. I was sending
the analysis to Gorbachev. "Balcerowicz is doing the right
thing for Poland" -- that is what I was saying.
NARRATOR: Gorbachev asked Yavlinsky to write up a plan for
radical economic change.
GRIGORY YAVLINSKY: I hoped to do in a year and a half as
much as possible to make a transition from the Soviet
economy to the market economy. I understood we should
move as quickly as possible
NARRATOR: The U.S. threw its moral support behind the freemarket reforms.
JAMES BAKER, U.S. Secretary of State, 1989-1993: We want
to learn a little more about Mr. Yavlinsky's efforts. A country
is trying to change 70 years of political and economic
philosophy and change it in a way that moves it in exactly the
opposite direction.
NARRATOR: But Gorbachev shrank from shock therapy. The
Yavlinsky plan languished on his desk.
MIKHAIL GORBACHEV: Poland was definitely a pilot project,
and the fact that reforms started there was very important.
But please understand, no country can repeat the reforms of
another country.
DANIEL YERGIN: Gorbachev was looking at Poland. He's
looking around the world trying to find some formulas that
would help the Soviet Union make the transition. And what
more logical place to look than in communist China, which is
marching towards the market?
Onscreen title: Beijing, China
NARRATOR: In 1989, the year the Berlin Wall fell, Gorbachev
visited Beijing. As he arrived, protestors were gathering in
Tiananmen Square. In China, too, the Communist hold on
power looked unsure. But Gorbachev found the Chinese
economy was being transformed under its leader, Deng
Xiaoping.
DANIEL YERGIN: Deng Xiaoping was an old-style Communist.
He'd been very close to Mao Zedong, but he had fallen from
power and had spent time when he was under house arrest,
pacing around in the courtyard, thinking through what had
gone, wrong; why was this communist dream turning into
such an economic nightmare. And when he came back to
power, he said, "I have two choices: I can distribute poverty,
or I can distribute wealth.
NARRATOR: Deng had been impressed by the success of the
Southeast Asian economies, in which overseas Chinese were
so prominent.
LEE KUAN YEW, Senior Minister of Singapore: They were
lucky that after Mao died, Deng Xiaoping opened up China. He
had to fight his own conservatives, the orthodox Communists
who were terrified that this meant dismantling the socialist
state that they were building.
DANIEL YERGIN: Deng Xiaoping said: "Don't worry. We're not
pursuing capitalism; we're pursuing socialism with Chinese
characteristics."
JOSEPH STANISLAW: The Chinese decided to keep the
political system of communism, but to get rid of the economic
system called communism and go towards market socialism.
With that, they could keep political control, but also have the
benefits of the marketplace.
DANIEL YERGIN: By the mid-1980s, China embarked on its
era of high economic-growth rates, moving towards a market
system, moving towards engaging with the world economy.
NARRATOR: Under Gorbachev, there had been intense
argument on whether China's route to the market was right
for Russia.
JEFFREY SACHS: The KGB said, "Well, why don't we do what
China's doing --keep political control, but open up on the
margin, and we'll maintain our political power; we'll maintain
the state enterprises, but we'll grow." That's what China did.
NARRATOR: Tiananmen Square showed how far the
Communist Party was willing to go to hold onto power.
LEE KUAN YEW: Deng Xiaoping believed in restructuring
before opening up. Glasnost and freedom and transparency
and so on -- that had to wait. First restructure, and
restructure under the old system by directives so that nobody
can say no. Deng understood that if you released these
forces, unless you do it in a controlled way, the system will
collapse. He saved the country from an implosion like the
Soviet Union.
JEFFREY SACHS: Many people say, "Why didn't Gorbachev do
the China approach?," without understanding that that, of
course, is what Gorbachev tried to do for four years. They just
don't get it. They don't understand that Russia was an 80
percent urbanized, heavy-industrialized economy, whereas
China was a peasant economy with 80 percent of the
population in rural areas. In Russia, the non-state sector was
1 precent; it was nothing. So yes, you could get a few
restaurants going, but you couldn't get to the core of the
problem without addressing the industrial core of the system.
So they had no easy way out. They had no gradual track like
China.
LILIA SHEVTSOVA, Senior Associate, Carnegie Moscow
Center: Gorbachev got stuck with economic reform. He began
too late, and his reforms were too cautious. He never touched
the foundation of the planned economy.
JEFFREY SACHS: This was a society that, while on the surface
it looked stable, was more like one of those cartoon
characters that's run off the cliff, is stationary for the
moment, doesn't realize that it's about to reach a free fall.
And it did go into that free fall.
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Chapter 15: Soviet Free Fall [4:52]
Onscreen title: Moscow, Soviet Union
NARRATOR: In August 1991, diehard Communists staged a
coup. Boris Yeltsin became the voice of democratic resistance.
The coup collapsed.
Gorbachev survived the plot, but his prestige was destroyed,
and the Soviet Union's days were numbered.
DANIEL YERGIN: The end of December 1991, Mikhail
Gorbachev went on Soviet television. He told his viewers that
the Soviet Union would within a few days cease to exist
legally. After seven decades, the Soviet Union was over, it
was finished, fade to black.
NARRATOR: The president of Russia was Boris Yeltsin. Unlike
Gorbachev, Yeltsin wanted to move fast. He chose the young
reformer Yegor Gaidar as the man to turn Russia into a
market economy.
DANIEL YERGIN: For Gaidar it was a shock. There was no
money in the treasury; there was no gold; there was not even
enough grain to get through the winter. It was unclear who
was even in charge of the nuclear weapons. Gaidar later said
that it was like flying in an airplane and going into the cockpit
and finding no one at the controls.
YEGOR GAIDAR: It was clear to me that the country was not
functioning, the economy was not working, and that if nothing
were done and if everyone feared that nothing would be done,
it would end in catastrophe, even a famine.
NARRATOR: Gorbachev's halfway reforms had left the
economy in a tailspin. Every essential was in short supply.
LILIA SHEVTSOVA: We have been queuing every day to get
something --sugar, matches, salt. The stakes really were very
high. Economic situation was absolute disaster. Inflation was
about 20 percent a month. The shelves stood empty. The
prices were skyrocketing. Everyday life was the search for
survival. Gaidar had to move very fast.
NARRATOR: Gaidar was now in charge of the entire Russian
economy. And he was still only 35. He assembled a team of
youthful free-market reformers, among them his fellow
dissenter, 36-year-old Anatoly Chubais. Communist hardliners nicknamed them the "little boys in pink shorts."
Jeffrey Sachs now 36, was called on to advise on economic
reform.
JEFFREY SACHS: I of course had the Poland experience in
mind. Russia turned out to be something quite different.
NARRATOR: The Parliament was dominated by Communists
and other parties who opposed reform.
JEFFREY SACHS: Gaidar was under remarkable political attack
from the first moment. It wasn't seven days after the start of
reform that the head of the Parliament called for the
resignation of the government, for example.
YEGOR GAIDAR: It is a pseudo market utopia.
The only thing I want to ask is understanding the gravity of
the situation.
NARRATOR: Gaidar and his team wanted to use economic
reform as a political weapon to smash the old communist
system before it destroyed them.
BORIS JORDAN: It was more a survival tactic -- how can we
destroy the communist, centrally controlled economy? Let's
destroy the army, let's destroy the KGB, and let's destroy
centrally controlled planning, rather than how are we going to
build an economy?
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Chapter 16: Reform Goes Awry [4:26]
NARRATOR: New Year's Eve, 1991. Next morning prices
would be freed. Gaidar's reform would directly affect the man
and woman in the street. It would also mean the end of
everything the Communists had stood for.
Next, Gaidar abolished the Soviet law that made private
enterprise a criminal activity. Gaidar believed that an
effectively free market would put an end to shortages. He
didn't have long to wait.
YEGOR GAIDAR: I was driving to my office on Old Square,
past Detsky Mir, the children's shop, and I saw a huge crowd
of people. I sent my aides to find out what was going on, and
they saw hundreds of people with various kinds of goods.
They were holding a copy of the decree on the freedom of
trade while trying to buy or sell stuff. So that's when I
understood that in 75 years it had not been possible to
extinguish this entrepreneurial spirit. That was one of the
pivotal points. Starting from then, there were no more
shortages in Russia. I felt that we were right and that market
forces worked, even in this tortured economy.
NARRATOR: The market may have been reborn, but for
ordinary Russians reform meant higher prices.
LILIA SHEVTSOVA: I hurried to a department store to look at
the faces of Muscovites, whether they would revolt, looking,
you know, at all these skyrocketing prices, because Gaidar
felt that they would increase twofold. They increased
twelvefold.
NARRATOR: Prices kept rising. The hard-liners who controlled
the Central Bank made it much worse. Their policies fueled
inflation.
In Norilsk, factory workers like Yuri Khamutov were cleaned
out.
YURI KHAMUTOV: Chubais talked about reform, but with him
and with Gaidar, nothing improved. We lived worse and worse
and worse. So much for Gaidar's reforms. Many came north to
earn the money to buy a house, a flat, a car, to save a
pension. And then in one day you were left with nothing. It
was so sudden, some people committed suicide.
GRIGORY YAVLINSKY: Inflation came 500 percent, 600
percent, 700 percent. The monies simply went to the ashes,
simply to nothing. The population was simply smashed by
that hyperinflation, and that undermined all kind of belief in
the economic changes.
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Chapter 17: India Escapes Collapse [3:16]
Onscreen title: New Delhi, India
NARRATOR: The collapse of the Soviet Union reverberated
round the world. For India, it was the end of a role model, the
ideal of central planning shattered.
MANMOHAN SINGH: This was telling proof that a command
type of economy was not as secure as we had thought.
Therefore, the collapse of the Soviet Union was a major factor
which influenced thinking on economic reforms in our country,
as in other countries.
NARRATOR: Planned by bureaucrats and cut off from the
world trade, India's economy had grown stagnant, inefficient,
and indebted. In 1991 India stared bankruptcy in the face.
P. CHIDAMBARAM: We were borrowing heavily. We had to
mortgage our gold deposits. Our growth rate had come to
virtually zero. All this added to our very enormous crisis.
NARRATOR: In the midst of the crisis, the economist
Manmohan Singh received an urgent call from the new prime
minister. He found himself appointed finance minister.
MANMOHAN SINGH: Well, I said to him that we are on the
verge of a collapse. Our foreign exchange reserves when I
took over were no more than a billion dollars -- that is
roughly equal to two weeks' imports. The argument was quite
simple: We were in the midst of an unprecedented crisis; it
was time to think big.
NARRATOR: To the horror of his own political party, the prime
minister gave the green light for free-market reform.
P. CHIDAMBARAM: Well, the rank and file of the party were
simply bewildered. They did resist the kind of changes that we
brought about. But we presented them the hard facts that
unless all this was done, the economy would simply collapse.
NARRATOR: India's Permit Raj was ended, state control
reduced. Government subsidies were cut, tariffs and trade
barriers reduced, and regulatory licenses eliminated.
MANMOHAN SINGH: We got government off the backs of the
people of India, particularly off the backs of India's
entrepreneurs. We introduced more competition to release
the innovative spirits, which were always there in India. The
economy turned around much sooner and much more deeply
than I had anticipated. Indian industry boomed. We created a
record number of jobs, we were able to control inflation, and
the economy was growing at the rate of 7 percent per annum,
so our critics were completely silenced.
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Chapter 18: Russia Tries to Privatize [5:33]
Onscreen title: Moscow, Russia
NARRATOR: In Russia, the commanding heights of the
economy were still in the hands of the state. In a great
idealistic move, the young reformers set out to democratize
state industries by simply giving them away. In charge of this
program of privatization was Anatoly Chubais. The 70-year
communist monopoly was about to be overturned. Russian
citizens were given vouchers which they could use to buy
shares in privatized companies.
BORIS YELTSIN, President, Russia, 1991-1999: We need
millions of property owners, not just a few millionaires. All
Russian citizens, workers, pensioners, and small children will
be given privatization vouchers worth 10,000 rubles.
NARRATOR: There was a problem: Not one company was
ready to be privatized.
BORIS JORDAN, President, The Sputnik Group: They had
distributed 144 million vouchers to the people, but had no
practical idea on how to get companies through the
privatization process and actually into public hands, away
from the state.
NARRATOR: The young reformers asked Boris Jordan, one of
the first foreign bankers to set up shop in Moscow, to find a
company to privatize. But they had to move fast.
BORIS JORDAN: They knew that if they didn't at least launch
the program by December 9, 1992, when the Congress of
People's Deputies was getting together, the Communists were
going to kill privatization.
NARRATOR: The young reformers were in a race against time.
BORIS JORDAN: It was very tight. If there wasn't going to be
privatization, there was going to be no market economy.
NARRATOR: They narrowed the search down to a business on
the edge of Moscow. It is not exactly what Lenin would have
called the commanding heights, but the Bolshevik Biscuit
Factory did bake Russia's favorite cookie.
BORIS JORDAN: We had to, I wouldn't say bribe -- we had to
incentivize them. We gave managers of their factories and the
employees of the factories about 50 percent of the stock in
the company. The balance of the equity would be sold in the
public markets through these vouchers. We opened up the
first official auction of a Russian company to the public on
December 8, 1992.
NARRATOR: On the day of the auction, fury at the economic
reforms boiled over in Parliament. Communist hard-liners
forced a vote of confidence in Gaidar.
BORIS JORDAN: I remember it very well. We'd already
opened the auction, and I was sitting in the auction center. I
was watching the television, and I watched Gaidar get
removed.
NARRATOR: Communist opposition had forced Yeltsin to
sacrifice Gaidar. His replacement, Viktor Chernomyrdin, was a
product of the old Soviet central planning system.
JEFFREY SACHS: There was no doubt that after Gaidar was
thrown out of the prime ministership at the end of 1992 that
the level of corruption rose tremendously.
NARRATOR: State companies were sold off, and the trade in
vouchers led to a fledgling stock exchange. A market
economy was taking hold, but it was getting off to a shaky
start.
In Moscow, speculation was rampant in what some called the
"Wild East."
JEFFREY SACHS: A lot of societies have corruption, but Russia
had an elite that had grown up in such an amoral
environment under the Soviet system that they really did
believe that property is theft. "Okay, now we're in a privateproperty system; we'll steal it." And Russia had a lot to steal.
You had the oil, the gas, the nickel, the chromium, the
diamonds, the gold -- this extraordinary combination of huge
natural resource reserves, and they were in state hands.
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Chapter 19: Property Becomes Theft [6:18]
NARRATOR: The biggest companies, the major industries
were still controlled by their all-powerful managers, former
Soviet "apparatchiks" known as the Red Directors. They were
utterly opposed to the young reformers and privatization. The
only way to privatize the commanding heights of the Russian
economy was to wrest control away from the Red Directors.
GRIGORY YAVLINSKY: In Eastern Europe, the real democratic
revolution happened. it was a real replacement of the political
elite. In Russia, the same people changed their jackets and
changed the portraits in the rooms, and instead of saying
"communism" and "Lenin" and "Five-Year Plan" started to say
"market," "democracy," "freedom."
ANATOLY CHUBAIS: I do remember one of the first meetings
with the directors, which was very tough, very tough. They
hate the language we speak; they hate the face we have.
They hate everything which was connected with us. These
guys were the real owners of the country. I was fighting for
the real commanding heights in terms of who runs the
economy. Who runs the economy, market or the Soviet
directors?
NARRATOR: The vast factory complex at Norilsk was to
become a major battleground between the Red Directors and
a new kind of Russian. Vladimir Potanin was a buccanneering
businessman who quit his job in the foreign ministry and
within a few years built a small trading company into one of
Russia's leading banks.
VLADIMIR POTANIN, President, Interros Holding Company: I
decided to become a businessman at the moment when I
understood that it is possible. I grew in a country where it
was not possible, and there existed even a special article in a
penal court of the Soviet Union which banished
entrepreneuring activity.
NARRATOR: Potanin's next venture would lead some to see
him as an inspired entrepreneur, others as a robber baron. In
1995 he decided to make a play for Norilsk Nickel, but to take
over Norilsk meant going up against one of the most powerful
of the old Red Directors, Anatoly Filatov.
BORIS JORDAN: Filatov of Norilsk, the hardest guy, one of the
most powerful men in Russia. Potanin, who was at that time a
relatively unknown person in this country, went up against
this guy. Norilsk Nickel was the test case.
NARRATOR: Potanin needed allies. These were the richest of
the new entrepreneurs. They came to be known and hated as
"the oligarchs."
VLADIMIR POTANIN: By 1995, we had new business elite who
in my opinion were efficient owners and qualified managers,
but they had no property in their hands. That's why it was the
struggle between old Red Directors and new managers who
gained their money let's say themselves.
NARRATOR: To break the power of the Red Directors, the
oligarchs needed political support.
VLADIMIR POTANIN: It was politically very difficult to
withdraw this power from the Red Directors. Even the
government and even Chubais were not strong enough to win
easily this struggle.
NARRATOR: It looked as if the Communists were going to win
the upcoming 1996 presidential elections. Yeltsin and the
reformers had to find a way to stop them.
LILIA SHEVTSOVA: In the beginning of 1996, Yeltsin enjoyed
only 5 percent of popularity. He definitely needed financial
assistance, financial resources from the rich people, the
oligarchs.
NARRATOR: The government and the oligarchs needed each
other, and they needed to move fast. The government feared
a Communist comeback; the oligarchs feared the loss of their
fortunes. The oligarchs hammered out a secret deal that
would enable them to acquire key industries at a knockdown
price.
BORIS JORDAN: Potanin proposed a privatization program
which today is still used. It's exceptionally controversial, a
loans-for-shares program, and that program entailed Russian
business giving the government loans in return for taking the
shares of strategic assets as collateral. In fact, what ended up
happening is most of these companies ended up getting sold
back to the guy that actually provided the loan.
NARRATOR: The oligarchs' money would help Yeltsin fight the
presidential election. In exchange, they wanted the
commanding heights.
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Chapter 20: Closing the Deal [3:50]
ANATOLY CHUBAIS: The dilemma was not should we choose
this way of privatization or another way which is more
transparent, more open, more public. The idea was, should
we choose this way or nothing.
YEGOR GAIDAR: The point of the loans-for-shares deal was
aimed at creating a critical mass of powerful and influential
businessmen whose primary interest would be to prevent the
Communists from coming back.
NARRATOR: With their media companies and wealth, the
oligarchs backed Yeltsin's reelection campaign. Singing and
dancing endlessly across Russia, Yeltsin surged ahead in the
polls and to victory.
Potanin entered Yeltsin's Cabinet, the oligarchs' direct voice in
the Kremlin. Potanin had won Norilsk Nickel, and with it, a
third of the world's nickel. For a company with annual sales of
$2.5 billion, Potanin paid $170 million.
VLADIMIR POTANIN: I felt a great feeling of victory. Several
years before, it was even difficult to think about struggling
with Red Directors. The struggle was won by us, by those who
came who are younger, who are more active and more
prepared for competition. Many years later came feeling of a
great responsibly for this, because when you win, you become
responsible for everything that is going on. but it came a little
bit later.
NARRATOR: To many, the loans-for-shares deal was more
than a scandal; it was the theft of the century. But it was a
price Yeltsin was willing to pay to keep the Communists out.
GRIGORY YAVLINSKY: The task was not to distribute the
property between 10 personal friends; there were no need for
that. The task was to give the property to millions of people.
VLADIMIR POTANIN: We can say that it was artificially yes. It
was cheap, relatively cheap. It was not transparent. Yes. But
I think that it was difficult to avoid. Maybe it was the only
way.
GRIGORY YAVLINSKY: The goals are justifying the means.
That's how the Bolsheviks made the revolution in Russia, and
that is why it's disaster. Always when you are using the
formula that the goals are justifying the means, you are
destroying the goals.
NARRATOR: In Yeltsin's Russia, crony capitalism thrived. For
many, reform came to mean corruption, inflation, and
inequality. Then in 1998, Russia defaulted on its debts, and
the stock market crashed. The Yeltsin era ended with his
abrupt resignation on New Year's Day 2000.
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Chapter 21: A Decade of Radical Change [7:38]
Onscreen title: The New Century
NARRATOR: By the start of the new millennium, the decade of
radical change was over. A world that not so long ago had
looked to socialism, central planning, and protectionism now
looked to the market.
DANIEL YERGIN: It's breathtaking what's happened in the last
20 years or less. It's as though the whole world has changed
its mind. Everywhere -- in India, China, Asia, Latin America,
Europe, North America, and above all in the communist world
-- governments have retreated from the commanding heights
of the economy.
NARRATOR: Having thrown off communism, the countries of
Eastern Europe continued to embrace free markets. Poland
has flourished. What's driving Poland are two million small
businesses, almost all started after economic reform.
DANIEL YERGIN: Of all the cases of shock therapy around the
world, that in Poland worked just about the best. It really got
the economy going.
NARRATOR: Businesses like Zofia Bielzyck's gym now employ
over half of the country's workforce and produce close to 75
percent of its total output.
ZOFIA BIELZYCK, Gym Owner: After 1990, many companies
and foreign firms appeared in Poland. The forecasts were very
good, and I think they have come true. But we Poles need
time for everything to fall into place.
NARRATOR: In Latin America, the result of reform has been
mixed. Chile continues to set the pace. A democracy, it
follows free-market policies and is one of the world's seven
fastest growing economies.
DOMINGO CAVALLO: The first democratic president after
Pinochet maintained the reforms and also tried to improve on
them.
RICARDO LAGOS: It is not something of the right-wing parties
nor the left-wing parties. It's simply sound economic policies.
To learn that took some time.
NARRATOR: Bolivia is still poor, but it has been growing.
GONZALO SANCHEZ DE LOZADA: Many people would say
we're still poor, and I would say to them Bolivia before we
stabilized the economy was a poor country with
hyperinflation. Bolivia after we stabilized the economy is a
poor country with stability.
CLIVE CROOK: I think there is some disillusionment in Latin
America. They have had problems despite the reforms.
Getting to a steady high rate of growth is a difficult thing, and
it certainly requires more than sorting out your inflation
problem, and now we see a sort of financial collapse in
Argentina.
DANIEL YERGIN: For several years, Argentina looked like the
poster boy for economic reform. It turned out that the
reforms were quite incomplete. The country ran up huge
international debts, and in 2002 it had an economic
meltdown.
CLIVE CROOK: At the end of the day, the strains were too
much. And now we see a great deal of political turmoil, raising
all kinds of questions for the future.
NARRATOR: In India, Narayana Murthy no longer needs 50
trips to Delhi for permission to import one computer. Instead
he has built one of the world's biggest software companies.
India's economy has loosened up, and it is growing.
JAIRAM RAMESH: Well, it did work. I think certainly it did
work. And what is interesting is that all the parties that
criticized the party that introduce reforms are now taking
forward those reforms. So I think, you know, '91 to 2000 has
shown that the economic liberalization was started out of
compulsion has ended up being a process that has been
driven by conviction.
P. CHIDAMBARAM: This has brought about a sea change. In
fact, nobody in India today would question the correctness of
the decision to open up India's economy. Even the
Communists grudgingly can see that this is the right path
now.
NARRATOR: In Russia, ironically, the 1998 stock market crash
and the default on debts may have been a turning point, a
second chance for Russia's still-new market economy. Under
President Putin, the institutions of a market economy
strengthened, and the oligarchs were reined in.
DANIEL YERGIN: Russia has changed a lot since the loans-forshares deal of the mid-90s. It's had strong economic growth
over the last several years. Companies have modernized, and
a lot of their reform legislation that should have been done
five or six or seven years ago has finally been enacted.
JEFFREY SACHS: I remain cautiously optimistic. But even if
Russia gets out of this mess, even if democracy survives,
even if all of market reforms take root and all of that is
possible, the 1990s was so costly unnecessarily that I'll never
be able to look at it and feel that gee, it all ended up well in
the end.
DANIEL YERGIN: The problems are still there -- the problems
of inadequate health care all the way to corruption. But it's a
society that's changing. Putin sees Russia's future as being
part of the world economy.
LILIA SHEVTSOVA: I'm looking at my son who is 19 years old,
and I'm looking at other people, and I am amazed. They are
ready to live in this global environment. These are the people
absolutely free of any old stereotypes. They don't remember
communism. My son is coming home and asking me, "Mum,
can you tell me what Marxism is?" We spent only 10 years
after collapse of communism, and my son doesn't know what
communism and Marxism is.
NARRATOR: The world had indeed changed its mind.
Capitalism was now the rule almost everywhere. The stage
was set for a single global market woven together by trade
technology and investment.
Globalization had begun.
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Episode Three: The New Rules of the Game
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1: Prologue [6:14]
2: The Global Idea [3:52]
3: NAFTA: The First Test [5:28]
4: Crossing Borders [3:30]
5: The Global Market [3:48]
6: Emerging Market Hunters [5:01]
7: Averting a Meltdown: 1994 [4:56]
8: The Global Village [6:47]
9: China and the Tigers [5:35]
10: The Japanese Paradox [3:01]
11: Global Contagion Begins [7:55]
12: Contagion Engulfs Asia [7:13]
13: Russia Defaults [2:31]
14: The Crisis Reaches America [7:07]
15: The Global Debate [2:49]
16: The Battle Joined [5:08]
17: Failure at the Summit [4:58]
18: The Global Divide [2:33]
19: Capitalism Redefined [7:00]
20: The Bottom End of Globalism [4:46]
21: Changing of the Guard [3:04]
22: The Battle Resumed [6:38]
23: 9/11 [4:27]
Chapter 1: Prologue [6:14]
NARRATOR: The attack on America raised so many questions,
among them, questions about the dangers of the new world
economy. Is terrorism the dark side of globalization?
DANIEL YERGIN, Author, Commanding Heights: Up until
September 11, there was a sense that this movement toward
globalization really was irreversible. And since then there's
been this recognition that things can go in another direction.
NARRATOR: Can our deeply interconnected world deliver
prosperity to everyone?
BILL CLINTON, U.S. President, 1993-2001: And that's
basically the next big challenge, is making this interdependent
world of ours, on balance, far more positive than negative.
And the extent to which we do that will depend on whether
the 21st century is marred by terrorism of all kinds or whether
it becomes the most peaceful and prosperous time the world
has ever known.
NARRATOR: This is the story of how the new global economy
was born, the story of a century-long battle of ideas to
determine who would control the "commanding heights" of the
economy -- central governments or free markets.
In the 1990s, a worldwide capitalist revolution fueled the new
era of globalization, the greatest expansion of world trade in
history.
RICHARD CHENEY, U.S. Vice President: Millions of people a
day are better off than they would have been without
globalization, and very few people have been harmed by it.
NARRATOR: But with the promise came a debate about the
impact of globalization.
GRETCHEN KING, Media Activist, Independent Media Center:
And should the world's wealthiest people really dictate how
the world's economy is going to run?
NARRATOR: Tonight, the battle over who should write the new
rules of the game for the global economy.
GEORGE W. BUSH, U.S. President: Out of the sorrow of
September 11, I see opportunity, a chance for nations to
strengthen and rethink and reinvigorate their relationships.
When nations open their markets to the world, they find in
America trading partners, an investor, and a friend.
NARRATOR: We are living through a revolution. The 1990s
saw the creation of a new kind of global economy, a single
market in which everyone has a stake, but no one has control.
Globalization has brought unprecedented prosperity, but it has
also brought crises and risks we are only beginning to
understand. It has unleashed a worldwide debate about
wealth and poverty, about the "rules of the game" for this
new era of globalization.
DANIEL YERGIN: Historians may well say that a new era
began at the beginning of the 1990s with the end of the Cold
War and the Gulf crises. It was this new era of globalization,
of a world being tied together by flows of investment, of
trade, of ideas, of culture, of people travelling all the time.
And it happened very fast. And as so often happens, the
change came more quickly than the ability of thinking to catch
up and understand the change. But to understand where we
are today and where we're going, we have to understand this
recent past.
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Chapter 2: The Global Idea [3:52]
NARRATOR: No economic idea has shaped the era of
globalization more profoundly than a belief in free, open
markets. Free trade has been a fundamental tenet of
capitalism for over 200 years. But in the 1990s, the global
market created a new reality that no government, no
politician could afford to ignore.
Our story begins in 1992. The global economy was changing
rapidly, but America seemed adrift. A recession had left 10
million workers unemployed. Industries struggled against
intense foreign competition. Europe had formed a single
trading bloc. Japan looked invincible. Japanese companies
were buying up American icons, like Rockefeller Center and
Universal Studios.
In the 1992 presidential campaign, Arkansas governor Bill
Clinton claimed he could get America back on track. He drew
crucial support from America's labor unions and seemed to
promise workers' protection against global competition.
BILL CLINTON: Look at what our competitors do. Look at what
Japan does. Look at what Germany does. We have to keep
investment at home so jobs don't go offshore.
WORKER: You'll stand up against the good old boys to do
that?
BILL CLINTON: Absolutely. What's the good of having a
country if you're going to let it go down the drain?
WORKER: I don't know. Why have we been doing that?
NARRATOR: But at a meeting with Wall Street financiers,
Clinton had discussed a different agenda, an agenda some of
his core supporters adamantly opposed. Financial markets
wanted to rein in government spending, cut the deficit, and
embrace free trade. Without these policies, they thought
America's economy wouldn't recover. Over dinner in an
exclusive restaurant, Clinton tried to persuade some of Wall
Street's most seasoned executives that he saw the world as
they did.
ROBERT RUBIN, Co-chairman, Goldman Sachs, 1990-1992;
U.S. Secretary of the Treasury, 1995-1999: My view was that
the threshold economic issue for our country was to restore
fiscal discipline after a long, long time during which fiscal
discipline had eroded.
Onscreen caption: The U.S. government was $4 trillion
in debt.
BILL CLINTON: I could see that Rubin and the others that
were there in this rather dark place where we had dinner at
night were kind of looking and saying, "Well, you know, can
this guy from Arkansas be president? Could he possibly know
enough about the economy to do it?"
ROBERT RUBIN: After that meeting I thought to myself that
this was a man who cared about what I at least thought we
needed to care a great deal about. Now, on the issue of trade,
he clearly believed in trade liberalization, and that clearly has
been a dividing line in the Democratic Party. It was then, and
it is now.
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Chapter 3: NAFTA: The First Test [5:28]
NARRATOR: Trade became an issue in the 1992 presidential
campaign. Republican president George Bush had negotiated
a treaty that would allow unrestricted flows of trade and
investment between the U.S., Canada, and Mexico.
Onscreen title: NAFTA: North American Free Trade
Agreement
For its supporters, trade embodies an idea: that open markets
create wealth, bind nations together, and help construct a
more prosperous -- and a more secure -- world. NAFTA put
that idea to a political test. In America, it was the first great
debate of the globalization era.
Onscreen title: 1992 presidential debate
ROSS PEROT, Reform Party Presidential Candidate, 1992: You
have to admit that NAFTA, the Mexican trade agreement,
where they pay people a dollar an hour, have no health care,
no retirement, no pollution controls, etc., etc., etc., you're
going to hear a giant sucking sound of jobs being pulled out of
this country.
GEORGE BUSH, U.S. President, 1989-1993: Ross says with
great conviction that he opposes the North American Free
Trade Agreement. I am for the North American Free Trade
Agreement. My problem with Governor Clinton is that one day
he says he's for it, the other he wants to make some changes.
When you're president of the United States, you cannot have
this pattern of saying "I'm for it, but I'm on the other side."
BILL CLINTON: I am the one who's on the middle on this. Mr.
Perot says it's a bad deal; Mr. Bush says it's a hunky-dory
deal. I say it does more good than harm if we can get the
Mexicans to live up to their own labor standards, their own
environmental standards, and if we have genuine protection
for workers displaced in America.
NARRATOR: Once in office, Bill Clinton's economic policy was
aimed squarely at restoring the confidence of financial
markets. His first term was dominated by the battle to reduce
the deficit.
On trade, the president changed his position, and announced
he would wholeheartedly support NAFTA as it stood.
ROBERT RUBIN: President Clinton gave a speech in the East
Room at the White House that set out how he wanted to
discuss NAFTA with the American people. It was really quite a
remarkable speech. He talked about NAFTA in a much broader
context. He talked about NAFTA in the context of the rapid
changes taking place in the global economy, not only from
trade, but from technological development, spread of marketbased economics.
BILL CLINTON: This debate about NAFTA is a debate about
whether we will embrace these changes and create the jobs of
tomorrow, or try to resist these changes hoping we can
preserve the economic structures of yesterday. Nothing we do
in this great Capitol can change the fact that people can move
money around in the blink of an eye. I tell you, my fellow
Americans, that if we learned anything from the collapse of
the Berlin Wall and the fall of the governments of Eastern
Europe, even a totally controlled society cannot resist the
winds of change that economics and technology and
information flow have imposed in this world of ours.
NARRATOR: To some of his supporters, the president's change
of heart on NAFTA was nothing less than a sellout.
THEA LEE, Assistant Director for International Economics,
AFL-CIO: The AFL-CIO, the labor movement in the United
States, opposed NAFTA as it stood because we saw that as a
corporate-dominated trade and investment agreement, one
that served the interests of multinational corporations, that
improved their flexibility, their mobility, their clout. And at the
same time NAFTA did nothing to protect the rights of workers
to form unions, to bargain collectively, and to really raise their
voices in the political system so that workers could be
formidable countervailing power to multinational corporations.
I think Clinton did sell out his traditional blue-collar supporters
on the NAFTA issue, and a lot of people haven't forgiven him
for that.
BILL CLINTON: Our adversaries tried to make it look like the
whole American establishment's on one side and the little
guys are on the other. And they could, you know, stir that
fear factor, and it was a tough sell. It was a tough sell.
NEWT GINGRICH, Speaker, U.S. House of Representatives,
1995-1999: I thought it was the most of courageous act of his
presidency, and we worked with him very hard. The
Republicans in the House provided a much bigger percentage
of the votes than the Democrats did.
NARRATOR: Sixty percent of congressional Democrats voted
against NAFTA. It passed only with Republican support.
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Chapter 4: Crossing Borders [3:30]
Onscreen caption: Tijuana, Mexico
After NAFTA became law, thousands of foreign companies
built factories in Northern Mexico, exporting goods to the
American market just a few miles away. Eighty percent of all
televisions sold in the U.S. are now made here. Nearly a
million workers found new jobs along the border in Northern
Mexico.
MARIA ISABEL, Factory Worker, Tijuana, Mexico: I have two
children. In the South I didn't have a job and couldn't give my
children what they need. I left them behind with relatives and
came here to find work. I found a job in a television factory. I
earn enough to send some money home to my children. I
couldn't do that before.
JORGE CASTANEDA, Foreign Minister of Mexico: This is a
country of about over 100 million people. There is no question
that those 10 to 12 million people who live in the North and
the border area are not doing badly by Mexican standards.
And it has become more industrialized, with more jobs, higher
wages, better social indicators, etc. The North has benefited
undoubtedly. The people in the South are doing very badly by
Mexican, or by anybody's, standards.
NARRATOR: Forty percent of Mexico's population lives in
poverty. Mexico's embrace of NAFTA and free trade was part
of a broader change in thinking within developing countries.
Their governments increasingly saw open markets as the key
to economic growth.
VICENTE FOX, President of Mexico: I worked 15 years for
Coca-Cola. I started as a route salesman. I started right from
the bottom. And I learned that discipline, that hard work, that
talent is the way to succeed. I have always seen globalization
as an opportunity. Just the trade agreement with the United
States has moved our total trading, which was six years ago
US$40 billion, today is US$280 billion in just six years.
Nobody loses. Everybody can win.
THEA LEE: Obviously trade has increased; investment has
increased. And if the only metric you use to measure whether
NAFTA has been a success or not is the volume of trade, then
NAFTA is tremendously successful. And yet most normal
working people, most normal citizens don't watch the volume
of trade. Companies have been more aggressive and
threatening to move production to Mexico. They've succeeded
in bargaining down wages and opposing unions. And so in a
lot of different fronts we think that NAFTA has shifted the
balance of bargaining power in the continent of North America
towards multinational corporations.
NARRATOR: Since NAFTA came into effect, about 400,000
American jobs have been "adversely affected" by trade with
Canada and Mexico, according to the U.S. government.
Exports to these countries have created more than a million
new jobs, and over the '90s, global trade nearly doubled.
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Chapter 5: The Global Market [3:48]
NARRATOR: We tend to think of trade as products and goods
moving across borders. In fact, the biggest trade of all can't
be seen. It is money, the continuous, 24-hour worldwide flows
of stocks, bonds, and currencies. In the 1990s, practically
anyone with savings in a pension or mutual fund became an
investor in the global market.
Onscreen caption: Trade in goods and services: $8
trillion
Trade in currencies: $288 trillion
DANIEL YERGIN: I was at a dinner, a so-called thinkers'
dinner at the White House before one of the State of the
Union addresses, and there's this great discussion among all
the people around the table about markets, about "them out
there," that it's somebody different. Finally I raised my hand
and said: "With all due respect, the market isn't just them;
it's us. It's our aggregated retirement savings; it's our pension
plans. That's what the markets are."
Onscreen caption: Sacramento, California
NARRATOR: The state of California runs one of America's
largest pension funds. The fund, known as CalPERS, manages
the retirement savings of over a million state employees.
Onscreen caption: CalPERS
California Public Employees' Retirement System
Assets: $150 billion
For decades, CalPERS invested only in America. But in the era
of globalization, that changed. A quarter of its money was
invested overseas. At one point, CalPERS controlled 5 percent
of France's entire stock market.
French television sent a crew to investigate.
MARY COTTRILL, Principal Investment Officer, CalPERS: They
were filming in my office, and I had a salad on my desk
because it'd been just a very hectic day. We were talking
about some figures on my computer, but they kept filming
this salad, and I got the feeling that, you know, the story was
going to be, "The Americans are coming, and they're going to
ruin the French way of life. We're all going to be eating salads
at our desk and working 12 or 14 hours," which, of course, is
not true at all. But I think it was just a fear, I think, that
we've see in the news that globalization means
Americanization.
NARRATOR: Pension funds became the powerhouses of the
global economy because they had the money.
BILL CRIST, President, CalPERS: Because the world is getting
smaller and smaller, as we say, and the growth of the global
economy, as we say, this is... The real source of change in
today's world, whether anybody likes it or not, increasingly
are large pension funds.
Onscreen caption: Americans have $11.5 trillion
invested in pension funds.
INVESTOR: I have some of my own mutual funds overseas,
and they seem to be doing pretty well right now.
INVESTOR: I think with respect to CalPERS, they have a
fiduciary responsibility to seek those markets out and get the
best return for their shareholders.
INVESTOR: We can't keep everything in the United States.
You keep things in the United States, it's still not in the United
States, because so many companies are global. Everything is
global; everything is interconnected.
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Chapter 6: Emerging Market Hunters [5:01]
NARRATOR: With the end of the Cold War, many nations
opened their markets to foreign investment for the first time.
Funds like CalPERS saw new opportunities and hired money
managers to scour the Third World, now renamed "emerging
markets."
Onscreen caption: Mark Mobius
Templeton Emerging Markets Fund
Travels to 15 countries per month
Manages $6 billion
MARK MOBIUS, Manager, Templeton Emerging Markets Fund:
The whole rationale is that these emerging countries grow
faster, so what we're trying to do is capture that growth, and
of course make money for investors. But of course the risks
are very great, because there's no free lunch. If you want to
capture that growth you've got to take many more risks. So
there's a balance, and of course it's our job to try and
minimize the risks and maximize the returns. It doesn't
always work out that way, but that's the objective.
NARRATOR: As investment flowed around the world, the
Clinton administration expanded the trade agenda it adopted
with NAFTA. The U.S. encouraged developing countries to
continue opening their economies to the global market.
BILL CLINTON: I favored a very aggressive policy. I thought
the emerging countries -- both emerging economically and
those that were new democracies -- had a better chance to do
well economically and politically if the wealthier countries
opened our borders and made trade agreements with them,
and if in turn they opened their borders not only to trade, but
to investment. I thought that economic policy and traditional
foreign policy would tend to merge.
LAURA TYSON, Chair of the U.S. National Economic Council,
1993-1995: This is how it worked. If you go back to the first
term, a lot of the international approach of the administration
on economic issues was to break down barriers to U.S. firms.
We are going to engage our trading partners and encourage,
cajole, or convince them to bring down their barriers.
NARRATOR: Many developing countries had been colonies of
the West. Although they now wanted long-term foreign
investment, some saw fast-moving flows of money as a new
threat to their independence.
MAHATHIR BIN MOHAMAD, Prime Minister of Malaysia: Once
communism was defeated, then capitalism could expand and
show its true self. It's no longer constrained by the need to be
nice, so that people will choose their so-called free-market
system as opposed to the centrally planned system. So
because of that, nowadays there is nothing to restrain capital,
and capital is demanding that it should be able to go
anywhere and do whatever it likes.
NARRATOR: Some called it "the triumph of capitalism." During
the 1990s, more countries than ever adopted market
economics.
As an economics professor, Bill Crist had taught a course
comparing Marxist and capitalist theory. As president of
CalPERS, the California state pension fund, Crist came to
believe that only open markets could ensure global stability.
BILL CRIST: If we don't reach out to these emerging markets,
if we don't be evangelists, if you will, and try to encourage
them to reform and invest some of our capital funds into
these markets, taking advantage of those opportunities, if we
don't do that, I'm afraid that some of the predictions that
were made a long time ago by Karl Marx and Mr. Engels and
others [will come true, and] that there will indeed be a
confrontation between the haves and the have-nots that can
bring the entire system down.
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Chapter 7: Averting a Meltdown: 1994 [4:56]
Onscreen caption: Mexico, January 1994
NARRATOR: The very day NAFTA came into effect, Zapatista
rebels launched an uprising in Southern Mexico. Shortly
afterward, the leading presidential candidate was
assassinated.
Worried about stability, foreign investment began to flee. The
global economy was about to face a new kind of crisis.
Onscreen caption: Washington, December 1994
ROBERT RUBIN: Christmas vacation, I was fishing down in the
British Virgin Islands, and Larry Summers [U.S. Secretary of
the Treasury, 1999-2001] called me, and he said, "There's
some problems in Mexico I'd like you to know about." And I
thought to myself that it was nice of Larry to call on the one
hand; on the other hand I'm on vacation, and, you know,
Mexico today, it'll be some other country tomorrow, and I
don't know why this can't wait till I get back. Well, it turned
out that this was not just another country. It was a very, very
serious matter.
NEWT GINGRICH: I was at a restaurant, and they came and
said, "The secretary of the Treasury is on the line," and I got
on the line, and he said: "Greenspan and I have a problem.
(laughs) And we believe if we don't move very decisively that
the Mexican peso will implode. If it implodes, the Mexican
government will become very unstable, and we believe you
could have a wave of five to nine million people walking north
to find jobs."
ROBERT RUBIN: He understood it very quickly, and I
remember his saying, "This is the first financial crisis of the
21st century."
NEWT GINGRICH: I said to him, "This is the first real-time,
worldwide financial crisis of a kind that will become very
normal." And so I said, instinctively, "I'll back you."
Onscreen caption: Robert Rubin called an urgent
meeting at the Treasury.
Mexico was about to default on its foreign debt.
ROBERT RUBIN: It was fascinating, because we had Mexico,
which we really did think was facing default, and we had
enormous political problems accomplishing what we felt we
needed to accomplish to support Mexico, to try to prevent this
from happening, and we all knew that while we believed the
program we were recommending was right, there was some
risk it wouldn't work.
LAURA TYSON: You go in and say to the president: "Here is a
big crisis that could happen. We can tell you something to do
about it. We can't tell you it's going to work. It's very risky,
and we know it's extremely unpopular, but we think you
should do it anyway."
Onscreen caption: The president's advisors
recommended a loan package to Mexico: $50 billion.
BILL CLINTON: Somewhere between five and 10 minutes I
listened to all of this. I say: "Well, this is a no-brainer. We've
got to do this. If we don't do this, Mexico will certainly fail.
Then the borders will be flooded with illegal immigrants who
are starving and need food and a job. We'll have an enemy on
our Southern border, people that will remember when they
were down and they were in need [and that] we were not a
good neighbor, and we will pay hugely for that. All over the
developing world, people who look at us and think that we are
smug and rich and unresponsive and don't care about
anybody else will have all that confirmed. If we help, at least
people will know we tried in a good cause, and it will resonate
throughout the developing world."
NARRATOR: The bailout worked. Mexico paid back the loan -early.
For some, the intervention set a dangerous precedent:
protecting big investors from risks they had willingly taken.
LARRY LINDSEY, Assistant to the U.S. President for Economic
Policy: Remember, the people that got bailed out were foreign
holders of Mexican obligations, so in a sense we were trying to
bail out our own citizens. But it signaled to banks and other
rich investors that the U.S. Treasury at that time was going to
adopt a bailout policy. People who take risks should bear
those risks. They got the reward for them; they should take
the downside.
NARRATOR: As the Mexican crisis made clear, technology had
transformed financial markets: Money could literally be moved
across borders in seconds.
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Chapter 8: The Global Village [6:47]
NARRATOR: During the 1990s, technology, too, leapt over
national borders, spreading commerce and ideas.
DANIEL YERGIN: It's hard to believe that at the beginning of
the 1990s, e-mail was virtually unknown; most people didn't
have it. And a decade later it was everywhere, and it would
just become part of people's lives. And so this
communications network is so powerful. The price of
telephone calls plummeted. The number of telephone calls
around the world skyrocketed. And people are in contact and
connected in a way that had never happened before.
NARRATOR: In two decades, the number of international
phone calls from the U.S. increased from 200 million to 5.2
billion.
This AT&T control center handles 300 million calls each day.
Americans were often connected to the developing world
without even knowing it. Consumers checking their credit-card
balance could be routed seamlessly to call centers like this
one in India, where operators identify themselves with madeup American names.
OPERATOR, Call Center, India: Good evening. My name is
Tracy. How can I help you?
NARRATOR: In a remote Indian village, farmers took their
crop to market as they had for generations, But an Internet
connection ensured they were now paid the world price for
their crop, a price set at the Chicago Mercantile Exchange
8,000 miles away.
This borderless world created a new kind of businessperson.
Entrepreneurs could now think like multinationals, and see the
entire world as a single market. Narayana Murthy understood
this revolution earlier than most.
NARAYANA MURTHY, Founder and CEO of Infosys Technology:
We were all children of a different generation. We were all
mesmerized by the charisma of Nehru. Nehru believed in
central planning; Nehru believed in socialism. But then I
realized that if you want to eradicate poverty, you don't do it
by redistribution of existing wealth; you have to create more
wealth. And that's when I got somewhat disillusioned by the
socialism as is practiced in India.
NARRATOR: With only $250, Murthy helped found a computer
software company. His headquarters in Bangalore became the
world's second largest software campus. Only Microsoft's was
bigger.
Thirty percent of the world's software engineers are from
India.
NARAYANA MURTHY: You know, I define globalization as
producing where it is most cost-effective, selling where it is
most profitable, sourcing capital from where it is without
worrying about national boundaries.
Onscreen caption: Silicon Valley, California
NARRATOR: People as well were becoming increasingly
mobile. America relaxed its immigration laws, attracting a
huge influx of high-tech workers from across the developing
world.
PROGRAMMER, Silicon Valley: This is the land of opportunity.
This is the place; this is the happening place, so many people
come here.
PROGRAMMER, Silicon Valley: This is a place of opportunity.
We get a chance to prove ourselves. We get a chance to prove
ourselves, to show our skills.
Onscreen caption: Two hundred thousand Indians
found jobs in Silicon Valley.
NARRATOR: In many ways, Silicon Valley was the spiritual
center of the new global village -- the source not only of its
technology, but of its entrepreneurial ethos.
The Draper family had invested in entrepreneurs since the
1950s, when they brought venture capital to Silicon Valley. In
the early '90s, Bill Draper's son Tim funded Hotmail. Its
instant global success convinced him that the world was
fundamentally changing.
TIM DRAPER, Venture Capitalist: We knew the Internet was
going to change the whole way the world worked. You could
do commerce; you could do communication; you could do all
these things over the Web. India and Africa, Pakistan, China
had all been trapped, and they were not really participating in
the world economy. They could now. They could because now
they could communicate with the rest of the world through
this Internet. It was a big opportunity, and we saw it; we
jumped on it.
I think entrepreneurship can happen anywhere. All it takes is
someone with a vision and an idea for how to do something
better.
NARRATOR: One of the Drapers' best investments was in
David Lee, the first foreign-born American to take a high-tech
company public.
DAVID LEE, Entrepreneur: When we came over we had
nothing -- $600, 20 kilos of clothes. And this society provided,
gave us opportunity and everything.
CECILIA LEE, Wife of David Lee: Being an entrepreneur
sounds very good, but being a spouse is very difficult,
because most of the time he's traveling or he's not home. I
raised my three children by myself. And sometimes he doesn't
remember how old they are.
NARRATOR: David Lee manufactures high-end telephones. He
embodies the new breed of global entrepreneur.
CECILIA LEE: Don't eat too much.
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Chapter 9: China and the Tigers [5:35]
NARRATOR: In the early '90s, David Lee returned to his
homeland for the first time in over four decades.
Onscreen caption: Shanghai, China
DAVID LEE: I was always afraid to go back to a communist
country. I was born in Beijing, actually right in Tiananmen
Square. And we left there after the revolution in 1949. We
were very lucky we were able to leave the country. We were
like the boat people on top of a cargo ship. We left everything.
The only thing [we had] is whatever we could carry.
This is a free-trade zone. Anything you do in here you don't
have to pay tariff, or you can build the thing and then ship it
out for export purposes.
NARRATOR: David Lee set up a joint venture in a free-trade
zone near Shanghai. Lee saw firsthand a China in the midst of
epic economic transformation.
China's Communist leadership had embraced markets and
welcomed hundreds of billions of dollars of foreign investment.
Almost one-quarter of the world's population was entering the
global market for the first time.
Onscreen caption: Economic reforms lifted 300 million
Chinese out of poverty.
In villages across China and throughout the developing world,
people left their rural homes. They traveled to industrial
towns, seeking work in new factories built to serve the global
market.
The era of globalization saw the largest wave of human
migration in history. Eighty percent of the world's future
economic growth is expected to occur in cities rather than the
countryside.
LIN SHENGXIN, Factory Worker, China: I was a schoolteacher
in the countryside. At that time I only earned 100 a month.
My parents are both farmers, so we lived a very poor life. But
now I'm earning 3,000 a month. My life is totally different. My
child is going to school here, near the factory. So we are living
a much, much better life now.
Onscreen caption: Singapore
NARRATOR: China's leaders hoped to emulate the "tiger
economies" of Southeast Asia, where trade and investment
had transformed once-impoverished nations.
LEE KUAN YEW, Senior Minister of Singapore: When the
British came here in 1819, they found a fishing village of
about 120 people. When the empire broke up, everybody
wanted to do their own trading, and we could easily have
withered on the vine. So we just had to make ourselves
relevant to the world. And the countries that make themselves
relevant become better off; their people become better off.
Those who opt out, they suffer.
NARRATOR: Since the 1970s, the countries of Southeast Asia
had become became world-class exporters, shipping
everything from cars to computers across the globe.
DANIEL YERGIN: They called it the Asian economic miracle
because the world had not really seen that kind of economic
growth, that many people brought out of poverty, that rapid a
creation of a middle class so quickly anywhere in the history
of the world.
NARRATOR: By the mid-90s, many Asian economies were
growing at the astonishing rate of 10 percent or more each
year.
LEE HSIEN LOONG, Deputy Prime Minister of Singapore:
There was a tremendous confidence and hope that this was
the Asian century, and the place was being transformed, and
you just had to put money there and it would grow on trees.
DANIEL YERGIN: I remember the CEO of one major company
in about 1995 or so saying, "If we're not investing in Asia
tomorrow, we're too late."
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Chapter 10: The Japanese Paradox [3:01]
Onscreen caption: Tokyo, Japan
NARRATOR: Yet there was one big exception. Japan, the
world's second largest economy, had fallen into a deep,
unexpected slump that shook the confidence of its people.
KAORI MARUYA, Parliamentary Secretary for Foreign Affairs,
Japan: Japan was in the so-called bubble economy, and at
that time the Japanese people were not very careful about
debt. After the collapse of the bubble economy, people came
back to reality and came down from their dreams.
Onscreen caption: Japanese banks hold $1 trillion in
bad debts.
NARRATOR: Japan's economy once looked unstoppable, but it
was slow to adapt to the rapid changes of a fast-moving,
interconnected world.
EISUKE SAKAKIBARA, Vice Minister of Finance, Japan, 19971999: Japan is a very sort of parochial and very closed
economy; there's no question about it. Walk around the
Japanese cities, you don't see many foreigners.
NARRATOR: Japan, the great exporter, protected its domestic
industries. At the heart of the country's economic problems
lay a contradiction.
EISUKE SAKAKIBARA: One sector of the Japanese economy is
an export-oriented sector which is highly competitive,
consisting of Toyotas and Sonys. And the other is domestic
manufacturing sector which is extremely uncompetitive. We
have a market-oriented capitalistic system on the one hand;
we have a very socialistic, egalitarian sector on the other.
NARRATOR: In Japan, government bureaucrats managed a
highly regulated economy. As Masahisa Naitoh was to learn,
ideas about change met with profound skepticism.
MASAHISA NAITOH, Ministry of Trade and Industry, Japan,
1961-1993: I wanted to deregulate our financial system. The
new global markets of the 1990s created a new reality. I said
we had to change for Japan to thrive in the new world
economy. My colleagues in the government criticized me.
They said that it was in the best interest of Japan that my
ideas be destroyed.
NARRATOR: Naitoh was fired without warning. Japan stuck to
its old ways, and the nation's economic slump continued. For
the first time, an Asian "economic miracle" was in trouble.
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Chapter 11: Global Contagion Begins [7:55]
Onscreen caption: Bangkok, Thailand
By early 1997, Southeast Asia's rapid economic boom was
overheating. Sirivat Voravetvuthikun was one of many who
thought the good times would never end.
SIRIVAT VORAVETVUTHIKUN, Former Real Estate Developer,
Thailand: Ever since I was a child, I have been wanting to be
a multimillionaire. I wanted to be rich. I wanted to do
something that no one has done -- build a luxurious
condominium. I knew a lot of rich people and multimillionaires
would like to take time off to play golf, to enjoy the fresh air
in the mountains, which you cannot find in Bangkok.
I looked at the golf course. It's designed by Jack Nicklaus. I
put my effort into making it one of the most beautiful
condominiums in Thailand. Still today, with the mountains in
the background, with a fairway and a lake in front of the
condominium, it's really beautiful.
ANAND PANYARACHUN, Prime Minister of Thailand, 19911993: People were just buying apartments and condominiums
like they were gambling. And they were tempted by this easy
money, tempted by this easy profit.
NARRATOR: During the '90s, Thailand had opened up its
capital markets. For the first time, local businesses could
borrow money from foreign banks which offered lower interest
rates.
ANAND PANYARACHUN: People would come and knock on
your door and plead with you to borrow, be they European or
Japanese banks. The Western financial world, the banks or the
financial companies, they came and begged us to borrow from
them.
NARRATOR: In just four years, loans to Thai businesses had
tripled to over $200 billion. American and European
governments encouraged the inflow of money.
ROBERT RUBIN: Oh, yeah. We were very strong advocates of
opening up capital markets and the benefits that could flow
there from, but we were also strong advocates at the same
time, because we recognized the tie of developing the banking
systems, the capital markets, and developing regulatory
systems, none of which is easy.
DANIEL YERGIN: And there was an underlying flaw in the
system that people really didn't focus very much on, which
was the institutional weakness. What that meant is the
banking systems were not well developed; securities laws
were not well developed. They had not kept up with the
development of these economies and their integration into the
world economy.
NARRATOR: Thailand's Central Bank had kept its currency
artificially high, fueling the speculative bubble.
The International Monetary Fund, which acts as a bank of last
resort to countries in financial trouble, began to worry that
Thailand was heading for a fall.
STANLEY FISCHER, First Deputy Managing Director,
International Monetary Fund, 1994-2001: I went to Bangkok
in May 1997. It was full of cranes everywhere, and it looked
like the boom would never end. But they were very weak
banks who were lending against buildings which were never
going to be filled.
NARRATOR: Muang Thong Thani was a sign of the times -- a
"new city" built from scratch for 700,000 people. It was meant
to be bigger than Boston. But almost no one was moving in.
MARK MOBIUS: The vision was great. The vision was to take
this huge tract of land and build a city, basically. between the
downtown congested Bangkok and the airport. So the concept
was excellent. The problem was it was financed by U.S.
dollars.
NARRATOR: Thailand's currency, known as the baht, was
pegged to the dollar. As the Thai economy weakened,
financial markets sensed this policy couldn't last.
STANLEY FISCHER: Thailand had fixed the value of its
currency in terms of dollars. It had a fixed exchange rate. And
as people began to wonder, "Well, do they actually have
enough dollars to always be able to give me dollars in
exchange for the baht, the Thai currency I have?," and when
they begin to wonder about that, they start asking for the
dollars, and then they attack the currency.
MARK MOBIUS: The Central Bank kept saying no, no, no. And
they were shelling out the U.S. dollars to protect the currency.
So their foreign reserves were dwindling, and of course any
hedge fund manager looking at that would say, "Hey, these
guys are going to be in trouble, and I'm going to short the
Thai baht."
NARRATOR: The baht came under relentless market pressure.
In July 1997, the Thai government was forced to devalue.
The bubble had burst. The Asian financial crisis was about to
begin.
SIRVAT VORAVETVUTHIKUN: When the crisis hit, I realized
my fate. I could not sell a single unit when the crisis hit.
My condominium is called the American dream home, dream
condominium. But we are broke. Even my clients who were
multibillionaires are broke also.
NARRATOR: The economic shock reverberated throughout all
levels of Thai society.
PANJIT NIYOMDET, Factory Worker, Bangkok. Thailand: When
the economy went bad, my husband's salary was cut 30
percent. I was lucky; I kept my job, but I didn't get a raise.
To support our family, my husband had to find other work.
NARRATOR: The cost of living was rising. Everything was
going up -- water, electricity, even soap. But the salaries were
staying the same, or going down.
With its economy in a virtual free fall, Thailand received an
emergency rescue loan from the International Monetary Fund.
When that didn't work, the Thai government asked
Washington for even more help.
No one imagined that an economy as small as Thailand's could
spark a global crisis.
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Chapter 12: Contagion Engulfs Asia [7:13]
LAURA TYSON: Thailand is a very small economy. It didn't
have a lot of links, and it's not exactly in your backyard. So in
any event, the U.S. chose not to intervene in Thailand,
thinking it was not going to spill over. Why would it? The
contagion effects were not apparent to anybody, not just the
administration.
LEE HSIEN LOONG: I think they misjudged the situation. They
misjudged the situation, probably because it was seen too
much as a financial issue rather than an overall strategic
issue.
NARRATOR: Global markets worried that other Asian countries
might have similar hidden flaws. Like a classic run on the
bank, money began to pull out of the entire region. They
called it contagion.
Onscreen caption: $116 billion flowed out of Southeast
Asian markets.
DANIEL YERGIN: And at each stage, the crisis turned out to
have a virulence that became known as contagion, much
greater than anticipated. And what that really reflected was
indeed globalization, was the way these economies had
become locked together and investors looked at emerging
markets. They said there was a problem in Thailand; well,
then there's a problem in these other countries. And so each
step of the crisis created these shock waves that carried on
into the next.
Onscreen caption: Kuala Lumpur, Malaysia, July 1997
NARRATOR: Contagion spread to Thailand's neighbors.
Malaysia's economy had seemed stable. Suddenly, it, too, was
facing relentless pressure from global markets.
MAHATHIR BIN MOHAMAD: We have the currency going down
and down and down, and we have the stock market doing the
same. The index kept on going down, no matter what we do.
And we felt totally helpless. We felt that there was no way we
could recover. So, I mean, the feeling was very bad, very
frightening.
Onscreen caption: Jakarta, Indonesia
NARRATOR: Contagion next hit Indonesia, the most populous
country in the region. Its government collapsed; its cities
descended into chaos.
LEE KUAN YEW: The fund managers didn't know the difference
between Indonesia and Malaysia, Thailand, Singapore. They
just said, "I want out." Property prices collapsed; companies
collapsed. And in the case of Indonesia, the social fabric
collapsed. Churches have been burnt; mosques have been
attacked; they have killed each other. This will take years to
heal. And it's all the fallout of an economic collapse.
NARRATOR: This was a new kind of financial crisis, unlike
anything the International Monetary Fund had ever
encountered. The IMF organized huge loans for Indonesia and
other Asian nations, on the condition they cut government
spending, raise interest rates, and eliminate corruption.
STANLEY FISCHER: You're the doctor going in to deal with a
very sick patient. The public blames the doctor for the fact
that the patient is sick, but the patient was sick to begin with.
But these things are societally wrenching, and there are huge
vested interests, and you wouldn't get into these crises if the
vested interests weren't that important. That I think is why it
takes political change to deal with a crisis as big as this.
NARRATOR: To some of the region's entrenched leaders, the
IMF's conditions smacked of a new kind of colonialism.
MAHATHIR BIN MOHAMAD: Presently we see a well-planned
effort to undermine the economies of all the Asian countries
by destabilizing their currencies.
In the old days you needed to conquer a country with military
force, and then you could control that country. Today it is not
necessary at all. You can destabilize a country, make it poor,
and then make a request for help, and for the help that is
given, you gain control over the policies of the country, and
when you gain control over the policies of a country,
effectively you have colonized that country.
NARRATOR: The market forces were simply too powerful for
the IMF, or any government, to contain. In late 1997,
contagion reached Korea, one of the most successful
economies in the world.
EISUKE SAKAKIBARA: It was unbelievable that the crisis had
spread as quickly as to Indonesia and Korea, and within a
matter of six months or seven months. But the world was
much globalized that we thought it was at that time.
Onscreen caption: Seoul, Korea, December 1997
ROBERT RUBIN: In the last week of December of 1997, the
11th largest country -- economy, rather -- in the world, which
was Korea, had roughly speaking $4 billion of reserves left
and was using reserves at the rate of $1 billion a day. Well, it
didn't take a great deal of quantitative insight to see that that
was not a long-term viable situation.
NARRATOR: Korea had been misleading the world, claiming it
had enough money to withstand the crisis. The IMF's Stanley
Fischer arrived in Seoul to inspect the Central Bank's
accounts.
STANLEY FISCHER: I visited Korea a couple of days before
they turned to the IMF for help, and it was a circus
atmosphere. It was a state of panic, and it was at that point
that I went to the Central Bank and was shown how much
money was left in the Korean Central bank. It was essentially
all gone.
NARRATOR: Korea was about to default on its loans from
Japanese and Western banks. Pressured by their
governments, the banks agreed to share some of the pain:
They rolled over their loans. Korea was then given the largest
bailout in history.
Onscreen caption: Korea received $55 billion in new
loans and credits.
LEE HSIEN LOONG: If they had done that in Thailand, I think
that they would have not only avoided some economic
problems, but I think that a sense in Southeast Asia that the
Americans were really on the side of putting things right
would have been stronger.
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Chapter 13: Russia Defaults [2:31]
WILLIAM McDONOUGH, President, Federal Reserve Bank of
New York: Then a very, very strange thing happened. From
about the first of February until the beginning of August, there
was a period in which financial markets essentially decided
that risk didn't exist anywhere.
Onscreen caption: Moscow, August 1998
NARRATOR: Markets thought contagion had been contained in
Asia. Investment flowed elsewhere. Some came to Russia,
where the Moscow stock market was the best performing in
the world. But economic reforms had stalled, and Russia was
heavily in debt. Even so, investors were convinced they'd
found an emerging market that couldn't fail.
WILLIAM McDONOUGH: Investors had decided Russia is an
ex-superpower; it has lots of missiles and lots of atomic
warheads -- certainly you could not have a financial accident
in Russia, because the rest of the world, the rich countries,
would bail Russia out. Well, it turned out that that was wrong.
NARRATOR: Russia defaulted on its debt. Its currency
plummeted. Global investors were stunned.
WILLIAM McDONOUGH: All these people who in the previous
seven months had decided there was no risk anywhere
literally panicked and decided there's got to be massive risk
everywhere. Behind each fence and barnyard wall there must
be a risk that we hadn't though of, you know, like the
redcoats retreating from Lexington.
NARRATOR: Everywhere, markets were freezing up. The
economic crisis seemed to have taken on a life of its own.
ROBERT RUBIN: I thought at the time that I had a pretty good
sense of what was going on. But what I didn't know, and
nobody could possibly have known, was not what was going
on at the moment that you were looking at, but what was
going to happen at the next moment.
RICHARD GEPHARDT, Democratic Leader, U.S. House of
Representatives: When you get in a room with both Alan
Greenspan and Robert Rubin and they say they're scared to
death, and they've never seen anything like this, and they're
worried about whether they can get through it, I get worried,
because they know a heck of a lot more about it than I do.
You had the contagion sweeping across the developing
countries. As Rubin said, we'd never seen that before. I mean,
maybe in the Depression they saw that over a period of time,
but nothing happened that quickly.
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Chapter 14: The Crisis Reaches America [7:07]
NARRATOR: Now the crisis had reached America. A littleknown but powerful private investment fund was on the brink
of bankruptcy.
Long Term Capital Management, or LTCM, directly controlled
$100 billion of global assets and, indirectly, more than a
trillion dollars.
JON CORZINE, Co-chairman, Goldman Sachs, 1994-1999: The
'90s saw a huge buildup in concentrations that we had never
seen on a global scale. Maybe we had way back in history.
Maybe the Romans had financial institutions that were
disproportionately large to the overall activity of the world
that they operated in, but LTCM was a specific type of hedge
fund. They were involved whether it was the Singapore
exchange, the Tokyo stock exchange, the London stock
exchange, the New York. There was no market that they
weren't [involved in] -- maybe the largest player, or close to
the largest player.
NARRATOR: By September 1998, LTCM's losses were spiraling
out of control. Contagion had arrived on Wall Street.
Incredibly, the failure of this single investment fund
threatened the entire global economy.
DANIEL YERGIN: If LTCM went down, it would be just the
gears, the machine just stopping, the economy not working.
And of course it's not just what's on the balance sheet of
banks and so forth, but that would translate into people not
working, businesses not operating, small businesses not being
able to get their capital they need. And this in a global
economy. It was almost inconceivable to see what the picture
was, but it was sort of just not working, and people just not
working.
NARRATOR: The New York Federal Reserve summoned
representatives of major U.S. and European banks to an
urgent meeting. Jon Corzine, then at Goldman Sachs, was
among them.
JON CORZINE: The real problem of Long Term Capital was
nobody really understood all the downsides. All one knew was
it was going to be extraordinarily dangerous to enter into that.
And everybody, I think, understood the Fed's concern that
that had real implications to the real economy.
NARRATOR: Since LTCM was a private fund, the government
could not impose a solution. The fate of the global economy
was in the hands of these bankers.
WILLIAM McDONOUGH: The head of a securities firm or a
bank is not paid to be a patriot. He or she is paid to serve the
best interests of the shareholders, so the most that one could
do in a position like mine is to say the public interest may well
be served by Long Term Capital Management not failing, but
there is no public-sector money to solve the problem. The
taxpayer is not going to do this. You folks have to decide
whether it's in your interest to do it.
NARRATOR: The banks agreed to put up their own money to
rescue LTCM. Wall Street had averted disaster, but the global
crisis had one final chapter to go.
Onscreen caption: Rio de Janeiro, Brazil, December
1998
What had started in Asia now reached Brazil, the eighth
largest economy in the world. But this time, a loan package
was put in place early. Brazil's government cut spending and
enacted reforms.
It worked. Brazil's problems were contained. Global financial
markets gradually returned to normal.
ROBERT RUBIN: Well, and it's not clear when you would say it
ended, but what happened was that the countries that
actually took ownership of reform -- Korea, Thailand, the
Philippines, Brazil -- began to reestablish stability in their
financial markets, and their economies started to recover. And
after a while there came a point we began to feel, "Well,
maybe we're past the crisis." Then a little bit past that we
said, "You know, it does look like we are past the crisis." And
finally we got to the point where we said, "Well, we think this
is over."
NARRATOR: The world economy had survived the first crisis of
the globalization era, but millions of ordinary people had paid
the price.
ANAND PANYARACHUN: And that's the unfortunate part of socalled globalization, because such negative effects can be
totally responsible, can come very fast. It takes decades for a
country to grow up to a certain level, and all of a sudden it
disappears.
SIRIVAT VORAVETVUTHIKUN: We've been a poor country, so
we never tasted richness. When we tasted the richness, we
wanted more, being greedy. I blame myself also; I never had
enough.
Yeah, it's quite a view, and I really feel bad because no one
can enjoy it now. It's all left to the bank. Nice fairway and nice
lake. It's so sad.
I had a big dream and couldn't achieve it. That's why I am
today standing selling things for two hours. But after four
years of struggling, at least I know I have a chance. Today my
big dream is to be McDonald's of Thailand, because selling
sandwiches on the streets, now I've developed a new
Japanese sushi. I use Thai brown rice. I am the first in
Thailand. So hopefully in the near future I will raise my funds
in the local stock market so in the future I will be McDonald's
of Thailand.
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Chapter 15: The Global Debate [2:49]
NARRATOR: The global economy rested on institutions that
dated back to the end of the second world war. The contagion
crisis proved that the new era of globalization needed new
rules.
WILLIAM McDONOUGH: We have to improve the rules of the
game. You want the financial system essentially to be like the
shock absorber in a car. When you hit a pothole the car still
bounces, but have you ever been in one that didn't have a
shock absorber? If you have a good, strong shock absorber, at
least you get through the pothole and you're still driving in
the same direction that you thought you were when you hit it.
LEE HSIEN LOONG: I think the morale is that there are risks
to globalization. But in the end there is no alternative to
globalization. So don't let your banks go lend recklessly; don't
allow bubbles to get out of hand. Keep prudent measures,
sound economic policies which will inspire confidence and
maintain confidence so in a crisis people will know that you
will stay the course and won't panic and be up and off. It's
easier said than done, but these are the principles you have to
follow.
LAWRENCE SUMMERS, U.S. Secretary of the Treasury, 19992001: We had a close call. And without an activist
international policy, you could have seen perhaps a serious
and economic downturn as we'd seen any time since the Great
Depression. And that's why we need to continue to
understand the dynamics of financial crisis better. And that's
why especially the United States needs to be prepared to take
a lead in working to contain financial crises.
NARRATOR: For many Americans, the world financial crisis
created new unease about the risks of the global economy.
LORI WALLACH, Global Trade Watch: People sense the
instability of it. They get indicators of it, but they sense it.
They get indicators like big meltdowns, like the financial crises
in Asia. But they also get indicators of things like, you know,
the local bank which just keeps getting merged and renamed.
And like your card does work, and it doesn't work, and the
name keeps changing every three weeks. And you combine
that with the real financial cataclysms like the Asian
meltdown, and a lot of people in their everyday life are seeing
this sort of out-of-control scenario very personally. You know,
it's out of their personal control.
NARRATOR: For critics like Lori Wallach, this was an
opportunity. Together with allies in labor unions, they began
to channel public anxiety into what came to be known as the
anti-globalization movement.
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Chapter 16: The Battle Joined [5:08]
Onscreen caption: Seattle, December 1999
The World Trade Organization, known as the WTO, manages
the rules that govern global trade. In late 1999, delegates
from 135 nations gathered in Seattle. They planned to launch
a new round of negotiations that would expand trade even
further. Instead, Seattle was a watershed.
DANIEL YERGIN: As one could see from the way Seattle
exploded, it really caught the people of the World Trade
Organization meeting there quite by surprise. The World Trade
Organization meeting became a lightning rod for all of those
people across this very broad spectrum who are concerned by
some aspect of globalization or what they perceive as
globalization or by the causes that animate and move them.
LESBIAN AVENGERS: The WTO, which is led by CEOs of the
company that make bovine growth hormone, get to make
rules saying that these countries can't ban an unsafe product.
NARRATOR: While the protestors represented an array of
interest groups, the majority were from American labor
unions, which had bussed in thousands of their members.
THEA LEE: People came together from all over the world in
Seattle to say that the rules of the current global economy as
embodied in the World Trade Organization are unfair. They're
bad for developing countries, they're bad for workers, and
they're bad for the environment.
NARRATOR: In the 1990s, the expanding U.S. economy
created 17 million new jobs, but unions' share of the
workforce had fallen dramatically. The AFL-CIO blamed cheap
labor overseas. As an example, they pointed to this factory in
China, where workers are paid five dollars a day to make
bicycles once built in America.
THEA LEE: Our workers are in direct competition to workers
overseas. We can't control whether every single job stays in
the United States or not, but it's another thing to lose jobs to
workers who are not represented by independent trade
unions. And so that changes the nature of competition that
American workers face.
NARRATOR: Countries that opened their markets saw their
overall wealth and living standards increase, yet the politics of
trade were less straightforward than the economics.
LAWRENCE SUMMERS: It's always difficult to sell open
markets. There's a basic cost of open markets. Whether it's
somebody losing a job particularly or very obvious, the
benefits are much less clear. Who said on Christmas day,
"Gosh, thanks -- without open markets I would have been
only able to buy half as many toys for my kid"? Or whoever
says, "You know, I'm not that great a worker, but they really
had no choice to promote me given the surge and export
demand"? On the other hand, every job loss that can be
remotely connected to international trade, people do. So this
problem of invisible beneficiaries and visible losers is one that
bedevils the political economy of trade.
THEA LEE: The truth is that the business community has very
good access to the international institution and to their own
governments. And we hit the streets because we feel that we
have a hard time getting our government to listen, or that our
governments are unresponsive to the concerns that we've
raised. And we think we can do better. We think we could
write a set of rules for the global economy that would ensure
that corporations had to live up to a minimum standard.
NARRATOR: But inside the Seattle meeting, the unions'
demands met stiff resistance from the developing world. They
wanted more trade, not less. Poorer countries charged that
America and Europe unfairly protect industries with powerful
union and business support.
JAIRAM RAMESH, Senior Economic Advisor to India's Congress
Party, 1991-1998: The fact is the rules of the game are tilted
in favor of the economically powerful. I understand, I respect
that, and until India is economically powerful we are not going
to be able to influence the rules of the game. Let's take the
textile trade. Now all textile imports into America, for
example, are governed by quotas. Every country is allocated a
certain quota. It's not free trade. It's managed trade. America
is free to sell textiles to us, but we are not free to sell textiles
to America.
NARRATOR: Developing countries forged a negotiating bloc to
make Western markets more open.
DELEGATE: This should not be a time when big countries,
strong countries, the world's wealthiest countries, are setting
about a process designed to enrich themselves.
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Chapter 17: Failure at the Summit [4:58]
NARRATOR: Bill Clinton had been a leading proponent of
expanded trade, but the protests forced him into a political
corner. A presidential election was about to begin, and
Democrats needed union support. In a speech to WTO
delegates, Clinton appeared to side with the protestors on the
streets.
BILL CLINTON: I condemn the small number who were violent
and who tried to prevent you from meeting, but I'm glad the
others showed up, because they represent millions of people
who are now asking questions about whether this enterprise
will in fact take us all where we want to go.
NEWT GINGRICH: I think his speech at Seattle was an
absolute disgrace and an act of strategic defeat for him. I
think they were gearing up for the election, and appeasing the
unions to elect Gore was more important than standing for
free trade.
NARRATOR: Clinton instructed American WTO negotiators to
keep protections for key U.S. industries. The summit ended in
failure. Leaders across the developing world vowed to block
the next round of trade negotiations unless their demands
were taken seriously.
MAHATHIR BIN MOHAMAD: We believe in trade, but we didn't
believe in just being a market for other people. So when you
talk about opening markets, you talk about the rich people
who can manufacture goods with added value and sell them in
our markets, not the other way round.
NARRATOR: Countries like Tanzania that rely on foreign aid
claimed they wouldn't need the aid, if they could only sell
their products to the West.
BENJAMIN MKAPA, President of Tanzania: You see, we talk
about a level playing field, but in fact it is very much tilted in
their favor. We would earn so much more than we are
possibly getting by bilateral aid if those markets were just
open to us, literally by billions.
NARRATOR: Global poverty soon became the galvanizing issue
among globalization's opponents. In the wake of Seattle,
control of the protest movement began to shift from unions to
a disparate network of grassroots activists.
JAGGI SINGH, Activist, Canada: We're trying to move from
the politics of protest to the politics of liberation. It's not
simply trying to create a kinder, gentler capitalism. It's not
simply trying to negotiate the terms of our misery, to make
our misery less miserable. It's about changing the world; it's
about creating institutions, structures, and frameworks,
communities and neighborhoods that are based on our values,
which are values of social justice, of mutual aid, of solidarity,
of direct democracy. And we're a long way from where we
want to go, but we have to start now.
Onscreen caption: World Bank/IMF meeting
Washington, D.C., April 2000
NARRATOR: One of the protestors' next targets was the World
Bank, an institution whose sole purpose is to reduce poverty
in developing countries.
JAMES WOLFENSOHN, President, The World Bank: When you
see someone outside a barricade attacking you vehemently
because of something called globalization, you have to wonder
what it is they're getting at. It enrages me when you have
people who assume they have the moral high ground against
a team of people here who are devoting their lives to
addressing the very questions that these people claim to be
addressing.
NARRATOR: But the protests had become impossible to
ignore. Inside the World Bank and other institutions, officials
struggled to make sense of the growing debate.
NEMAT SHAFIK, Vice President, The World Bank: Well, the
protest movement is multifaceted, and the anger is
multifaceted, but there clearly is a sense of losing control and
a sense of alienation. The old structures and the old
institutions and the old lines aren't working anymore, and I
think we're at a stage where is this extraordinary chaos in
international organizations, in international rules of the game,
that we're trying to define, and we're not there yet. And I
think, like in any chaotic situation when you're in the middle
of it, you don't see the way out, but I think what we're
observing -- the series of protests, the series of engagements
-- is part of the process of coming towards some new
structure for managing a global economy.
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Chapter 18: The Global Divide [2:33]
NARRATOR: Globalization did not cause global poverty, but it
did make us more aware of it. And by creating a single global
market, it raised the question of how that market benefits the
world's poorest nations.
DANIEL YERGIN: We are seeing around the world a movement
towards greater reliance on markets, greater confidence in
markets. But for that confidence to last it has to be seen that
these markets are fair, that they are delivering the benefits
widely, that people are benefiting from them. And if they don't
have that kind of legitimacy, then the confidence is not going
to remain, and the markets will be vulnerable to disruption
and be replaced by other kinds of controls. So every day the
market has to earn and prove its legitimacy, and that's a big
test, particularly in the developing world, where the numberone issue, the central preoccupational concern, is the issue of
poverty, and delivering the goods means lifting people out of
poverty. And that more than anything else is what these
markets would be judged by.
JEFFREY SACHS: Professor of Economics, Harvard University:
The world is more unequal than at any time in world history.
There's a basic reason for that, which is that 200 years ago
everybody was poor. A relatively small part of the world
achieved what the economists call a modern economic
growth. Those countries represent only about one-sixth of
humanity, and five-sixths of humanity is what we call the
developing world. It's the vast majority of the world. The gap
can be 100-1, maybe a gap of $30,000 per person and $300
per person. And that's absolutely astounding to be on the
same planet and to have that extreme variation in material
well being.
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Chapter 19: Capitalism Redefined [7:00]
HERNANDO DE SOTO, Founder and Director, Institute for
Liberty and Democracy, Peru: The problem that's happened
over these last years is that somehow or other people who are
capitalists in countries like the United States considered the
real interlocutors are rich people from developing countries,
so they've been touching the wrong constituency. The
constituency of capitalism has always been poor people that
are outside the system. Capitalism is essentially a tool for
poor people to prosper.
NARRATOR: Hernando de Soto is one of the most original
economists in the developing world. An advisor to Mexico,
Peru, Egypt, and other countries, he seeks to cut through the
old debate about wealth and poverty and reinvent capitalism
in the name of the poor.
CHARLIE ROSE, Journalist and Talk Show Host: Hernando de
Soto has been called the most important economist in the
Third World. He's a champion of market economics and
property rights in Latin America. His new book, The Mystery of
Capital, talks about the question of why capitalism triumphs in
the West and fails everywhere else. Welcome.
HERNANDO DE SOTO: So the important thing about a
capitalist system is that it's a system of representations.
Therefore it's a little bit like when I go to the United States.
People ask me for my identity, and I say: "My identity is me. I
mean, look at my face. I am Hernando de Soto." But the man
at the U.S. immigrations just says, "Look, give me your
passport."
The reason that things travel so well in the market economy
of the United States, and values travel from one place to
another, is because they all have passports. And the real
value is like my identity. It's not in me; it's in my passport.
Real value to pay the hotel room is not in me; it's in the credit
card. And so what happens is that this system by
representation, it requires of course that all the
representations -- the credit cards, the passports, the IDs, the
property titles, and the shares -- be organized by a system of
law that allows people to be able to trust what they're dealing
with.
NARRATOR: In September 2000, de Soto published his
explanation of why capitalism hasn't worked for the poor. He
took his message directly to some of Latin America's most
remote regions.
HERNANDO DE SOTO: The reason I'm going to Cajamarca
now is because 12 years after the fall of the Berlin Wall and
11 years after Peru adopted pro-market policies, their
situation hasn't got much better, and they want to know why.
The Mystery of Capital offers an explanation. It says that the
system per se works in the West, but that in our country, like
in much of the Third World, it isn't functioning because we
have missed some of the crucial elements that the Westerners
added in the 18th and 19th centuries, like property rights,
without which the system cannot function.
Onscreen caption: Cajamarca, Peru
NARRATOR: De Soto's book had become the number one
bestseller in Peru's history. And in poor neighborhoods across
the country, this economist had become a celebrity.
De Soto believes that people are capitalists by nature, but
that in the developing world, most are locked out of the
capitalist system.
HERNANDO DE SOTO: Peru, like in every other developing
and former communist nation, people on the ground, with or
without a property law, have basically agreed on the
distribution of assets among themselves. You go to any of the
places we've been to -- the hinterland of Egypt, of the
Philippines, of Haiti, where there is no official law that is
actually in place or being enforced, but there is another law in
place: You step on somebody's territory, and somebody
comes up and says, "Get off my territory," where there's a law
or no law. You walk down the street, and you walk into a
garden, and the dog starts barking, and you start finding out
that that dog is defending a consensually agreed
determination of possession rights throughout a certain area.
So there are property systems in place. The question, I think,
the important thing is that they're illegal. They're extra-legal,
to be more precise.
Onscreen caption: Kilimanjaro, Tanzania
NARrATOR: In the West, property rights are taken so for
granted, they rarely cross our minds. But in many countries,
these crucial "tools of capitalism" simply aren't available.
In the foothills of Mt. Kilimanjaro, Philip Tesha's family has
grown coffee for generations. He sells directly into the global
market, yet like many in the developing world, he can't prove
that what he owns is actually his.
INTERVIEWER: So who owns the land around here?
PHILIP TESHA, Coffee Farmer, Tanzania: The land is our
property. We brought it from the farmer who was willing to
sell to us. So we brought this land, although we don't hold any
title for the ownership. But it's our property.
INTERVIEWER: So how can you prove that's your property?
PHILIP TESHA: Because I'm here. I was the person who
brought it, and the person who sold it to me is also around
here.
HERNANDO DE SOTO: So what we've been discovering is that
there's a real huge paper wall that stops the poor from
actually being able to develop private legal enterprise.
NARRATOR: Without property rights, ordinary people in
developing countries can't get a loan, a mortgage, or credit.
They are excluded from the capitalist system, and the global
market simply passes them by.
HERNANDO DE SOTO: So this is a time of crisis for the cause
of capitalism worldwide, because for the moment it has only
meant giving the elite of developing countries additional
opportunities, and not being able to get down deep, deep into
where the real majority interests of people in any developing
country are, which is among the poor.
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Chapter 20: The Bottom End of Globalism [4:46]
JEFFREY SACHS: It is an incredible moral problem how to live
together with this vast gap in wealth. It's also an incredible
intellectual problem. It's what development economists such
as myself spend all our time thinking about. Why is the gap so
large? What can be done to help the poorer countries narrow
the gap? It's a very tough question.
NARRATOR: Places like Merelani, in Northern Tanzania, are
the bottom end of the global economy. Miners hunt for
gemstones -- tanzanite -- that will eventually sell for over
$1,000 per stone.
Some mines are too narrow for grown men to navigate. Those
mines are left to children as young as 10, known as "snake
kids." For each stone, they receive less than one dollar.
HERNANDO DE SOTO: Oliver Twist has come to town, and
he's poor, and he's got a TV set, and he's able to see how you
live as compared to how he lives, and he's going to get very
angry. So either you show him a capitalist route to do it and
integrate him, or he's going to find another ideology. And the
fact that today there is no more Kremlin that is organizing a
revolt doesn't mean that they're not going to find another
capital, because when these things happen, when people are
unhappy and rebel against a system, they'll find another locus
of power very, very quickly.
BILL CLINTON: I'm not one of these people that believes that
economics solves all problems, but if people know they're
taking care of their children, and if they have a personal
interest in maintaining the peace, it's just easier for them to
manage life's difficulties. You know, it's no accident that the
Nazi Party arose in Germany. Everybody who was alive at the
time remembers people in the Weimar Republic, after the
harsh peace of Versailles after World War I, carrying
wheelbarrows full of worthless Marks to the bakery to buy a
loaf of bread. So I don't want to oversell this: It is not
sufficient to build a peaceful, free world, but it is absolutely
necessary. What is? Trade.
Onscreen caption: Warwick, England, December 2000
NARRATOR: In his final foreign policy address before leaving
office, Bill Clinton sought to define the challenges of
globalization. He had come to the presidency saying that free
trade would benefit America. He left arguing it was crucial to
maintaining the peace in an interconnected world.
BILL CLINTON: First let me say I think it's quite important
that we unapologetically reaffirm a conviction that open
markets and rule-based trade are necessary, proven engines
of economic growth. Now I know that many people don't
believe that, and I know that inequality, as I said in the last
few years, has increased in many nations, but the answer is
not to abandon the path of expanded trade, but instead to do
whatever is necessary to build a new consensus on trade. And
it's easy for me to say -- you can see how successful I was in
Seattle at doing that. No generation has ever had the
opportunity that all of us now have to build a global economy
that leaves no one behind. For eight years I have done what I
could to lead my country down that path. I think for the rest
of our lives we had all better stay on it. Thank you very much.
back to top
Chapter 21: Changing of the Guard [3:04]
NARRATOR: Washington's free-trade agenda passed
seamlessly from the Clinton to the Bush administration.
GEORGE W. BUSH: Conquering poverty creates new
customers. What some call globalization is in fact the triumph
of human liberty stretching across national borders, and it
holds the promise of delivering billions of the world's citizens
from disease and hunger and want.
RICHARD CHENEY: At this stage I don't find in my travels
around the country or even around the world that there is
widespread opposition to the basic fundamental trends that
have been there for the last 40 or 50 years. Millions of people
a day are better off than they would have been without those
trends and development, without globalization, without the
developments of the increased international commerce, and
that's all of the good. And very few people have been harmed
by it.
Onscreen caption: San Cristobal, Mexico, February 2001
NARRATOR: On his first foreign trip, President Bush came to
Mexico. His friend Vicente Fox wanted to use the global
market to relieve his nation's endemic poverty.
VICENTE FOX: Mexico has been one of the losers of the 20th
century. We tried many different alternatives to development,
and unfortunately we have 40 percent of the population poor;
we have a per capita income that is extremely low. It is the
same per capita income we had 25 years ago, so we must
change things.
NARRATOR: Presidents Bush and Fox hoped to expand the
North American Free Trade Agreement to the entire Western
Hemisphere.
VICENTE FOX: Now we want to go further. I'm taking about a
NAFTA-plus, a NAFTA that takes us to a further integration.
I've been talking this with President Bush, and fortunately
he's seeing it the same way.
NARRATOR: But as his foreign minister, Fox chose a leading
voice of the left: a onetime friend of Fidel Castro, and critic of
global capitalism.
JORGE CASTANEDA: The left's main issue since the middle of
the 19th century has been inequality that accompanies
capitalism. There is probably more inequality pressing against
society today than before within rich countries, within poor
countries, and between rich countries and poor countries. So
on this score, for example, the left has more of a cause, more
of a raison d'etre, than perhaps in any time recently.
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Chapter 22: The Battle Resumed [6:38]
Onscreen caption: Quebec City, Canada
NARRATOR: Presidents Fox and Bush were set to meet again
in Quebec City at a summit for 34 democratically elected
presidents from North and South America. Anti-globalization
activists made the summit their next target.
ACTIVIST: No matter what anybody says, there's going to be
some kind of property destruction.
ACTIVIST: So far the way the debate has been played out is
violence, nonviolence. But for me that's not the issue. Our
goal is to disrupt the summit as best we can with the largest
possible mobilization on the 20th and 21st.
Onscreen caption: Summit of the Americas, April 2001
NARRATOR: The summit's agenda was to be trade, poverty,
and the new rules of the game. Organizers sealed off the city
center. As President Bush and other leaders arrived, the
demonstrators tried to break through. Inside the barricades,
Mexico's foreign minister was now a part of the system he'd
once criticized.
JORGE CASTANEDA: They never mention the Americans. They
said, "We need leeway to show that we can get results," and
that's true.
This is my first big summit as foreign minister, and it's fun.
Everybody's here.
INTERVIEWER: If you were 25 today, where would you be?
JORGE CASTANEDA: On the streets. I would think that's
certainly a hell of a lot more fun.
NARRATOR: Like Jorge Castaneda, most of the delegates were
from developing countries that had embraced globalization.
Casteneda wanted more trade. He also hoped to narrow the
gap between the rich and the poor of the developing world.
JORGE CASTANEDA: The issue that's been coming up
constantly in the speeches is that the small countries, the
poorer sectors of each society need a special deal; that they
cannot just be left out, because if they are, they'll never be
brought in. There is, I would say, a growing consensus on
that, but there isn't necessarily a consensus on what to do.
GEORGE W. BUSH: I'm here to learn and to listen from voices,
to those inside this hall and to those outside this hall who
want to join us in constructive dialogue.
NARRATOR: By now, the street demonstrations had become a
routine feature of major international meetings. Protest
organizers were increasingly sophisticated, using the Internet
and other "tools of globalization" to try to bring the system
down.
GRETCHEN KING: So we travel around the country, and we
set up these Web streams wherever there's a minor or a
major demonstration. Wherever people want this to be set up,
we'll help them. If we can provide alternatives, if we can
provide criticisms that come from the streets and represent a
diversity of people, then I think there's a possibility of
success. And that success would be, you know, burning the
free-trade agreement of the Americas; that success would be
disbanding the WTO; that success would be removing the
power from the top one percent of the world's population.
JORGE CASTANEDA: The protestors, by staking out an
extremist position, make a more regulatory position more
centrist, and that's fine. Perhaps that's not what they want,
but that's too bad. You don't always get what you want, and
you don't always know who you're working for. But I do think
that the protestors are natural allies of people who believe
that there are things that should be done to manage world
trade a certain way.
NARRATOR: The lasting impact of the protest movement was
subtle, but real. Since Seattle, the terms of the global debate
had shifted.
NEMAT SHAFIK: In the early days, when the first protests
started, I remember feeling very frustrated, because their
rhetoric was so abstract. It was, you know, it was about
economic justice; they had no alternative program. And the
more I thought about it, the more I realized that if one looks
historically, the role of protest movement isn't to provide
solutions; it's their job to be critical, and then it's the job of
the insiders, the people in the system, in their response to
those protests to come up with new solutions. And I think
that's where we're at now. And so I do think it's healthy that
we have them banging at the gates.
BILL CLINTON: They care about legitimate problems, but they
have the wrong diagnosis. Their diagnosis is that the global
economy has produced all the misery that they're protesting
against. On the other hand, you cannot have a global
economy without a global social response, without a global
environmental response, without a global security response.
It's just... it's unrealistic to think you can. And that's basically
the next big challenge, is making this interdependent world of
ours, on balance, far more positive than negative. And the
extent to which we succeed in doing that will determine
whether the 21st century is either marred in its first 50 years
by terrorism of all kinds across national borders, and more
racial and religious and ethnic strife, and tribal strife in Africa,
or whether it becomes the most peaceful and prosperous and
interesting time the world's ever known.
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Chapter 23: 9/11 [4:27]
NARRATOR: In the first decade of the 20th century, the global
economy was in many ways as integrated as ours today. That
era of globalization ended in Sarajevo in 1914, when a bullet
fired by a terrorist triggered the first world war. In the
aftermath of September 11, it seemed possible that history
could repeat itself.
DANIEL YERGIN: Up until September 11, there was a sense
that with the crisis and the risks, that nevertheless this
movement towards globalization really was irreversible. And
since then there's a recognition of that you can't turn back the
clock; we're not going to abolish e-mail, or computers aren't
going to get slower, but things can go in another direction.
Markets do best and work best and deliver what they can do
during times of peace. And if you're not in a time of peace,
but you're in some other kind of time, then things won't work
as well, and priorities will be elsewhere as well.
NARRATOR: The U.S. economy was already in recession. As
the war against terrorism progressed, the Bush administration
sought to rebuild economic confidence.
GEORGE W. BUSH: Out of the sorrow of September 11, I see
opportunity, a chance for nations to strengthen and rethink
and reinvigorate their relationships. When nations open their
markets to the world, they find in America a trading partner,
an investor, and a friend.
NARRATOR: In November 2001, the World Trade Organization
gathered as planned in the Middle East. The remote city of
Doha had been chosen to keep protestors away, but
September 11 had dampened the anti-globalization
movement. Delegates reached the compromise that had
eluded them in Seattle. A new round of trade negotiations was
launched, and the concerns of the developing world will be at
the top of the agenda.
ROBERT RUBIN: I think that the new technologies, that the
breaking down of trade and capital market barriers, the
spread of market-based economics, that all of this has
contributed greatly to global economic well-being, and it will
contribute enormously for a long, long time to come. I think
the potential is tremendous. But the people in those countries
who feel that they are left out and the system isn't working
for them have merit on their side of the case. And I think it's
not only an issue of being helpful to them; I think it's
enormously in our interest that they become part of the
system.
RICHARD CHENEY: I don't think there is any one overnight
solution. I don't know anyone who's smart enough to sit down
and write a brand-new set of rules that we should all then
adhere to. I think it is a process for negotiation among solvent
and independent nations, and that's probably as it should be.
And it will evolve over time. And I do think we learn from our
mistakes. But I the idea that there's some sort of basic right
way to do it out there, and there's one individual or group that
have got all the answers, I'd be deeply suspicious of that
notion.
NARRATOR: Months later, the American economy seemed on
the road to recovery. While threats remained, the system
itself seemed more robust than many had feared.
The era of globalization looks set to continue, as does the
debate over the new rules of the global game.
DANIEL YERGIN: The belief that trade increases the odds for
peace and also leads to higher standards of living is
something that has been part of the American political
tradition. And looking back on the Depression, looking back on
the first or second world war, it became very deep seated,
and it's not just a question of specific trade agreements, but
it's really a broad consensus about the importance of trade to
the American economy, to what it does for economic
development around the world, and also as one of the
foundations for a more peaceful world.
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