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Commanding Heights: A Battle of Ideas – Part 1 of Review

 

Commanding Heights (CH) is a three part documentary which narrated the battle of economic ideas from the First World War (PBS, 2002). Episode 1 talked about the emergence of the Keynesian Consensus and the seeming ascendancy of the Soviet Economic Model. Episode 2 is about the triumph of Free Enterprise over centralized state planning and its positive and negative consequences. Finally, Episode 3 discusses the advent of a globalized economy and the (re)writing of the ‘rules of the game’. In this review, I shall provide a brief account of the details discussed in the documentary per episode and supplant it within the larger discussion on theories of development. I will also try to converse with some of the conclusions that were discussed in the documentary given the fresh insights of new theories developed after the agents interviewed in the piece.

Episode 1: The Battle of Ideas

 

CH (PBS, 2002) placed John Maynard Keynes and Friedrich von Hayek on opposite poles in the battle of economic ideas. The former argued for a more activist state seeing the market as a positive force but is like a machine that has to be fine-tuned to get the best results for the economy. On the other hand, the latter saw the market as a self-regulating system that would eventually sort itself out if left alone. Thus, the market force should be recognized as a force (akin to, say, gravity) and left alone to achieve favorable outcomes for the economy.

The Keynesian formula for government spending is simple: save in the good times and spend in the bad

The Keynesian formula for government spending is simple: save in the good times and spend in the bad (PBS, 2002). CH says this was given life during the presidency of Roosevelt when he launched a new economic program. Dubbed the New Deal, its project is for government to fund the creation of infrastructure whose created jobs will let money move from the government to the public. This in turn will result into spending which will re-stimulate a stagnant economy. Likewise, regulations to quell instability were also employed. One example of this is the American Aviation industry. The new regulations employed stopped the boom and bust cycles where airlines would invest and go bankrupt undermining services for the consumers.

The treatment of Keynesianism in CH is reflected much on Rapley (2007). Aside from discussing its main prescription on spending (save in the good, spend in the bad), he added that this suggestion turned uniquely Keynesian when borrowing was an allowed option to finance this endeavor. Rapley explains that Keynes claimed that the gains will off-set the debts incurred during the low of the economy. The logic that Keynes proposed tuned well with other countries and was adopted in the hopes that it was a way to pursue a form of capitalism where it can be more benevolent (Rapley 2007). Rapley continues that this benevolence is translated into policy when social services like education, housing, health and employment became top priority of governments especially in the West.

The latter half of Episode 1 is devoted to the works of Hayek. Hayek is said to have been a student and colleague of Ludwig von Misses who is renowned for his libertarian inclinations both in political and economic affairs; they argued that markets should be kept free similar to the way individuals are kept free. Hayek thought that free economies were part and parcel of politically free societies. This hypothesis was bolstered when Chile adopted a more liberal form of government after the death of Pinochet and the introduction of free enterprises in the country (PBS, 2002).

Peet and Hartwick’s (2009) examination of Hayek’s work allows us to understand the connection between a free economy and a free society. In The Road to Serfdom, Hayek insists that the desire to control or regulate the economy requires more and more political power on the side of the regulators making democracy an obstacle towards the end goals, whatever it may be. Thus, he believes that the road to prosperity promised by socialism is actually a road towards a form of servitude almost similar to slavery. Aside from the repressive power of the state through military might, the state will also employ means to control the minds of the populace to make them believe that state interest is also their interest. Collectives can therefore be just another means for near-slavery for the population. The solution is simple: individual freedoms are the only way to ensure that humanity does not descend back into slavery.

While both Keynes and Hayek offer an intelligible account of how to manage the economy, it is important to note that Keynes dominated the conversation and his economic model has been pursued by many countries even after his death (PBS, 2002, Rapley, 2007). In fact, the ideas of Keynes has been called the Keynesian Consensus.

Nonetheless, the consensus broke. Hyperinflation coupled with a growing unemployment rate made people turn from Keynes and look for other models of economic development (PBS, 2002). CH notes its importance because even when traditional Keynesian measures such as spending or price controls were employed, it failed to produce the desired results. Other state-led initiatives towards industrialization are met with similar problems. Rapley (2007) talks about the issues that import substitution industrialization (ISI) failed to address even as it tries to add more manufactured output into a developing country’s economy. Poor export performance, inefficiency and corruption are some of the fruits of state led development identified by Rapley (2007). Rapley said that developing countries tried to solve their balance of payment problems through manufacturing their own goods and decreasing the number of imports from industrialized countries. However, while ISI was able to allow developing countries manufacture their own goods it has been less impressive in making those exports reach industrialized shores because they often only traded with other developing countries. Primary products remained to be their main exports to industrialized nations. Moreover, technologies remained to be sourced from foreign production meaning ISI countries would still spend much from imports of capital goods. The pattern of exports-imports that ISI tried to resolve remained the same. Aside from that, Rapley (2007) identified inefficiency as a problem in ISI states. For one, the artificial environment that prevents foreign competition has made local firms unconducive to innovations and maximization of available resources; the occurrence of both increases the price even for a low quality product. Control on capital flight by foreign firms through taxation or a quota of money allowed to ship out of the country resulted not into the desired outcome but either driven off foreign investments or made companies find ways to go around regulations. Despite the inefficiency and ineffectiveness relative to other goals, the ISI placed a huge power to state actors making them more susceptible to fall into corruption (Rapley 2007). These are some of the reasons why faith on state led development faltered.

CH (PBS, 2002) tells that in this time emerged new leaders with different ideas on how to run the economy. In the United States, Ronald Reagan won as president while Margaret Thatcher won as Prime Minister of the United Kingdom. Both espoused the economic principles of Hayek on Free enterprise and sought to cut government spending and privatize the ‘commanding heights’ of the economy. This, they believe, will solve the economic woes of their time.

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Yvan Ysmael Yonaha (@YvanYonaha) is a Development Practitioner, Technology Enthusiast and Productivity Buff. Yvan holds an AB Degree in Sociology from UP Diliman. He is a former instructor in the Department of Social Science for the Pamantasan ng Lungsod ng Marikina, and currently works for Ateneo de Manila University as a formator of the Office of Social Concern and Involvement.