Commanding Heights: The Battle for the World Economy (2002)

Episode Three: The New Rules of the Game

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Episode Three: The New Rules of the Game



By the early 1990s, most of the world had converted to free-market capitalism, setting the stage for the rapid growth of a new global economy. Rapidly falling trade barriers and unrestricted capital flows fueled by furious technological innovation and a new global workforce would all combine to transform the world economy.



"The New Rules of the Game" examines the promise and perils of globalization in the 1990s, focusing on the story of President Bill Clinton's embrace of free-trade policies, the challenges the world's leaders faced in taming the virulent contagion of financial collapse in the developing world, and the violent debate over globalization that suddenly surfaced in the Seattle protests.



In a story that moves from the 1992 presidential campaign to the September 11 attack on America, this film confronts a series of issues: the impact of free trade on the developing world and on American workers; the perils of financial contagion when problems in one developing country cause investors to pull their capital out of all emerging economies; and the challenge of inclusiveness -- bringing the world's poor into the era of global growth. It cuts through the rhetoric to show what "globalization" really is, and what it will mean for our lives in the 21st century.



TRANSCRIPT



Chapters




1. Chapter 1: Prologue [6:14]

2. Chapter 2: The Global Idea [3:52]

3. Chapter 3: NAFTA: The First Test [5:28]

4. Chapter 4: Crossing Borders [3:30]

5. Chapter 5: The Global Market [3:48]

6. Chapter 6: Emerging Market Hunters [5:01]

7. Chapter 7: Averting a Meltdown: 1994 [4:56]

8. Chapter 8: The Global Village [6:47]

9. Chapter 9: China and the Tigers [5:35]

10. Chapter 10: The Japanese Paradox [3:01]

11. Chapter 11: Global Contagion Begins [7:55]

12. Chapter 12: Contagion Engulfs Asia [7:13]

13. Chapter 13: Russia Defaults [2:31]

14. Chapter 14: The Crisis Reaches America [7:07]

15. Chapter 15: The Global Debate [2:49]

16. Chapter 16: The Battle Joined [5:08]

17. Chapter 17: Failure at the Summit [4:58]

18. Chapter 18: The Global Divide [2:33]

19. Chapter 19: Capitalism Redefined [7:00]

20. Chapter 20: The Bottom End of Globalism [4:46]

21. Chapter 21: Changing of the Guard [3:04]

22. Chapter 22: The Battle Resumed [6:38]

23. Chapter 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.

 



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.

 



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 market-based 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.





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.

 



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.





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.





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.





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 made-up 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.





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."





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, 1997-1999: 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.

 



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, 1991-1993: 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.





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.





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.





Chapter 14: The Crisis Reaches America [7:07]



NARRATOR: Now the crisis had reached America. A little-known 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 so-called 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.





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, 1999-2001: 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.





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 l

Documentary Description


Commanding Heights: The Battle for the World Economy



The history and impact of the new global economy are made clear--and compelling--in Commanding Heights: The Battle for the World Economy. This three-part, six-hour documentary does an astonishingly thorough job of dissecting and explaining macroeconomics and their current political and social importance without ever causing a loss of consciousness for the viewer. Part 1, The Battle of Ideas, chronicles the history of economic thought from the start of the 20th century and its socialist reforms right through the deregulation of the 1980s. Part 2, The Agony of Reform, explores the upheavals that such deregulation caused, focusing primarily on economic growth and gains and touching briefly on the wrenching consequences for the poor. Part 3, The New Rules of the Game, explores the consequences of globalization, including terrorism and the contagion of market collapse. The series makes good use of both large- and small-scale examples, and features interviews with several major world leaders. There is a slight teenybopper feel to The Battle for the World's Economy's admiration for today's celebrity economists, but the contagious enthusiasm is part of what makes the series so interesting. Big ideas are made extremely accessible to the average viewer (without condescension). Well worth watching. --Ali Davis



Commanding Heights: The Battle for the World Economy
confronts head-on Americans' critical concerns about the new interconnected world. Based on the best-selling book by Pulitzer Prize-winner Daniel Yergin and Joseph Stanislaw, this groundbreaking series explores our changing world—the great debate over globalization and the future of our society.



Commanding Heights reunites the team that created The Prize— award-winning producer William Cran (From Jesus to Christ) and Daniel Yergin—and is the first in-depth documentary to tell the inside story of our new global economy and what it means for individuals around the world. Filmed on five continents, the powerful narrative combines stunning film footage with dramatic stories and extraordinary interviews with world leaders and thinkers from twenty different countries, including: Bill Clinton, Dick Cheney, former USSR President Mikhail Gorbachev, Mexican President Vicente Fox, Supreme Court Justice Stephen Breyer, Singapore’s Lee Kuan Yew, former Secretary of the Treasury Robert Rubin, Rep. Richard Gephardt, and President George W. Bush's Economic Advisor Lawrence Lindsey.



Commanding Heights dramatically captures the issues that have defined the wealth and fate of nations and shows how the battle over the world economy will shape our lives in the twenty-first century.



Source: Amazon.com





Key Themes Articulated in the Series



The current global economy is the outgrowth of a century of trial-and-error experimentation with different political and economic ideologies.



The core battle of ideas is an argument about the best way to promote the economic welfare of society as a whole. For most of the last century the argument has centered on the role that central governments should or should not play in economic activity.



For much of the last century the argument appeared to swing in favor of central planning and government control. More recently, the pendulum has swung the other way, toward greater reliance on market forces to determine the allocation of resources. The transition away from central control has increased productivity and expanded wealth, but has also been societally wrenching for the peoples of many nations.



In recent decades, technology has also fundamentally changed the way economies behave and interrelate. We are just beginning to understand how to reap the benefits and manage the risks these changes have introduced.



While the growth of globally integrated markets has expanded wealth and raised living standards in many parts of the world, there have also been destructive effects. The Asian economic contagion of 1997-8 is one example.



Because the benefits of globalization have not been distributed equitably, the gulf between rich and poor continues to threaten the stability of the system as a whole. Equipping dispossessed populations to benefit from open global markets and entrepreneurial capitalism constitutes one of the major challenges of the 21st century.



Source: http://www.pbs.org/wgbh/commandingheights/hi/educators/ed_th...



Guide to Commanding Heights Online for AP Instructors

From: http://www.pbs.org/wgbh/commandingheights/hi/educators



This guide maps Commanding Heights Online resources to criteria from The College Board's "Advanced Placement Program Course Description: Economics."



Microeconomics




I. Basic Economic Concepts



C. Specialization and comparative advantage: the basis for international trade




AP Overview of Basic Economic Concepts



"The study of microeconomics requires students to understand that, in any economy, the existence of limited resources along with unlimited wants results in the need to make choices. An effective AP course, therefore, begins by exploring this need by studying the concepts of opportunity costs and trade-offs, which can be illustrated by the production possibilities curve or other analytical examples. The course can then proceed to a consideration of how different types of economies determine which goods and services to produce, how to produce them, and to whom to distribute them. It is also important that students understand why and how specialization and exchange increase the total output of goods and services. In this context students need to be able to differentiate between absolute and comparative advantage, to identify comparative advantage from differences in output levels and labor costs, and to determine the basis under which mutually advantageous trade can take place between countries. Specific examples from actual economic situations can be used to illustrate and reinforce the principles involved."



Relevant Content Material from Commanding Heights Online



Commanding Heights Episode One tracks the parallel evolution of capitalist (market-based) and socialist (centrally-planned) economic regimes from the close of World War One through the 1970's. Its early chapters (Chapters 2, 3, 4, 5 and 6) contrast how each system determines which goods and services to produce, and what the actual outcomes of their policies are up through to the close of World War Two. Later chapters of Episode One track the post-war efforts of various western democracies (especially Britain) to incorporate a more socialist approach within a market-based system and the results of those experiments. In addition, these later chapters cover the efforts of newly independent nations to mix democracy with central economic planning. Episode Two then tracks the collapse of Soviet-style communism in the 1980's, the reforms that swept the planned economies of western democracies and developing nations alike during the same period, and the market oriented reforms undertaken by China. To gain a better sense of the structure of this content, view the Episode descriptions, Chapter Menus and Transcripts in Storyline.



To promote a deeper understanding of comparative advantage and its role in international trade and economic development, The Commanding Heights site contains an interactive atlas of economic history, the Time-Map (available on the rich-media, broadband version of the site only). The Time-Map tracks six kinds of economic regimes as practiced by 41 nations over 92 years. By launching the Time-Map and using its color key together with the time bar at the bottom of the map, students can scan through 92 years of world history, and spot changes in economy policy. Observing these changes, they can identify nations that have focused their development strategy on export-oriented comparative advantage trade (sky blue = outward development - export oriented, comparative advantage focus with global exposure and variable state ownership). By noting the points in time that such policies were introduced in various nations, they will become aware of global trends in economic policy formation over time. They will notice the vast expansion in the number of nations pursuing outward directed, comparative advantage policies since the 1970s, and in particular since the 1990s.



Students can also identify nations pursuing more tightly controlled, directed market policies that also seek to foster export oriented comparative advantage trade by means of highly regimented state control of industrial policy (green = directed market - industrial export focus and state regimenting private sector finance and trade).



From the Time-Map, students can launch more detailed, individual Country Reports for each of these nations, and study the periods in which these policies are in place. (Users of the low-bandwidth version of the site can also access low-bandwidth versions of these reports.) The reports include economic data and text information that can help students assess comparative outcomes and determine whether or not trade has expanded as a result of these policies, and what effects, over time, they have had on overall economic growth, per capita income, debt, and other outcomes. Students can also use the site's Search function to find interview segments and essays that bear on the countries and policies under consideration.



Worthwhile examples of outward directed, comparative advantage policy in action are found in the following country reports: Hong Kong (especially from '60s on), Chile (from 1974), Argentina (from 1976), Egypt (after 1977), Turkey (after 1980), Brazil and Bolivia (after 1985), Tanzania (from 1987), Mexico (from 1988), Peru (from 1990), Taiwan and India (from 1991), Russia (1992), South Africa (1995), Singapore and Pakistan (after 1997), Malaysia, Indonesia, and Thailand (after 1998), and Korea (after 1999).



Countries focused primarily on a directed market - industrial export approach include Japan (from 1952), Taiwan (from 1957), Singapore (from 1959), South Korea (1961-1998), Malaysia (from 1972), Thailand (1972-1997), Indonesia (1982-1997), and China (from 1993)



II. The Nature and Function of Product Markets




D. Product pricing and outputs within different market structures

   2. Imperfect Competition

       a. monopoly

       b. oligopoly

       c. monopolistic competition

E. Efficiency and government policy towards imperfect competition



from AP Overview of the Nature and Functions of Product Markets



"The study of the nature and functions of product markets falls into four broad areas:



"...The fourth area covers the behavior of firms in different types of market structures. In covering perfect competition, the course focuses on determining short-run and long-run equilibrium, both for the profit-maximizing firm and for the industry, and on the equilibrium relationships between price, marginal and average revenues, marginal and average costs, and profits. In considering the market behavior of a monopolist, students compare a monopolist's price, level of output, and profit with those of a firm operating in a perfectly competitive market. By paying particular attention to the concept of allocative efficiency, students learn how and why competitive firms achieve an efficient allocation of resources, whereas monopolists do not. The distinction between allocative and productive efficiency should be made. Students also learn why the government should in some cases encourage competition and in others allow a regulated monopoly to exist. Finally, students should have some familiarity with the characteristics and behaviors of firms in monopolistic competition and oligopoly, as well as their effects on efficiency. A discussion of basic game theory should be used to enhance a student's understanding of the interdependent behavior of firms in an oligopoly market."



Relevant Content Material from Commanding Heights Online



All three episodes of the program, as described in the Storyline section of the site, are concerned with the nature and functions of product markets and the relative efficiency of markets and competition under different economic systems and policies. The 41 Country Reports support and expand the program's historical survey of these differences with detailed information and specific economic data Two chapters, in particular, are relevant to the study of both imperfect competition and monopoly: Episode One, Chapter 10 (India's Way), and Episode Two, Chapter 4 (India's Permit Raj). Together, these chapters detail how India's idealistically planned, protectionist economy produced a noncompetitive, monopolistic auto industry that stifled innovation. The chapters are supported by extensive interviews about the Indian economy, best located by searching on the term "India."



A search on the term "monopoly" will also yield a number of essays and other site resources that deal with the general subject from a variety of viewpoints.



For the study of imperfect competition and oligopoly, the many chapters in Episode Two devoted to post-communist Russian privatization and the rise of the Oligarchs will be helpful. Chapters 2, 3, 8, 14, 15, 16, 18, 19, 20 all deal with the economic collapse of the Soviet Union, beginning in the early 1980s. Chapters 18,19, and 20 are specifically concerned with privatization and seizure of control of the commanding heights of the Russian economy by the Oligarchs. Related content for these chapters includes links to extensive interviews, including one with the Russian Oligarch Vladimir Potanin. On the rich-media version of the site, these links appear as synchronous "enhancements" that become available as the video chapter plays. On the low-bandwidth version of the site, these same links to related content can be accessed for each chapter from the Storyline menu of Episode Two.



With regard to efficiency and government policy toward imperfect competition, Episode One contains an account of U.S. efforts to regulate the airline industry from the 1930s to late 1970s. Chapter 5 covers the regulatory policies implemented in the 1930's and Chapter 14 covers the deregulatory effort more than forty years later. Also of note is Episode One, Chapter 12, which features Nixon's attempts to manage U.S. markets through price controls in the 1970s. Related content/enhancements links are also available for these chapters. Finally, students will find much useful material by searching on the terms "regulation" and "deregulation."



III. Efficiency, Equity and the Role of Government




A. Externalities

B. Public goods

C. Distribution of income



AP Overview on Efficiency, Equity and the Role of Government




"It is important for students to understand the arguments for and against government intervention in an otherwise competitive market. Students examine the conditions for economic efficiency and the ways in which public goods and externalities generate market failures even in perfectly competitive economies. In addition, students are expected to study the effectiveness of government policies such as subsidies, taxes, quantity controls, and public provision of goods and services, which are designed to correct market failures. Although there is not a generally accepted standard for judging the equity of an economy¹s income distribution, a well designed course will examine the impact of government tax policies and transfer programs on both the distribution of income and economic efficiency."



Relevant Content Material from Commanding Heights Online



In Episode Two, the fall of Soviet-style communism illustrates the difficulties that are created when governments attempt to centrally enforce more equitable distribution of scarce resources.



Episode Two's video chapters and interviews about Poland's economy are also helpful in this regard. Students can search on the terms "Russia," "Soviet Union," "Poland," and "communism" to access the video chapters and interview content related to the problems of central economic control.



Many Episode One chapters on Britain's economic development from the end of World War II through the reforms of Margaret Thatcher also show how government attempts to correct perceived market deficiencies often produce unintended results. Of particular note are Chapters 7, 13, 15, 17, 18, and 19, which deal with the consequences of establishing state-owned monopolies to create "fair shares" and the eventual re-privatization of these same industries. Extensive related content links/enhancements include economic data, essays, debates, and in-depth interviews from participants who shaped and reshaped these policies.



In addition, chapters within all three episodes of the program trace the evolution of the Indian economy from independence through the reforms of the 1990s. This narrative is extremely relevant to the subject of market efficiency and the actual effects of government policy. Educators and students can locate all the relevant video chapters by searching on the term "India" and then looking under the heading Storyline. Other types of content related to the Indian economy will also be displayed in the search returns.



Macroeconomics



I. Basic Economic Concepts



C. Specialization and comparative advantage: the basis for international trade



AP Overview of Basic Economic Concepts




"A macroeconomics course introduces students to fundamental economic concepts such as scarcity and opportunity costs. Students will study comparative advantage to determine the basis on which mutually advantageous trade can take place between countries and to identify comparative advantage from differences in output levels and labor costs. Other basic concepts that are explored include the functions performed by an economic system and the way the tools of supply and demand can be used to analyze a market economy. Coverage of these concepts provides students with the foundation for a thorough understanding of macroeconomics and puts the macroeconomic material of the course in proper perspective."



Relevant Content Material from Commanding Heights Online




Students can identify nations that have implemented specialization and comparative advantage economies by launching the Time-Map (rich-media/broadband only) and scrolling through the years using the color key (sky blue = outward directed, comparative advantage economies). They can identify the points in time that such policies were put in place, becoming aware of the global trends in economic policy formation over time. They will notice the vast expansion in the number of nations pursuing outward directed, comparative advantage policies since the 1970s, and in particular since the 1990s due, in many cases, to pressure from the IMF and World Bank. Students can examine comparative outcomes for nations pursuing more tightly controlled directed market policies, which are externally focused but with more highly regimented state control over industrial policy.



From the Time-Map, students can launch the individual, more detailed Country Reports for these nations during the periods in which these policies were in place. The reports include economic data to determine whether trade expanded as a result of these policies and what effects, if any, the policies had over time on overall economic growth, per capita income, debt, and other outcomes. For several of these nations, students can use the search function to find related interviews that bear on the events and policies under consideration.



Worthwhile examples of outward directed, comparative advantage policy in action are found in the following country reports: Hong Kong (especially from '60s on), Chile (from 1974), Argentina (from 1976), Egypt (after 1977), Turkey (after 1980), Brazil and Bolivia (after 1985), Tanzania (from 1987), Mexico (from 1988), Peru (from 1990), Taiwan and India (from 1991), Russia (1992), South Africa (1995), Singapore and Pakistan (after 1997), Malaysia, Indonesia, and Thailand (after 1998), and Korea (after 1999).



Countries focused primarily on a directed market approach include Japan (from 1952), Taiwan (from 1957), Singapore (from 1959), South Korea (1961-1998), Malaysia (from 1972), Thailand (1972-1997), Indonesia (1982-1997), and China (from 1993).



II. Measurement of Economic Performance




A. Gross national product, gross domestic product, and national income concepts

B. Inflation and price indices

C. Unemployment



from AP Overview of Measurement of Economic Performance




Since the performance of the economy as a whole is usually measured by trends in gross national product, gross domestic product, inflation, and unemployment, an effective AP course is structured with the importance of these concepts in mind. The course covers the components of gross income measures and the costs of inflation and unemployment. . .



As the course moves from mere static descriptions to dynamic models, it considers the actual levels of U.S. inflation, unemployment, gross national product, and gross domestic product, as well as the ways that changes in one may affect the others.



Relevant Content Material from Commanding Heights Online




The Country Reports allow rapid comparison through graphs of key economic indicators for 41 nations (see Countries to view the complete list of nations). These indicators include GDP growth year by year, per capita income (adjusted for inflation), inflation, and unemployment for all years that data was available from the IMF and World Bank. Economic indicators are tracked in the context of a country's political history, economic policies, social issues, rule of law, monetary policy, environmental issues, and more. Students can use the color-coded Time-Map (available on the rich-media/broadband version of the site only) in conjunction with the Country Reports to quickly compare the economic policies in force for the nations under study.



In addition, Unit One: Introducing Economic Growth, in the Activities provided with the Educators' Guide, concentrates on interpretation of measures for growth, income and distribution.



III. National Income and Price Determination




D. Fiscal-monetary mix

1. Interaction of fiscal and monetary policy

2. Government budget policies




From AP Overview National Income and Price Determination



"Students should also examine the economic effects of government budget deficits, including crowding out, consider the issues involved in determining the burden of the national debt, and explore the relationships between deficits, interest rates, and inflation.



It is important for students to understand why many economists believe that the aggregate supply curve may be upward-sloping in the short run but vertical in the long run. With this understanding, students can distinguish between the short-run and long-run impacts of monetary and fiscal policies and trace the short-run and long-run effects of supply shocks...



A well-rounded course also includes an examination of the significance of inflationary expectations."



Relevant Content Material from Commanding Heights Online




Episode One as a whole focuses on the contrasting economic philosophies of John Maynard Keynes and the Keynesians, on the one hand, on the one hand, and Friedrich von Hayek, Milton Friedman and the Chicago school, on the other. The outcome of both philosophies in action is tracked throughout Episodes One and Two. While a detailed study of the tools of monetary policy is not included in the program, these two episodes can give students a sound historical understanding of the primary debate over government use of fiscal vs. monetary measures to manage economic activity.



Educators and students can orient themselves to the structure of this material by going directly to the main page of the Storyline section of the site, there reading the descriptions of Episodes One and Two, and then scanning the chapter menus and transcripts for each episode.



Students will find much material on the site related to monetary and fiscal economic policies by searching the terms "Keynes," "Hayek," "Friedman," "Harberger," "Keynesianism," "monetary policy," "monetarism," and "fiscal policy."



Other useful material includes extensive interviews with Milton Friedman and Al Harberger, both Nobel Prize winning monetarists, John Galbraith, a leading Keynesian economist, and Lord Robert Skidelsky, an economic historian and Keynes' biographer.



IV. Economic Growth



AP Overview of Economic Growth



"Students should understand the contributions of economic growth to job creation and economic well-being. The determinants of economic growth should be emphasized. Furthermore, the impacts of monetary and fiscal policies on the growth of a nation's economy should be studied."



Relevant Content Material from Commanding Heights Online




Students can explore the Country Reports of 41 nations and also search on the term "growth" to study factors influencing economic growth in many parts of the world over the last 92 years. They can also read numerous interviews on the topic in the People section. The activities of Unit One: Introducing Economic Growth included in this Educator's Guide focus on the relationship between economic growth, per capita income and income distribution.



V. International Finance, Exchange Rates and Balance of Payments



A. International trade and policy

B. International finance, exchange rates, and balance of payments



AP Overview on International Finance, Exchange Rates, and Balance of Payments




"The formulation of macroeconomic policy has important ramifications for international economics. Students need to understand that the combination of monetary and fiscal policies used in addressing problems of inflation and unemployment has an effect on international factors such as exchange rates and the balance of payments. Students also need to understand the reverse: that international forces, often beyond a country's control, affect a country's exchange rates, which, in turn, affect a country's price level, unemployment, and level of output. It is important to examine what the effects of trade restrictions are, how the international payments system hinders or facilitates trade, how domestic policy actions affect international finance and trade, and how international exchange rates affect domestic policy goals."



Relevant Content Material from Commanding Heights Online




The Time-Map (rich-media/broadband version of the site only) and the 41 Country Reports ( available in both versions) enable students to examine and compare debt and trade outcomes under different economic regimes over the last 92 years.



Episode Three is primarily concerned with the forces mentioned in the AP Overview above. Its chapters dramatize and clarify the interrelationship of trade policy, international capital flows, and exchange rates and their influence in the spread of globalization in the 1990s, the advent of the Mexican debt crisis of 1994, and the Asian economic crisis of 1997-8.



Especially relevant chapters include those on the NAFTA trade agreement (Episode Three, Chapters 3,4, and 21); those on the expansion of global financial markets (Episode Three, Chapters 5 and 6), the Mexico¹s debt crisis in 1994 (Episode Three, Chapter 7), and the sections of the Asian economic crisis of 1997, (Episode Three, Chapters 11, 12, 13 and 14)



Students can also explore NAFTA and other topics in much greater detail by searching on the relevant terms and exploring the returns.

Comments

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po wrote 8 years ago.
GREAT

nelas1963 wrote 9 years ago.
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