Commanding Heights - Battle for the World Economy

This documentary on globalization and the battle of ideas over the world economy, has actually been out since 2002. But it's still worth posting here, I think, for people to check out, if they haven't already. It has my official 'seal of approval' and goes through many of the prominent economists (Keynes, Hayek, Friedman, Mises et al) focusing on the different schools of thought, including communism. The term "Commanding Heights" is actually an excerpt from one of Lenin's famous speeches.

Well worth your time, here is a sample:




Offical Web Site:

http://www.pbs.org/wgbh/commandingheights/lo/index.html

Looks interesting, i was surprised a while ago to read that around the 1930s "most commentators" (or at least many commentators both left and right) thought capitalism had had it and communism was probably going to take over.

Totally, the Great Depression 1929 changed everything! It gave rise to many ideologies, in fact we are still living in the wake of it's implications. Especially New Deal policies, which still influence us today.

I think Arrighi's view is that each time capitalism has reconstituted itself it has had to compromise with social movements, making the world system increasingly less capitalistic over time.

I am a bit confused about his exact stance on this however, because he also describes a trend whereby the alliance between capitalists and territorialists (ie nation states and military power) becomes stronger over time - with the implication that eventually capitalism becomes all powerful, creating a world empire, which paradoxiclly would end capitalism by ending competition.

But we don't currently seem to be seeing social movements that really challenge capitalism. Perhaps if this current crisis turns into a double shock that might happen.

thats an excellent point OneHappy, and one that Robert Wade made in his speech (which I didnt include in my summary) that there were hardly any signs of class struggle or even class awareness in current times.

It's not well known, but the Chinese peasantry are very radical - there are continuous protests and disobedience in China. Outside of China? I guess you could look at Chavez, and any alliances he is creating in Sth America (was an article in the herald yesterday trying to paint him as some vain egoist). But in the west things could change fast if we see real poverty reemerge, rather than just a growing gap which is easily propogandised away.

This is the outcome of social democracy, where socialist attitudes are attacking capitalism through the state. Such egalitarianism has now taken the form of progressive taxation and the institutions of the welfare state. Social contract theory (applicable) has been the most dominant form of government theory over the past two hundred years. This is where the modern left especially, are increasingly pressing on government to provide where they feel the market fails in efficiently allocating resources. Known as a type of "market failure" in Neoclassical economics. Ironically, this pressing on the state to provide social services is supported by elements of the modern right, who preach enterprise but support corporate protectionism. I.e. The ACT Party and both Democrats and Republicans in America.


He is bang on here and I will be the first to argue against the state aiding and abetting corporations. Among the advocates of the laissez-faire system, there is a clear understanding that such aid is called "corporatism" or "corporate socialism". Yet in all such schemes, the hand of government regulators is disguised so well, that when the scheme fails, most people see the puppet but overlook the puppet master.

This merging of state and corporatist interests, create all-powerful corporations, which are seen as capitalist greed at its worst. Their existence and profits are often guaranteed by government, making them completely inefficient. The public then blames the inefficiency on corporate greed and, of course, on capitalism. In reality, this is the outcome of socialism.

In this sample: Hayek explores socialism. Introduction to Ludwig Von Mises. The Austrian School's critique of socialist planning. What Lenin learned. Stalin's totalitarian plan.

I'm a bit confused about you view here in regards to ACT as they generally seek to limit the size of government, especially welfare, and also preech the free trade regime - which for an economicaly weak country like NZ entails huge risks. The unilateral declaration of free trade by the 19th century UK was quite different as a) the UK was then at the height of its power; b) there were certain advantages to the UK in doing this, including the fact that it made London the clearing house for all the worlds trade.


This is an important point which i hope i can find time to address later!

Isn't it nifty how you're able to shift the definition of socialism, at will, to include anything you deem as bad. Neat trick that.

Act may preach these aspects just like the Republicans in American do, especially when they sloganeer "minimal government" which is mostly sophistry. As Ron Paul has said, military spending provides the greatest incentive to increase the size of government and that's what the Neo Cons do best.

The Act party are in bed with the business round table, even the NZ Libertarian party have denounced them for this, despite loosing some of their members to it. You can be sure Act are all for corporatism, despite having some policies I am inclined to agree with. Free trade being one of them.

Free trade increases what we call "total welfare" in economics, which consists of "consumer surplus" and "producer surplus" added together. However it all depends on the markets affected, as to how "total welfare" will shift and who will benefit the most from it doing so.

If the world price for a certain good is lower than our local price, we have a "comparative disadvantage" which will benefit our consumers, but not our producers. Conversely if the world price is higher for a certain good, it benefits the producers who then export their wares overseas because we have "comparative advantage".

However regardless of whether we have a "comparative advantage" or a "comparative disadvantage" we are always better off in "total welfare", which increases in size. There are some problems that come from free trade though, these are more or less refined to losing bargaining power and strategic assets like steel.

I will use this simple diagram to try and translate what I mean by free trade increasing total welfare, especially when you remove barriers. For instance in this case there is a government excise tax on the market. It has the effect of reducing consumer surplus and producer surplus, however the government gains revenue which is still considered total welfare. But this tax also causes a "deadweight loss" which is economic activity destroyed from the tax. When you remove the tax, you eliminate "deadweight loss" completely and the area of total welfare becomes larger.

Just thought I would post this for you, as it's reiterating exactly what us free market advocates are saying.

Rival, do you believe there was ever a time when capitalism operated successfully according to free market principles pure and simple without state interference in the market?

Yes, one only needs to look to history.

The United States was very close to true capitalism in the 19th century, especially before 1913 and where the government only constituted about one-tenth of its current size. Free banking existed, there was very little regulation or taxation. Even though I wouldn't call it 100% laissez-faire, the abuses of that government were certainly much smaller than now. Mises cites it exclusively as an example of laissez-faire.

Think about it, in the early 19th century America had:

* 9% growth
* little to no credit expansion/inflation
* very little regulation
* Government's taxes are only tariffs, no income, sales, oil and other taxes.

If this isn't free market capitalism, it sure is darn close.

Of course people can mention protective tariffs and government-subsidized railroads, but I think this misses the bigger picture. Yes, the government did subsidize railroads, but it was the entrepreneurs who didn't accept the subsidies that build America's railroads. For example, consider Cornelius Vanderbilt, when he was born, he was merely a farmboy but by his death in 1877, he had a fortune of $200 million (equivalent to something like $2 trillion now) and he had built almost 18000 km of railroads, while pushing his government-sponsered competitors into bankruptcy.

It was individualist, hard working entrepreneurs like Vanderbilt that built up America's railroads and industries, not the subsidies of government.

As to free trade, I don't know the particulars but I know that tariff rates in late 19th century America were something like 20% (which seems high) but the tariffs currently are something like hundreds of percent and American industries still can't compete against China (not mentioning currency manipulation by the US, quotas, "regulations" that are actually protectionist). But this certainly shows how early the US has fallen from its laissez faire greatness.

I believe it is correct to claim that the US was built from free trade. Without (relatively) free trade no foreign investment would have come into the US (which depended on British capital early on), and the US industries wouldn't have access to european markets, and wouldn't have developed much. The only way to develop without free trade is to accumulate capital yourself, which is a very slow process.

Another example of the free trade success is modern day China. China's tariff is some of the lowest in the world, and they don't have quotas/regulations, etc, so they are some of the least protectionist. Because of this free trade policy, the Chinese were able to export a lot more goods than usual, which is the main reason for 10%+ growth in China.

While there was significant growth in the US over the entire 19th century, of which government intervention has exceedingly become worse (a lot of which can be blamed on a misinterpretation of the Great Depression and the resulting New Deal policies, which have been very damaging) the major free market improvements in America were actually after the civil war in the so called "gilded age"(actually a golden age) when the US economy expanded at 9% a year from 1870 to 1900-ish. During this era there was no fiat currency, and only a bit of credit expansion (extraordianrily mild compared to what we have now). There was never a recession that lasted over a year.

In short, it did not suffer from the credit expansionary problems that plague the US now due to government interference in the economy.

Another example would be China in the 15th and 16th centuries, under the Ming Dynasty. This dynasty was influenced by Taoism, which was an ancient Chinese libertarian ideology. The government did not issue banknotes, which were entirely privately issued; the tax rate was reduced from about 7.5% to 3.3%, and there were no regulations or tariffs (only one tax on imports that yielded about 40,000 taels a year on a trade of millions), which is totally unlike European mercantilism. China was the most advanced society on earth for pretty much 2,000 years, unfortunately, this ended with the conquest of China by the Manchus.

My economics lecturer says the closest we have to true market economies today include Hong Kong, Luxembourg, Singapore and Ireland. I think the closest example today of a perfectly free market would be online. I.e. Ebay and Trade Me which my tutor considers an example of a truly perfect market. Minimal regulation, no taxation and what do we see? Thriving markets of exchange.

I presume you mean "before 1913 in the early 20th century"?



I'm confused how to make sense of this. 13th word in "of" i presume should be "after"?

I presume you are saying that growth was strong in the 19th century, especially during 1870-1900, but that govt intervention after this led to the Great Depression, followed by further govt intervention?

Yes please excuse my errors. For the record 1913 was the formation of the Federal Reserve Bank and the implementation of income tax.



Yes after WWI America was experiencing economic difficulties, due to all the inflation from military spending, and as a consquence in 1920 America experienced a Depression. This Depression of 1921 only lasted approximately 18 months and even though the Fed was already established at this time, it remained mostly passive and did not engage in countercyclical policy until after it had ended. Also the government actually slashed it's war time taxes and started paying back it's deficit too. Because of this the Great Depression of 1921 was over very quickly.

However a new administration was ushered in and the Fed embarked on a loose monetary expansion, which inflated a huge bubble (similar to what we just witnessed) and caused a massive boom in economic activity. They called it "The Roaring Twenties". But just like all bubbles do, it popped in 1929, manifesting in the stock market crash.

That's when Hoover and Roosevelt started massive government intervention into the economy to fight the Great Depression, which in most instances made things worse (just like we are witnessing now) and dragged it out for over 10 years. Loads of government departments were created in amongst the New Deal policies. Then WWII happened, the draft cured the unemployment and massive military spending hid the damage.

The rest is history...

This is a really lazy place for me to start, but when you say the rest is history ... the period 1950-1970 (or shortly after), was the equivalent of any previous 'golden age of capitalism,' and the material expansion of the world economy which took place during these decades was premised upon policies which were the antithesis of free trade.

There are a few different reasons for this and I'm not sure if I could ascribe precedence to which was the largest determining factor, but consider the following:

1. Cheap stable oil prices
2. Limited gold standard (severed in 71)
3. Military Keynesianism (which was unsustainable in the long run and which caused considerable problems after the 70's)
4. High tax rates on the wealthy, causing reinvestment back into companies (to avoid tax) trickling down towards workers (wages) and speeding up technological development.

5. The Marshall Plan (essentially the provision of US welfare to Europe)

Agree, especially for Japan.

Actually Keynes arguments were involved in influencing the Marshal Plan, if you are interested I have written an essay on An Overview of Keynes General Theory.

You might find it worth a read.

http://alt-report.blogspot.com/

please don't take this the wrong way, but if you intend to hand that in for a course at uni then you'll need to give it a really solid proof read.

the grammar in the first paragraph is atrocious dude

delete the semi-colons and commas, then re-read it to get a feel for where they should be placed

I actually had lots of problems pasting that onto blogger, the formating went to shit and it won't seem to fix it when I edit using HTML and Compose. It won't double space after the ends of sentences and is claiming some paragraphs are errors when they are not. English not being my strong point I just posted it, and was going to ask for some assistance with fixing it up, once I figured out how.

This has nothing to do with Uni.

Unfortunately, i lack the time, resources, and currently even the will (life is chaotic at the moment, i'm shifting flats again soon, and last week was offered a phd scholarship in sociology at auckland working on a project analysing the performance of the hospital system), to debate this topic deeply.

So the following would be issues i would address by way of reply:

1. While you identify a variety of unusual and potentially unique characteristics that may have helped drive the 1950-70 US led 'golden age', i'm not convinced these take away my from my point overall, that that specific successful capitalist period was driven to some important degree by governmental control over important aspects of the economy.

2. Re the late 19th century rise of the USA, which you attribute to free trade, i would suggest by way of reply, while not denying that free trade at that specific historic juncture may well have been important, that other factors were at play as well. These would include the substantial protection-rent discount afforded by America's isolation from power struggles in Europe. But there would be many other factors.

3. I observe that in Arrighi's world systems theory, a pattern over time has been the shuttle backwards and forwards between free trade 'cosmopolitan-imperial regimes (the Genoese and the British which were driven primarily by smaller businesses) and 'corporate-national' regimes (the Dutch and US driven by large fully integrated corporations). The former have been characteric of times when the world system expanded (the age of discovery, and the age of colonisation by the British empire), the latter of the intensified development of territory already incorporated into the system.

4. And the obvious point from Arrighi, that both free trade and corporate regimes have both reached their limits, and been superceeded. No doubt you will have a take on Marx's view that the ultimate barrier to capitalist production is capitalism itself. In Arrrighi the relevant point here is that during a productive boom so much capital is created that profits in trade and production decline, leading to a financialisation of the economy and ultimately a deeper crisis, such as the one we have now.

5. RE your Chinese example, despite the Chinese economy turning its back on free trade after the 16th Century, it was in the early 19th Century of far greater wealth than capitalist Europe. Chinese wealth only faded when China was militarily subjugated by the the imperialist UK regime.

6. I dont think we have yet resolved the connection between the state and capitalism. In Arrighis view this connection is fundamental, as it is in Marx and Max Weber, specifically because capitalists have always needed to exercise military dominance over their competitors in order to reap the greatest profits.

So that's a kind of an agenda to explore more by way of reply, but i fear i dont have the time to develop this productively much further!

Also, I've heard it said that Americas prosperity has been significantly enhanced by virtue of its internal geography. Not only does it possess large tracts of accessible arable land, but also there is a natural abundance of waterways acting as both irrigation and transport networks - all of which comes at no cost allowing investment in immediately productive ventures. Capital is a scarce resource, this is a massive advantage.

In comparison Russia had to develop a Trans-Siberian railroad at great financial and social cost to open up its hinterlands.

Yes agree peat, there were huge benefits to be reaped by those who colonised America. Re the 'protection-rent' discount enjoyed by America i'd need to be carful about this point. In the 19th century of course Europe enjoyed the '100 years peace'. While this period was filled with colonial wars, and in its latter stages by a european arms race, these may well have been not as serious a problem as the devastion America suffered in its civil war. It was only in the 20th century that isolation truly paid bonues to America through its separation from the impacts of WWI and II.

And at the conclusion of those two wars America faced the problem of how it could grow when the rest of the world was so weak. Hence America adopted a kind of global Keynesianism, not a free-trade regime.

No drama, I can't always be here either. Also I know with you (from repertoire) that omission of dialogue doesn't necessitate some kind of ceded refutation. Also I have just studied public health systems in economics and the dynamic of ‘monopsonies’ which use 'rationing' and 'rating systems' for allocating scarce resources. These will be relevant for you to mention in any study you conduct, there importance should not be neglected. Public health systems always suffer inefficiencies and supply problems. We know that wherever price is attacked (practiced to provide cheap health care) quantity of goods and services supplied, will be negatively affected. There is a direct relationship and It might be worth your time researching 'monopsonies' in economics.



Economic success can come from both free markets and government interventionism; you won't find me disagreeing there. My only argument (perhaps I should refine it) is that success is not required strictly from state interference and I would add: state interference can cause all sorts of developing problems.



Totally agree, this can’t be denied.



I don’t have anything to say here other than to take your argument into consideration, maybe research it for consistency using other historians and see how their opinions compare.



This is where I disagree with Arrighi, for a lot of these periods of ‘financialisation’ causing crisis, can be directly linked to government or banking institutions causing interference with the money supply. This can manifest through: 1) fractional reserve banking, 2) loose monetary policies via fiat currency and interest rates, or 3) an influx of gold from government subsidies.

In this present crisis we can see other institutions responsible too. Such as: Freedie and Fannie, both private/state hybrids, granted special privileges by government, which cosign mortgages. This when mixed with excess liquidity caused a huge 'moral hazard' and attracted an extraordinary amount of capital into the housing market, inflating a bubble.

The main area of interest in any financial crisis is when there becomes a supply of credit which doesn't reflect real savings. This is the most important point to take into consideration and I can’t reiterate it enough. It must be realized that crisis need not be an outcome from successful economic development; rather it is usually the result of government interference or institutional problems reflected through the change of money supply.

There are of course examples in history which can’t be directly related to a central bank authority, such as witnessed during the Dutch Tulip Crisis 1637. But once again this can be demonstrated to have been caused by an increase in deposits at the Bank of Amsterdam caused by debasement from specie.



For this I do not have sufficient knowledge to comment, but I am adamant that such prosperity would have been directly correlated with how the economy was allowed to function.



Arrighi seems to expand his theory by focusing on “mercantilism” and the increasing “corporatism” observed during the later 19th into the 2oth century and beyond. It isn’t all capitalists though (who require such connection) and it’s to do with corruption of government apparatus, where big business (amongst religious organizations, unions and farmers) and the state merge together. Indeed, if we study how the Federal Reserve Bank was setup in the first place, you will see it was specifically for JP Morgan and Rockefeller to sell to the public, the need for economic security (lender of last resort), but in actual fact they required fiat currency, in order to generate enough capital to expand their empires around the globe.
Simple profits generated from clients were insufficient, what was needed was fiat currency debased from gold (the great limiter and cornerstone of economic stability).



I don’t expect a reply for a while; also I would bid you to join me on Facebook (if you have an account). For we (including a variety of libertarians, socialists and liberals) sometimes generate some amazing debates, that I believe you (and us) would benefit from your participation. We all tend to show each other respect too. I have yet to witness exchanged insults, which is starting to make me think, this is a cultural phenomenon on biggie.

I edited this and have posted it up on my You Tube account. It's relevant to this present crisis, and I couldn't have said it better myself.

I've just tried to get my head around a long passage in Arrighi about the rise of America. His postion seems to be that the US (government but certainly not the New York financial community) almost directly 'opposed' the British free trade system. Consider this:

"The huge hike in US tariffs passed during the civil war was followed by further increases in 1883, 1890, 1894, and 1897. Although minor cuts were introduced by President Wilson in 1913, there were tolerated by Congress only as long as the war reduced competition from foreign imports and boosted US exports. But as soon as the war was over and the first indicators of a recession made thier appearance, the US protectionist tradition was resumed in earnest. Major increases in tariffs were enacted in the early 1920s in response to commercial adversity, prefiguring the astronomical Smoot-Hawley tariff of 1930."

His view seems to be that the US was to some large part to blame for the crisis of the 30's, and even though it suffered to some extent the most for this, the eventual outcome was ultimatley for US benefit. The British free trade regime would have fallen apart under its own internal contradictions in Arrighi's view, but the US hastened its decline.

The depression of 1870-1893 was also important in the rise of the US. During this time US businesses developed their character of being large vertically itegrated bureaucratic corporations. There is a description of how these types of businesses are able to operate 'above' market competition, which is rather complicated, but the point seems to be that they developed as a result of attempts to get around the problems of 'excessive' competition. After the depression these businesses became TNCs, which allowed them to bypass tariffs in other countries. Meanwhile the US enjoyed tariff protection of its home market (which was and still is the market of greatest value globally). It had the best of both worlds.

I think in all of this there is an acknowledgment that as one regime declines, competitive advantage goes to the opposite type system (i.e. just as the US protectionist system exploited the weaknesses of the UK free trade system, today the large vertically integrated businesses which suit that envirnoment seem to be loosing ground to more flexible small and medium sized enterprises).

I'll try look into this. There may be some subtle differences in view. Arrighi's might be that initially the finance capital is composed of 'real' profits from trade and production which is looking for alternative means of profit making, but presumabley as the process unfolds the money speculated with may no longer be 'real.'

This article by Immanuel Wallerstein (one of the major world systems theorists who was displaced from centre stage a little by Arrighi), is a ripping good yarn with oodels of interesting (and frightening ) commentary on the current situation:

http://indy.media.hu/node/14452

Some relevant points:

The depth of the current crisis
"The system has gone from bubble to bubble. The world is currently trying one last bubble — the bailouts of the banks and the printing of dollars. The depression into which the world has fallen will continue now for quite a while and go quite deep. It will destroy the last small pillar of relative economic stability, the role of the U.S. dollar as a reserve currency of safeguarding wealth. As this happens, the main concern of every government in the world — from the United States to China, from France to Russia to Brazil to South Africa, not to speak of all the weaker governments on the world scene — will be to avert the uprising of the unemployed workers and the middle strata whose savings and pensions disappear. The governments are turning to protectionism and printing money as their first line of defense, as ways of dealing with popular anger. Such measures may postpone the dangers the governments fear and may assuage momentarily the pain of ordinary people. But they will eventually probably make the situation even worse. We are entering a gridlock of the system, from which the world will find it extremely difficult to extract itself. The gridlock will express itself in the form of a constant set of ever wilder fluctuations, which will make short-term predictions — both economic and political — virtually guesswork. And this in turn will aggravate the popular fears and alienation."

Asia will not save us
"Some are claiming that the greatly improved relative economic position of the Asian nations — especially first Japan, then South Korea and Taiwan, then China and to a lesser extent India — is allowing, will allow a resurgence of capitalist enterprise, with a simple geographical shift of location. One more illusion! The relative rise of Asia is a reality, but precisely one that undermines further the capitalist system. It does so by overloading the numbers of persons to whom surplus-value is distributed. The top end of the capitalist system can never be too large, for this reduces (not increases) the overall accumulation of capital. China’s economic expansion accelerates the structural profit squeeze of the capitalist world-economy."

Capitalism will fail
"The question is no longer, how will the capitalist system mend itself, and renew its forward thrust? The question is what will replace this system? What order will be chosen out of this chaos? ... We have at best a 50-50 chance of creating a better world-system than the one in which we now live."