COMMANDING HEIGHTS:

AGONY OF REFORM

How Global Economy was Born:

 Governments moved to free market capitalism, which gave way to become the
new global economy
 Start of World Revolution
 The capitalist system became the only model globally
 Some people were in favor of the new economic system, while others protested
it

The Soviet Influence (Iron Curtain):

 Communism was gaining the world

 Other countries such as the USA and Britain were worried about the USSR’s
power
 However, British Intelligence managed to infiltrate and gather information about
the Soviet economy and how it was starting to crumble (Russian Double Agent:
Oleg Gordievsky)
 Grigory Yavlinsky wrote a report that industrial workers were unproductive
because there were no incentives given (e.g. no food and other necessities for
living)

India:

 The Government decided to take control of everything, including the private

sectors. It turned into a bureaucratic system
 Everything needed a government permit
 India then decided to shut out imports in order to “sustain” its manufacturing
industry
 As a result, products weren’t innovative and productive due to tight control of
the government
Latin America:

 Economy was crumbling down, thus thinking that the “Dependency Theory of
Economic Development” was a solution
 The theory states that: “If you want your economy to grow, you need to lessen
imports and localize your own products and industry. Otherwise, you will be
exploited by world trade.”
 In other words: “Develop on your own and you will be self-sufficient”

Chile:

 Same as India, Chile’s government wanted to take control of everything.

 People revolted against the government, which ended in a military coup.
 Supporters of Salvador Allende were massacred
 Chile’s government system was then turned into a military dictatorship, which
was led by General Augusto Pinochet, who has no plans in managing the
economic aspect of the country and instead build an army and militarize the
country.
 A group known as the “Chicago Boys” are economists in Chile’s Catholic
University. They were sent to the University of Chicago to be enlightened by the
ideas of free market economy. When they went back to Chile, the group
discussed how to convince the authorities and reform the state of the economy.
Unfortunately, the government wanted a controlled economic system
 Milton Friedman, a professor at the University of Chicago, was invited to Chile to
lecture about the Chilean economic system.
 His first lecture emphasized the free market and how it heavily contrasts political
domination.
 Friedman then came to General Pinochet and suggested to suppress his military
control in order to combat inflation.
 The Chilean Gov. then reformed into a free market economy, ending the martial
reign and sustaining the economy
 Unfortunately, the gap between the rich and the poor widened. The leftover
people left by Pinochet’s regime despised Friedman

The Soviet Union:

 The citizens of the USSR questioned the system behind the Soviet Union. They
were aware that the system wasn’t working but they couldn’t publicly discuss
about it. Soviet economists discussed in secret about the advantages and
disadvantages of the free market economy
 Mikhail Gorbachev then became the next leader of the Soviet Union in 1985 and
was displeased by the state of the economy.
  “Perestroika” was Gorbachev’s attempt to reform the economy by creating an
infrastructure for market economics. With the help of former U.S. President
Ronald Reagan and former Prime Minister Margaret Thatcher, Gorbachev was
advised to change the economic system of his country and let their own markets
run by themselves

Poland:

 The shipyard workers at the port of Gdansk was against the economic rule of the
Polish govt., rebelling by not conforming to the price rises and food shortages.
The group was led by Lech Walesa.
 Walesa led the people and gave light to the “Polish Solidarity”, which was in
opposition to Communism
 The Polish government then declared martial law after a series of protests,
placing Walesa under house arrest.
 Thatcher’s visit to Poland gave hope to Walesa’s movement and helped the
Solidarity express their goal of economic freedom to the government

Bolivia:

 International banks were flooded with so much money, they invested a great
amount of money to Latin America. The problem was most of the countries
couldn’t repay the debts, Bolivia being one of them
 Bolivia’s economy was then suffering from hyperinflation. This is because of the
government spending more and receiving less in taxes.

Harvard University:

 Jeff Sachs, a young professor in Harvard University, was visited by a group of

Bolivians. One of them convinced him to visit La Paz. During his visit, he went to
a party and met Gonzalo Sanchez de Lozada aka Goni
 Goni was then elected to be the minister of planning. He and his party advised
the President of Bolivia to stop hyperinflation. They were then given 20 days to
work out the economy of Bolivia
 Goni then announced a program called “Shock Therapy”, which was averse to
the Dependency Theory. Price controls & import barriers were removed, and the
government’s financial management was sustained.
 This made Latin America to become open-minded about the reform of free
market economy, under democracy.
Warsaw:

 Seeing how Bolivia became an economic catalyst for Latin America, Sachs was
then addressed by a Polish government representative to seek help about the
government’s failing system.
 Sachs witnessed the free election and how Solidarity was favored by the officials.
This event marked the end of the Soviet Reign, followed by the Fall of the Berlin
Wall. Countries who were heavily governed by the Soviet Union broke free.
 1989 was then dubbed as the “Miracle Year”
 Poland, like Bolivia, introduced the Shock Therapy into their economic system. At
first, people weren’t contented of the outcome of this system because product
costs were very high, but when farmers began to bring their own produce, prices
of products began to deflate
 Industries also became a problem. Workers were agonized by the reform of their
economic system. Sachs then explained his vision to factory workers.
 The Polish economy then prospered, with several small businesses opening.
People sold the same products of state-owned products but with a lower price.

China:

 Gorbachev was finding ways to spread the influence of the free market reform.
He then chose the Communist China.
 Like the Soviet Union, China’s political system was heavily militarized, but the
economic system is already starting to evolve. Political leader Deng Xiaoping was
supportive of Mao Zedong’s philosophy, but soon realized that these beliefs are
leading their economy to its doom. He then decided to reform to the free
market.
 But their variant of the socialist system was different than most countries.
Because of the fear that the Communist Dream would perish, their political
system remained under Communism, but their economic system would shift into
a socialist state.

Fall of the Soviet Union:

 Gorbachev was trying to follow this type of reform for years but realized that the
Soviet Union would soon cease to exist. The new Russian president Boris Yeltsin
commanded Yegor Gaidar to transform Russia into a market economy.
 Gaidar realized that the economic system was failing, going downhill and ending
in catastrophe if nothing will be done about it
 Gaidar assembled a team who would go on with the reform. The Communist
supporters nicknamed them the “little boys in pink shorts”. The Communist-
dominated parliament were against Gaidar’s reform
  But Gaidar’s plan was not to rebuild an economy, but rather destroy the
Communist Party instead to make way for the new economy. The reform was a
political weapon used in this tactic.
 Gaidar then freed private enterprises. People were starting to get the
entrepreneurial spirit. This was a focal moment and he felt that the market
forces worked.
 Yet this wasn’t the case of citizens. Prices were inflated and people lived under
worse conditions.

New Delhi:

 In 1991, India faced an economic crisis. The collapse of the Soviet Union woke up
the Indians that a controlled economy wouldn’t simply work, which lead to the
idea of a reformed economy.
 Manhoman Singh was then appointed as finance minister. “Permit Raj” then
ended, and government control was loosened. Indian entrepreneurs were given
freedom of trade.

Russia:

 Commanding heights of the economy of Russia was still in control of the state.
Reformers planned to sell industries in order to democratize them. They offered
vouchers to the Russian people so that they can be shareholders in privatized
companies.
 The problem was no company was ready to be privatized. The reformers were
running out of time, because if the plan wasn’t acted upon fast enough,
privatization would be killed.
 They then found a company to auction off. There was then a heated moment in
the parliament, and Gaidar was forcibly impeached by the Communists. He was
replaced by Viktor Chernomyrdin who still followed the state-controlled system.
 After Gaidar’s removal, corruption was prominent. Crime was abundant in
Moscow. Russian authorities began stealing private properties, controlling most
of the natural reserves. Those who were involved and are against the economic
reformers were called the “Red Directors”
 A blooming entrepreneur named Vladimir Potanin challenged one of the Red
Directors, Anatoly Filatov. He wanted to take over Norilsk’s Nickel but was
undermined by Filatov’s notoriety. Potanin then assembled a group of
entrepreneurs and was known as “the oligarchs”.
 The Oligarchs were underdogs compared to the Red Directors. They needed
support in order to abolish the Red Directors. The Oligarchs used a strategy by
lending money to the government (specifically Yeltsin) so they have financial
rapport in the upcoming elections, and in exchange for owning the private
industries to gain power and influence against the Red Directors
  Yeltsin was victorious, and so were the Oligarchs. Potanin gained control of the
nickel reserves in Norilsk. However, instead of giving privatization to the
Oligarchs, it was given to the people. The outcome of the reform was dystopian
for the economy, with the stock markets crashing, corruption and unpaid debts.
This era ended on the first day of a new century

New Millennium:

 Governments released control over the commanding heights of the economy.

The world reformed its way of the economy, ending the Communist state and
giving birth to globalization.
 Poland’s shock therapy boomed their economy, so as Eastern Europe. Polish
people started their own businesses, giving easy flow for imports and other
foreign products.
 Chile was now one of the fastest growing economies in the world. Bolivia in the
other hand was still poor yet nurturing in their economy.
 India was also liberated in terms of the market economy. Those who were
against the reforms started looking upon the reforms.
 Russia’s setbacks of the previous years had been a pivotal point for their
economic growth. It still wasn’t perfect, but the system was slowly altering into a
globalized economy