Summary of Commanding Heights free essay sample

â€Å"[The shift of the pendulum] in idea converged with the experience and learning of the preceding decades. Confidence in market [economy] rather than government [intervention] formed the foundation of the global critique. † The Global Critique 1. The pendulum swung back to the market –Hayek’s award of the Nobel Prize in 1974 shifted intellectual center ( Friedrich von Hayek and â€Å"Battle of Ideas†, the Road to Serfdom, Chicago School amp; Grudging Respect) * Friedrich von Hayek – Hayek believed that Keynesianism would not solve the slump but would institutionalize inflation. He asserted that governments should exist to ensure the development and maintenance of the institutions such as the laws and rules. In his book the Road to Serfdom, he prepared a full-scale view on market-oriented economy in which Margaret Roberts, later named Margaret Thatcher was influenced. * Chicago School (Milton Friedman) – Chicago school, partly driven by Milton Friedman, emphasized free markets and argued against government intervention. We will write a custom essay sample on Summary of Commanding Heights or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page They believed markets produce the best outcomes and allocate resources to the utmost. After retirement from teaching, Milton Friedman became an advisor to Ronal Regan and his advisors. Jeffrey Sachs – During the mid-1980s, he was at the center of economic reform around the world. Keynesian-educated Sachs gradually disapproved the ability of governments and came to believe in the competitiveness of the market. 2. Lost confidence in the government control economy –The collapse of the Berlin Wall, what had symbolized between communism and capitalism gave the victory to capitalism A) Falling confidence in industrial world Crisis of confidence (1970 ~ 1980) * From the end of the World War II till oil crises in the 1970s, industrial world enjoyed three decades of prosperity. However, people started to realize the limits of government knowledge and its ability to run a modern economy. Due to poor economic performance and the confusions of government policy, government-led mixed economy lost its confidence. B) Falling confidence in developing world The Debt Crisis and the Lost Decade (1980s) * In the second half of the 1970s, petrodollars from industrial world have given to most to developing countries for loans. However, due to the downturn in the industrial countries, businesses in developing countries became poor. Weakening demand and falling revenues toppled with growing debts and rising interest rates then the great debt crisis of the 1980s had begun. The government of developing countries was going into bankruptcy. Both economic arrangements and the guiding idea derived from development economics had to be changed and fiscal reality moved to the front. C) Falling confidence in state-owned company The national champions (1980s, Italy) * ENI, Italy’s largest and a renowned state-owned company had grown with benefits by the government after WWII. In the 1970s, difficulties in state-owned companies started to rise. The company was malfunctioning, and their success and confidence turned into corruption, inefficiency, reliance on government subsidies, political intervention and inflexibility in innovation. In the end, late in 1995, ENI was privatized. D) Falling confidence in Marxism and Communism Red Star Sinking (1980s) * Marxism and communism which provided the powerful development model through central planning, state intervention, and state ownership finally had to be drawn back. By the 1980s, what seems to be strong in appearance turned out to be strikingly different. The economy in the Soviet Union was in deep crisis and it was no better in Eastern Europe. Meanwhile China rapidly opened the door to the market system and the size of the economy doubled every seven years. E) Failing confidence in government protected sector in Mixed economy New Zealand (1980s and early 1990s) * By the 1980s, the highly regulated and protected state-owned sector was malfunctioning. The uncompetitive economy resulted in falling per capita income, rising debt as a share of GDP and unemployment. Then the labor party took control and started to remove or reduce protection in every sector. 3. Regain confidence in a market economy and the crisis of market’s confidence- development and coalescing of capital markets created a new era. Information and communication revolution integrated the world but tight integration caused market collapse. A) Success of East Asia’s market-oriented economy-Asian Star Rising (1980s) * East Asian countries, that nurtured national champions with industrial policy, encouraged domestic companies to go world market. East Asian economies, considered as market-oriented by world standards, turned out to be successful. B) The Emergence of Emerging Markets amp; Financial Integration * The development of emerging markets was central to economic change around the world. It has accelerated the shift toward reliance on markets and tied world economies together. However, global financial crisis wrecked its way across the world’s emerging markets in the late 1990s. World economy collapsed in a chain reaction and it brought the abrupt loss of confidence in the market.