Chapter 12: The Specter of Stagflation [6:34]

Onscreen title: Austria, 1970

NARRATOR: When Hayek moved back to his native
Austria, he was depressed. The success of mixed
economies made his free-market theories, and Hayek
himself, seem more irrelevant than ever.
LAURENCE HAYEK, Hayek's Son: The world was very
much a socialist world. His ideas were not fashionable.
Nobody seemed to listen to him. Nobody seemed to
agree with him. He was alone.
NARRATOR: Hayek found his ideas shunned by the
academic world.
FRIEDRICH VON HAYEK (interviewed in 1978): Most of
the departments came to dislike me, so much so that I
can feel it to the present day, [and] economists very
largely tend to treat me as an outsider.
NARRATOR: He was living in a provincial town and stuck
in a rut. But the outside world was beginning to change.
Skimming the newspaper in his usual restaurant, Hayek
read how inflation and unemployment were rising at the
same time. There was a new word to describe it:
"stagflation."
Onscreen title: USA, 1971
NARRATOR: After 30 glorious years of growth, the
American economy was in trouble.
GEORGE SHULTZ: The economy basically was kind of
going nowhere and had inflation, which didn't seem to
get cured -- kind of a malaise in the economy.
MILTON FRIEDMAN: Stagflation was the end of naive
Keynesianism. You had two things at the same time,
which under the Keynesian view would have been
impossible. You had stagnation in the economy, high
level of unemployment. You had inflation, with prices
rising rapidly.
NARRATOR: President Nixon looked like a Chicago
economist's dream come true. Milton Friedman was a
special advisor, and George Shultz was in charge of the
budget.
GEORGE SHULTZ: So I think going back to your
comment about the wholesale price index a moment
ago, one of the areas where prices were going up very
rapidly was lumber and other materials associated with

home-building.
NARRATOR: But the president wasn't listening. He tried
to spend his way out of trouble. To add insult to injury,
he declared, "Now I am a Keynesian."
DANIEL YERGIN: This declaration by Nixon horrified his
conservative supporters. Indeed, one congressman
wrote to him and said, "Mr. President, I'm going to have
to burn all of my old speeches." Nixon wrote back and
said, "I will, too."
NARRATOR: Nixon decided he hadn't gone far enough,
so he took his top economic advisors off to Camp David
for a working weekend. Ben Stein, the quiz-show host,
was a junior speechwriter in the White House, and his
father was at the meeting.
BEN STEIN, Host, Win Ben Stein's Money: Here's my
father, walking into the president's cabin to meet Mr.
Nixon, and there's George Shultz right behind him. I'm
not sure, but I think it's a fair bet that at any one of
these meetings they're complaining about something
being wrong, probably talking about prices and
stagflation. I'm not sure.
NARRATOR: Dick Cheney was a young aide at the time.
RICHARD CHENEY: I always remember the debate we
had during the Nixon administration when the public was
convinced that food prices were going up. So the
political debate was whether or not we should impose a
freeze on food prices.
NARRATOR: The supposedly conservative Republican
Nixon opted for wage and price controls.
BEN STEIN: Nixon was a great one for doing something,
I think in retrospect we now know that it would have
been better to do nothing, but he was in favor of doing
something.
GEORGE SHULTZ: I was there, and I opposed them.
Wage and price controls, you could see analytically,
would get you in a lot of trouble.
RICHARD NIXON, U.S. President, 1969-1974: The time
has come for a new economic policy for the United
States. Its targets are unemployment, inflation.
RICHARD CHENEY: At one point President Nixon spoke
up and quoted Nikita Khrushchev, and he said,
"Khrushchev once told me that sometimes in order to be
a statesman, you have to be a politician for a while."
MILTON FRIEDMAN: The problem with him was that he
was willing to sacrifice principles too easily for political
advantage.
NARRATOR: The voters liked the president's war on
prices. Nixon was reelected in a landslide. The economy

did less well.

DANIEL YERGIN: Right away the economy went out of
whack. People couldn't cover their costs. Ranchers
stopped sending cattle to market; farmers started
drowning their chickens. Instead of controlling inflation,
they were creating shortages.
NARRATOR: And prices just kept on rising.
MILTON FRIEDMAN: The last time I saw Nixon in the
Oval Office, with George Shultz, President Nixon said to
me, "Don't blame George for this silly business of wage
and price control," meaning George Shultz. And I said to
him, "Oh, no, Mr. President, I don't blame George; I
blame you!"
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Chapter 13: A Mixed Economy Flounders [8:36]

Onscreen title: London, 1973

NARRATOR: Britain's mixed economy, so widely imitated,
was in similar trouble. It, too, was facing the deadly
combination of unemployment and inflation. In theory,
the Conservative prime minister Ted Heath and his
Cabinet believed in markets. In practice, like Nixon, they
made a sharp U-turn and used wage and price controls
to combat stagflation.
KENNETH BAKER, Conservative Minister, 1981-1992: I
was a junior minister in Ted Heath's government, and I
remember having to attend meetings with three or four
other ministers where we would actually decide the level
of charges plumbers would charge next week to repair
taps and how much taxi drivers could charge for fares
and how much hairdressers should get in wages. It was
absolutely unbelievable. It all came to a very sticky end,
a complete collapse.
NARRATOR: A coal miners' strike and an oil crisis
plunged the country into darkness. Voters blamed Ted
Heath and voted the Conservatives out of office.
SHOP MANAGER: Well, we're virtually out of business
while the power's off. We've got no sets that we can
operate at all.
DAVID YOUNG, Conservative Minister, 1984-1989: We
were the sick man of Europe, and the English disease
was the disease of strikes, which we had all over the

place. And you know, it was so bad that Herman Kahn of

the Hudson Institute wrote a book called The Year
2000, and he saw many things, but the one thing he did
see was that the lowest standard of living in Europe in
the year 2000 would be shared between Albania and the
United Kingdom. Albania!
NARRATOR: A minister in the defeated government,
Keith Joseph may have been an unworldly intellectual,
but his search for fresh answers would change the way
not only Britain but the world thought about economics
and society.
KENNETH BAKER: Keith wore a hair shirt, he beat his
breast, and said we were to blame; we've got it wrong.
And he did beat his breast. He was called a Mad Monk.
KEITH JOSEPH (interviewed in 1975): I thought I was a
Conservative. I thought I was a Conservative, but all the
time I was in favor of... I was in favor of shortcuts to
Utopia. I was in favor of the government doing things,
because I was so impatient for good things to be done.
KENNETH BAKER: And when he appeared on television,
he had a vein in his head which kept throbbing, and
people said, "Oh, you know, this is a very strange figure
indeed, this man." But nonetheless, he started to rethink
the Conservative policy.
NARRATOR: Keith Joseph's search brought him here,
where, with Hayek's encouragement, a group of kindred
spirits had set up a think tank called the Institute of
Economic Affairs.
RALPH HARRIS: The institute started in 1957, you could
say the direct result of the Mont Pelerin Society, of The
Road to Serfdom, of Hayek's ideas of freedom and
competitive enterprise.
NARRATOR: With the zeal of a convert, Joseph began to
preach the virtues of free markets. In a series of
pamphlets, he went on the intellectual offensive,
attacking the mixed economy, making the case for
capitalism.
Mark Garnett is a biographer of Keith Joseph.
MARK GARNETT, Biographer of Keith Joseph: From the
middle of 1974 Joseph undertakes a crusade to convert
the country to his way of thinking, and what he wants to
do is take the battle to the heart of the enemy camp,
and he believed that the universities were infected with
socialist thinking.
KEITH JOSEPH: Because there was a free society in this
country....
CECIL PARKINSON, Conservative Minister, 1981-1983,
1987-1989: And he was going right into the lions' den,
arguing a case that many people had never heard
before.

MARK GARNETT: Joseph felt that it was his duty to fight

back on behalf of the free market.
NARRATOR: To revive the economy, Joseph preached
that Britain needed more risk-taking, which meant more
bankrupts and more millionaires, and less equality.
CECIL PARKINSON: The audience would sort of gasp.
They'd never heard anybody challenging the consensus.
KEITH JOSEPH: Mild inflation seemed a painless way of
maintaining full employment, encouraging growth, and
expanding the social services. So the result is that we're
now more socialist in many ways than any other
developed country outside the Communist bloc.
RALPH HARRIS: He used to be smuggled in the back
door. He was genuinely hurt that the students had
reacted to this penetrating argument by chucking flour
bombs at him.
MARK GARNETT: It was almost a badge of honor that he
would come away from these meetings with egg yolk
running down his suit.
NARRATOR: Keith Joseph's most significant adherent
was an up-and-coming Conservative politician named
Margaret Thatcher. In Parliament and politics, Thatcher's
closest friends agree that Keith Joseph's influence on her
was crucial.
NIGEL VINSON, Institute of Economic Affairs: She relied
on him to give her deep intellectual support. There's
nothing wrong with intuition. Intuition is reason in a
hurry, and Keith just supported and reinforced her
intuition. At the very moment, she needed that support.
NARRATOR: Margaret Thatcher had a gut instinct for
market economics. Her father had been a grocer, and
when she was a girl, she had helped him in the shop.
Hardworking and studious, she won a place at Oxford
University, where she became interested in student
politics.
While she was at Oxford, she read Hayek's Road to
Serfdom. It made a lasting impression on her. Years
later, when she became the first woman to lead the
Conservative Party, she once slammed Hayek's book
down on a table and announced, "This is what we
believe."
RALPH HARRIS: (laughs) Thatcher's office came on and
said could she come and drop in to see him. And so she
called by, and there was a period of unaccustomed
silence from Margaret Thatcher as she sat there,
intense, attending to the master's words.
NARRATOR: By 1974, Hayek sensed the world beginning
to go his way.

FRIEDRICH VON HAYEK (interviewed in 1978): As for

the movement of intellectual opinion is concerned, it is
now for the first time in my life moving in the right
direction.
Onscreen title: Stockholm, 1974
NARRATOR: In the battle of ideas, 1974 was a turning
point. Hayek's Nobel Prize came as a surprise, but the
balance was now shifting away from Keynes and towards
Hayek.
FRIEDRICH VON HAYEK: I like to say when I was a
young man, only the very old men still believed in the
free-market system. When I was in my middle ages I
myself and nobody else believed in it. And now I have
the pleasure of having lived long enough to see that the
young people again believe in it. And that is a very
important change.
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Chapter 14: Deregulation Takes Off [7:29]

Onscreen title: Chicago, 1974

NARRATOR: The U.S. economy was going through the
worst downturn since the Great Depression. Industry
slowed. Unemployment rose. The Yom Kippur War was
followed by an Arab oil embargo. Americans waited in
gas lines. And the price of everything kept rising.
Chicago School economists had always argued that rigid
government regulations were keeping prices high and
fueling inflation. Now more people began to wonder if
competition could break the inflationary stranglehold.
SAM PELTZMAN: What is the effect of regulating the
airlines? What is the effect of regulating the trucking
industry? And what is the effect of regulating the
railroad industry? Very often, it raises prices. Instead of
allowing competition, it suppresses competition.
Onscreen title: Washington, D.C., 1974
NARRATOR: In the airline industry, the host of
regulations enacted during the Great Depression were
still in force. It was a classic example of regulated
capitalism. But deregulation was in the air.

Stephen Breyer, now a Supreme Court justice, then a

Harvard professor, was asked by liberal Democratic
senator Ted Kennedy to head a Senate investigation of
airline regulations.
STEPHEN BREYER, U.S. Supreme Court Justice: You
discovered that basically the same firms that had been
there in 1938 were still there. Those were the major
carriers and nobody new.
NARRATOR: The hearings began, and officials from the
Civil Aeronautics Board were called to testify.
STEPHEN BREYER: And it turned out that 5 percent of
their time went to stop prices that were too high and 95
percent of their time went to stop prices that were too
low, but always the effort was to keep the price high and
not low.
NARRATOR: Naturally, the established airlines were quite
happy with this arrangement.
STEPHEN BREYER: And we'd say, "When was the last
time you granted a new route? Well?"
NARRATOR: Regulations meant that major carriers like
Pan Am never had to compete with newcomers. But
some cut-price charter flight operators wanted to break
this club. Leading the struggle against Pan Am over its
profitable trans-Atlantic flights was an exuberant
Englishman called Freddie Laker.
FREDDY LAKER: I'm Freddy Laker. I own Laker Airways,
and I'm dedicated to low-cost air travel. With Laker you
can fly round trip to the USA or Canada in one of our
wide-bodied DC-10s for less than half the price of a
normal economy ticket. Look, I've got to give you a
better deal -- I've got my name on every plane.
STEPHEN BREYER: The Transportation Department said
that this may hurt Pan Am. And Freddy Laker testified
and said, "The cause of this whole thing is 'Panamania.'"
So we said, "What is that?" And he said, "Well,
everybody should do everything for Pan Am."
NARRATOR: The man who was to sweep away airline
regulations is a lifelong Gilbert and Sullivan fan.
Improbably enough, the bearded poet is played by Fred
Kahn, a professor at Cornell University.
Kahn wanted a leaner, meaner regulatory environment
in which the market was free to chase profits without
the dead weight of bloated government. Democratic
president Jimmy Carter made Kahn head of the Civil
Aeronautics Board. Kahn had spent years studying
government regulation; now he had a chance to do
something about it.
ALFRED KAHN, Civil Aeronautics Board, 1977-1978:
When I got to the Civil Aeronauts Board, the biggest
division under me was the division of enforcement -- in

effect, FBI agents who would go around and seek out

secret discounts and then impose fines. We would
discipline them. It was illegal to compete in price. That
means it was illegal to compete in the discounts you
offer travel agents. So we regulated travel agents'
discounts. Internationally, since they couldn't cut rates,
they competed by having more and more sumptuous
meals. We actually regulated the size of sandwiches.
NARRATOR: By the time Kahn had finished, the C.A.B.
had nothing left to do but close itself down.
SPOKESMAN FOR THE CIVIL AERONAUTICS BOARD:
Competition is the rule, and because of it, the
consumers are better served than ever.
NARRATOR: Airline deregulation led to painful turbulence
as new carriers came and went. Like her father, Judith
Hamill works in the airline industry.
JUDITH HAMILL, Administrator, Chicago O'Hare Airport:
My dad was a jet mechanic with Braniff. At the age of 59
he found that his skills were no longer desirable or
needed. When Braniff came back because of the duty to
hire, he came back at half the salary that he had made
before. When you live by the rules and then the rules
change, it's sad.
NARRATOR: But 20 years later, the industry was
employing two times as many people to fly almost three
times as many passengers.
STEPHEN BREYER: The industry vastly underestimated
the demand for airfares at lower prices, and what's
happened is that as the prices went down, demand went
up dramatically.
ALFRED KAHN: And once they were free to compete,
you began to get super-saver fares and super-apex fares
and potato fares and peanuts fares -- an explosion of
discounting and competition. Well, those were dramatic.
NARRATOR: The stage was set for deregulation of the
U.S. economy, and now these ideas were about to make
their entrance in the very homeland of Gilbert and
Sullivan.
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Chapter 15: Thatcher Takes the Helm [3:50]

Onscreen title: Britain, 1979

WORKER: Well, 5 percent's no good to nobody, is it?

INTERVIEWER: Do you think you can win this strike?
WORKER: Yes, I do.
NARRATOR: They called it the Winter of Discontent. It
seemed as if everyone was on strike.
MAN: I think it stinks, like all the other damn strikes in
this country run by the filthy Socialist Communist
unions.
NARRATOR: The garbage men were out. So were the
ambulances. And if you died, the gravediggers were out,
too.
NARRATOR: With the economy in apparently terminal
decline, the people voted for a new Conservative
government headed by Margaret Thatcher.
LAURENCE HAYEK : Margaret Thatcher was elected
prime minister on the day of my father's birthday, so he
sent her this telegram from Freiburg: "Thank you for the
best present to my 80th birthday that anyone could
have given me." A few days later she wrote back from
10 Downing Street: "Dear Professor Hayek, I am very
proud to have learned so much from you over the past
few years. I am determined that we should succeed. If
we do so, your contribution to our ultimate victory will
have been immense. Yours sincerely, Margaret
Thatcher."
MARGARET THATCHER: And I'll strive unceasingly to try
to fulfill the trust and confidence that the British people
have placed in me and the things in which I believe.
NARRATOR: Determined, and some said strident, she
would revolutionize the economy.
MARGARET THATCHER (interviewed in 1993): The spirit
of enterprise had been sat upon for years by socialism,
by too-high taxes, by too-high regulation, by too-public
expenditure. The philosophy was nationalization,
centralization, control, regulation. Now this had to end.
NARRATOR: Thatcher squeezed government spending
and cut subsidies to business. Thousands of
bankruptcies and higher unemployment followed. Many
saw her as uncaring. Britain had rarely been so divided.
CROWD OF PROTESTERS: Maggie, Maggie, Maggie. Out,
out, out!
NARRATOR: Thatcher had no time for conventional,
Keynesian economists who urged her to use government
money to lessen the pain.
MARGARET THATCHER: Although 364 economists wrote
to the Times and said, "This is outrageous; you'll put us

into a deep depression from a recession," 364 were

wrong, and the half dozen who supported us were right.
And those who urge us to relax the squeeze, to spend
yet more money indiscriminately in the belief that we'll
help the unemployed and the small businessman, are
not being kind or compassionate or caring. I have only
one thing to say: U-turn if you want to. The lady's not
for turning.
NARRATOR: In Britain, the battle lines were drawn. In
America, the fight was already under way.
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Chapter 16: Reagan Rides In [8:17]

Onscreen title: USA, 1979

NARRATOR: Things were at a low in the United States.
President Carter spoke of malaise and loss of confidence
in the country. Revolution in Iran had led to a second oil
shock and Americans held hostage in Tehran. Despite
the beginning of deregulation, inflation was still at
record heights. Carter's attempts to follow Keynes's
formula and spend his way out of trouble were going
nowhere.
LARRY LINDSEY, Assistant to the President for Economic
Policy: Jimmy Carter was maybe the high point of
Keynesian behavior. And it simply was not working.
GEORGE SHULTZ: Toward the end of the Carter
administration, with inflation out of control, Paul Volcker
was made chairman of the Federal Reserve. He
understood the problems.
JIMMY CARTER: I'm grateful to Paul Volcker for being
willing now to accept the oath of office and the
responsibilities of the Federal Reserve system of our
country. Paul?
NARRATOR: Paul Volcker was steeped in the ideas of
Austrian school economics.
PAUL VOLCKER, Federal Reserve Board, 1979-1987: It's
obvious to all of you from what's been said today that
we're face to face with really unique economic
difficulties.
NARRATOR: Volcker believed that inflation was one of
the worst of all economic evils.

PAUL VOLCKER: It came to be considered part of

Keynesian doctrine that a little bit of inflation is a good
thing. And of course what happens then, you get a little
bit of inflation, then you need a little more, because it
peps up the economy. People get used to it, and it loses
its effectiveness. Like an antibiotic, you need a new one;
you need a new one. Well, I certainly thought that
inflation was a dragon that was eating at our innards, so
the need was to slay that dragon.
NARRATOR: Volcker used a blunt weapon: He tightened
the money supply. The economy went into a nosedive.
Facing a presidential election, Carter was reluctant to
back such harsh measures.
Carter's rival was the Republican Ronald Reagan. Reagan
shared the same economic philosophy as Margaret
Thatcher. For over 20 years, he had been campaigning
against the Keynesian orthodoxy and for Hayek and
Friedman's ideas of free markets and freedom.
NEWT GINGRICH, Speaker, U.S. House of
Representatives, 1995-1999: Reagan knew Hayek
personally; he knew Milton Friedman personally. And
Reagan was, in a sense, their popularizer. So he was the
person who would take these people who were very
profound but not very easy to communicate. I don't
think you'd ever get Hayek on the Today show, but you
could get Reagan explaining the core of Hayek with
better examples and in more understandable language.
RONALD REAGAN, U.S. President, 1981-1989: Vote for
me, if you believe in yourself, if you believe in your right
to control your own destiny and plan your own life, yes,
and have a say in the spending of your own money.
The president is going to have more government on the
backs of the people and of business and of industry, the
working people, in order to try to solve the problems
that were created by too much government on our
backs.
We can get government off our backs, out of our
pockets. This kind of indifference to economic disaster
must be ended, and it'll be ended by having a different
kind of leadership.
NARRATOR: The American people voted for change, and
Reagan became president.
MILTON FRIEDMAN: The situation was this: The only
way you could get the inflation down was by having
monetary contraction. There was no way you could do
that without having a temporary recession.
GEORGE SHULTZ: Obviously, who wants a recession?
But I can remember President Reagan using those
famous words: "If not now, when? If not us, who?"
NARRATOR: Reagan offered Volcker his moral support in

the fight against inflation. As Volcker tightened the

money supply, the economy slowed and contracted.
Unemployment hit 10 percent. Nobody had realized
quite how tough it would be.
All across the heartland of America, ordinary people
were hurting.
DARREN SMITH, Farmer: Well, the interest rates, that
just eats up your profit. It becomes very difficult to keep
your business running right. Nineteen eighties, the
interest rates were up to 20 percent or better. It was
very interesting times. I remember, you know, cash
flows got very tight as things got tighter and tougher.
Creditors forced sales -- you know, "Come up with the
cash or we're going to have to liquidate you." It's a hole
that almost seems impossible that you can get out of.
PAUL VOLCKER: If you had told me in August of 1979
that interest rates, the prime rate would get to 21.5
percent, I probably would have crawled into a hole. I
would have crawled into a hole and cried, I suppose. But
then we lived through it. (laughs)
NARRATOR: It had taken three years -- three years of
growing public anger, three years of real hardship for
millions of Americans. But by 1982, the dragon of
inflation had been slain.
PAUL VOLCKER: What changed drastically in the 1980s
and running through today is the kind of presumption
that inflation is bad. The primary job of a central bank is
to prevent inflation. That's a very different environment
than the '50s and '60s.
ANNOUNCER: Ladies and gentlemen, the president of
the United States.
NARRATOR: Reagan and Volcker had set the United
States on a new economic course.
RONALD REAGAN: From our very first day, we have
been working to undo the economic wreckage they left
behind.
NARRATOR: They called his policy Reaganomics. It had
four key elements.
LARRY LINDSEY: The first was the concept of sound
money. The second was deregulation. The third was
modest tax rates. And the fourth was limited
government spending. Sounds pretty conventional now,
but when Reagan was elected, he was vilified by his
opponents as being some radical extremist.
RONALD REAGAN: They just can't accept that their
discredited policies of tax and tax, spend and spend, are
at the root of our current problems.
NARRATOR: Reagan's tax cuts, the biggest in history, led
to huge deficits. But the economy started to grow

steadily again.
MILTON FRIEDMAN: There's no doubt in my mind that
those actions of Reagan, lowering tax rates, plus his
emphasis on deregulating unleashed the basic
constructive forces of the free market, and from 1983
on, it's been almost entirely up.
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Chapter 17: War in the South Atlantic [1:41]

Onscreen title: Atlantic Ocean, 1982

NARRATOR: Far away in the South Atlantic, a British
expeditionary force was at sea. Argentina had seized the
Falkland Islands from Britain. Margaret Thatcher risked a
war to make the islands British once again.
Before the war her popularity was at rock bottom.
Victory in the Falklands ensured the survival of Margaret
Thatcher's government.
CHARLES POWELL, Thatcher's Foreign Affairs Advisor,
1983-1991: The Falklands saved her. The Falklands gave
her a new lease on life to implement the policies on
which she had embarked which were not yet producing
results. In effect, she gambled all on the Falklands, and
she won decisively. And that of course not only greatly
bolstered her standing within the Tory Party, it bolstered
her standing in the country, and it greatly enhanced her
reputation internationally.
NARRATOR: The Falklands War set her up politically to
fight the final battle for the soul of the British economy.
The impact would be worldwide.
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Chapter 18: The Heights Go Up for Sale [8:08]

NARRATOR: In 1945, Attlee's Labor government had

nationalized the commanding heights of the economy,
bringing core industries into state ownership. For

Thatcherites, these state industries were now the

primary target.
JOHN REDWOOD, Head of Prime Minister's Policy Unit,
1983-1985: A whole lot of people who were left of
center thought that nationalization was Britain's great
gift to the world, and one of my phrases at the time was
that having exported the disaster of nationalization to
the world, Britain should offer them the antidote; it was
the decent thing to do, to say we're very sorry, it didn't
work.
MARGARET THATCHER (interviewed in 1993): So the
whole efficiency of nationalized industries was running
down. Why should they be efficient? They had access to
the Treasury purse.
NARRATOR: Thatcher wanted to end their dependence
on government subsidies and submit them to the
discipline of the marketplace.
JOHN REDWOOD: The nationalized industries fell to
pieces. They lost huge sums of money; they put the
prices up massively and still weren't able to make a
profit. They were bleeding the nation dry, the taxpayer
dry, and they weren't doing a good job for their
customers.
NARRATOR: The coal mines and the miners' union
became Thatcher's biggest challenge.
JOSEPH STANISLAW: The coal miners represented the
last bastion of the socialist mindset in the UK. One of
the singularly most important economic/political events
for the world economic system was Margaret Thatcher's
government confrontation with the miners.
MARGARET THATCHER: We were quite clear:
Uneconomic pits must close. You could not go on
pouring money into uneconomic pits. It was taxpayers'
money.
CECIL PARKINSON: If you look at our coal industry, the
coal is very deep in the earth; it is hugely expensive to
get out.
NARRATOR: Seventy-five percent of Britain's coal mines
were losing money. It took government subsidies of $3
billion a year to keep them going. But these statistics
were seen as irrelevant by men like Ken Capstick, one of
the radical Socialists who led the miners' union.
KEN CAPSTICK, National Union of Miners: What they
would say was that in America, for instance, coal
produced at the pit head was cheaper than coal
produced at the pit head here.
NARRATOR: The union leaders argued that the
government subsidies were money well spent if they
kept 180,000 miners at work and able to feed their
families.

KEN CAPSTICK: Miners used to say -- and I can

remember them saying it -- "While ever I've got these
I'll always have a job."
NARRATOR: It was a historic grudge match. Both sides
knew the miners had brought down Ted Heath's
Conservative government 10 years earlier. The fiery
Marxist who led the National Union of Miners said no
mine should be closed until the coal ran out.
ARTHUR SCARGILL: Reaffirm the unanimous decision of
March the eighth to declare official in accordance with
Rule 41 the strike action.
The issue before our members is very clear. They either
accept the policies of the Coal Board and the
government, which will result in the loss of 70,000 jobs,
or alternatively, they stand on their feet like men. They
fight -- defend the jobs, defend their pits, and defend
their dignity.
NARRATOR: The strike was an epic clash of values which
symbolized the wider battle of ideas: socialist against
capitalist, free market against state ownership. And it
was a question of power: Who ruled Britain?
Illegal mass picketing outside working mines led to
violent clashes with the police.
KEN CAPSTICK: It was the next thing to, you know, to a
war. We were faced with an enemy, and that enemy was
out to destroy our livelihoods, out to destroy our pits,
out to destroy our communities and what our
communities stood for. Miners and their families had a
set of values that I don't think Margaret Thatcher could
understand, values of socialism and Christianity. The two
things went hand in hand in many ways.
NARRATOR: For more than a year the miners held out,
until internal rifts and the desire of many to return to
work brought the walkout to an end.
MARGARET THATCHER (interviewed in 1993): And then
suddenly it collapsed, the strike, and the most powerful
union with the most militant leader had failed.
NARRATOR: Britain has changed. Today, less than 3,000
work in the mines.
KEN CAPSTICK: I feel devastated by what I see.
Grimethorpe had considerable reserves of coal when it
was closed, plenty of work for those miners to continue
to do to keep their families. You can see the wasteland;
you can see the social deprivation that it caused. The
children that are coming along -- no prospects, no
future; people despairing because they can't find
employment and the dignity that employment brings.
It's the market forces gone mad.
MARGARET THATCHER: The political consequences of

the failure of the strike were incalculable.

GORDON BROWN, Labor Finance Minister: The coalmining strike of the early 1980s was a tragedy for so
many of the mining families that were involved in it.
NARRATOR: Perhaps the greatest political impact was on
the Labor Party that had all along opposed Thatcher's
free-market policies.
GORDON BROWN: I came into politics as someone who
lived in an area which was an old mining community.
The problem for the left in the past was that they
equated the public interest with public ownership and
public regulation, and therefore they assumed that
markets were not therefore in the public interest. What
we have had to explain both to ourselves and to the
country -- and now I believe it's possible to explain this
to the rest of the world as well -- is that markets are in
the public interest.
DANIEL YERGIN: One of the most important things that
the government of Margaret Thatcher does is invent this
thing called privatization; that is, taking these stateowned companies, these nationalized industries, and
selling shares to the public.
NARRATOR: One by one the Thatcher government put
the commanding heights of the British economy up for
sale: electricity, telephones, oil, gas, coal, steel, trains,
and planes -- even water. Before long, two-thirds of the
state-owned industries were removed from government
control and sold off into the private sector. Who should
control the commanding heights -- governments or
markets -- in Britain? That battle was over.
back to top

Chapter 19: The Battle Decided? [3:26]

JOSEPH STANISLAW: What Margaret Thatcher did in

Britain and the principles that she introduced were
imitated worldwide -- Asia, Latin America, even in Africa
and to some degree in the Middle East.
JEFFREY SACHS: The tide had surely swung. The
thinkers that had kept alive the ideas of markets did
play their role at that moment.
NARRATOR: In his lifetime, Hayek saw fascism rise and
fall, communism come and go, and the end of his years
in the intellectual wilderness.

NEWT GINGRICH: Here was a man who had

intellectually changed the world without really ever
leaving the university. It was the power of his books, the
power of his ideas as then captured by Ronald Reagan
and Margaret Thatcher that had changed things.
GEORGE SHULTZ: You had in Reagan and Thatcher at
the same time two, what I call, idea politicians. They
had ideas they were convinced were the right ideas, and
they put them into effect.
MILTON FRIEDMAN: The coincidence of Thatcher and
Reagan having been in office at the same time was
enormously important for the public acceptance
worldwide of a different approach to economic and
monetary policy.
LAWRENCE SUMMERS: The old debates were about what
the role of the market was, what was the role of the
state. I think it's now generally appreciated that it's the
market that harnesses people's initiative best. And the
real focus of progressive thinking is not how to oppose
and suppress market forces but how to use market
forces to achieve progressive objectives.
SAM PELTZMAN: If you look at the whole of the 20th
century, there's been a huge cycle. Less government
was the orthodoxy at the beginning of the 20th century,
more government clearly was the orthodoxy for the
middle part of the 20th century, and now the later part,
going into the new millennium, we're back to where we
were practically at the start of the century. And you
have to give folks like Hayek, Friedman, and then later
Reagan and Thatcher their due for pushing all of this
along.
MARGARET THATCHER: I remember the foreign minister
and finance minister from another country saying to me:
"You're the first prime minister who's ever tried to roll
back the frontiers of socialism. We want to know what's
going to happen, because if you succeed, others will
follow."
NARRATOR: Within 10 years, governments everywhere
would retreat from the commanding heights of their
economies. In the battle of ideas, the pendulum had
swung from government to market, from Keynes to
Hayek. Only time would tell what people would ask of
their governments in the event of a new recession, or a
depression, or a war

Chapter 1: Prologue [3:49]

NARRATOR: The terrible events of September 11 showed

how a whole world might be driven deeper into
recession.
Argentina's economic meltdown has raised new fears
about the perils of the interconnected global economy.
BILL CLINTON, U.S. President, 1993-2001: You can't get
away from the fact that globalization makes us
interdependent, so it's not an option to shed it. So is it
going to be, on balance, positive or negative?
NARRATOR: This is the story of how the new global
economy was born.
For much of the 20th century, people blamed freemarket capitalism for the ills of inflation, recession,
depression, and mass unemployment. So governments
everywhere sought to curb market forces and rein in
their economies. The first to change direction were
Ronald Reagan in America and Margaret Thatcher in
Britain.
In the 1980s, markets were deregulated. State-owned
industries were privatized. It was the start of a world
revolution.
JEFFREY SACHS, Professor, Harvard University: Part of
what happened is a capitalist revolution. At the end of
the 20th century, the market economy, the capitalist
system, became the only model for the vast majority of
the world.
NARRATOR: The world changed its mind. In the Soviet
Union and its satellites, in the emerging markets of Asia,
and in the state-dominated economies of Latin America,
governments everywhere moved away from state
control and towards free markets.
DANIEL YERGIN, Author, Commanding Heights: This
free-market revolution has really led to the new global
economy. It excites some and terrifies others.

NARRATOR: That revolution was wrenching. Tonight

onCommanding Heights: The Agony of Reform.

back to top

Chapter 2: The Ghosts of Norilsk [4:27]

NARRATOR: Much of the world once modeled itself on

the Soviet Union. Here, Lenin's revolution industrialized
a backward country within a single generation. The
Soviet system, ruthless and centrally planned, gave
birth to vast industrial complexes like Norilsk.
DANIEL YERGIN: Norilsk symbolized every stage of
Soviet economic history, from the original prison camp
and the beginnings of Soviet industrialization right up to
the collapse of the economy in the 1990s. So much of its
history had been tied up with the fact that it was a
prison camp. Even in the early 1950s, 100,000 political
prisoners were working in its mines and factories.
NARRATOR: Millions rode the slow train to the prison
camps. Vassily Romashkin's crime against the state was
to check out the wrong book from the public library.
VASSILY ROMASHKIN, Former Political Prisoner: They
sent me over to Norilsk after the trial. The trial lasted
about 10 minutes. My wife and I said our good-byes.
NARRATOR: The prisoners' slave labor became a crucial
component of the Soviet economy.
VASSILY ROMASHKIN: When they took us to work,
they'd say, "Attention, you enemies of the people. A step
to the left or to the right, and we will shoot you without
warning." A chill went up my spine, and I thought, "You
are the enemies of the people."
NARRATOR: The Soviet system of central planning
meant that the Kremlin controlled every aspect of the
economy. The aim was to make the Soviet Union strong
and self-sufficient. The Soviet Union became an
industrial giant, a military superpower, and a threat to
the West.
GEORGE SHULTZ, U.S. Secretary of State, 1982-1989:
Russia looked very formidable. The essence of Soviet
power was its ballistic missiles. They could wipe out any
country in the world in 30 minutes' time. So that's a lot
of power.
MARGARET THATCHER, British Prime Minister, 1979-

1990: Communism was gaining the world over, gaining

by its main methods, military threat from military
might.
CHARLES POWELL, British Foreign Affairs Advisor, 19831991: We all thought the Soviet Union was still a vast
powerful economy, a huge military power, a threat to
world peace, determined to extend its influence around
the world.
NARRATOR: Soviet influence was everywhere in Eastern
Europe, in Africa, and Latin America. Socialism,
planning, state control, government ownership -- these
became the gospel. In Asia, the apparent success of
communist China seemed to show the way.
But the truth about the Soviet economy lay concealed
behind the "Iron Curtain."
back to top

Chapter 3: Behind the Iron Faade [8:18]

Onscreen title: The Iron Curtain

NARRATOR: Minefields, barbed wire, searchlights, and
lookout towers sealed the Soviet bloc off from the
outside world.
In the 1980s British intelligence recruited a Russian
double agent to penetrate this wall of secrecy. But
Soviet intelligence, the KGB, became suspicious and put
him under house arrest.
News reached London that its top spy was in mortal
danger.
Charles Powell was foreign policy advisor to Prime
Minister Margaret Thatcher.
CHARLES POWELL: The news of the intention to spring
him came to me in Downing Street. I couldn't tell
anyone else because no one else knew about it.
NARRATOR: It was so sensitive that Powell needed the
prime minister's personal approval to activate an escape
plan.
CHARLES POWELL: Oleg Gordievsky was perhaps the
most valuable agent, because he understood the Soviet
system from inside.

NARRATOR: In Moscow, the net was closing in on Oleg

Gordievsky.
OLEG GORDIEVSKY, KGB Defector: At that time I
decided to use my secret longstanding plan of escape. I
sent a signal to the British intelligence.
NARRATOR: Gordievsky evaded his KGB watchers and
made his way to a forest near the Finnish border.
OLEG GORDIEVSKY: In the morning, I started to move
toward the site in the woods, and there I waited. I
waited for the arrival of car, driven by two British people
who picked me up, put me in the boat, and drove to the
border. It was a very small car, a very small boat.
On the border, we started to stop. One stop. Second
stop. Third stop.
NARRATOR: They were approaching the moment of
maximum danger.
OLEG GORDIEVSKY: The KGB and Soviet customs
checks of the cars. I heard the voices. I heard even the
KGB dogs barking. And to my great luck, it went without
any accident.
NARRATOR: But one of the British agents, a woman,
threw the guard dogs off the scent by feeding them
potato chips.
Three days later, Gordievsky was in London and the
debriefings began.
OLEG GORDIEVSKY: When I was a British agent inside
the KGB, the British intelligence service didn't have time
to ask me about economy, because they were interested
about strategic problems. The arms-control questions
were so overwhelming, the West neglected the
important foundation of the argument: the economy.
NARRATOR: Gordievsky told his British spymasters that
the Soviet Union was under great pressure, devoting
more than a third of its entire economy to military
spending.
OLEG GORDIEVSKY: And the analyst said no, I can't put
such a huge figure down because nobody would believe
it. Later, economists realized that the Soviet Union had
been spending at least 50 percent on the military.
CHARLES POWELL: Gordievsky's information was shared
with President Reagan and the Americans, and he was
able to play, behind the scenes, a role of extraordinary
influence.
NARRATOR: Thanks to Gordievsky's intelligence,
Western leaders realized that Soviet military might
rested on a crumbling economy.
OLEG GORDIEVSKY: The Communist administration

reported that the economy was growing. It was not the

case. The economy started to go down all the time, and
the deficit was covered only with the help of the oil
prices. And the extra money made it possible to claim
that they were successful. And they were deceiving the
world.
NARRATOR: Soviet satellites circled the world, and
nuclear submarines prowled the oceans. But after seven
decades of communism, the real story of the Soviet
economy was one of empty shelves and a standard of
living that was a fraction of Western Europe's.
GRIGORY YAVLINSKY, Economic Reformer: Soviet
economy was neither nor. It was not a Stalinist economy
anymore, but it was not a market economy, so it was no
water, no fire. It was a mess.
NARRATOR: An independent-minded young economist,
Grigory Yavlinsky, wrote a report on why workers in
state mines were so unproductive.
GRIGORY YAVLINSKY: The people don't want to work.
The people have no incentives. The economy inside
which the people have no incentives have no future. So
you can do two things: Take a gun and put this gun to
his head like it was at the Stalin's time, or you have to
give him incentives, because he wants to improve the
life of his family, and he can't.
NARRATOR: Factory managers at Norilsk could see the
economy was not working, because the workers were
not working.
VALERY KOVALCHUK, Former Norilsk Factory Manager:
You can't work properly under socialism. There is no
incentive. And sadly, that's the only thing that gets us
going. People come to work and just go through the
motions. They doze off, read papers, do the crosswords.
The state goes on paying them, the state gets poorer,
the people get corrupted, then bankruptcy. And that's
what happened -- the collapse of a great empire.
back to top

Chapter 4: India's Permit Raj [3:04]

Onscreen title: New Delhi, India

NARRATOR: Like the Soviet Union, India had used
central planning to industrialize its peasant economy and
conquer poverty. Now India, like government-dominated

economies all over the world, was running into

difficulty.
YASHWANT SINHA, Indian Finance Minister: The
government of India went into business in a big way,
and they decided to control whatever was there in the
private sector also as firmly and fiercely as they could.
NARRATOR: The British raj was gone. Now people were
subjected to the "Permit Raj," because everything
needed a government permit. India became a byword
for red tape and bureaucracy. Businessmen found it
almost impossible to get things done.
NARAYANA MURTHY, Chairman, Infosys Technologies: It
used to take us about 12 to 24 months and about 50
visits to Delhi to get a license to import a computer
worth $1,500.
NARRATOR: Since it was impossible to work with the
system, people learned to work around it.
P. CHIDAMBARAM, Indian Finance Minister, 1996-1998:
Every license, every permit, was procured by corrupt
means.
INTERVIEWER: A bribe?
P. CHIDAMBARAM: Well, "bribe" is the simpler word, I
suppose.
NARRATOR: Self-sufficiency was India's ideal. To protect
its own manufacturing industry, India shut out foreign
imports.
P. CHIDAMBARAM: Because of this protected market, the
Indian people were being given shoddy goods and
services at very high prices. Enterprise was stifled, and
growth was crippled.
JAIRAM RAMESH, Indian Government Advisor, 19911998: The economic environment was simply not
conducive to efficiency or profitability. We were in a
shortage economy. My father waited 15 years to buy a
car.
NARRATOR: Take India's beloved Ambassador car. It is
made by Hindustan Motors, which started manufacturing
in the same year as Japan's Toyota. Fifty years later,
Toyota makes five million cars a year. Hindustan sells
18,000 Ambassadors, and still to the same design.
MANMOHAN SINGH, Finance Minister, 1991-1996: If you
have a controlled economy, cut off from the rest of the
world by infinite protection, nobody has any incentive to,
in a way... nobody has any incentive to increase
productivity, to bring new ideas.
NARRATOR: Overprotected, over-administered,
overplanned, the Permit Raj was quite literally a brake

on the Indian economy.

back to top

Chapter 5: Latin American Dependencia [2:03]

(tango music)
Onscreen title: Latin America
NARRATOR: In Latin America, radically different leaders
shared India's suspicion of the world economy. In the
1940s and '50s, it was Juan Peron and his wife, Evita. In
the 1960s, it was communist Cuba's charismatic Fidel
Castro. And in the 1970s, it was Chile's Marxist
president Salvador Allende.
Though rich in raw materials, Latin America seemed
doomed to perpetual poverty. The dependency theory of
economic development seemed to offer a way out.
DANIEL YERGIN: The dependency theory said that if you
want to get high economic growth in your country, what
you need to do is put up barriers, tariffs that restrict the
flow of import into the country, develop and build your
own domestic industries, and that if you don't do that,
you're going to be victimized by world trade.
The theory was very attractive. It said you would
develop on your own, and you would be more selfsufficient. The reality is that you cut yourself off from
flows of technology, flows of investment, from flows of
know-how, and instead of getting ahead you were falling
back.
MOISES NAIM, Editor, Foreign Policy Magazine: Because
they are not threatened by competition, you create very
lazy, noncompetitive companies that produce not very
good goods at higher prices. It may create jobs here and
there, but in the long term it may create even more
poverty.
back to top

Chapter 6: Counterrevolution in Chile [3:30]

Onscreen title: Santiago, Chile

NARRATOR: By the early 1970s, Latin American
economies were in trouble. Chile elected the Marxist
president Salvador Allende. Allende's solution was not
less government intervention, but more. Businesses
were nationalized or expropriated. Price controls were
imposed. Civil unrest grew as the economy spun out of
control.
RICARDO LAGOS, President, Chile: We have a
tremendous inflation. Chilean society became extremely
polarized. It's true it was polarized before Allende, but
during Allende's period the society was extremely
polarized.
NARRATOR: It all ended in a military coup. As air force
jets straffed the presidential palace, Allende was trapped
inside. This was the last picture taken of him alive.
Allende supporters, union leaders, and left-wing
students were rounded up in the national football
stadium. Hundreds were never seen again.
Chile's military junta was led by Gen. Augusto Pinochet.
Many middle-class Chileans saw him as a savior.
JAVIER VIAL, President, Association of Banks, 1973: I
think that Pinochet's plan was basically the plan to
manage an army. He didn't have an economic policy to
manage a country.
ARNOLD HARBERGER, Professor Emeritus, University of
Chicago: After a year, year and half of military
government, you still had 20 percent per-month built-in
inflation that wouldn't go away until something
structurally changed.
NARRATOR: One of those who plotted the coup went to
talk to Pinochet face to face.
ROBERTO KELLY, Junta Economic Planner: I told him,
"You've been called Chile's savior, but you will go down
in history as the man that buried Chile." He was very
shocked by this, and he said, "Okay, you've got 48 hours
to come up with a national plan to fix the economy."
ARNOLD HARBERGER: The only people who had a
serious blueprint of how to get out of this were this
group called the Chicago Boys.
back to top

Chapter 7: Chicago Boys and Pinochet [8:16]

NARRATOR: The Chicago Boys were a group of

economists at Chile's Catholic University who had been
sent to the University of Chicago as exchange students.
There, they absorbed the ideas of the "Chicago School"
of economics, with its almost revolutionary belief in free
markets.
MILTON FRIEDMAN, Professor Emeritus, University of
Chicago: What characterized the Chicago School was a
strong belief in minimal government and an emphasis on
free market as a way to control the economy.
NARRATOR: Professors like Arnold Harberger and Milton
Friedman taught their students to distrust state planning
and government control. When the Chicago Boys
returned to Chile, they brought with them ideas that
were a direct challenge to the dependency theory.
ARNOLD HARBERGER: This small group stayed together
through the Allende years. And they used to meet I
think every Tuesday for lunch. And they would keep a
kind of running document which said how they would
reform this economy, how this economy has to be
reformed, what is to be done to get out of the swamp
that they were putting themselves in.
SERGIO DE CASTRO, Finance Minister, Chile, 19741982: Unfortunately, due to the idiosyncrasies of the
military mind, the generals preferred a controlled
economy; that is, an economy that would obey orders.
NARRATOR: Javier Vial, an influential businessman
sympathetic to the junta, was trying to push the military
in the direction of the free market.
JAVIER VIAL: So I called Milton Friedman and invited
him to come to Chile.
NARRATOR: So Milton Friedman, the most famous freemarket economist in the world, came to lecture in Chile.
MILTON FRIEDMAN: I went down to Chile and spent five
days giving a series of lectures on the Chilean problem,
particularly the problem of inflation and how they should
proceed to do something about it.
NARRATOR: Friedman's first talk was at the Catholic
University. His theme: the inescapable link between free
markets and freedom.
MILTON FRIEDMAN: The emphasis of that talk was that
free markets would undermine political centralization
and political control.

ARNOLD HARBERGER: He said that that you cannot have

a repressive government for long within a genuinely free
economic system.
NARRATOR: But Friedman was also persuaded to visit
the grim conference center from which Pinochet ruled
Chile. Friedman told Pinochet that he needed to take
decisive and immediate action to defeat inflation.
JAVIER VIAL: Friedman says: "Well, I'm going to give
you an example. If you cut the tail to a dog in pieces,
step by step you will kill the dog. This is the same as
inflation. You have to cut it at once, and then the
country will start moving."
ARNOLD HARBERGER: Milton's presence probably helped
to stiffen the spine of people who were trying to insist
on better economic policies. That's the period when the
takeoff of the Chilean economy really began and major
reforms were made.
NARRATOR: In Santiago, the junta called on the Chicago
Boys to rescue the economy. Five hundred state-owned
businesses were privatized. Government budgets were
cut. Import tariffs were swept away. The markets were
given free rein.
SERGIO DE CASTRO: The basic thrust was to increase
exports and abolish artificial price controls.
MILTON FRIEDMAN: Here was the first case in which you
had a movement toward communism which was
replaced by a movement toward free markets.
NARRATOR: There was much pain for the poorest. The
cost of living went through the roof. The gap between
rich and poor got wider, and stayed that way.
ALEJANDRO FOXLEY, Finance Minister, Chile, 1990-1994:
They were starting a very big process of transformation
of the economy without any regard of what happened to
people. And we ended up at one point in time with 30
percent unemployment rate.
NARRATOR: According to the Chicago Boys, the gain was
worth the pain. Chile became the fastest growing
economy in Latin America.
ALEJANDRO FOXLEY: They were able to start a process
of deregulating the markets, opening up the economy,
so that's their contribution. They were able to anticipate
a global trend, and Chile has benefited from that.
INTERVIEWER: But at a price?
ALEJANDRO FOXLEY: At a very high price, believe me. At
a very high human price.
MILTON FRIEDMAN: The Chilean economy did very well,
but more important, in the end, the Chilean military
junta was replaced by a democratic society. Free

markets did work their way in bringing about a free

society.
NARRATOR: This is the monument to the 2,400 who died
or disappeared during the dictatorship. The brutality of
Pinochet's regime left little enthusiasm for change in the
rest of Latin America.
CLIVE CROOK, Deputy Editor, The Economist: The fact
that the Pinochet regime was politically unsavory
allowed the left to make an association between market
reforms on the one hand and repressive authoritarian
governments on the other, and that was a terribly
damaging connection.
MILTON FRIEDMAN: The intellectual elite, as it were,
were on the side of Allende, not on the side of Pinochet.
They regarded me as a traitor for having been willing to
talk in Chile.
ARNOLD HARBERGER: Friedman then became a figure of
hate, and they organized demonstrations against him
wherever he went, and this went on for a period of
years.
NARRATOR: The protests reached their climax when
Friedman was awarded the Nobel Prize in 1976.
MILTON FRIEDMAN: At the Nobel ceremonies in
Stockholm, I was subject to abuse in the sense that
there were large demonstrations against me. There was
a concerted effort to tar and feather me.
CLIVE CROOK: In the minds of many people, the
reforms in Chile were tainted by the political caste of the
regime that did set back the cause of liberal economics.
It made other countries more resistant to the idea of
market reforms than they otherwise would have been.
back to top

Chapter 8: Heresy in the USSR [8:08]

Onscreen title: The Kremlin, Moscow

NARRATOR: The economic reforms in Chile may have
had little immediate impact on the world, but the ideas
behind them were gaining momentum. In the Soviet
Union, where the aged leadership was dying off and the
economy was moribund, people were starting to
question the system.

DANIEL YERGIN: By the 1970s and '80s, it was

becoming clear to the better informed that the Soviet
system really wasn't working, but they couldn't really
talk about it publicly. They talked about it in their
kitchens; they talked about it in small groups. But it was
not something that could be talked about in the public.
NARRATOR: In Leningrad, the cradle of Lenin's
revolution, an economics student was asking if the
solution lay not in Marxism but in markets.
ANATOLY CHUBAIS, Economic Reformer: I'm interested
in what has happened in the economy. I start to feel
that there is something wrong; there is some illness in
the economy. But I try to discuss it with my professors, I
get no feedback. You feel that either the world around
you crazy or you yourself crazy.
NARRATOR: Chubais helped to organize seminars far
from the prying eyes of the secret police. One of his coconspirators was a young economist from Moscow.
YEGOR GAIDAR, Economic Reformer: We were all in our
30s, researchers or teachers who specialized in the
Soviet economy. We could see how it worked and were
well aware of its weak points. I read books by Friedman
and Hayek with great interest. They were our
inspiration.
ANATOLY CHUBAIS, First Deputy Prime Minister, 19941996: On that stage, definitely we do understand that
this thing quite risky.
YEGOR GAIDAR: Some of our sessions took place behind
closed doors; we didn't trust everyone at the seminar, so
we kept some people out. Our discussions were not
revolutionary, but they were far beyond the limit of what
was politically permissible.
NARRATOR: After a day arguing the pros and cons of a
market economy, they would sit around the campfire
and tell jokes.
ANATOLY CHUBAIS: There was the idea that Gaidar will
become prime minister maybe, which sounds at that
time absolutely crazy, and everybody laughing and
another guy said that yeah, he will be prime minister or
he will be prisoner.
NARRATOR: But by 1985, it was not just economics
students who were asking what was wrong. When
Mikhail Gorbachev became leader of the Soviet Union,
he was appalled by the economic decay.
MIKHAIL GORBACHEV, General Secretary, Communist
Party, 1985-1991: There was a government commission
to examine the problem of women's pantyhose. Imagine
a country that flies into space, launches Sputniks,
creates such a defense system, and it can't resolve the
problem of women's pantyhose. There's no toothpaste,
no soap powder, not the basic necessities of life. It was

preposterous and embarrassing to work in such a

government.
DANIEL YERGIN: Mikhail Gorbachev was what the Soviet
Union had been waiting for -- a new, young, dynamic
leader who was going to reform the system. But that
system had been propped up for a decade and a half by
high oil prices, and just after he came in, the price of oil
collapsed, which meant that the economic problems
facing the Soviet Union were even more enormous.
NARRATOR: Gorbachev's attempt to restructure the
economy was called "perestroika."
MIKHAIL GORBACHEV: Perestroika was a reform that
aimed at gradual political change to create an
infrastructure for market economics. We had several
generations with no experience of markets. You can't
just announce the markets and see them appear
overnight. I was actually saying it will take a generation
for it to start working.
DANIEL YERGIN: He started to allow a certain amount of
private enterprise, but it was really a very uneven
process. He ended up removing many of the tools of
control of central planning, but didn't really replace them
with anything else.
NARRATOR: Gorbachev faced mounting pressure from
the West. The U.S. president believed in the economic
philosophy of Milton Friedman and Chicago.
Ronald Reagan was not alone. He had a political soul
mate in Margaret Thatcher. Britain's prime minister had
already embarked on a radical free-market economic
revolution at home. Thatcher and Reagan were
determined to go on the ideological offensive. Their
political rhetoric began to heat up.
RONALD REAGAN, U.S. President, 1981-1989: What I
am describing now is a plan and a hope for the long
term, the march of freedom and democracy which will
leave Marxism-Leninism on the ash heap of history, as it
has left other tyrannies which stifle the freedom and
muzzle the self-expression of the people.
MARGARET THATCHER: Up to that time, the whole
doctrine had been one of "Contain communism." That
wasn't enough for Ronald Reagan and me, and we
thought we should make it quite clear to communism
that it could and would never win, and that we would go
and fight the battle of ideas between what the free world
had to offer, compared with the dictatorship and tyranny
and cruelty of communism.
NARRATOR: Ever since Gorbachev's first visit to Britain,
Margaret Thatcher never missed the opportunity to
debate him on the evils and inefficiencies of communism
and its system of central planning.
OLEG GORDIEVSKY: Speaking to Gorbechev, she said:

"Mikhail, you see how your economy is organized -centralized, entirely led by the Kremlin. Look at me in
Britain and the West. We have market economy, and it is
running itself. I don't have to tell different industries
what to do. I don't deal with it at all. My job compared
with your job is much easier. And you would be able to
enjoy your job as head of the Soviet Union much more if
you had a market economy."
NARRATOR: In 1987 President Reagan carried this war
of words to the most symbolic section of the Iron
Curtain: the Berlin Wall.
RONALD REAGAN: General Secretary Gorbachev, if you
seek peace, if you seek prosperity for the Soviet Union
and Eastern Europe, if you seek liberalization, come here
to this gate. Mr. Gorbachev, open this gate. Mr.
Gorbachev, tear down this wall.
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Chapter 9: Poland's Solidarity [7:32]

Onscreen title: Warsaw, Poland

NARRATOR: Margaret Thatcher carried the free-market
message to Poland in 1988. Mrs. Thatcher had agreed to
meet the Communist leadership provided she could also
visit the port of Gdansk.
Almost a decade earlier, in 1980, shipyard workers here
in Gdansk had taken a stand against Communist rule.
They had struck against the price rises and food
shortages caused by a crumbling economy. Their leader
was an electrician named Lech Walesa.
LECH WALESA, President, Poland, 1990-1995: The
country was so much in debt, with the West refusing to
lend us any more, that the whole system was failing. It
was more and more inefficient, and everybody, even the
Communists, knew it.
NARRATOR: Lech Walesa climbed the shipyard gate to
announce a momentous victory. The workers had forced
the government to recognize Solidarity, the free labor
union. "I declare the creation of a free union of workers.
We now have the right to strike."
FATHER HENRY JANKOWSKI, St. Brygida Church,
Gdansk: I thought they didn't know what they were
fighting for. I thought they were just fighting for a pay
rise. Only then did I learn it was all about freedom.

NARRATOR: Ten million Poles joined Solidarity. Under

Walesa's leadership, Solidarity became the main
opposition to communism. But in 1981, after a year and
a half of strikes and unrest, the government declared
martial law. Walesa was placed under house arrest.
When Thatcher visited Poland in 1988 she demanded
that the Communist government allow her to meet Lech
Walesa.
LECH WALESA: You didn't say no to Mrs. Thatcher. No
one refused her, so her noticing us and demanding a
meeting with me and the others, that was a crucial
event.
CHARLES POWELL: She came into the city of Gdansk
onboard a small ship, and as she went past the
shipyards, all the cranes on the dockside was lined with
shipyard workers, all cheering and waving, and one
began to sense here was an extraordinary experience in
the making.
FATHER HENRY JANKOWSKI: The shipyard workers were
not only sitting on the gate, but they were also on the
roofs surrounding the shipyard. She's a tough lady; she
conquered the hearts of the people of Gdansk.
NARRATOR: Solidarity workers escorted Mrs. Thatcher to
a church.
CHARLES POWELL: Great crowds sang the Solidarity
anthem, a haunting anthem.
FATHER HENRY JANKOWSKI: I could see she was very
emotional about this visit. Her eyes registered
everything that went on around her.
CHARLES POWELL: It's one of the very few times that I
saw tears in Mrs. Thatcher's eyes. She was so moved by
this expression of longing for liberty.
NARRATOR: At the house of Walesa's priest, Margaret
Thatcher met with the leaders of Solidarity. A Solidarity
cameraman recorded this historic meeting -- and Mrs.
Thatcher arguing that economic freedom and personal
freedom go hand in hand.
MARGARET THATCHER: If you have a free society under
a rule of law, it produces both dignity of the individual
and prosperity.
CHARLES POWELL: Although it sounds very bossy and
interfering, I think they were genuinely grateful. "You,
Solidarity," she said, "you must have your own ideas and
plans worked out. It's no good just being popular."
MARGARET THATCHER: How do you see the process
from where you are now to where you want to be?
Because whatever you want to do, it's not only what you
want to do, but how the practical way you see it coming

about, if you were to write down the 10 steps, from

where you are now to where you want to be.
CHARLES POWELL: And at one point, she said to Walesa,
"But how do you get your thinking over to the Polish
government?" And he laughed and pointed to the ceiling
and said, "There's no trouble; they've got this meeting
bugged."
FATHER HENRY JANKOWSKI: This meeting with Mrs.
Thatcher made these future politicians recognize the
opportunities within their grasp.
MARGARET THATCHER: Thank you very much.
LECH WALESA: Without this meeting, there would not
have been no victory, that's for sure. There would have
been delay, greater difficulties, or even our destruction.
NARRATOR: Thatcher's free-market message seemed to
offer an escape from a Polish economy that was debtridden and riddled with shortages.
DANIEL YERGIN: As the communist economies got into
deeper and deeper trouble, reformers and economists
within the Soviet world began to look outside for
solutions and for alternative paths. They looked at the
miracle economies of Asia, they looked at what was
happening in the United States and in Western Europe,
and they looked even as far as Latin America.
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Chapter 10: Bolivia at the Brink [7:07]

Onscreen title: La Paz, Bolivia

NARRATOR: One of the poorest countries in Latin
America and with a history of 189 military coups, Bolivia
was also one of the most unstable.
JORGE QUIROGA, President, Bolivia: When I was going
through college in Texas, the first question you'd be
asked is "Who's the president of Bolivia this week?"
Second question down the road was "You're from Bolivia
-- what's the inflation rate in Bolivia this week?,"
because we had galloping hyperinflation that destroyed
our economic base.
GONZALO "GONI" SANCHEZ DE LOZADA, President,
Bolivia, 1993-1997: We found that Bolivia was the
seventh highest inflation in the history of man.

JUAN CARIAGA, Finance Minister, Bolivia, 1986-1988:

Twenty-three thousand, five hundred percent. Prices
increased by the hour.
NARRATOR: The cost of food and clothes kept
increasing. Before it was all over, the total inflation
averaged 1 percent every 10 minutes.
JORGE QUIROGA: Seven out of 10 Bolivians live in
poverty. The poor people get hurt even more. They see
their pockets being eaten away by inflation that is
galloping around.
GONZALO SANCHEZ DE LOZADA: It's like a tiger,
hyperinflation: If you don't kill it and you only have one
bullet, it'll eat you.
NARRATOR: The root of the problem was government
finances. The government was spending 30 times more
than it received in taxes.
Across the continent, Latin America's uncompetitive
economies had been piling up debt. In the 1970s, a
massive hike in world oil prices left foreign banks awash
with petrodollars.
ARNOLD HARBERGER: So here were the international
banks with billions of dollars and nowhere to earn
interest on it. They discovered Latin America.
GONZALO SANCHEZ DE LOZADA: We were offered
unreasonable amounts of money. These banks who were
very unwise in their lending policy came to the happy
conclusion that countries don't go broke. It's true, but
sometimes they don't pay.
MOISES NAIM: Guess what? One day, these countries
could no longer afford to repay the debts.
NARRATOR: In 1982 a financial crisis in Mexico triggered
a chain reaction that caused the 1980s to be known as
Latin America's "lost decade".
JOSEPH STANISLAW, Author, Commanding
Heights:Bolivia was probably the most severe case of
how things had gone wrong in Latin America. For
decades they just printed money. They collected no
taxes in the country. If you can't collect taxes, you've
got to make the money up somehow, so they just
printed it.
GONZALO SANCHEZ DE LOZADA: Bolivia was a basket
case. We were considered hopeless. We had help from
nobody. We were totally alone. The World Bank had
closed its office, the IMF had pulled out its
representative, and the American government and other
friendly nations wouldn't answer the telephones.
Onscreen title: Harvard University, USA

NARRATOR: At 29, economist Jeff Sachs had just

become one of Harvard's youngest full professors ever.
JEFFREY SACHS: In 1985, some former students sent
me a note asking whether I would be ready to come to a
meeting with a group of visiting Bolivians.
NARRATOR: The Bolivians had come to Harvard to take
part in a seminar on the hyperinflation that was ravaging
their country.
JEFFREY SACHS: I was absolutely fascinated, made a
few observations. Somebody in the back of the room
piped up and said, "Well, if you think you know what to
do, you come to La Paz."
When I got to La Paz in July 1985, the inflation rate was
about 60,000 percent. It was an extraordinary and
terrifying thing to see, actually. It was a society at the
edge of the precipice.
NARRATOR: Bolivia's politicians were paralyzed. Only
one man seemed to know what to do.
JEFFREY SACHS: I met a man at a cocktail party one of
the evenings at work. I didn't know him at all. I
introduced myself. He said, "What are you doing?" I
said, "Oh, I'm writing an economic plan for the next
government."
GONZALO SANCHEZ DE LOZADA: And I said, "I'm very,
very pleased that you're studying this, because we're
going to beat these guys, and you can come and work
for us." So they all laughed.
JEFFREY SACHS: He said: "Oh, that's very interesting.
What do you have in mind?" And I described a few
elements, basically how to stop hyperinflation. And he
said: "No, no, you have to go much beyond that. You
don't understand. We need so much more. You're just
going on the surface. This country needs a complete
overhaul. We've got to get out of the mess that we're
in." I wasn't sure whether he was provoking me,
whether he was kidding, whether he was sober, whether
he knew what he was doing. It turned out that this was
Goni, Gonzalo Sanchez de Lozada -- a genius.
back to top

Chapter 11: Shock Therapy Applied [4:48]

NARRATOR: Goni's party did win the election, and he

became minister of planning. He told the president that

Bolivia was running out of time.
JUAN CARIAGA: We told him, "You have 90 days before
Bolivia's hyperinflation becomes the highest inflation in
world history." So he told us, "Okay, you have 20 days;
you have to start working now."
GONZALO SANCHEZ DE LOZADA: There was a big
discussion whether you could stop a hyperinflation or an
inflation period by taking gradualist steps. In this Jeff
Sachs was influential. He said: "All this gradualist stuff
just doesn't work. When it really gets out of control
you've got to stop it, like a medicine. You've got to take
some radical steps; otherwise your patient is going to
die."
NARRATOR: To avoid leaks, they worked at home. Every
few days, Goni reported to the president.
GONZALO SANCHEZ DE LOZADA: We said: "Look, boys,
you've got one chance. And remember, as Machiavelli
said, 'It's all the bad news at once, the good news little
by little.'" So he said, "Get it all done." Shock therapy is
get it over, get it done, stop hyperinflation, and then
start rebuilding your economy so you achieve growth.
NARRATOR: In August 1985, Goni went public with a
program called "shock therapy."
JUAN CARIAGA: It caught everybody by surprise. It had
great credibility. It was a shock.
NARRATOR: Shock therapy spelled the death of
dependency theory. Government spending was slashed.
Price controls were scrapped. Import tariffs were cut.
Government budgets were balanced.
JUAN CARIAGA: We didn't use highly sophisticated
economic theory to deal with hyperinflation. We just
used very simple things, such as from now on the
government will only spend what it gets. You get one
peso, spend one peso; you get two pesos, spend two
pesos. If we don't have it, we don't spend it. No
borrowing from the Central Bank, and therefore the
Central Bank did not have to print money.
NARRATOR: Shock therapy meant that the price of
essentials -- transport, food, fuel -- all shot up. Until
then people had thought that only a military dictatorship
like Chile's could impose such tough measures without
tearing society apart.
DANIEL YERGIN: Bolivia may be a small country, but it
had a very big impact in terms of kick-starting reform
throughout Latin America. In Brazil, a professor, who
actually used to teach the dependency theory, launched
a program of economic reform that looked a lot like
shock therapy.
DANIEL YERGIN: Argentina was suffering from 20,000

percent inflation and the new president of that country

said, you know, we've seen this movie before.
DOMINGO CAVALLO, Economy Minister, Argentina, 2001:
Pro-market reforms could be implemented under a
democracy, and we demonstrated that it was possible
here in Argentina.
NARRATOR: All across Latin America, governments
began to sit up and take notice.
GONZALO SANCHEZ DE LOZADA: I think the Bolivian
experience did have influence. The fact that we did it in
democracy, we did it without great social violence, had
impact on economic thinkers and on politicians.
JEFFREY SACHS: In late 1985, as we were struggling
late into the night with a problem, he said, "You know,
this is extraordinarily hard, but what's happening here,
this is going to have to happen all through Latin
America." I watched it unfold, one country after
another.
NARRATOR: It is a curious fact of history that what
happened in Bolivia was to have a direct impact on the
frozen economies of Eastern Europe.
back to top

Chapter 12: The Miracle Year [6:57]

JEFFREY SACHS: I was approached by a Polish

government official who had watched the Bolivian
reforms, and then had seen the work I had done in
Argentina and Brazil. He finally asked me would I go to
Poland and help.
Onscreen title: Warsaw, Poland
The Poles themselves feared that they were descending
into starvation. The shops were utterly empty for miles.
I would see a woman just standing on the street
sobbing: "There's no milk in this city. I can't find any
milk for my child. What am I going to do?" It was
terrifying.
NARRATOR: Sachs arrived on the very day that
roundtable talks agreed there should be free elections in
Poland.
LECH WALESA: The situation was more than dramatic.
One can change a political system overnight, but an

economic system needs years.

DANIEL YERGIN: Whenever Soviet power was
challenged in Eastern Europe, the response was very
clear. It was tanks; it was the Red Army. That was the
case in Berlin in 1953, Budapest in 1956, Prague 1968.
But the answer was different in Warsaw in 1989.
Solidarity won 99 out of 100 seats. The head of the
Polish Communist Party called Moscow for directions.
Mikhail Gorbachev's answer was stunning: "Do nothing;
accept the outcome of a free election." And that was
really the phone call that ended the Cold War. And of
course, the great symbol of the end of the Soviet empire
was the fall of the Berlin Wall. One country after another
broke free of communism -- Poland, Hungary,
Czechoslovakia, Romania. 1989 was truly a miracle
year.
NARRATOR: Poland was free now. Solidarity had to
liberate the Polish economy. Late one night Sachs met
the Solidarity economist Jacek Kuron in a Warsaw
apartment.
JEFFREY SACHS: I was trying to explain how you get out
of this mess that the communist system had left behind.
Every couple of minutes he would pound on the table,
"Pah, pah, pah" -- "Yes, yes, yes, I understand." And
we'd gone on -- "Pah, pah" -- and it was very, you
know... it was really exciting. We went on for a few
hours like this. I was exhausted. The room was filled
with smoke, and he said: "Okay, clear. Write up the
plan." We got up. I said: "Well, this will be a great honor.
We'll send you something just as soon as we can." "No,
tomorrow morning I need the plan." I laughed, and he
said, "I'm absolutely serious; I need this written down
now."
We wrote up a plan that night and delivered it the next
morning. They distributed it to the Solidarity members
of the Parliament.
NARRATOR: Like Sachs, Solidarity's new finance
minister, Leszek Balcerowicz, believed transition had to
be rapid and massive.
LESZEK BALCEROWICZ, Finance Minister, Poland, 19891991: Just after breakthrough, there is a short period, a
period of extraordinary politics. By definition, people are
ready to accept more radical solutions because they are
pretty euphoric of freshly regained freedom. One could
use it only in one way, by moving forward very, very
quickly.
JOSEPH STANISLAW: Poland decided to do what Bolivia
did, to introduce shock therapy, cut back on government
expenditure and try and introduce a market system and
see if it could work.
NARRATOR: Prices almost doubled, and shortages didn't
end. All Balcerowicz could do was chew his nails and
wait for the law of supply and demand to kick in. But

then, after a few days, farmers began to bring their

produce to market.
LESZEK BALCEROWICZ: I was going for a walk, and we
were looking at the prices in the shops, the prices of
eggs.
NARRATOR: His aides told him to concentrate on the
price of eggs. If eggs appeared, if eggs got cheaper, the
market would be working. Eggs did appear. And then the
price of eggs began to fall.
LESZEK BALCEROWICZ: And I remember that very
important day when the prices of eggs are falling. This
was one of the signals that the program, the
stabilization program, is working.
back to top

Chapter 13: Poland in Transition [2:39]

NARRATOR: But reforming state-owned heavy industries

would prove a much bigger challenge.
LESZEK BALCEROWICZ: Once Poland became free, one
of the problems I have to face was a fight about
privatization.
DANIEL YERGIN: The big problem was the old industries
inherited from the communist past, and there were
wrenching problems of unemployment, of making them
efficient, keeping them running. And that's where you
saw a lot of the pain.
NARRATOR: Making overmanned state-owned industries
efficient or profitable meant wide-scale layoffs for
Poland's blue-collar workers.
JAN BIELECKI, Prime Minister, Poland, 1991: When I
became the prime minister, the euphoria of transition
was almost over. We had 20,000 strikes, sometimes
organized by my former colleagues from Solidarity
movement.
NARRATOR: Solidarity began to lose support as workers
felt the pain of reform.
JEFFREY SACHS: I was asked to go to some factories, to
meet with workers to try to explain what my vision of
this might be.
FACTORY WORKER: In the beginning we were made to
believe that it wouldn't take long for things to get

better.
FACTORY WORKER: Sachs gave us a rosy vision for the
future of our economy.
ZYGMUNT WRZODAK, Union Leader, Ursus Tractor
Factory: We soon found out that the program imposed
on us from the outside most harmed precisely those
Poles who had contributed so much to political freedom.
NARRATOR: But elsewhere, the market was flourishing.
Tens of thousands of small businesses sprung up, and
the Polish economy began to boom.
JAN BIELECKI: You suddenly had thousands of people
trading the same products in front of the state-owned
shop, but at a much lower price. This is phenomenal,
because it shows enormously entrepreneurial drive of
the Polish people. When you have your five minutes,
take it. When the Polish people finally got that
opportunity, they took the chance. They used the
chance.
back to top

Chapter 14: Gorbachev Tries China [7:17]

NARRATOR: At the Soviet embassy in Warsaw, a special

observer from Moscow had been monitoring the
economic reform.
GRIGORY YAVLINSKY: The Soviet embassy in Warsaw
had a feeling that this was a disaster for them. They
didn't want to send my telegrams to Moscow. I was
describing what was going on there, and they would
completely disagree. I was very supportive, and they
were very negative. I was sending the analysis to
Gorbachev. "Balcerowicz is doing the right thing for
Poland" -- that is what I was saying.
NARRATOR: Gorbachev asked Yavlinsky to write up a
plan for radical economic change.
GRIGORY YAVLINSKY: I hoped to do in a year and a half
as much as possible to make a transition from the Soviet
economy to the market economy. I understood we
should move as quickly as possible
NARRATOR: The U.S. threw its moral support behind the
free-market reforms.
JAMES BAKER, U.S. Secretary of State, 1989-1993: We
want to learn a little more about Mr. Yavlinsky's efforts.

A country is trying to change 70 years of political and

economic philosophy and change it in a way that moves
it in exactly the opposite direction.
NARRATOR: But Gorbachev shrank from shock therapy.
The Yavlinsky plan languished on his desk.
MIKHAIL GORBACHEV: Poland was definitely a pilot
project, and the fact that reforms started there was very
important. But please understand, no country can repeat
the reforms of another country.
DANIEL YERGIN: Gorbachev was looking at Poland. He's
looking around the world trying to find some formulas
that would help the Soviet Union make the transition.
And what more logical place to look than in communist
China, which is marching towards the market?
Onscreen title: Beijing, China
NARRATOR: In 1989, the year the Berlin Wall fell,
Gorbachev visited Beijing. As he arrived, protestors were
gathering in Tiananmen Square. In China, too, the
Communist hold on power looked unsure. But
Gorbachev found the Chinese economy was being
transformed under its leader, Deng Xiaoping.
DANIEL YERGIN: Deng Xiaoping was an old-style
Communist. He'd been very close to Mao Zedong, but he
had fallen from power and had spent time when he was
under house arrest, pacing around in the courtyard,
thinking through what had gone, wrong; why was this
communist dream turning into such an economic
nightmare. And when he came back to power, he said, "I
have two choices: I can distribute poverty, or I can
distribute wealth.
NARRATOR: Deng had been impressed by the success of
the Southeast Asian economies, in which overseas
Chinese were so prominent.
LEE KUAN YEW, Senior Minister of Singapore: They were
lucky that after Mao died, Deng Xiaoping opened up
China. He had to fight his own conservatives, the
orthodox Communists who were terrified that this meant
dismantling the socialist state that they were building.
DANIEL YERGIN: Deng Xiaoping said: "Don't worry.
We're not pursuing capitalism; we're pursuing socialism
with Chinese characteristics."
JOSEPH STANISLAW: The Chinese decided to keep the
political system of communism, but to get rid of the
economic system called communism and go towards
market socialism. With that, they could keep political
control, but also have the benefits of the marketplace.
DANIEL YERGIN: By the mid-1980s, China embarked on
its era of high economic-growth rates, moving towards a
market system, moving towards engaging with the world

economy.
NARRATOR: Under Gorbachev, there had been intense
argument on whether China's route to the market was
right for Russia.
JEFFREY SACHS: The KGB said, "Well, why don't we do
what China's doing --keep political control, but open up
on the margin, and we'll maintain our political power;
we'll maintain the state enterprises, but we'll grow."
That's what China did.
NARRATOR: Tiananmen Square showed how far the
Communist Party was willing to go to hold onto power.
LEE KUAN YEW: Deng Xiaoping believed in restructuring
before opening up. Glasnost and freedom and
transparency and so on -- that had to wait. First
restructure, and restructure under the old system by
directives so that nobody can say no. Deng understood
that if you released these forces, unless you do it in a
controlled way, the system will collapse. He saved the
country from an implosion like the Soviet Union.
JEFFREY SACHS: Many people say, "Why didn't
Gorbachev do the China approach?," without
understanding that that, of course, is what Gorbachev
tried to do for four years. They just don't get it. They
don't understand that Russia was an 80 percent
urbanized, heavy-industrialized economy, whereas China
was a peasant economy with 80 percent of the
population in rural areas. In Russia, the non-state sector
was 1 precent; it was nothing. So yes, you could get a
few restaurants going, but you couldn't get to the core
of the problem without addressing the industrial core of
the system. So they had no easy way out. They had no
gradual track like China.
LILIA SHEVTSOVA, Senior Associate, Carnegie Moscow
Center: Gorbachev got stuck with economic reform. He
began too late, and his reforms were too cautious. He
never touched the foundation of the planned economy.
JEFFREY SACHS: This was a society that, while on the
surface it looked stable, was more like one of those
cartoon characters that's run off the cliff, is stationary
for the moment, doesn't realize that it's about to reach a
free fall. And it did go into that free fall.
back to top

Chapter 15: Soviet Free Fall [4:52]

Onscreen title: Moscow, Soviet Union

NARRATOR: In August 1991, diehard Communists
staged a coup. Boris Yeltsin became the voice of
democratic resistance. The coup collapsed.
Gorbachev survived the plot, but his prestige was
destroyed, and the Soviet Union's days were numbered.
DANIEL YERGIN: The end of December 1991, Mikhail
Gorbachev went on Soviet television. He told his viewers
that the Soviet Union would within a few days cease to
exist legally. After seven decades, the Soviet Union was
over, it was finished, fade to black.
NARRATOR: The president of Russia was Boris Yeltsin.
Unlike Gorbachev, Yeltsin wanted to move fast. He chose
the young reformer Yegor Gaidar as the man to turn
Russia into a market economy.
DANIEL YERGIN: For Gaidar it was a shock. There was
no money in the treasury; there was no gold; there was
not even enough grain to get through the winter. It was
unclear who was even in charge of the nuclear weapons.
Gaidar later said that it was like flying in an airplane and
going into the cockpit and finding no one at the
controls.
YEGOR GAIDAR: It was clear to me that the country was
not functioning, the economy was not working, and that
if nothing were done and if everyone feared that nothing
would be done, it would end in catastrophe, even a
famine.
NARRATOR: Gorbachev's halfway reforms had left the
economy in a tailspin. Every essential was in short
supply.
LILIA SHEVTSOVA: We have been queuing every day to
get something --sugar, matches, salt. The stakes really
were very high. Economic situation was absolute
disaster. Inflation was about 20 percent a month. The
shelves stood empty. The prices were skyrocketing.
Everyday life was the search for survival. Gaidar had to
move very fast.
NARRATOR: Gaidar was now in charge of the entire
Russian economy. And he was still only 35. He
assembled a team of youthful free-market reformers,
among them his fellow dissenter, 36-year-old Anatoly
Chubais. Communist hard-liners nicknamed them the
"little boys in pink shorts."
Jeffrey Sachs now 36, was called on to advise on
economic reform.
JEFFREY SACHS: I of course had the Poland experience
in mind. Russia turned out to be something quite
different.
NARRATOR: The Parliament was dominated by

Communists and other parties who opposed reform.

JEFFREY SACHS: Gaidar was under remarkable political
attack from the first moment. It wasn't seven days after
the start of reform that the head of the Parliament called
for the resignation of the government, for example.
YEGOR GAIDAR: It is a pseudo market utopia.
The only thing I want to ask is understanding the gravity
of the situation.
NARRATOR: Gaidar and his team wanted to use
economic reform as a political weapon to smash the old
communist system before it destroyed them.
BORIS JORDAN: It was more a survival tactic -- how can
we destroy the communist, centrally controlled
economy? Let's destroy the army, let's destroy the KGB,
and let's destroy centrally controlled planning, rather
than how are we going to build an economy?
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Chapter 16: Reform Goes Awry [4:26]

NARRATOR: New Year's Eve, 1991. Next morning prices

would be freed. Gaidar's reform would directly affect the
man and woman in the street. It would also mean the
end of everything the Communists had stood for.
Next, Gaidar abolished the Soviet law that made private
enterprise a criminal activity. Gaidar believed that an
effectively free market would put an end to shortages.
He didn't have long to wait.
YEGOR GAIDAR: I was driving to my office on Old
Square, past Detsky Mir, the children's shop, and I saw a
huge crowd of people. I sent my aides to find out what
was going on, and they saw hundreds of people with
various kinds of goods. They were holding a copy of the
decree on the freedom of trade while trying to buy or
sell stuff. So that's when I understood that in 75 years it
had not been possible to extinguish this entrepreneurial
spirit. That was one of the pivotal points. Starting from
then, there were no more shortages in Russia. I felt that
we were right and that market forces worked, even in
this tortured economy.
NARRATOR: The market may have been reborn, but for
ordinary Russians reform meant higher prices.
LILIA SHEVTSOVA: I hurried to a department store to

look at the faces of Muscovites, whether they would

revolt, looking, you know, at all these skyrocketing
prices, because Gaidar felt that they would increase
twofold. They increased twelvefold.
NARRATOR: Prices kept rising. The hard-liners who
controlled the Central Bank made it much worse. Their
policies fueled inflation.
In Norilsk, factory workers like Yuri Khamutov were
cleaned out.
YURI KHAMUTOV: Chubais talked about reform, but with
him and with Gaidar, nothing improved. We lived worse
and worse and worse. So much for Gaidar's reforms.
Many came north to earn the money to buy a house, a
flat, a car, to save a pension. And then in one day you
were left with nothing. It was so sudden, some people
committed suicide.
GRIGORY YAVLINSKY: Inflation came 500 percent, 600
percent, 700 percent. The monies simply went to the
ashes, simply to nothing. The population was simply
smashed by that hyperinflation, and that undermined all
kind of belief in the economic changes.
back to top

Chapter 17: India Escapes Collapse [3:16]

Onscreen title: New Delhi, India

NARRATOR: The collapse of the Soviet Union
reverberated round the world. For India, it was the end
of a role model, the ideal of central planning shattered.
MANMOHAN SINGH: This was telling proof that a
command type of economy was not as secure as we had
thought. Therefore, the collapse of the Soviet Union was
a major factor which influenced thinking on economic
reforms in our country, as in other countries.
NARRATOR: Planned by bureaucrats and cut off from the
world trade, India's economy had grown stagnant,
inefficient, and indebted. In 1991 India stared
bankruptcy in the face.
P. CHIDAMBARAM: We were borrowing heavily. We had
to mortgage our gold deposits. Our growth rate had
come to virtually zero. All this added to our very
enormous crisis.

NARRATOR: In the midst of the crisis, the economist

Manmohan Singh received an urgent call from the new
prime minister. He found himself appointed finance
minister.
MANMOHAN SINGH: Well, I said to him that we are on
the verge of a collapse. Our foreign exchange reserves
when I took over were no more than a billion dollars -that is roughly equal to two weeks' imports. The
argument was quite simple: We were in the midst of an
unprecedented crisis; it was time to think big.
NARRATOR: To the horror of his own political party, the
prime minister gave the green light for free-market
reform.
P. CHIDAMBARAM: Well, the rank and file of the party
were simply bewildered. They did resist the kind of
changes that we brought about. But we presented them
the hard facts that unless all this was done, the
economy would simply collapse.
NARRATOR: India's Permit Raj was ended, state control
reduced. Government subsidies were cut, tariffs and
trade barriers reduced, and regulatory licenses
eliminated.
MANMOHAN SINGH: We got government off the backs of
the people of India, particularly off the backs of India's
entrepreneurs. We introduced more competition to
release the innovative spirits, which were always there
in India. The economy turned around much sooner and
much more deeply than I had anticipated. Indian
industry boomed. We created a record number of jobs,
we were able to control inflation, and the economy was
growing at the rate of 7 percent per annum, so our
critics were completely silenced.
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Chapter 18: Russia Tries to Privatize [5:33]

Onscreen title: Moscow, Russia

NARRATOR: In Russia, the commanding heights of the
economy were still in the hands of the state. In a great
idealistic move, the young reformers set out to
democratize state industries by simply giving them
away. In charge of this program of privatization was
Anatoly Chubais. The 70-year communist monopoly was
about to be overturned. Russian citizens were given
vouchers which they could use to buy shares in

privatized companies.
BORIS YELTSIN, President, Russia, 1991-1999: We need
millions of property owners, not just a few millionaires.
All Russian citizens, workers, pensioners, and small
children will be given privatization vouchers worth
10,000 rubles.
NARRATOR: There was a problem: Not one company
was ready to be privatized.
BORIS JORDAN, President, The Sputnik Group: They had
distributed 144 million vouchers to the people, but had
no practical idea on how to get companies through the
privatization process and actually into public hands,
away from the state.
NARRATOR: The young reformers asked Boris Jordan,
one of the first foreign bankers to set up shop in
Moscow, to find a company to privatize. But they had to
move fast.
BORIS JORDAN: They knew that if they didn't at least
launch the program by December 9, 1992, when the
Congress of People's Deputies was getting together, the
Communists were going to kill privatization.
NARRATOR: The young reformers were in a race against
time.
BORIS JORDAN: It was very tight. If there wasn't going
to be privatization, there was going to be no market
economy.
NARRATOR: They narrowed the search down to a
business on the edge of Moscow. It is not exactly what
Lenin would have called the commanding heights, but
the Bolshevik Biscuit Factory did bake Russia's favorite
cookie.
BORIS JORDAN: We had to, I wouldn't say bribe -- we
had to incentivize them. We gave managers of their
factories and the employees of the factories about 50
percent of the stock in the company. The balance of the
equity would be sold in the public markets through these
vouchers. We opened up the first official auction of a
Russian company to the public on December 8, 1992.
NARRATOR: On the day of the auction, fury at the
economic reforms boiled over in Parliament. Communist
hard-liners forced a vote of confidence in Gaidar.
BORIS JORDAN: I remember it very well. We'd already
opened the auction, and I was sitting in the auction
center. I was watching the television, and I watched
Gaidar get removed.
NARRATOR: Communist opposition had forced Yeltsin to
sacrifice Gaidar. His replacement, Viktor Chernomyrdin,
was a product of the old Soviet central planning system.
JEFFREY SACHS: There was no doubt that after Gaidar

was thrown out of the prime ministership at the end of

1992 that the level of corruption rose tremendously.
NARRATOR: State companies were sold off, and the
trade in vouchers led to a fledgling stock exchange. A
market economy was taking hold, but it was getting off
to a shaky start.
In Moscow, speculation was rampant in what some
called the "Wild East."
JEFFREY SACHS: A lot of societies have corruption, but
Russia had an elite that had grown up in such an amoral
environment under the Soviet system that they really
did believe that property is theft. "Okay, now we're in a
private-property system; we'll steal it." And Russia had
a lot to steal. You had the oil, the gas, the nickel, the
chromium, the diamonds, the gold -- this extraordinary
combination of huge natural resource reserves, and they
were in state hands.
back to top

Chapter 19: Property Becomes Theft [6:18]

NARRATOR: The biggest companies, the major industries

were still controlled by their all-powerful managers,
former Soviet "apparatchiks" known as the Red
Directors. They were utterly opposed to the young
reformers and privatization. The only way to privatize
the commanding heights of the Russian economy was to
wrest control away from the Red Directors.
GRIGORY YAVLINSKY: In Eastern Europe, the real
democratic revolution happened. it was a real
replacement of the political elite. In Russia, the same
people changed their jackets and changed the portraits
in the rooms, and instead of saying "communism" and
"Lenin" and "Five-Year Plan" started to say "market,"
"democracy," "freedom."
ANATOLY CHUBAIS: I do remember one of the first
meetings with the directors, which was very tough, very
tough. They hate the language we speak; they hate the
face we have. They hate everything which was
connected with us. These guys were the real owners of
the country. I was fighting for the real commanding
heights in terms of who runs the economy. Who runs the
economy, market or the Soviet directors?
NARRATOR: The vast factory complex at Norilsk was to
become a major battleground between the Red Directors
and a new kind of Russian. Vladimir Potanin was a

buccanneering businessman who quit his job in the

foreign ministry and within a few years built a small
trading company into one of Russia's leading banks.
VLADIMIR POTANIN, President, Interros Holding
Company: I decided to become a businessman at the
moment when I understood that it is possible. I grew in
a country where it was not possible, and there existed
even a special article in a penal court of the Soviet Union
which banished entrepreneuring activity.
NARRATOR: Potanin's next venture would lead some to
see him as an inspired entrepreneur, others as a robber
baron. In 1995 he decided to make a play for Norilsk
Nickel, but to take over Norilsk meant going up against
one of the most powerful of the old Red Directors,
Anatoly Filatov.
BORIS JORDAN: Filatov of Norilsk, the hardest guy, one
of the most powerful men in Russia. Potanin, who was at
that time a relatively unknown person in this country,
went up against this guy. Norilsk Nickel was the test
case.
NARRATOR: Potanin needed allies. These were the
richest of the new entrepreneurs. They came to be
known and hated as "the oligarchs."
VLADIMIR POTANIN: By 1995, we had new business
elite who in my opinion were efficient owners and
qualified managers, but they had no property in their
hands. That's why it was the struggle between old Red
Directors and new managers who gained their money
let's say themselves.
NARRATOR: To break the power of the Red Directors, the
oligarchs needed political support.
VLADIMIR POTANIN: It was politically very difficult to
withdraw this power from the Red Directors. Even the
government and even Chubais were not strong enough
to win easily this struggle.
NARRATOR: It looked as if the Communists were going
to win the upcoming 1996 presidential elections. Yeltsin
and the reformers had to find a way to stop them.
LILIA SHEVTSOVA: In the beginning of 1996, Yeltsin
enjoyed only 5 percent of popularity. He definitely
needed financial assistance, financial resources from the
rich people, the oligarchs.
NARRATOR: The government and the oligarchs needed
each other, and they needed to move fast. The
government feared a Communist comeback; the
oligarchs feared the loss of their fortunes. The oligarchs
hammered out a secret deal that would enable them to
acquire key industries at a knockdown price.
BORIS JORDAN: Potanin proposed a privatization
program which today is still used. It's exceptionally

controversial, a loans-for-shares program, and that

program entailed Russian business giving the
government loans in return for taking the shares of
strategic assets as collateral. In fact, what ended up
happening is most of these companies ended up getting
sold back to the guy that actually provided the loan.
NARRATOR: The oligarchs' money would help Yeltsin
fight the presidential election. In exchange, they wanted
the commanding heights.
back to top

Chapter 20: Closing the Deal [3:50]

ANATOLY CHUBAIS: The dilemma was not should we

choose this way of privatization or another way which is
more transparent, more open, more public. The idea
was, should we choose this way or nothing.
YEGOR GAIDAR: The point of the loans-for-shares deal
was aimed at creating a critical mass of powerful and
influential businessmen whose primary interest would be
to prevent the Communists from coming back.
NARRATOR: With their media companies and wealth, the
oligarchs backed Yeltsin's reelection campaign. Singing
and dancing endlessly across Russia, Yeltsin surged
ahead in the polls and to victory.
Potanin entered Yeltsin's Cabinet, the oligarchs' direct
voice in the Kremlin. Potanin had won Norilsk Nickel, and
with it, a third of the world's nickel. For a company with
annual sales of $2.5 billion, Potanin paid $170 million.
VLADIMIR POTANIN: I felt a great feeling of victory.
Several years before, it was even difficult to think about
struggling with Red Directors. The struggle was won by
us, by those who came who are younger, who are more
active and more prepared for competition. Many years
later came feeling of a great responsibly for this,
because when you win, you become responsible for
everything that is going on. but it came a little bit later.
NARRATOR: To many, the loans-for-shares deal was
more than a scandal; it was the theft of the century. But
it was a price Yeltsin was willing to pay to keep the
Communists out.
GRIGORY YAVLINSKY: The task was not to distribute the
property between 10 personal friends; there were no
need for that. The task was to give the property to
millions of people.

VLADIMIR POTANIN: We can say that it was artificially

yes. It was cheap, relatively cheap. It was not
transparent. Yes. But I think that it was difficult to avoid.
Maybe it was the only way.
GRIGORY YAVLINSKY: The goals are justifying the
means. That's how the Bolsheviks made the revolution
in Russia, and that is why it's disaster. Always when you
are using the formula that the goals are justifying the
means, you are destroying the goals.
NARRATOR: In Yeltsin's Russia, crony capitalism thrived.
For many, reform came to mean corruption, inflation,
and inequality. Then in 1998, Russia defaulted on its
debts, and the stock market crashed. The Yeltsin era
ended with his abrupt resignation on New Year's Day
2000.
back to top

Chapter 21: A Decade of Radical Change [7:38]

Onscreen title: The New Century

NARRATOR: By the start of the new millennium, the
decade of radical change was over. A world that not so
long ago had looked to socialism, central planning, and
protectionism now looked to the market.
DANIEL YERGIN: It's breathtaking what's happened in
the last 20 years or less. It's as though the whole world
has changed its mind. Everywhere -- in India, China,
Asia, Latin America, Europe, North America, and above
all in the communist world -- governments have
retreated from the commanding heights of the
economy.
NARRATOR: Having thrown off communism, the
countries of Eastern Europe continued to embrace free
markets. Poland has flourished. What's driving Poland
are two million small businesses, almost all started after
economic reform.
DANIEL YERGIN: Of all the cases of shock therapy
around the world, that in Poland worked just about the
best. It really got the economy going.
NARRATOR: Businesses like Zofia Bielzyck's gym now
employ over half of the country's workforce and produce
close to 75 percent of its total output.

ZOFIA BIELZYCK, Gym Owner: After 1990, many

companies and foreign firms appeared in Poland. The
forecasts were very good, and I think they have come
true. But we Poles need time for everything to fall into
place.
NARRATOR: In Latin America, the result of reform has
been mixed. Chile continues to set the pace. A
democracy, it follows free-market policies and is one of
the world's seven fastest growing economies.
DOMINGO CAVALLO: The first democratic president after
Pinochet maintained the reforms and also tried to
improve on them.
RICARDO LAGOS: It is not something of the right-wing
parties nor the left-wing parties. It's simply sound
economic policies. To learn that took some time.
NARRATOR: Bolivia is still poor, but it has been growing.
GONZALO SANCHEZ DE LOZADA: Many people would
say we're still poor, and I would say to them Bolivia
before we stabilized the economy was a poor country
with hyperinflation. Bolivia after we stabilized the
economy is a poor country with stability.
CLIVE CROOK: I think there is some disillusionment in
Latin America. They have had problems despite the
reforms. Getting to a steady high rate of growth is a
difficult thing, and it certainly requires more than sorting
out your inflation problem, and now we see a sort of
financial collapse in Argentina.
DANIEL YERGIN: For several years, Argentina looked like
the poster boy for economic reform. It turned out that
the reforms were quite incomplete. The country ran up
huge international debts, and in 2002 it had an
economic meltdown.
CLIVE CROOK: At the end of the day, the strains were
too much. And now we see a great deal of political
turmoil, raising all kinds of questions for the future.
NARRATOR: In India, Narayana Murthy no longer needs
50 trips to Delhi for permission to import one computer.
Instead he has built one of the world's biggest software
companies. India's economy has loosened up, and it is
growing.
JAIRAM RAMESH: Well, it did work. I think certainly it
did work. And what is interesting is that all the parties
that criticized the party that introduce reforms are now
taking forward those reforms. So I think, you know, '91
to 2000 has shown that the economic liberalization was
started out of compulsion has ended up being a process
that has been driven by conviction.
P. CHIDAMBARAM: This has brought about a sea change.
In fact, nobody in India today would question the
correctness of the decision to open up India's economy.

Even the Communists grudgingly can see that this is the

right path now.
NARRATOR: In Russia, ironically, the 1998 stock market
crash and the default on debts may have been a turning
point, a second chance for Russia's still-new market
economy. Under President Putin, the institutions of a
market economy strengthened, and the oligarchs were
reined in.
DANIEL YERGIN: Russia has changed a lot since the
loans-for-shares deal of the mid-90s. It's had strong
economic growth over the last several years. Companies
have modernized, and a lot of their reform legislation
that should have been done five or six or seven years
ago has finally been enacted.
JEFFREY SACHS: I remain cautiously optimistic. But
even if Russia gets out of this mess, even if democracy
survives, even if all of market reforms take root and all
of that is possible, the 1990s was so costly
unnecessarily that I'll never be able to look at it and feel
that gee, it all ended up well in the end.
DANIEL YERGIN: The problems are still there -- the
problems of inadequate health care all the way to
corruption. But it's a society that's changing. Putin sees
Russia's future as being part of the world economy.
LILIA SHEVTSOVA: I'm looking at my son who is 19
years old, and I'm looking at other people, and I am
amazed. They are ready to live in this global
environment. These are the people absolutely free of
any old stereotypes. They don't remember communism.
My son is coming home and asking me, "Mum, can you
tell me what Marxism is?" We spent only 10 years after
collapse of communism, and my son doesn't know what
communism and Marxism is.
NARRATOR: The world had indeed changed its mind.
Capitalism was now the rule almost everywhere. The
stage was set for a single global market woven together
by trade technology and investment.
Globalization had begun.

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.
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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, 19901992; 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.
back to top

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.
back to top

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.
back to top

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.
back to top

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 longterm 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.
back to top

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 realtime, 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 nobrainer. 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.
back to top

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.
back to top

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 freetrade zone near Shanghai. Lee saw firsthand a China in
the midst of epic economic transformation.

China's Communist leadership had

and welcomed hundreds of billions
investment. Almost one-quarter of
population was entering the global
time.

embraced markets
of dollars of foreign
the world's
market for the first

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."
back to top

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 fastmoving, 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.
back to top

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.
back to top

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 wellplanned 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.
back to top

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.
back to top

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

NARRATOR: Now the crisis had reached America. A littleknown 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, 19941999: 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.
back to top

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.
back to top

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 lose jobs to workers who are not represented by
independent trade unions. And so that changes the
nature of competition that American workers face.
NARRATOR: Countries that opened their markets saw
their overall wealth and living standards increase, yet
the politics of trade were less straightforward than the
economics.
LAWRENCE SUMMERS: It's always difficult to sell open
markets. There's a basic cost of open markets. Whether
it's somebody losing a job particularly or very obvious,
the benefits are much less clear. Who said on Christmas
day, "Gosh, thanks -- without open markets I would
have been only able to buy half as many toys for my
kid"? Or whoever says, "You know, I'm not that great a

worker, but they really had no choice to promote me

given the surge and export demand"? On the other
hand, every job loss that can be remotely connected to
international trade, people do. So this problem of
invisible beneficiaries and visible losers is one that
bedevils the political economy of trade.
THEA LEE: The truth is that the business community has
very good access to the international institution and to
their own governments. And we hit the streets because
we feel that we have a hard time getting our
government to listen, or that our governments are
unresponsive to the concerns that we've raised. And we
think we can do better. We think we could write a set of
rules for the global economy that would ensure that
corporations had to live up to a minimum standard.
NARRATOR: But inside the Seattle meeting, the unions'
demands met stiff resistance from the developing world.
They wanted more trade, not less. Poorer countries
charged that America and Europe unfairly protect
industries with powerful union and business support.
JAIRAM RAMESH, Senior Economic Advisor to India's
Congress Party, 1991-1998: The fact is the rules of the
game are tilted in favor of the economically powerful. I
understand, I respect that, and until India is
economically powerful we are not going to be able to
influence the rules of the game. Let's take the textile
trade. Now all textile imports into America, for example,
are governed by quotas. Every country is allocated a
certain quota. It's not free trade. It's managed trade.
America is free to sell textiles to us, but we are not free
to sell textiles to America.
NARRATOR: Developing countries forged a negotiating
bloc to make Western markets more open.
DELEGATE: This should not be a time when big
countries, strong countries, the world's wealthiest
countries, are setting about a process designed to enrich
themselves.
back to top

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

NARRATOR: Bill Clinton had been a leading proponent of

expanded trade, but the protests forced him into a
political corner. A presidential election was about to
begin, and Democrats needed union support. In a
speech to WTO delegates, Clinton appeared to side with
the protestors on the streets.

BILL CLINTON: I condemn the small number who were

violent and who tried to prevent you from meeting, but
I'm glad the others showed up, because they represent
millions of people who are now asking questions about
whether this enterprise will in fact take us all where we
want to go.
NEWT GINGRICH: I think his speech at Seattle was an
absolute disgrace and an act of strategic defeat for him.
I think they were gearing up for the election, and
appeasing the unions to elect Gore was more important
than standing for free trade.
NARRATOR: Clinton instructed American WTO
negotiators to keep protections for key U.S. industries.
The summit ended in failure. Leaders across the
developing world vowed to block the next round of trade
negotiations unless their demands were taken seriously.
MAHATHIR BIN MOHAMAD: We believe in trade, but we
didn't believe in just being a market for other people. So
when you talk about opening markets, you talk about
the rich people who can manufacture goods with added
value and sell them in our markets, not the other way
round.
NARRATOR: Countries like Tanzania that rely on foreign
aid claimed they wouldn't need the aid, if they could
only sell their products to the West.
BENJAMIN MKAPA, President of Tanzania: You see, we
talk about a level playing field, but in fact it is very
much tilted in their favor. We would earn so much more
than we are possibly getting by bilateral aid if those
markets were just open to us, literally by billions.
NARRATOR: Global poverty soon became the galvanizing
issue among globalization's opponents. In the wake of
Seattle, control of the protest movement began to shift
from unions to a disparate network of grassroots
activists.
JAGGI SINGH, Activist, Canada: We're trying to move
from the politics of protest to the politics of liberation.
It's not simply trying to create a kinder, gentler
capitalism. It's not simply trying to negotiate the terms
of our misery, to make our misery less miserable. It's
about changing the world; it's about creating
institutions, structures, and frameworks, communities
and neighborhoods that are based on our values, which
are values of social justice, of mutual aid, of solidarity,
of direct democracy. And we're a long way from where
we want to go, but we have to start now.
Onscreen caption: World Bank/IMF meeting
Washington, D.C., April 2000
NARRATOR: One of the protestors' next targets was the
World Bank, an institution whose sole purpose is to

reduce poverty in developing countries.

JAMES WOLFENSOHN, President, The World Bank: When
you see someone outside a barricade attacking you
vehemently because of something called globalization,
you have to wonder what it is they're getting at. It
enrages me when you have people who assume they
have the moral high ground against a team of people
here who are devoting their lives to addressing the very
questions that these people claim to be addressing.
NARRATOR: But the protests had become impossible to
ignore. Inside the World Bank and other institutions,
officials struggled to make sense of the growing debate.
NEMAT SHAFIK, Vice President, The World Bank: Well,
the protest movement is multifaceted, and the anger is
multifaceted, but there clearly is a sense of losing
control and a sense of alienation. The old structures and
the old institutions and the old lines aren't working
anymore, and I think we're at a stage where is this
extraordinary chaos in international organizations, in
international rules of the game, that we're trying to
define, and we're not there yet. And I think, like in any
chaotic situation when you're in the middle of it, you
don't see the way out, but I think what we're observing
-- the series of protests, the series of engagements -- is
part of the process of coming towards some new
structure for managing a global economy.
back to top

Chapter 18: The Global Divide [2:33]

NARRATOR: Globalization did not cause global poverty,

but it did make us more aware of it. And by creating a
single global market, it raised the question of how that
market benefits the world's poorest nations.
DANIEL YERGIN: We are seeing around the world a
movement towards greater reliance on markets, greater
confidence in markets. But for that confidence to last it
has to be seen that these markets are fair, that they are
delivering the benefits widely, that people are benefiting
from them. And if they don't have that kind of
legitimacy, then the confidence is not going to remain,
and the markets will be vulnerable to disruption and be
replaced by other kinds of controls. So every day the
market has to earn and prove its legitimacy, and that's a
big test, particularly in the developing world, where the
number-one issue, the central preoccupational concern,
is the issue of poverty, and delivering the goods means
lifting people out of poverty. And that more than

anything else is what these markets would be judged

by.
JEFFREY SACHS: Professor of Economics, Harvard
University: The world is more unequal than at any time
in world history. There's a basic reason for that, which is
that 200 years ago everybody was poor. A relatively
small part of the world achieved what the economists
call a modern economic growth. Those countries
represent only about one-sixth of humanity, and fivesixths of humanity is what we call the developing world.
It's the vast majority of the world. The gap can be 1001, maybe a gap of $30,000 per person and $300 per
person. And that's absolutely astounding to be on the
same planet and to have that extreme variation in
material well being.
back to top

Chapter 19: Capitalism Redefined [7:00]

HERNANDO DE SOTO, Founder and Director, Institute for

Liberty and Democracy, Peru: The problem that's
happened over these last years is that somehow or
other people who are capitalists in countries like the
United States considered the real interlocutors are rich
people from developing countries, so they've been
touching the wrong constituency. The constituency of
capitalism has always been poor people that are outside
the system. Capitalism is essentially a tool for poor
people to prosper.
NARRATOR: Hernando de Soto is one of the most
original economists in the developing world. An advisor
to Mexico, Peru, Egypt, and other countries, he seeks to
cut through the old debate about wealth and poverty
and reinvent capitalism in the name of the poor.
CHARLIE ROSE, Journalist and Talk Show Host:
Hernando de Soto has been called the most important
economist in the Third World. He's a champion of market
economics and property rights in Latin America. His new
book, The Mystery of Capital, talks about the question of
why capitalism triumphs in the West and fails
everywhere else. Welcome.
HERNANDO DE SOTO: So the important thing about a
capitalist system is that it's a system of representations.
Therefore it's a little bit like when I go to the United
States. People ask me for my identity, and I say: "My
identity is me. I mean, look at my face. I am Hernando
de Soto." But the man at the U.S. immigrations just
says, "Look, give me your passport."

The reason that things travel so well in the market

economy of the United States, and values travel from
one place to another, is because they all have passports.
And the real value is like my identity. It's not in me; it's
in my passport. Real value to pay the hotel room is not
in me; it's in the credit card. And so what happens is
that this system by representation, it requires of course
that all the representations -- the credit cards, the
passports, the IDs, the property titles, and the shares -be organized by a system of law that allows people to be
able to trust what they're dealing with.
NARRATOR: In September 2000, de Soto published his
explanation of why capitalism hasn't worked for the
poor. He took his message directly to some of Latin
America's most remote regions.
HERNANDO DE SOTO: The reason I'm going to
Cajamarca now is because 12 years after the fall of the
Berlin Wall and 11 years after Peru adopted pro-market
policies, their situation hasn't got much better, and they
want to know why. The Mystery of Capitaloffers an
explanation. It says that the system per se works in the
West, but that in our country, like in much of the Third
World, it isn't functioning because we have missed some
of the crucial elements that the Westerners added in the
18th and 19th centuries, like property rights, without
which the system cannot function.
Onscreen caption: Cajamarca, Peru
NARRATOR: De Soto's book had become the number one
bestseller in Peru's history. And in poor neighborhoods
across the country, this economist had become a
celebrity.
De Soto believes that people are capitalists by nature,
but that in the developing world, most are locked out of
the capitalist system.
HERNANDO DE SOTO: Peru, like in every other
developing and former communist nation, people on the
ground, with or without a property law, have basically
agreed on the distribution of assets among themselves.
You go to any of the places we've been to -- the
hinterland of Egypt, of the Philippines, of Haiti, where
there is no official law that is actually in place or being
enforced, but there is another law in place: You step on
somebody's territory, and somebody comes up and says,
"Get off my territory," where there's a law or no law. You
walk down the street, and you walk into a garden, and
the dog starts barking, and you start finding out that
that dog is defending a consensually agreed
determination of possession rights throughout a certain
area. So there are property systems in place. The
question, I think, the important thing is that they're
illegal. They're extra-legal, to be more precise.

Onscreen caption: Kilimanjaro, Tanzania

NARrATOR: In the West, property rights are taken so for
granted, they rarely cross our minds. But in many
countries, these crucial "tools of capitalism" simply
aren't available.
In the foothills of Mt. Kilimanjaro, Philip Tesha's family
has grown coffee for generations. He sells directly into
the global market, yet like many in the developing
world, he can't prove that what he owns is actually his.
INTERVIEWER: So who owns the land around here?
PHILIP TESHA, Coffee Farmer, Tanzania: The land is our
property. We brought it from the farmer who was willing
to sell to us. So we brought this land, although we don't
hold any title for the ownership. But it's our property.
INTERVIEWER: So how can you prove that's your
property?
PHILIP TESHA: Because I'm here. I was the person who
brought it, and the person who sold it to me is also
around here.
HERNANDO DE SOTO: So what we've been discovering
is that there's a real huge paper wall that stops the poor
from actually being able to develop private legal
enterprise.
NARRATOR: Without property rights, ordinary people in
developing countries can't get a loan, a mortgage, or
credit. They are excluded from the capitalist system,
and the global market simply passes them by.
HERNANDO DE SOTO: So this is a time of crisis for the
cause of capitalism worldwide, because for the moment
it has only meant giving the elite of developing countries
additional opportunities, and not being able to get down
deep, deep into where the real majority interests of
people in any developing country are, which is among
the poor.
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Chapter 20: The Bottom End of Globalism [4:46]

JEFFREY SACHS: It is an incredible moral problem how

to live together with this vast gap in wealth. It's also an
incredible intellectual problem. It's what development
economists such as myself spend all our time thinking
about. Why is the gap so large? What can be done to

help the poorer countries narrow the gap? It's a very

tough question.
NARRATOR: Places like Merelani, in Northern Tanzania,
are the bottom end of the global economy. Miners hunt
for gemstones -- tanzanite -- that will eventually sell for
over $1,000 per stone.
Some mines are too narrow for grown men to navigate.
Those mines are left to children as young as 10, known
as "snake kids." For each stone, they receive less than
one dollar.
HERNANDO DE SOTO: Oliver Twist has come to town,
and he's poor, and he's got a TV set, and he's able to
see how you live as compared to how he lives, and he's
going to get very angry. So either you show him a
capitalist route to do it and integrate him, or he's going
to find another ideology. And the fact that today there is
no more Kremlin that is organizing a revolt doesn't
mean that they're not going to find another capital,
because when these things happen, when people are
unhappy and rebel against a system, they'll find another
locus of power very, very quickly.
BILL CLINTON: I'm not one of these people that believes
that economics solves all problems, but if people know
they're taking care of their children, and if they have a
personal interest in maintaining the peace, it's just
easier for them to manage life's difficulties. You know,
it's no accident that the Nazi Party arose in Germany.
Everybody who was alive at the time remembers people
in the Weimar Republic, after the harsh peace of
Versailles after World War I, carrying wheelbarrows full
of worthless Marks to the bakery to buy a loaf of bread.
So I don't want to oversell this: It is not sufficient to
build a peaceful, free world, but it is absolutely
necessary. What is? Trade.
Onscreen caption: Warwick, England, December
2000
NARRATOR: In his final foreign policy address before
leaving office, Bill Clinton sought to define the
challenges of globalization. He had come to the
presidency saying that free trade would benefit America.
He left arguing it was crucial to maintaining the peace in
an interconnected world.
BILL CLINTON: First let me say I think it's quite
important that we unapologetically reaffirm a conviction
that open markets and rule-based trade are necessary,
proven engines of economic growth. Now I know that
many people don't believe that, and I know that
inequality, as I said in the last few years, has increased
in many nations, but the answer is not to abandon the
path of expanded trade, but instead to do whatever is
necessary to build a new consensus on trade. And it's
easy for me to say -- you can see how successful I was
in Seattle at doing that. No generation has ever had the

opportunity that all of us now have to build a global

economy that leaves no one behind. For eight years I
have done what I could to lead my country down that
path. I think for the rest of our lives we had all better
stay on it. Thank you very much.
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Chapter 21: Changing of the Guard [3:04]

NARRATOR: Washington's free-trade agenda passed

seamlessly from the Clinton to the Bush administration.
GEORGE W. BUSH: Conquering poverty creates new
customers. What some call globalization is in fact the
triumph of human liberty stretching across national
borders, and it holds the promise of delivering billions of
the world's citizens from disease and hunger and want.
RICHARD CHENEY: At this stage I don't find in my
travels around the country or even around the world
that there is widespread opposition to the basic
fundamental trends that have been there for the last 40
or 50 years. Millions of people a day are better off than
they would have been without those trends and
development, without globalization, without the
developments of the increased international commerce,
and that's all of the good. And very few people have
been harmed by it.
Onscreen caption: San Cristobal, Mexico, February
2001
NARRATOR: On his first foreign trip, President Bush
came to Mexico. His friend Vicente Fox wanted to use
the global market to relieve his nation's endemic
poverty.
VICENTE FOX: Mexico has been one of the losers of the
20th century. We tried many different alternatives to
development, and unfortunately we have 40 percent of
the population poor; we have a per capita income that is
extremely low. It is the same per capita income we had
25 years ago, so we must change things.
NARRATOR: Presidents Bush and Fox hoped to expand
the North American Free Trade Agreement to the entire
Western Hemisphere.
VICENTE FOX: Now we want to go further. I'm taking
about a NAFTA-plus, a NAFTA that takes us to a further
integration. I've been talking this with President Bush,

and fortunately he's seeing it the same way.

NARRATOR: But as his foreign minister, Fox chose a
leading voice of the left: a onetime friend of Fidel
Castro, and critic of global capitalism.
JORGE CASTANEDA: The left's main issue since the
middle of the 19th century has been inequality that
accompanies capitalism. There is probably more
inequality pressing against society today than before
within rich countries, within poor countries, and between
rich countries and poor countries. So on this score, for
example, the left has more of a cause, more of a raison
d'etre, than perhaps in any time recently.
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Chapter 22: The Battle Resumed [6:38]

Onscreen caption: Quebec City, Canada

NARRATOR: Presidents Fox and Bush were set to meet
again in Quebec City at a summit for 34 democratically
elected presidents from North and South America. Antiglobalization activists made the summit their next
target.
ACTIVIST: No matter what anybody says, there's going
to be some kind of property destruction.
ACTIVIST: So far the way the debate has been played
out is violence, nonviolence. But for me that's not the
issue. Our goal is to disrupt the summit as best we can
with the largest possible mobilization on the 20th and
21st.
Onscreen caption: Summit of the Americas, April
2001
NARRATOR: The summit's agenda was to be trade,
poverty, and the new rules of the game. Organizers
sealed off the city center. As President Bush and other
leaders arrived, the demonstrators tried to break
through. Inside the barricades, Mexico's foreign minister
was now a part of the system he'd once criticized.
JORGE CASTANEDA: They never mention the Americans.
They said, "We need leeway to show that we can get
results," and that's true.
This is my first big summit as foreign minister, and it's

fun. Everybody's here.

INTERVIEWER: If you were 25 today, where would you
be?
JORGE CASTANEDA: On the streets. I would think that's
certainly a hell of a lot more fun.
NARRATOR: Like Jorge Castaneda, most of the delegates
were from developing countries that had embraced
globalization. Casteneda wanted more trade. He also
hoped to narrow the gap between the rich and the poor
of the developing world.
JORGE CASTANEDA: The issue that's been coming up
constantly in the speeches is that the small countries,
the poorer sectors of each society need a special deal;
that they cannot just be left out, because if they are,
they'll never be brought in. There is, I would say, a
growing consensus on that, but there isn't necessarily a
consensus on what to do.
GEORGE W. BUSH: I'm here to learn and to listen from
voices, to those inside this hall and to those outside this
hall who want to join us in constructive dialogue.
NARRATOR: By now, the street demonstrations had
become a routine feature of major international
meetings. Protest organizers were increasingly
sophisticated, using the Internet and other "tools of
globalization" to try to bring the system down.
GRETCHEN KING: So we travel around the country, and
we set up these Web streams wherever there's a minor
or a major demonstration. Wherever people want this to
be set up, we'll help them. If we can provide
alternatives, if we can provide criticisms that come from
the streets and represent a diversity of people, then I
think there's a possibility of success. And that success
would be, you know, burning the free-trade agreement
of the Americas; that success would be disbanding the
WTO; that success would be removing the power from
the top one percent of the world's population.
JORGE CASTANEDA: The protestors, by staking out an
extremist position, make a more regulatory position
more centrist, and that's fine. Perhaps that's not what
they want, but that's too bad. You don't always get what
you want, and you don't always know who you're
working for. But I do think that the protestors are
natural allies of people who believe that there are things
that should be done to manage world trade a certain
way.
NARRATOR: The lasting impact of the protest movement
was subtle, but real. Since Seattle, the terms of the
global debate had shifted.
NEMAT SHAFIK: In the early days, when the first
protests started, I remember feeling very frustrated,
because their rhetoric was so abstract. It was, you

know, it was about economic justice; they had no

alternative program. And the more I thought about it,
the more I realized that if one looks historically, the role
of protest movement isn't to provide solutions; it's their
job to be critical, and then it's the job of the insiders,
the people in the system, in their response to those
protests to come up with new solutions. And I think
that's where we're at now. And so I do think it's healthy
that we have them banging at the gates.
BILL CLINTON: They care about legitimate problems, but
they have the wrong diagnosis. Their diagnosis is that
the global economy has produced all the misery that
they're protesting against. On the other hand, you
cannot have a global economy without a global social
response, without a global environmental response,
without a global security response. It's just... it's
unrealistic to think you can. 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 succeed in doing that will
determine whether the 21st century is either marred in
its first 50 years by terrorism of all kinds across national
borders, and more racial and religious and ethnic strife,
and tribal strife in Africa, or whether it becomes the
most peaceful and prosperous and interesting time the
world's ever known.
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Chapter 23: 9/11 [4:27]

NARRATOR: In the first decade of the 20th century, the

global economy was in many ways as integrated as ours
today. That era of globalization ended in Sarajevo in
1914, when a bullet fired by a terrorist triggered the
first world war. In the aftermath of September 11, it
seemed possible that history could repeat itself.
DANIEL YERGIN: Up until September 11, there was a
sense that with the crisis and the risks, that
nevertheless this movement towards globalization really
was irreversible. And since then there's a recognition of
that you can't turn back the clock; we're not going to
abolish e-mail, or computers aren't going to get slower,
but things can go in another direction. Markets do best
and work best and deliver what they can do during
times of peace. And if you're not in a time of peace, but
you're in some other kind of time, then things won't
work as well, and priorities will be elsewhere as well.
NARRATOR: The U.S. economy was already in recession.
As the war against terrorism progressed, the Bush

administration sought to rebuild economic confidence.

GEORGE W. BUSH: 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 a trading partner, an investor, and a friend.
NARRATOR: In November 2001, the World Trade
Organization gathered as planned in the Middle East.
The remote city of Doha had been chosen to keep
protestors away, but September 11 had dampened the
anti-globalization movement. Delegates reached the
compromise that had eluded them in Seattle. A new
round of trade negotiations was launched, and the
concerns of the developing world will be at the top of the
agenda.
ROBERT RUBIN: I think that the new technologies, that
the breaking down of trade and capital market barriers,
the spread of market-based economics, that all of this
has contributed greatly to global economic well-being,
and it will contribute enormously for a long, long time to
come. I think the potential is tremendous. But the
people in those countries who feel that they are left out
and the system isn't working for them have merit on
their side of the case. And I think it's not only an issue
of being helpful to them; I think it's enormously in our
interest that they become part of the system.
RICHARD CHENEY: I don't think there is any one
overnight solution. I don't know anyone who's smart
enough to sit down and write a brand-new set of rules
that we should all then adhere to. I think it is a process
for negotiation among solvent and independent nations,
and that's probably as it should be. And it will evolve
over time. And I do think we learn from our mistakes.
But I the idea that there's some sort of basic right way
to do it out there, and there's one individual or group
that have got all the answers, I'd be deeply suspicious of
that notion.
NARRATOR: Months later, the American economy
seemed on the road to recovery. While threats
remained, the system itself seemed more robust than
many had feared.
The era of globalization looks set to continue, as does
the debate over the new rules of the global game.
DANIEL YERGIN: The belief that trade increases the
odds for peace and also leads to higher standards of
living is something that has been part of the American
political tradition. And looking back on the Depression,
looking back on the first or second world war, it became
very deep seated, and it's not just a question of specific
trade agreements, but it's really a broad consensus
about the importance of trade to the American economy,
to what it does for economic development around the
world, and also as one of the foundations for a more

peaceful world.
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