COMMANDING HEIGHTS

EPISODE ONE: THE BATTLE OF IDEAS

Chapter 1: Prologue [2:45]
NARRATOR: As the 20th century drew to its close, and our new century began, the battle over the world
economy intensified. Some people feared globalization and questioned the benefits. Others welcomed it.
RICHARD CHENEY, U.S. Vice President: Millions of people a day are better off than they would have been
without those trade developments, without globalization. And very few people have been harmed by it.
NARRATOR: As the terrible events of September 11 drove the world deeper into a recession, new questions
emerged about the perils of the new world economy. Can our now deeply interconnected world surmount a
global downturn and rise above other crises? And is global terrorism the dark side of the promise of
globalization?
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, a century-long battle as to which
would control the commanding heights of the world's economies -- governments or markets; the story of
intellectual combat over which economic system would truly benefit mankind; the story of epic political
struggles to implant those ideas on the nations of the world.
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: This economic revolution has defined the wealth and fate of nations and will determine the future
of the planet.
DANIEL YERGIN, Author, Commanding Heights: This new world economy is being driven by technological
change and by political change, but none of it would have happened without a revolution in ideas.
NARRATOR: Tonight, the battle of ideas that still divides our world.
Chapter 2: The Old Order Fails [8:11]
NARRATOR: Air-raid sirens sound the alert. German bombers will pound another British city tonight .
Onscreen title: Cambridge University, 1940
During the blitz, the two most important economists of the age shared air-warden duty on the roof of King's
College, an English gentleman and an Austrian exile -- personal friends, but intellectual rivals. How their battle
of ideas still shapes our life and society is our story.
John Maynard Keynes helped the allied governments defend freedom by planning their wartime economies.
Friedrich von Hayek thought government interference in the economy was a threat to freedom.
DANIEL YERGIN: The debate over market forces, whether you have economy that's based upon prices or on
state, planning has been at the very heart of the economic battles of the last 100 years. For decades, the ideas
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of John Maynard Keynes dominated the economies of the Western world.

JOSEPH STANISLAW, Co-Author, Commanding Heights:Keynes felt that the market economy would go to
excesses, and when things were in difficulty the market wouldn't work. Therefore the government had to step
in. Hayek felt that the market would eventually take care of itself.
DANIEL YERGIN: It was only when Hayek was a very old man that his ideas began to prevail and the world
began to change.
NARRATOR: At the start of the 20th century, Hayek and Keynes had witnessed the first age of globalization.
Every day life was being transformed everywhere. Technologies like the telegraph and the telephone
revolutionized communications. Steamships and railways made the world a smaller place. Tens of millions
migrated without the need for passports.
Keynes described this global market in which trade flowed freely.
JOHN MAYNARD KEYNES: The inhabitant of London could order by telephone, sipping his morning tea, the
various products of the whole earth, and reasonably expect their early delivery upon his doorstep. Militarism
and imperialism of racial and cultural rivalries were little more than the amusements of his daily newspaper.
What an extraordinary episode in the economic progress of man was that age which came to an end in August
1914.
NARRATOR: Hayek summed it up more succinctly.
FRIEDRICH VON HAYEK: We did not realize how fragile our civilization was.
NARRATOR: The murder of an Austrian archduke by a terrorist triggered a world war. It would be almost 80
years before there was once again a truly global economy.
World War I destroyed 20 million lives. It laid a whole continent to waste. There was blood and carnage amidst
the beauty of the Italian Alps, where the armies of Austria and Italy were fighting.
Friedrich von Hayek served in the Austrian artillery. He was only 17 years old -- still a schoolboy. The fighting
was ferocious. He experienced retreat and defeat.
FRIEDRICH VON HAYEK: The decisive influence was really World War I. It's bound to draw your attention to
the problems of political organization.
NARRATOR: He vowed to work for a better world.
DANIEL YERGIN: The first world war was a cataclysm. People were disillusioned. People were bitter. They
were looking for something better. Socialism, communism seemed to promise that better world.
Onscreen title: St. Petersburg, 1917
NARRATOR: By overthrowing the old order, the Russian Revolution aimed to deliver that better world. Inspired
by the economic theories of Karl Marx, the Bolsheviks sought to smash capitalism. Lenin, the revolution's
leader, urged the workers of the world to unite against the global economy. The revolution made trade,
commerce, and private property criminal acts. Lenin promised to end the economic exploitation of man by
man.
Onscreen title: Cambridge University, 1918
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The man who was destined to be Hayek's great intellectual rival was a brilliant young academic at Cambridge
University. But John Maynard Keynes was much more than that. He befriended writers and artists. One painted
these murals for him. He was also a familiar figure in the City of London, where he made a fortune in the stock
market, lost it all, and made it back again.
Familiar with politicians and prime ministers, Keynes spent the first world war advising the British government
on how to organize its wartime economy. At the end of the war, Keynes joined the British peace delegation at
Versailles in France. The victorious allies wanted defeated Germany to pay the costs of the war through what
were called reparations.
ROBERT SKIDELSKY, Biographer of J.M. Keynes: All the statesmen of Versailles could think about was how
to squeeze money out of an already bankrupt Germany.
GEOFFREY HARCOURT, Professor of Economics, Cambridge University: Keynes felt the reparations were
out of all proportion to what an economy could really take and would have very destructive social, political, and
economic consequences.
NARRATOR: Angry and disgusted, Keynes resigned. Back in England, he went to stay with his friend, the
painter Duncan Grant. That summer, Grant painted Keynes writing his prophetic book, The Economic
Consequences of the Peace.
JOHN MAYNARD KEYNES: If we take the view that Germany must be kept impoverished and her children
starved and crippled, vengeance, I dare predict, will not limp. Nothing can delay that final war that will destroy
the civilization and progress of our generation.
Chapter 3: Communism on the Heights [6:16]
Onscreen title: Vienna, 1919
NARRATOR: Austria had lost the war and its empire. Vienna was a cold and hungry city. Revolution was in the
air. Socialists and Communists were winning the battle for hearts and minds. Young and idealistic, Friedrich
von Hayek enrolled at the University of Vienna.
FRIEDRICH VON HAYEK: It was during the war that I more or less decided to do economics. I really got
hooked.
NARRATOR: Socialism seemed to promise a more just society. Albert Zlabinger, a former pupil and disciple of
Hayek:
ALBERT ZLABINGER, Economist and Pupil of Hayek: He openly said that he at one time was a socialist of the
mild sort, where concerns for the poor and concerns for fairness and equity would help to determine
government policy.
NARRATOR: Much of Vienna's intellectual life took place outside the university, in the coffeehouses across the
Ringstrasse. There were informal seminars for those who loved discussion and argument. Hayek joined the
circle of a passionate libertarian called Ludwig von Mises. Von Mises believed markets, like people, needed to
be free from government meddling.
ALBERT ZLABINGER: Ludwig von Mises was the preeminent economist of the Austrian school. The
distinguishing hallmark of the Austrian school of economic thought is that markets work and governments
don't.
NARRATOR: Von Mises predicted that the new Soviet socialist economy would never work, precisely because
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the government controlled wages and prices.

DANIEL YERGIN: What von Mises said is that the great flaw of socialism is that it doesn't have a functioning
price system to send all the signals to consumers and producers as to what something is worth; that these
prices are at the very heart of what makes a functioning economy work.
You can think of them as traffic signals. And if you don't have them, what you get is a system that doesn't work,
or you get chaos.
ALBERT ZLABINGER: Von Mises argued that free markets do it best -- why fool with anything else?
Onscreen title: Moscow, 1922
NARRATOR: In Soviet Russia, it seemed as if von Mises's predictions were coming true. Lenin had abolished
what he saw as the chaos of free markets. The state controlled the economy. Wages and prices were fixed.
But the great Marxist experiment was in trouble. Lenin had an economic disaster on his hands. Soviet Russia
was a grim place, haunted by cold, famine, hunger, and death.
DANIEL YERGIN: Lenin knew that he needed a different kind of policy. and he instituted what would become
known as the New Economic Policy. Lenin says farmers can sell their own goods and own their own land. He
says that small businesses can operate, and you start to get an economic revival. Well, his comrades on the
left attacked him viciously for selling out the principles of Bolshevism and Marxism. And Lenin, who by this time
had already had a stroke and was not well, nevertheless pulled himself up on the platform for one of the very
last times in his life, and he was still the old Lenin. He was vitriolic; he was sarcastic. His critics, he said, were
fools, were stupid, because the state, the government, the Bolsheviks would control the overall economy: steel,
railroads, coal, the heavy industries -- what he called the "commanding heights" of the economy.
NARRATOR: Within a year Lenin was dead. The mourners at Lenin's funeral believed that history was on their
side, and in less than 30 years, not only Russia, but Eastern Europe, China -- more than a third of humanity -would be living according to the economic tenets of Marxist Leninism.
Lenin's successor would tighten the Communist Party's iron grip on the commanding heights of the economy.
Joseph Stalin introduced central planning. Under him, the Communist Party planned and managed every
aspect of the economy. While communism seemed to be forging ahead, capitalism looked to be doomed.
Chapter 4: A Capitalist Collapse [8:48]
Onscreen title: Vienna, 1923
NARRATOR: Germany and Austria were living with the economic consequences of the peace. Forced to pay
unbearable war reparations, the defeated governments simply printed more money. The result: inflation, more
inflation, hyperinflation. It took a basket full of paper money to go shopping.
KARL OTTO POHL, President, German Central Bank, 1980-1991: You saw people carrying their money on
wheels because you had to pay for a piece of bread billions of reichmarks.
NARRATOR: Hayek, who was working at a statistical research institute, needed 200 pay raises in eight
months. Money was cheaper than wallpaper. Million-mark notes lit stoves. Shoes that cost 12 marks in 1913
sold for 32 trillion marks in 1923. In Hitler's favorite beer keller, a glass of beer cost a billion marks.
Hyperinflation wiped out the savings of the middle class.
KARL OTTO POHL: And that was one of the reasons for the success of the Nazis, of Hitler. They got support
from these people who lost their fortunes.
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NARRATOR: Hayek would always see inflation as an evil that corroded society and undermined democracy.
The fight against inflation became a cornerstone of his economic philosophy.
Onscreen title: New York, The Roaring 1920s
DANIEL YERGIN: During the 1920s, while Europe was continuing to suffer the wounds of the first world war, in
American cities, at least, it was boom time. Americans were spending money. They were dancing. They were
partying. They were buying cars. They were buying bathtub gin. And they were buying stock -- lots of stock.
The stock market, the New York Stock Exchange, had become a national pastime. The Americans couldn't get
enough of it. And the favorite stock of the day was in these new radio companies. Radio was like the Internet of
the 1920s, an industry that had come from nowhere. And the number one glamour stock was RCA, which in
just a few years went from a dollar and a half a share to $600 a share. Americans couldn't get enough of it.
NARRATOR: It was a classic stock market bubble. Then, on Black Thursday, October 24, 1929, the bubble
burst. Prices plunged. The downward spiral proved unstoppable. Eight hours after the market had closed, the
tickertape machines were still tapping out the bad news. The stock market crash started America's slide into
despair.
SPENCER ECCLES, Salt Lake City Banker: During the '30s here, it was a complete and utter collapse from
the people's point of view. It was despair. As values and prices spiraled ever onward, downward, it left them
with no ability to earn, no ability to repay, no ability to spend, no ability to consume. Everything went down. The
farm implement seller, the clothing store, the merchant -- everything spiraled downward, and of course with it
went the banks.
NARRATOR: People panicked. They rushed to withdraw their hard-earned savings.
KENNETH RANDALL, Chairman of the Federal Deposit Insurance Corporation, 1964-1970: A run on a bank
means lines through the lobby and out the front door and down around the block, people waiting day and night
to get up to see if they could withdraw their cash.
NARRATOR: The millions that could not lost everything.
KENNETH RANDALL: If you look at the period of time from '29 on, about half the banks in the United States
closed.
NARRATOR: The government failed to halt the downward spiral. In fact, it made things worse.
NEWSREEL NARRATOR: Private construction virtually ceases. Mills and factories shut down. Railroads come
to a virtual standstill. Millions of Americans -- men, women, children -- wait in the cold on bread lines, in soup
kitchens. Three million Americans are ex-wage earners, unemployed, and the ranks of the unemployed are to
soar to 15 million.
Onscreen title: Europe, 1931
NARRATOR: Banks collapsed. Industry ground to a stop. Millions were out of work. In Britain, working men,
many of them war veterans, marched the length of the country to petition the government for the simple "right
to work." In Italy, Spain, and Germany, they marched to a different drum. With the failure of capitalism, fascism
cast its shadow ever wider. John Maynard Keynes saw his nightmare coming true.
In Cambridge, Keynes set out to save capitalism from itself by writing a book about what caused the Great
5

Depression and what to do about it. He aimed to rewrite the rules of economics, to see a country's economy as
a whole, as a machine that could be managed.
ROBERT SKIDELSKY: Keynes was the real inventor of macroeconomics. Concepts we take for granted today,
like gross domestic product, the level of unemployment, the rate of inflation, all to do with general features of
the economy, were invented by him.
GEOFFREY HARCOURT: He was writing a book which he thought would revolutionize the way we thought
about economic systems. It would also give us the means to make sure they operated better.
ROBERT SKIDELSKY: It was written against the background of not only the collapse of the world economy,
but the potential collapse of democratic government. Hitler became chancellor of Germany in 1933.
Democracy seemed to be losing ground, and with democracy, the system of liberty. So Keynes had to produce
an answer to the Great Depression, or democracy would be swamped by totalitarianism.
Chapter 5: Global Depression [5:26]
Onscreen title: Washington, D.C., 1933
NARRATOR: The new American president, Franklin Delano Roosevelt, was staring economic disaster in the
face. His wife, Eleanor, described Inauguration Day as "very solemn, and a little terrifying."
FRANKLIN DELANO ROOSEVELT, U.S. President: This great nation will endure as it has endured, will revive
and will prosper. I shall ask the Congress for the one remaining instrument to meet the crisis: broad executive
power.
NARRATOR: Roosevelt's voice of confidence rallied the nation.
He then embarked on a whirlwind program of reform.
DANIEL YERGIN: For Roosevelt and the New Deal, it was a war. They were at war with the Great Depression,
and they responded with frenetic activity, relief programs for the unemployed, for the hungry; programs to get
people back to work. They built dams and highways and national parks. At the same time they instituted a
program of regulating capitalism in a way that had never been done before, in order to protect people from
what they saw as the recklessness of the unfettered market.
NARRATOR: Privately, Roosevelt feared the market system had failed, so he created an entire alphabet of
new agencies to regulate banks, the stock market, capitalism itself. New headquarters built for the Interstate
Commerce Commission celebrated government regulation, which reined in market forces and curbed
capitalism. Under the New Deal, industry became subject to a host of new rules and regulations.
DANIEL YERGIN: And the airline industry was a very good example of that. You had people go into this
business, be very competitive, they'd go bankrupt. New people would come in, they would go bankrupt. It was
very unstable, so the New Deal stepped in and said, "We're going to stabilize this industry. We're going to set
the prices that you can charge for tickets. We're going to tell you what routes you can fly." And with that system
they eliminated these very vicious cycles of boom and bust in the aviation industry, and in a sense, that was
what they were aiming to do throughout the American economy.
Onscreen title: Cambridge University, 1936
NARRATOR: In 1936 John Maynard Keynes finally published his General Theory, a brilliant analysis of how to
fight the Depression. By showing governments that it was possible to manage their economies, Keynes made
himself the most influential economist of the age.
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ROBERT SKIDELSKY: Keynes's solution to unemployment was for the government to spend the money to
restore and maintain full employment.
NARRATOR: Governments, said Keynes, should spend against the wind. In good times they should reduce
their spending and build surpluses; in bad times, like the Great Depression, they should step up spending, run
deficits, and put purchasing power into the hands of working people.
ROBERT SKIDELSKY: He gave people hope that unemployment could be cured without concentration
camps.
NARRATOR: Harvard University became an intellectual bridgehead for Keynes in America. John Kenneth
Galbraith was one of Keynes's leading apostles.
JOHN KENNETH GALBRAITH, Professor Emeritus, Harvard University: I've said many times I think had
something, maybe quite a bit, to do with bringing Keynes across the Atlantic. I came back to find a whole group
of people here who had also read The General Theory, and this was a breath of hope and optimism.
NARRATOR: Keynes's ideas trickled down from Harvard to Washington, turning the federal government's
conventional economic policies upside down.
JOHN KENNETH GALBRAITH: You resisted conservative finance, borrowed money, and hired people across
the country, rescuing them from unemployment. That was the basic essential -- and that you didn't worry about
accumulating debt, or, more precisely, you worried about it, but did it anyway.
NARRATOR: Keynes's ideas began to gain ground.
Chapter 6: Worldwide War [7:00]
Onscreen title: World War II, 1941
NARRATOR: It took a world war for Keynesianism to become government policy. As the U.S. government
borrowed money and pumped it into the war effort, high unemployment ended, and the Depression
disappeared.
NEWSREEL NARRATOR: ... men and women to make the uniforms; machinists to make the guns and
ammunition; auto workers to produce the jeeps and trucks, to build the ships and tanks; civilian soldiers to turn
out the fighters, the bombers.
NARRATOR: In charge of wartime wage and price controls, John Kenneth Galbraith saw the economy
rebound.
JOHN KENNETH GALBRAITH: One could not have had a better demonstration of the Keynesian ideas, and I
think it's fair to say that as a young Keynesian in Washington, in touch with the other Keynesians there, we all
saw that very clearly at the time.
NARRATOR: In a radio broadcast, Keynes expressed his hope that what worked in war would work in peace.
JOHN MAYNARD KEYNES: If expenditure on armaments really does cure unemployment, a grand experiment
has begun. Good may come out of evil. We may learn a trick or two which will come in useful when the day of
peace comes.
Onscreen title: London, 1944
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NARRATOR: Now teaching at the London School of Economics, Hayek feared that Keynes's brave new world
was a big step in the wrong direction. He attacked the growing consensus by writing The Road to
Serfdom. Sarcastically dedicated to "socialists of all parties," it was a popular success. There was even a
cartoon version of it.
Its message was simple and direct: Too much government planning means too much government power, and
too much government power over the economy destroys freedom and makes men slaves. For Hayek, central
planning was the first step to a totalitarian state.
GEOFFREY HARCOURT: Well, Hayek thought that since freedom was an absolute, you must let a competitive
system just work itself out. And if at times that meant there was considerable unemployment, well, that's what
you had to put up with
ROBERT SKIDELSKY: Hayek always rejected macroeconomics. He rejected any government intervention
during the Great Depression itself, whereas Keynes was an activist. He said in the long run we're all dead, and
in the long run if we allow things to go on without remedy, we get lots of Hitlers, lots of wars, and lots of Stalins.
And who was right?
NARRATOR: Most people would have agreed with Keynes when he wrote this to Hayek.
JOHN MAYNARD KEYNES: What we want is not no planning, or even less planning. We almost certainly want
more.
NARRATOR: In the battle of ideas, Hayek was on the losing side.
FRIEDRICH VON HAYEK: I had a fairly good reputation as an economic theorist in 1944 when I published The
Road to Serfdom, and it was treated even by the academic community very largely as a malicious effort by a
reactionary to destroy high ideals.
Onscreen title: New Hampshire, 1944
NARRATOR: With the world at war, Keynes traveled to Bretton Woods and a grand resort hotel. Here,
delegates gathered from all over the world to organize the postwar economy.
The Bretton Woods Conference created the World Bank and the International Monetary Fund. They were
designed to bring stability to the world economy and prevent the unemployment and the depression of 1930s.
Keynes's idealism and humanity were an inspiration.
JOHN MAYNARD KEYNES: There has never been such a far-reaching proposal on so great a scale to provide
employment in the present and increase productivity in the future. And I doubt if the world understands how big
a thing we are bringing to birth.
NARRATOR: Keynes did not have long to live. Ill and overworked, his health gave way, but his reputation and
influence outlived him.
FRIEDRICH VON HAYEK: When Keynes died, Keynes and I were the best known economists. Then two
things happened. Keynes died and was raised to sainthood, and I discredited myself by publishing The Road
to Serfdom. And that changed the situation completely. And for the following 30 years, it was only Keynes who
counted, and I was gradually almost forgotten.

Onscreen title: V-E Day, 1945

NARRATOR: The war was over, and the troops came marching home.
The final summit conference of the three wartime allies took place in a palace in the Berlin suburb of Potsdam.
Truman, Churchill, and Stalin came to plan the peace and to redraw the map of Europe. Their different
economic systems offered alternative paths to prosperity. But the Great Depression continued to cast its long
shadow.
JEFFREY SACHS: There's no doubt that at the end of World War II there was a tremendous loss of faith in the
market economy. You had a feeling in large parts of the world, "We don't want to go that way. We want to go a
better way."
Chapter 7: Planning the Peace [6:47]
Onscreen title: Britain, 1945
NARRATOR: In Britain, the troops were coming home to a general election.
TONY BENN, Labor Candidate, 1945: Well, I came back in a troop ship in the summer of 1945, and I was a
pilot in the Royal Air Force, and I was picked as a 19-year-old to be the Labor candidate. All these soldiers
said, "Never again. We're never going back to unemployment, the Great Depression, to fascism, to
rearmament. We want to build a new society."
NARRATOR: During the dark war years, Britain had been governed by a coalition of conservatives and
socialists. Winston Churchill, the great wartime leader and head of the Conservative Party, expected an easy
victory. Everywhere he went, huge crowds turned out to cheer the nation's hero.
Heading the campaign against Churchill was Clement Attlee, leader of the Labor Party. Attlee argued that
Britain had planned the war, and now planning would win the peace.
BARBARA CASTLE, Labor MP, 1945-1979: We knew that our people would never have withstood the
bombardments and the loss of life and the hardship if they hadn't been confident that their government was
operating a policy of fair shares. We set out to ensure that this system of fair shares and the planning and
controls continued after the war.
NARRATOR: Churchill, who was influenced by Hayek's book The Road to Serfdom, opposed planning and
controls.
WINSTON CHURCHILL: No socialist system can be established without a political police, some form of
Gestapo.
RALPH HARRIS, Institute of Economic Affairs, 1957-1987: He got carried away with this Gestapo. And this, of
course, was carrying things to absurdity -- Gestapo in Britain!
NARRATOR: Attlee, a mild-mannered Christian Socialist, gave Churchill's gaffe a sinister spin.
RALPH HARRIS: Attlee actually went out of his way to refer to this foreign professor with this august [name],
Friedrich August von Hayek -- this foreign chap with a slightly German accent.
NARRATOR: Britain went to the polls. The result was sensational.
BBC RADIO NEWS: Here is the state of the parties up to 3:00, in detail: Conservatives 180, Labor 364.
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NARRATOR: Churchill was out. The people had voted for a new socialist Britain.
BARBARA CASTLE: The Labor Party swept to power simply because the vast majority of people, particularly
those men and women in the fighting forces who'd lived through the dreadful Depression years of the '30s, just
said, "Churchill's done a fine job of war leader, but we don't trust him to win the peace."
CLEMENT ATTLEE: What kind of society do you want?
NARRATOR: Attlee promised his party that they would build a new Jerusalem.
CLEMENT ATTLEE: Let's go forward into this fight in the spirit of William Blake: "I will not cease from mental
fight, nor shall the sword sleep in my hand, till we have built Jerusalem in England's green and pleasant land."
NARRATOR: William Blake's hymn "Jerusalem" became an anthem for the Labor movement.
BARBARA CASTLE: You know, it seemed to people who'd been through a war, it seemed to them natural
justice. Why not pool your resources? And so we broke into the concept of the sacredness of private property.
NARRATOR: When Labor took power, private owners were compelled to sell their businesses. Labor created a
"mixed economy" in which newly nationalized industries coexisted with private enterprise. Now governmentowned industries like coal, rail, and steel no longer enriched owners and shareholders, but worked for the
common good.
TONY BENN: So it was an act of regeneration, of renewal. That was the hope, and it was the hope that gave
us the welfare state, gave us the National Health Service, gave us full employment, gave us trade union rights,
really rebuilt the country from the bottom up.
NARRATOR: The welfare state provided care, free of charge, "from womb to tomb." Nobody, rich or poor,
would need to fear poverty, ignorance, unemployment, ill health, or old age.
TONY BENN: And people said, "This is better than allowing a lot of gamblers to run the world, where they're
not interested in us, but only in profit."
NARRATOR: Russia ended the war as a military and industrial giant. With the Red Army and the Secret Police,
Stalin imposed his economic system on half of Europe.
JEFFREY SACHS: The planned economy of Lenin and Stalin had defeated fascism. Scientific socialism
seemed to be in the ascendancy.
NARRATOR: Socialism was on the march; capitalism and free markets were on the retreat.
JEFFREY SACHS: So about one-third of the world adopted socialism, sometimes to internal revolution,
sometimes to brutal imposition by the Red Army.
NARRATOR: The world was divided. The Cold War had begun.
Chapter 8: Pilgrim Mountain [3:43]
Onscreen title: Switzerland, 1947
NARRATOR: Hayek loved mountains. He said they breathed freedom. But he saw socialist ideals and the
planned economy as threats to freedom, and so he organized a conference at a formerly fashionable hotel on
the top of Mont Pelerin -- Pilgrim Mountain.
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RALPH HARRIS: Well, what happened in 1947 was that Hayek at last brought off a great dream, which was to
assemble 36, mostly economists, some historians, and a few journalists, a handful of what he regarded as
survivors, good eggs, good intellectuals, who understood the market economy and the whole of the case.
MILTON FRIEDMAN, Professor Emeritus, University of Chicago: This was Hayek's belief and the belief of
other people who joined him there, that freedom was in serious danger.
NARRATOR: One of the delegates was a young economist from Chicago, Milton Friedman.
MILTON FRIEDMAN: The point of the meeting was very clear. Hayek and others felt that the world was turning
toward planning and that somehow we had to develop an intellectual current that would offset that movement.
NARRATOR: They met downstairs in the cocktail bar. The room and its furniture are not much changed.
RALPH HARRIS: The whole world was shadowed by the Iron Curtain, the Russian threat, by the failure to
establish democracies in the Eastern European countries and by the prevalence everywhere intellectually of
these ideas of collectivism arising from the war. The argument always was that democracy is impossible
without a free economy. You need a free economy; free economy is a necessary though not a sufficient
condition for democracy.
NARRATOR: The debates were passionate. At one point, Hayek's former mentor, Ludwig von Mises, stormed
out of a meeting.
MILTON FRIEDMAN: In the middle of a debate on the subject of distribution of income, in which you had
people who you would hardly call socialist or egalitarian, people like myself, Mises got up and said, "You're all
a bunch of socialists," and walked right out of the room. (laughs)
NARRATOR: But Hayek told the meeting that they had one great lesson to learn from the socialists.
RALPH HARRIS: Hayek paid enormous tribute to the socialist intellectuals and said that the great strength of
the socialists is that they had the courage, he said, to be idealistic; to have a theory, to have a project, to have
a vision, and to go on working towards that, through thick and thin.
NARRATOR: As the meeting came to an end, Hayek predicted a long fight, a battle of ideas that might last 20
years or more, before the world changed its mind. In the meantime, Hayek could see only one gleam of light.
Chapter 9: Germany's Bold Move [4:11]
Onscreen title: Berlin, 1947
NARRATOR: The war left Germany in ruins. Its economy had disintegrated. Markets had broken down. Shops
were empty. Already the Russians occupied East Germany and were waiting for the rest to fall into their lap. In
the American and British occupation zones, raging hyperinflation had made the German currency worthless.
In the winter of 1948, the Allies appointed as director of economic affairs a rotund, cigar-chomping economist
named Ludwig Erhard. A staunch anti-Nazi, Erhard was a free-market economist who shared many of Hayek's
beliefs and ideas. He also believed the Allies' economic rules were making a bad situation worse.
MILTON FRIEDMAN: The occupying authorities had imposed a system under which there were extensive
wage and price controls, supposedly to control inflation, but of course wage and price controls never control
inflation. And you had essentially an economy that was brought to a halt.
ALFRED BOSCH, Economist and Friend of Hayek: In this situation the black markets formed, and American
cigarettes were its form of currency.
11

MILTON FRIEDMAN: Nobody smoked cigarettes. They were for small transactions. Cognac was a medium of
circulation for large transactions.
NARRATOR: The Allies introduced a new currency, the Deutsche Mark, to replace the worthless German
money. But for Erhard, that was not enough. So without informing the Allies, Erhard went on the radio and
made a startling announcement.
KARL OTTO POHL: Ludwig Erhard, a legendary man, he decided, without asking anybody and against the will
of the American occupation powers, he decided to give up all price controls.
NARRATOR: Next day, Gen. Lucius Clay, the man in charge of occupied Germany, demanded to know what
Erhard thought he was doing.
ALFRED BOSCH: Clay said, "What have you done? You have changed the Allied price controls." Erhard
replied, "Herr General, I haven't changed them; I've abolished them." And Clay said, "My advisors tell me it is a
big mistake." Erhard replied, "Herr General, my advisors tell me the same thing."
NARRATOR: Overnight the black market disappeared. People stopped hoarding, and goods not seen for 10
years went on sale.
MILTON FRIEDMAN: It started the markets working, with free prices. Instead of nothing being in the windows
of the shops, everything started to come up. And that began the German economic miracle.
NARRATOR: Germany's "social market economy" combined free markets with a strong welfare state. Within a
few years, Germany's social market economy overtook Britain's more planned economy.
But back then, nobody wanted to model themselves on Germany. Most countries preferred to plan their
economies.
Chapter 10: India's Way [3:51]
Onscreen title: New Delhi, 1947
NARRATOR: India, the jewel in the crown of the British Empire, the very symbol of imperialism, celebrated its
freedom. Mahatma Gandhi was the father of independence. His economic ideal was a simple India of selfsufficient villages. Pandhit Nehru, the first prime minister, wanted to industrialize and combine British
parliamentary democracy with Soviet-style central planning.
JAIRAM RAMESH, Senior Economic Advisor to India's Congress Party, 1991-1998: In the 1950s India was the
Mecca of all economists. You talk of any economist in the world, and they were advising the Indian
government. And the advice was, you must have a state-led model of industrial growth; the public sector must
occupy what came to be called the commanding heights of the economy. And that's why steel, coal, machine
tools, capital goods, all the areas of heavy industry were in the public sector and not in the private sector.
NARRATOR: Nehru put his faith in technology.
MANMOHAN SINGH, Minister of Finance, 1991-1996: Nehru was a rational thinker, and he wanted to apply
science and technologies to solve the great mass poverty that prevailed at the time of independence.
NARRATOR: Under Nehru, central planning became a form of science.
MEGHNAD DESAI, Professor, London School of Economics: Nehru was always recruiting intellectuals in India
on his side in the cause of planning. And there was this genius statistician, Mahalanobis, who was head of the
12

Indian Statistical Institute.

NARRATOR: Nehru asked Mahalanobis to think about how to plan an economy. The brilliant Mahalanobis
succeeded in expressing the entire Indian economy in a single mathematical formula.
VOICE OF MAHALANOBIS: Let YT equal national income, CT equal consumption, and KT equal investment at
time, open bracket, open bracket, one plus lambda K beta K, closed bracket, minus one, are fractions of
investment allocated to industries producing capital goods; that is K sector and consumer goods at C sector,
respectively.
NARRATOR: People believed this perfect mathematical model could be applied in a less-than-perfect world.
MEGHNAD DESAI: And at that time, Mahalanobis's model was hailed as one of the pioneering mathematical
models for planning a mixed economy. And that made Mahalanobis very influential.
NARRATOR: India became the model of economic development for newly independent nations. Across the
developing world, socialism, planning, government control, regulation, and ownership -- these became the
gospel. All over Africa, people looked to socialism to lead them out of poverty. Across South America,
governments chose state control as the way to modernize. The apparent success of communist countries like
the Soviet Union and China seemed to show the way.
Chapter 11: Chicago Against The Tide [7:32]
Onscreen title: Chicago, 1950
NARRATOR: By 1950, Hayek's market economics were so completely out of fashion that when he sought a
full-time academic job in the United States, only one university was willing to hire him.
SAM PELTZMAN, Professor, University of Chicago: Chicago has always been an exceptional place, out of the
mainstream. Chicago is geographically isolated. This affects Chicago's intellectual influence in many more
areas than economics.
NARRATOR: The University of Chicago's intellectual influence would grow. Eight professors and another 11
economists from Chicago went on to win Nobel Prizes. Gary Becker is one of them.
GARY BECKER, Professor of Economics, University of Chicago: When I came as a graduate student to
Chicago 1951, I was flabbergasted by how stimulating the atmosphere was. I had been a very good student at
Princeton. My first day in Friedman's class he raised a question. I answered. He said, "That's no answer; that's
just rephrasing the question." That was the example of how blunt people were.
MILTON FRIEDMAN: Nobody was very polite. People were interested in ideas and argument and not in
making sure you didn't ruffle anybody's feathers.
ARNOLD HARBERGER, Professor Emeritus, University of Chicago: If you're sitting in a seminar room and
somebody up there is saying something which if imbibed by your students who are sitting in that same room is
going to lead them astray, it's up to you to call that guy right now and not later, and that, I think, is sort of the
spirit that prevailed in the Chicago workshop system. There wasn't that much fighting in the lunches. They
were pretty cordial. (laughs)
NARRATOR: Lunches at the Quadrangle Club were famous for the intensity of intellectual discussion. And one
man came to dominate those debates.
GEORGE SHULTZ, Dean of the Chicago Graduate School of Business, 1962 - 1968: Somehow Milton
managed to set the agenda of argument, and so there was a saying, "Everybody loves to argue with Milton,
13

particularly when he isn't there," because he's a good arguer.

NARRATOR: Milton Friedman was becoming the most articulate spokesman for the so-called Chicago School
of economics.
MILTON FRIEDMAN: The Chicago School meant a strong belief in minimal government and an emphasis on
free market as a way to control the economy.
LAWRENCE SUMMERS, President, Harvard University: You know, in many ways Milton Friedman was a devil
figure in my youth in our household of Keynesian economists because he seemed, with his emphasis on
individualism, freedom, and markets, to be so unconcerned with fairness.
NARRATOR: Liberals may have loathed the Chicago School, but Hayek felt on home ground in an intellectual
atmosphere so like the Vienna of his youth.
ARNOLD HARBERGER: Our vision is that the forces of the market are just that: They are forces; they are like
the wind and the tides. If you want to try to ignore them, you ignore them at your peril. If you find a way of
ordering your life which harnesses these forces to the benefit of society, that's the way to go.
NARRATOR: But in Washington, Keynes was still king of the hill. Nineteen years after he died, his face was on
the cover of Time magazine.
SAM PELTZMAN: Keynes's influence on economics at mid-century can't be exaggerated. The economic
advice that economists gave to policymakers said the only reason you have bad economic outcomes is
because the government's not doing enough. It sounds almost like central planning, doesn't it?
NARRATOR: Washington's Keynesians saw the economy not as a force of nature but a sophisticated machine
to be fine-tuned by technocrats like themselves. The Keynesian consensus was summed up when that most
Ivy League of presidents, John Kennedy, received an honorary degree from Yale.
JOHN FITZGERALD KENNEDY, U.S. President, 1961-1963: It might be said now that I have the best of both
worlds -- a Harvard education and a Yale degree.
NARRATOR: For JFK, Keynes had won the argument. The battle of ideas was over.
JOHN FITZGERALD KENNEDY: What is at stake in our economic decisions today is not some grand warfare
of rival ideology which will sweep the country with passion, but the practical management of a modern
economy. What we need is not labels and clichs, but more basic discussion of the sophisticated and technical
questions involved in keeping a great economic machinery moving ahead.
NARRATOR: Kennedy's council of economic advisors had drafted his speech along Keynesian lines.
ROBERT SOLOW, Professor Emeritus, Massachusetts Institute of Technology: We thought it was a great day
when Kennedy decided to give that speech at Yale and to talk about economic policy. That speech suggested
that we had won over Kennedy. We had won the heart and mind of the president.
NARRATOR: For what came to be known as the "Thirty Glorious Years," Keynesian economics had been
delivering the goods. Europe, Japan, and America all saw high economic growth and rising standards of living.
People enjoyed a prosperity undreamed of at the end of the war.
Chapter 12: The Specter of Stagflation [6:34]
Onscreen title: Austria, 1970
14

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
15

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!"
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.
16

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
17

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.
18

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
19

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.
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.
20

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.
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.
21

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.
22

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.
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
23

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.
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.
24

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 coal-mining 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 state-owned 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.
25

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.

26

EPISODE TWO: AGONY OF REFORM

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 free-market 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.
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
27

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, 1983-1991: 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."
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.
28

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
29

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.
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, 1991-1998: 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
30

productivity, to bring new ideas.

NARRATOR: Overprotected, over-administered, overplanned, the Permit Raj was quite literally a brake on the
Indian economy.
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 self-sufficient.
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.
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.
31

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.
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, 1974-1982: 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 free-market 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.
32

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 stateowned 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.
33

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.
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, 1994-1996: 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
34

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.
Chapter 9: Poland's Solidarity [7:32]
35

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.
36

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
debt-ridden 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.
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.
37

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
38

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.
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
39

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.
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, 1989-1991: Just after breakthrough, there is a short
40

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.
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.
41

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.
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.
42

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.
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
43

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?
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
44

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.
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
45

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.
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.
46

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.
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
47

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.
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.
48

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.
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
49

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.
50

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.

EPISODE THREE: THE NEW RULES OF THE GAME

Chapter 1: Prologue [6:14]
51

NARRATOR: The attack on America raised so many questions, among them, questions about the dangers of
the new world economy. Is terrorism the dark side of globalization?
DANIEL YERGIN, Author, Commanding Heights: Up until September 11, there was a sense that this movement
toward globalization really was irreversible. And since then there's been this recognition that things can go in
another direction.
NARRATOR: Can our deeply interconnected world deliver prosperity to everyone?
BILL CLINTON, U.S. President, 1993-2001: And that's basically the next big challenge, is making this
interdependent world of ours, on balance, far more positive than negative. And the extent to which we do that
will depend on whether the 21st century is marred by terrorism of all kinds or whether it becomes the most
peaceful and prosperous time the world has ever known.
NARRATOR: This is the story of how the new global economy was born, the story of a century-long battle of
ideas to determine who would control the "commanding heights" of the economy -- central governments or free
markets.
In the 1990s, a worldwide capitalist revolution fueled the new era of globalization, the greatest expansion of
world trade in history.
RICHARD CHENEY, U.S. Vice President: Millions of people a day are better off than they would have been
without globalization, and very few people have been harmed by it.
NARRATOR: But with the promise came a debate about the impact of globalization.
GRETCHEN KING, Media Activist, Independent Media Center: And should the world's wealthiest people really
dictate how the world's economy is going to run?
NARRATOR: Tonight, the battle over who should write the new rules of the game for the global economy.
GEORGE W. BUSH, U.S. President: Out of the sorrow of September 11, I see opportunity, a chance for
nations to strengthen and rethink and reinvigorate their relationships. When nations open their markets to the
world, they find in America trading partners, an investor, and a friend.
NARRATOR: We are living through a revolution. The 1990s saw the creation of a new kind of global economy,
a single market in which everyone has a stake, but no one has control.
Globalization has brought unprecedented prosperity, but it has also brought crises and risks we are only
beginning to understand. It has unleashed a worldwide debate about wealth and poverty, about the "rules of
the game" for this new era of globalization.
DANIEL YERGIN: Historians may well say that a new era began at the beginning of the 1990s with the end of
the Cold War and the Gulf crises. It was this new era of globalization, of a world being tied together by flows of
investment, of trade, of ideas, of culture, of people travelling all the time. And it happened very fast. And as so
often happens, the change came more quickly than the ability of thinking to catch up and understand the
change. But to understand where we are today and where we're going, we have to understand this recent
past.
Chapter 2: The Global Idea [3:52]
NARRATOR: No economic idea has shaped the era of globalization more profoundly than a belief in free, open
markets. Free trade has been a fundamental tenet of capitalism for over 200 years. But in the 1990s, the global
market created a new reality that no government, no politician could afford to ignore.
52

Our story begins in 1992. The global economy was changing rapidly, but America seemed adrift. A recession
had left 10 million workers unemployed. Industries struggled against intense foreign competition. Europe had
formed a single trading bloc. Japan looked invincible. Japanese companies were buying up American icons,
like Rockefeller Center and Universal Studios.
In the 1992 presidential campaign, Arkansas governor Bill Clinton claimed he could get America back on track.
He drew crucial support from America's labor unions and seemed to promise workers' protection against global
competition.
BILL CLINTON: Look at what our competitors do. Look at what Japan does. Look at what Germany does. We
have to keep investment at home so jobs don't go offshore.
WORKER: You'll stand up against the good old boys to do that?
BILL CLINTON: Absolutely. What's the good of having a country if you're going to let it go down the drain?
WORKER: I don't know. Why have we been doing that?
NARRATOR: But at a meeting with Wall Street financiers, Clinton had discussed a different agenda, an agenda
some of his core supporters adamantly opposed. Financial markets wanted to rein in government spending,
cut the deficit, and embrace free trade. Without these policies, they thought America's economy wouldn't
recover. Over dinner in an exclusive restaurant, Clinton tried to persuade some of Wall Street's most seasoned
executives that he saw the world as they did.
ROBERT RUBIN, Co-chairman, Goldman Sachs, 1990-1992; U.S. Secretary of the Treasury, 1995-1999: My
view was that the threshold economic issue for our country was to restore fiscal discipline after a long, long
time during which fiscal discipline had eroded.
Onscreen caption: The U.S. government was $4 trillion in debt.
BILL CLINTON: I could see that Rubin and the others that were there in this rather dark place where we had
dinner at night were kind of looking and saying, "Well, you know, can this guy from Arkansas be president?
Could he possibly know enough about the economy to do it?"
ROBERT RUBIN: After that meeting I thought to myself that this was a man who cared about what I at least
thought we needed to care a great deal about. Now, on the issue of trade, he clearly believed in trade
liberalization, and that clearly has been a dividing line in the Democratic Party. It was then, and it is now.
Chapter 3: NAFTA: The First Test [5:28]
NARRATOR: Trade became an issue in the 1992 presidential campaign. Republican president George Bush
had negotiated a treaty that would allow unrestricted flows of trade and investment between the U.S., Canada,
and Mexico.
Onscreen title: NAFTA: North American Free Trade Agreement
For its supporters, trade embodies an idea: that open markets create wealth, bind nations together, and help
construct a more prosperous -- and a more secure -- world. NAFTA put that idea to a political test. In America,
it was the first great debate of the globalization era.

53

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 bluecollar 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.
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NARRATOR: Sixty percent of congressional Democrats voted against NAFTA. It passed only with Republican
support.
Chapter 4: Crossing Borders [3:30]
Onscreen caption: Tijuana, Mexico
After NAFTA became law, thousands of foreign companies built factories in Northern Mexico, exporting goods
to the American market just a few miles away. Eighty percent of all televisions sold in the U.S. are now made
here. Nearly a million workers found new jobs along the border in Northern Mexico.
MARIA ISABEL, Factory Worker, Tijuana, Mexico: I have two children. In the South I didn't have a job and
couldn't give my children what they need. I left them behind with relatives and came here to find work. I found a
job in a television factory. I earn enough to send some money home to my children. I couldn't do that before.
JORGE CASTANEDA, Foreign Minister of Mexico: This is a country of about over 100 million people. There is
no question that those 10 to 12 million people who live in the North and the border area are not doing badly by
Mexican standards. And it has become more industrialized, with more jobs, higher wages, better social
indicators, etc. The North has benefited undoubtedly. The people in the South are doing very badly by
Mexican, or by anybody's, standards.
NARRATOR: Forty percent of Mexico's population lives in poverty. Mexico's embrace of NAFTA and free trade
was part of a broader change in thinking within developing countries. Their governments increasingly saw open
markets as the key to economic growth.
VICENTE FOX, President of Mexico: I worked 15 years for Coca-Cola. I started as a route salesman. I started
right from the bottom. And I learned that discipline, that hard work, that talent is the way to succeed. I have
always seen globalization as an opportunity. Just the trade agreement with the United States has moved our
total trading, which was six years ago US$40 billion, today is US$280 billion in just six years. Nobody loses.
Everybody can win.
THEA LEE: Obviously trade has increased; investment has increased. And if the only metric you use to
measure whether NAFTA has been a success or not is the volume of trade, then NAFTA is tremendously
successful. And yet most normal working people, most normal citizens don't watch the volume of trade.
Companies have been more aggressive and threatening to move production to Mexico. They've succeeded in
bargaining down wages and opposing unions. And so in a lot of different fronts we think that NAFTA has shifted
the balance of bargaining power in the continent of North America towards multinational corporations.
NARRATOR: Since NAFTA came into effect, about 400,000 American jobs have been "adversely affected" by
trade with Canada and Mexico, according to the U.S. government. Exports to these countries have created
more than a million new jobs, and over the '90s, global trade nearly doubled.
Chapter 5: The Global Market [3:48]
NARRATOR: We tend to think of trade as products and goods moving across borders. In fact, the biggest trade
of all can't be seen. It is money, the continuous, 24-hour worldwide flows of stocks, bonds, and currencies. In
the 1990s, practically anyone with savings in a pension or mutual fund became an investor in the global
market.
Onscreen caption: Trade in goods and services: $8 trillion
Trade in currencies: $288 trillion
DANIEL YERGIN: I was at a dinner, a so-called thinkers' dinner at the White House before one of the State of
55

the Union addresses, and there's this great discussion among all the people around the table about markets,
about "them out there," that it's somebody different. Finally I raised my hand and said: "With all due respect,
the market isn't just them; it's us. It's our aggregated retirement savings; it's our pension plans. That's what the
markets are."
Onscreen caption: Sacramento, California
NARRATOR: The state of California runs one of America's largest pension funds. The fund, known as
CalPERS, manages the retirement savings of over a million state employees.
Onscreen caption: CalPERS
California Public Employees' Retirement System
Assets: $150 billion
For decades, CalPERS invested only in America. But in the era of globalization, that changed. A quarter of its
money was invested overseas. At one point, CalPERS controlled 5 percent of France's entire stock market.
French television sent a crew to investigate.
MARY COTTRILL, Principal Investment Officer, CalPERS: They were filming in my office, and I had a salad on
my desk because it'd been just a very hectic day. We were talking about some figures on my computer, but
they kept filming this salad, and I got the feeling that, you know, the story was going to be, "The Americans are
coming, and they're going to ruin the French way of life. We're all going to be eating salads at our desk and
working 12 or 14 hours," which, of course, is not true at all. But I think it was just a fear, I think, that we've see
in the news that globalization means Americanization.
NARRATOR: Pension funds became the powerhouses of the global economy because they had the money.
BILL CRIST, President, CalPERS: Because the world is getting smaller and smaller, as we say, and the growth
of the global economy, as we say, this is... The real source of change in today's world, whether anybody likes it
or not, increasingly are large pension funds.
Onscreen caption: Americans have $11.5 trillion invested in pension funds.
INVESTOR: I have some of my own mutual funds overseas, and they seem to be doing pretty well right now.
INVESTOR: I think with respect to CalPERS, they have a fiduciary responsibility to seek those markets out and
get the best return for their shareholders.
INVESTOR: We can't keep everything in the United States. You keep things in the United States, it's still not in
the United States, because so many companies are global. Everything is global; everything is interconnected.
Chapter 6: Emerging Market Hunters [5:01]
NARRATOR: With the end of the Cold War, many nations opened their markets to foreign investment for the
first time. Funds like CalPERS saw new opportunities and hired money managers to scour the Third World,
now renamed "emerging markets."
Onscreen caption: Mark Mobius
Templeton Emerging Markets Fund
56

Travels to 15 countries per month

Manages $6 billion
MARK MOBIUS, Manager, Templeton Emerging Markets Fund: The whole rationale is that these emerging
countries grow faster, so what we're trying to do is capture that growth, and of course make money for
investors. But of course the risks are very great, because there's no free lunch. If you want to capture that
growth you've got to take many more risks. So there's a balance, and of course it's our job to try and minimize
the risks and maximize the returns. It doesn't always work out that way, but that's the objective.
NARRATOR: As investment flowed around the world, the Clinton administration expanded the trade agenda it
adopted with NAFTA. The U.S. encouraged developing countries to continue opening their economies to the
global market.
BILL CLINTON: I favored a very aggressive policy. I thought the emerging countries -- both emerging
economically and those that were new democracies -- had a better chance to do well economically and
politically if the wealthier countries opened our borders and made trade agreements with them, and if in turn
they opened their borders not only to trade, but to investment. I thought that economic policy and traditional
foreign policy would tend to merge.
LAURA TYSON, Chair of the U.S. National Economic Council, 1993-1995: This is how it worked. If you go
back to the first term, a lot of the international approach of the administration on economic issues was to break
down barriers to U.S. firms. We are going to engage our trading partners and encourage, cajole, or convince
them to bring down their barriers.
NARRATOR: Many developing countries had been colonies of the West. Although they now wanted long-term
foreign investment, some saw fast-moving flows of money as a new threat to their independence.
MAHATHIR BIN MOHAMAD, Prime Minister of Malaysia: Once communism was defeated, then capitalism
could expand and show its true self. It's no longer constrained by the need to be nice, so that people will
choose their so-called free-market system as opposed to the centrally planned system. So because of that,
nowadays there is nothing to restrain capital, and capital is demanding that it should be able to go anywhere
and do whatever it likes.
NARRATOR: Some called it "the triumph of capitalism." During the 1990s, more countries than ever adopted
market economics.
As an economics professor, Bill Crist had taught a course comparing Marxist and capitalist theory. As president
of CalPERS, the California state pension fund, Crist came to believe that only open markets could ensure
global stability.
BILL CRIST: If we don't reach out to these emerging markets, if we don't be evangelists, if you will, and try to
encourage them to reform and invest some of our capital funds into these markets, taking advantage of those
opportunities, if we don't do that, I'm afraid that some of the predictions that were made a long time ago by Karl
Marx and Mr. Engels and others [will come true, and] that there will indeed be a confrontation between the
haves and the have-nots that can bring the entire system down.
Chapter 7: Averting a Meltdown: 1994 [4:56]
Onscreen caption: Mexico, January 1994
NARRATOR: The very day NAFTA came into effect, Zapatista rebels launched an uprising in Southern Mexico.
Shortly afterward, the leading presidential candidate was assassinated.
Worried about stability, foreign investment began to flee. The global economy was about to face a new kind of
57

crisis.
Onscreen caption: Washington, December 1994
ROBERT RUBIN: Christmas vacation, I was fishing down in the British Virgin Islands, and Larry Summers
[U.S. Secretary of the Treasury, 1999-2001] called me, and he said, "There's some problems in Mexico I'd like
you to know about." And I thought to myself that it was nice of Larry to call on the one hand; on the other hand
I'm on vacation, and, you know, Mexico today, it'll be some other country tomorrow, and I don't know why this
can't wait till I get back. Well, it turned out that this was not just another country. It was a very, very serious
matter.
NEWT GINGRICH: I was at a restaurant, and they came and said, "The secretary of the Treasury is on the
line," and I got on the line, and he said: "Greenspan and I have a problem. (laughs) And we believe if we don't
move very decisively that the Mexican peso will implode. If it implodes, the Mexican government will become
very unstable, and we believe you could have a wave of five to nine million people walking north to find jobs."
ROBERT RUBIN: He understood it very quickly, and I remember his saying, "This is the first financial crisis of
the 21st century."
NEWT GINGRICH: I said to him, "This is the first real-time, worldwide financial crisis of a kind that will become
very normal." And so I said, instinctively, "I'll back you."
Onscreen caption: Robert Rubin called an urgent meeting at the Treasury.
Mexico was about to default on its foreign debt.
ROBERT RUBIN: It was fascinating, because we had Mexico, which we really did think was facing default, and
we had enormous political problems accomplishing what we felt we needed to accomplish to support Mexico,
to try to prevent this from happening, and we all knew that while we believed the program we were
recommending was right, there was some risk it wouldn't work.
LAURA TYSON: You go in and say to the president: "Here is a big crisis that could happen. We can tell you
something to do about it. We can't tell you it's going to work. It's very risky, and we know it's extremely
unpopular, but we think you should do it anyway."
Onscreen caption: The president's advisors recommended a loan package to Mexico: $50 billion.
BILL CLINTON: Somewhere between five and 10 minutes I listened to all of this. I say: "Well, this is a 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
58

signaled to banks and other rich investors that the U.S. Treasury at that time was going to adopt a bailout
policy. People who take risks should bear those risks. They got the reward for them; they should take the
downside.
NARRATOR: As the Mexican crisis made clear, technology had transformed financial markets: Money could
literally be moved across borders in seconds.
Chapter 8: The Global Village [6:47]
NARRATOR: During the 1990s, technology, too, leapt over national borders, spreading commerce and ideas.
DANIEL YERGIN: It's hard to believe that at the beginning of the 1990s, e-mail was virtually unknown; most
people didn't have it. And a decade later it was everywhere, and it would just become part of people's lives.
And so this communications network is so powerful. The price of telephone calls plummeted. The number of
telephone calls around the world skyrocketed. And people are in contact and connected in a way that had
never happened before.
NARRATOR: In two decades, the number of international phone calls from the U.S. increased from 200 million
to 5.2 billion.
This AT&T control center handles 300 million calls each day.
Americans were often connected to the developing world without even knowing it. Consumers checking their
credit-card balance could be routed seamlessly to call centers like this one in India, where operators identify
themselves with made-up American names.
OPERATOR, Call Center, India: Good evening. My name is Tracy. How can I help you?
NARRATOR: In a remote Indian village, farmers took their crop to market as they had for generations, But an
Internet connection ensured they were now paid the world price for their crop, a price set at the Chicago
Mercantile Exchange 8,000 miles away.
This borderless world created a new kind of businessperson. Entrepreneurs could now think like multinationals,
and see the entire world as a single market. Narayana Murthy understood this revolution earlier than most.
NARAYANA MURTHY, Founder and CEO of Infosys Technology: We were all children of a different generation.
We were all mesmerized by the charisma of Nehru. Nehru believed in central planning; Nehru believed in
socialism. But then I realized that if you want to eradicate poverty, you don't do it by redistribution of existing
wealth; you have to create more wealth. And that's when I got somewhat disillusioned by the socialism as is
practiced in India.
NARRATOR: With only $250, Murthy helped found a computer software company. His headquarters in
Bangalore became the world's second largest software campus. Only Microsoft's was bigger.
Thirty percent of the world's software engineers are from India.
NARAYANA MURTHY: You know, I define globalization as producing where it is most cost-effective, selling
where it is most profitable, sourcing capital from where it is without worrying about national boundaries.
Onscreen caption: Silicon Valley, California
NARRATOR: People as well were becoming increasingly mobile. America relaxed its immigration laws,
attracting a huge influx of high-tech workers from across the developing world.
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PROGRAMMER, Silicon Valley: This is the land of opportunity. This is the place; this is the happening place,
so many people come here.
PROGRAMMER, Silicon Valley: This is a place of opportunity. We get a chance to prove ourselves. We get a
chance to prove ourselves, to show our skills.
Onscreen caption: Two hundred thousand Indians found jobs in Silicon Valley.
NARRATOR: In many ways, Silicon Valley was the spiritual center of the new global village -- the source not
only of its technology, but of its entrepreneurial ethos.
The Draper family had invested in entrepreneurs since the 1950s, when they brought venture capital to Silicon
Valley. In the early '90s, Bill Draper's son Tim funded Hotmail. Its instant global success convinced him that the
world was fundamentally changing.
TIM DRAPER, Venture Capitalist: We knew the Internet was going to change the whole way the world worked.
You could do commerce; you could do communication; you could do all these things over the Web. India and
Africa, Pakistan, China had all been trapped, and they were not really participating in the world economy. They
could now. They could because now they could communicate with the rest of the world through this Internet. It
was a big opportunity, and we saw it; we jumped on it.
I think entrepreneurship can happen anywhere. All it takes is someone with a vision and an idea for how to do
something better.
NARRATOR: One of the Drapers' best investments was in David Lee, the first foreign-born American to take a
high-tech company public.
DAVID LEE, Entrepreneur: When we came over we had nothing -- $600, 20 kilos of clothes. And this society
provided, gave us opportunity and everything.
CECILIA LEE, Wife of David Lee: Being an entrepreneur sounds very good, but being a spouse is very difficult,
because most of the time he's traveling or he's not home. I raised my three children by myself. And sometimes
he doesn't remember how old they are.
NARRATOR: David Lee manufactures high-end telephones. He embodies the new breed of global
entrepreneur.
CECILIA LEE: Don't eat too much.
Chapter 9: China and the Tigers [5:35]
NARRATOR: In the early '90s, David Lee returned to his homeland for the first time in over four decades.
Onscreen caption: Shanghai, China
DAVID LEE: I was always afraid to go back to a communist country. I was born in Beijing, actually right in
Tiananmen Square. And we left there after the revolution in 1949. We were very lucky we were able to leave
the country. We were like the boat people on top of a cargo ship. We left everything. The only thing [we had] is
whatever we could carry.
This is a free-trade zone. Anything you do in here you don't have to pay tariff, or you can build the thing and
60

then ship it out for export purposes.

NARRATOR: David Lee set up a joint venture in a free-trade zone near Shanghai. Lee saw firsthand a China in
the midst of epic economic transformation.
China's Communist leadership had embraced markets and welcomed hundreds of billions of dollars of foreign
investment. Almost one-quarter of the world's population was entering the global market for the first time.
Onscreen caption: Economic reforms lifted 300 million Chinese out of poverty.
In villages across China and throughout the developing world, people left their rural homes. They traveled to
industrial towns, seeking work in new factories built to serve the global market.
The era of globalization saw the largest wave of human migration in history. Eighty percent of the world's future
economic growth is expected to occur in cities rather than the countryside.
LIN SHENGXIN, Factory Worker, China: I was a schoolteacher in the countryside. At that time I only earned
100 a month. My parents are both farmers, so we lived a very poor life. But now I'm earning 3,000 a month. My
life is totally different. My child is going to school here, near the factory. So we are living a much, much better
life now.
Onscreen caption: Singapore
NARRATOR: China's leaders hoped to emulate the "tiger economies" of Southeast Asia, where trade and
investment had transformed once-impoverished nations.
LEE KUAN YEW, Senior Minister of Singapore: When the British came here in 1819, they found a fishing
village of about 120 people. When the empire broke up, everybody wanted to do their own trading, and we
could easily have withered on the vine. So we just had to make ourselves relevant to the world. And the
countries that make themselves relevant become better off; their people become better off. Those who opt out,
they suffer.
NARRATOR: Since the 1970s, the countries of Southeast Asia had become became world-class exporters,
shipping everything from cars to computers across the globe.
DANIEL YERGIN: They called it the Asian economic miracle because the world had not really seen that kind of
economic growth, that many people brought out of poverty, that rapid a creation of a middle class so quickly
anywhere in the history of the world.
NARRATOR: By the mid-90s, many Asian economies were growing at the astonishing rate of 10 percent or
more each year.
LEE HSIEN LOONG, Deputy Prime Minister of Singapore: There was a tremendous confidence and hope that
this was the Asian century, and the place was being transformed, and you just had to put money there and it
would grow on trees.
DANIEL YERGIN: I remember the CEO of one major company in about 1995 or so saying, "If we're not
investing in Asia tomorrow, we're too late."
Chapter 10: The Japanese Paradox [3:01]

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Onscreen caption: Tokyo, Japan

NARRATOR: Yet there was one big exception. Japan, the world's second largest economy, had fallen into a
deep, unexpected slump that shook the confidence of its people.
KAORI MARUYA, Parliamentary Secretary for Foreign Affairs, Japan: Japan was in the so-called bubble
economy, and at that time the Japanese people were not very careful about debt. After the collapse of the
bubble economy, people came back to reality and came down from their dreams.
Onscreen caption: Japanese banks hold $1 trillion in bad debts.
NARRATOR: Japan's economy once looked unstoppable, but it was slow to adapt to the rapid changes of a
fast-moving, interconnected world.
EISUKE SAKAKIBARA, Vice Minister of Finance, Japan, 1997-1999: Japan is a very sort of parochial and very
closed economy; there's no question about it. Walk around the Japanese cities, you don't see many
foreigners.
NARRATOR: Japan, the great exporter, protected its domestic industries. At the heart of the country's
economic problems lay a contradiction.
EISUKE SAKAKIBARA: One sector of the Japanese economy is an export-oriented sector which is highly
competitive, consisting of Toyotas and Sonys. And the other is domestic manufacturing sector which is
extremely uncompetitive. We have a market-oriented capitalistic system on the one hand; we have a very
socialistic, egalitarian sector on the other.
NARRATOR: In Japan, government bureaucrats managed a highly regulated economy. As Masahisa Naitoh
was to learn, ideas about change met with profound skepticism.
MASAHISA NAITOH, Ministry of Trade and Industry, Japan, 1961-1993: I wanted to deregulate our financial
system. The new global markets of the 1990s created a new reality. I said we had to change for Japan to thrive
in the new world economy. My colleagues in the government criticized me. They said that it was in the best
interest of Japan that my ideas be destroyed.
NARRATOR: Naitoh was fired without warning. Japan stuck to its old ways, and the nation's economic slump
continued. For the first time, an Asian "economic miracle" was in trouble.
Chapter 11: Global Contagion Begins [7:55]
Onscreen caption: Bangkok, Thailand
By early 1997, Southeast Asia's rapid economic boom was overheating. Sirivat Voravetvuthikun was one of
many who thought the good times would never end.
SIRIVAT VORAVETVUTHIKUN, Former Real Estate Developer, Thailand: Ever since I was a child, I have been
wanting to be a multimillionaire. I wanted to be rich. I wanted to do something that no one has done -- build a
luxurious condominium. I knew a lot of rich people and multimillionaires would like to take time off to play golf,
to enjoy the fresh air in the mountains, which you cannot find in Bangkok.
I looked at the golf course. It's designed by Jack Nicklaus. I put my effort into making it one of the most
beautiful condominiums in Thailand. Still today, with the mountains in the background, with a fairway and a
lake in front of the condominium, it's really beautiful.
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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.
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The bubble had burst. The Asian financial crisis was about to begin.
SIRVAT VORAVETVUTHIKUN: When the crisis hit, I realized my fate. I could not sell a single unit when the
crisis hit.
My condominium is called the American dream home, dream condominium. But we are broke. Even my clients
who were multibillionaires are broke also.
NARRATOR: The economic shock reverberated throughout all levels of Thai society.
PANJIT NIYOMDET, Factory Worker, Bangkok. Thailand: When the economy went bad, my husband's salary
was cut 30 percent. I was lucky; I kept my job, but I didn't get a raise. To support our family, my husband had to
find other work.
NARRATOR: The cost of living was rising. Everything was going up -- water, electricity, even soap. But the
salaries were staying the same, or going down.
With its economy in a virtual free fall, Thailand received an emergency rescue loan from the International
Monetary Fund. When that didn't work, the Thai government asked Washington for even more help.
No one imagined that an economy as small as Thailand's could spark a global crisis.
Chapter 12: Contagion Engulfs Asia [7:13]
LAURA TYSON: Thailand is a very small economy. It didn't have a lot of links, and it's not exactly in your
backyard. So in any event, the U.S. chose not to intervene in Thailand, thinking it was not going to spill over.
Why would it? The contagion effects were not apparent to anybody, not just the administration.
LEE HSIEN LOONG: I think they misjudged the situation. They misjudged the situation, probably because it
was seen too much as a financial issue rather than an overall strategic issue.
NARRATOR: Global markets worried that other Asian countries might have similar hidden flaws. Like a classic
run on the bank, money began to pull out of the entire region. They called it contagion.
Onscreen caption: $116 billion flowed out of Southeast Asian markets.
DANIEL YERGIN: And at each stage, the crisis turned out to have a virulence that became known as
contagion, much greater than anticipated. And what that really reflected was indeed globalization, was the way
these economies had become locked together and investors looked at emerging markets. They said there was
a problem in Thailand; well, then there's a problem in these other countries. And so each step of the crisis
created these shock waves that carried on into the next.
Onscreen caption: Kuala Lumpur, Malaysia, July 1997
NARRATOR: Contagion spread to Thailand's neighbors. Malaysia's economy had seemed stable. Suddenly, it,
too, was facing relentless pressure from global markets.
MAHATHIR BIN MOHAMAD: We have the currency going down and down and down, and we have the stock
market doing the same. The index kept on going down, no matter what we do. And we felt totally helpless. We
felt that there was no way we could recover. So, I mean, the feeling was very bad, very frightening.
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Onscreen caption: Jakarta, Indonesia

NARRATOR: Contagion next hit Indonesia, the most populous country in the region. Its government collapsed;
its cities descended into chaos.
LEE KUAN YEW: The fund managers didn't know the difference between Indonesia and Malaysia, Thailand,
Singapore. They just said, "I want out." Property prices collapsed; companies collapsed. And in the case of
Indonesia, the social fabric collapsed. Churches have been burnt; mosques have been attacked; they have
killed each other. This will take years to heal. And it's all the fallout of an economic collapse.
NARRATOR: This was a new kind of financial crisis, unlike anything the International Monetary Fund had ever
encountered. The IMF organized huge loans for Indonesia and other Asian nations, on the condition they cut
government spending, raise interest rates, and eliminate corruption.
STANLEY FISCHER: You're the doctor going in to deal with a very sick patient. The public blames the doctor
for the fact that the patient is sick, but the patient was sick to begin with. But these things are societally
wrenching, and there are huge vested interests, and you wouldn't get into these crises if the vested interests
weren't that important. That I think is why it takes political change to deal with a crisis as big as this.
NARRATOR: To some of the region's entrenched leaders, the IMF's conditions smacked of a new kind of
colonialism.
MAHATHIR BIN MOHAMAD: Presently we see a well-planned effort to undermine the economies of all the
Asian countries by destabilizing their currencies.
In the old days you needed to conquer a country with military force, and then you could control that country.
Today it is not necessary at all. You can destabilize a country, make it poor, and then make a request for help,
and for the help that is given, you gain control over the policies of the country, and when you gain control over
the policies of a country, effectively you have colonized that country.
NARRATOR: The market forces were simply too powerful for the IMF, or any government, to contain. In late
1997, contagion reached Korea, one of the most successful economies in the world.
EISUKE SAKAKIBARA: It was unbelievable that the crisis had spread as quickly as to Indonesia and Korea,
and within a matter of six months or seven months. But the world was much globalized that we thought it was
at that time.
Onscreen caption: Seoul, Korea, December 1997
ROBERT RUBIN: In the last week of December of 1997, the 11th largest country -- economy, rather -- in the
world, which was Korea, had roughly speaking $4 billion of reserves left and was using reserves at the rate of
$1 billion a day. Well, it didn't take a great deal of quantitative insight to see that that was not a long-term viable
situation.
NARRATOR: Korea had been misleading the world, claiming it had enough money to withstand the crisis. The
IMF's Stanley Fischer arrived in Seoul to inspect the Central Bank's accounts.
STANLEY FISCHER: I visited Korea a couple of days before they turned to the IMF for help, and it was a
circus atmosphere. It was a state of panic, and it was at that point that I went to the Central Bank and was
shown how much money was left in the Korean Central bank. It was essentially all gone.
NARRATOR: Korea was about to default on its loans from Japanese and Western banks. Pressured by their
65

governments, the banks agreed to share some of the pain: They rolled over their loans. Korea was then given
the largest bailout in history.
Onscreen caption: Korea received $55 billion in new loans and credits.
LEE HSIEN LOONG: If they had done that in Thailand, I think that they would have not only avoided some
economic problems, but I think that a sense in Southeast Asia that the Americans were really on the side of
putting things right would have been stronger.
Chapter 13: Russia Defaults [2:31]
WILLIAM McDONOUGH, President, Federal Reserve Bank of New York: Then a very, very strange thing
happened. From about the first of February until the beginning of August, there was a period in which financial
markets essentially decided that risk didn't exist anywhere.
Onscreen caption: Moscow, August 1998
NARRATOR: Markets thought contagion had been contained in Asia. Investment flowed elsewhere. Some
came to Russia, where the Moscow stock market was the best performing in the world. But economic reforms
had stalled, and Russia was heavily in debt. Even so, investors were convinced they'd found an emerging
market that couldn't fail.
WILLIAM McDONOUGH: Investors had decided Russia is an ex-superpower; it has lots of missiles and lots of
atomic warheads -- certainly you could not have a financial accident in Russia, because the rest of the world,
the rich countries, would bail Russia out. Well, it turned out that that was wrong.
NARRATOR: Russia defaulted on its debt. Its currency plummeted. Global investors were stunned.
WILLIAM McDONOUGH: All these people who in the previous seven months had decided there was no risk
anywhere literally panicked and decided there's got to be massive risk everywhere. Behind each fence and
barnyard wall there must be a risk that we hadn't though of, you know, like the redcoats retreating from
Lexington.
NARRATOR: Everywhere, markets were freezing up. The economic crisis seemed to have taken on a life of its
own.
ROBERT RUBIN: I thought at the time that I had a pretty good sense of what was going on. But what I didn't
know, and nobody could possibly have known, was not what was going on at the moment that you were
looking at, but what was going to happen at the next moment.
RICHARD GEPHARDT, Democratic Leader, U.S. House of Representatives: When you get in a room with both
Alan Greenspan and Robert Rubin and they say they're scared to death, and they've never seen anything like
this, and they're worried about whether they can get through it, I get worried, because they know a heck of a lot
more about it than I do. You had the contagion sweeping across the developing countries. As Rubin said, we'd
never seen that before. I mean, maybe in the Depression they saw that over a period of time, but nothing
happened that quickly.
Chapter 14: The Crisis Reaches America [7:07]
NARRATOR: Now the crisis had reached America. A little-known but powerful private investment fund was on
the brink of bankruptcy.
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Long Term Capital Management, or LTCM, directly controlled $100 billion of global assets and, indirectly, more
than a trillion dollars.
JON CORZINE, Co-chairman, Goldman Sachs, 1994-1999: The '90s saw a huge buildup in concentrations that
we had never seen on a global scale. Maybe we had way back in history. Maybe the Romans had financial
institutions that were disproportionately large to the overall activity of the world that they operated in, but LTCM
was a specific type of hedge fund. They were involved whether it was the Singapore exchange, the Tokyo
stock exchange, the London stock exchange, the New York. There was no market that they weren't [involved
in] -- maybe the largest player, or close to the largest player.
NARRATOR: By September 1998, LTCM's losses were spiraling out of control. Contagion had arrived on Wall
Street. Incredibly, the failure of this single investment fund threatened the entire global economy.
DANIEL YERGIN: If LTCM went down, it would be just the gears, the machine just stopping, the economy not
working. And of course it's not just what's on the balance sheet of banks and so forth, but that would translate
into people not working, businesses not operating, small businesses not being able to get their capital they
need. And this in a global economy. It was almost inconceivable to see what the picture was, but it was sort of
just not working, and people just not working.
NARRATOR: The New York Federal Reserve summoned representatives of major U.S. and European banks to
an urgent meeting. Jon Corzine, then at Goldman Sachs, was among them.
JON CORZINE: The real problem of Long Term Capital was nobody really understood all the downsides. All
one knew was it was going to be extraordinarily dangerous to enter into that. And everybody, I think,
understood the Fed's concern that that had real implications to the real economy.
NARRATOR: Since LTCM was a private fund, the government could not impose a solution. The fate of the
global economy was in the hands of these bankers.
WILLIAM McDONOUGH: The head of a securities firm or a bank is not paid to be a patriot. He or she is paid to
serve the best interests of the shareholders, so the most that one could do in a position like mine is to say the
public interest may well be served by Long Term Capital Management not failing, but there is no public-sector
money to solve the problem. The taxpayer is not going to do this. You folks have to decide whether it's in your
interest to do it.
NARRATOR: The banks agreed to put up their own money to rescue LTCM. Wall Street had averted disaster,
but the global crisis had one final chapter to go.
Onscreen caption: Rio de Janeiro, Brazil, December 1998
What had started in Asia now reached Brazil, the eighth largest economy in the world. But this time, a loan
package was put in place early. Brazil's government cut spending and enacted reforms.
It worked. Brazil's problems were contained. Global financial markets gradually returned to normal.
ROBERT RUBIN: Well, and it's not clear when you would say it ended, but what happened was that the
countries that actually took ownership of reform -- Korea, Thailand, the Philippines, Brazil -- began to
reestablish stability in their financial markets, and their economies started to recover. And after a while there
came a point we began to feel, "Well, maybe we're past the crisis." Then a little bit past that we said, "You
know, it does look like we are past the crisis." And finally we got to the point where we said, "Well, we think this
is over."
NARRATOR: The world economy had survived the first crisis of the globalization era, but millions of ordinary
67

people had paid the price.

ANAND PANYARACHUN: And that's the unfortunate part of so-called globalization, because such negative
effects can be totally responsible, can come very fast. It takes decades for a country to grow up to a certain
level, and all of a sudden it disappears.
SIRIVAT VORAVETVUTHIKUN: We've been a poor country, so we never tasted richness. When we tasted the
richness, we wanted more, being greedy. I blame myself also; I never had enough.
Yeah, it's quite a view, and I really feel bad because no one can enjoy it now. It's all left to the bank. Nice
fairway and nice lake. It's so sad.
I had a big dream and couldn't achieve it. That's why I am today standing selling things for two hours. But after
four years of struggling, at least I know I have a chance. Today my big dream is to be McDonald's of Thailand,
because selling sandwiches on the streets, now I've developed a new Japanese sushi. I use Thai brown rice. I
am the first in Thailand. So hopefully in the near future I will raise my funds in the local stock market so in the
future I will be McDonald's of Thailand.
Chapter 15: The Global Debate [2:49]
NARRATOR: The global economy rested on institutions that dated back to the end of the second world war.
The contagion crisis proved that the new era of globalization needed new rules.
WILLIAM McDONOUGH: We have to improve the rules of the game. You want the financial system essentially
to be like the shock absorber in a car. When you hit a pothole the car still bounces, but have you ever been in
one that didn't have a shock absorber? If you have a good, strong shock absorber, at least you get through the
pothole and you're still driving in the same direction that you thought you were when you hit it.
LEE HSIEN LOONG: I think the morale is that there are risks to globalization. But in the end there is no
alternative to globalization. So don't let your banks go lend recklessly; don't allow bubbles to get out of hand.
Keep prudent measures, sound economic policies which will inspire confidence and maintain confidence so in
a crisis people will know that you will stay the course and won't panic and be up and off. It's easier said than
done, but these are the principles you have to follow.
LAWRENCE SUMMERS, U.S. Secretary of the Treasury, 1999-2001: We had a close call. And without an
activist international policy, you could have seen perhaps a serious and economic downturn as we'd seen any
time since the Great Depression. And that's why we need to continue to understand the dynamics of financial
crisis better. And that's why especially the United States needs to be prepared to take a lead in working to
contain financial crises.
NARRATOR: For many Americans, the world financial crisis created new unease about the risks of the global
economy.
LORI WALLACH, Global Trade Watch: People sense the instability of it. They get indicators of it, but they
sense it. They get indicators like big meltdowns, like the financial crises in Asia. But they also get indicators of
things like, you know, the local bank which just keeps getting merged and renamed. And like your card does
work, and it doesn't work, and the name keeps changing every three weeks. And you combine that with the
real financial cataclysms like the Asian meltdown, and a lot of people in their everyday life are seeing this sort
of out-of-control scenario very personally. You know, it's out of their personal control.
NARRATOR: For critics like Lori Wallach, this was an opportunity. Together with allies in labor unions, they
began to channel public anxiety into what came to be known as the anti-globalization movement.
Chapter 16: The Battle Joined [5:08]
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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
69

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.
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.
70

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.
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 five-sixths of humanity is what we call the developing world.
It's the vast majority of the world. The gap can be 100-1, 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.
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
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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?
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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.
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.
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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.
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.
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. Anti-globalization activists made the summit
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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.
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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.
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 antiglobalization 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 wellbeing, 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.
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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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