The Commanding Heights (Part 3): The New Rules of the Game  

Vocabulary List

Chapter 1: Prologue [ 6:14 ]

NARRATOR: The attack on America raised so many questions, among them, questions about the dangers of the new world economy. Is terrorism the dark side of globalization?

DANIEL YERGIN, Author, Commanding Heights: Up until September 11, there was a sense that this movement toward globalization really was irreversible. And since then there's been this recognition that things can go in another direction.

NARRATOR: Can our deeply interconnected world deliver prosperity to everyone?

BILL CLINTON, U.S. President, 1993-2001: And that's basically the next big challenge, is making this interdependent world of ours, on balance, far more positive than negative. And the extent to which we do that will depend on whether the 21st century is marred by terrorism of all kinds or whether it becomes the most peaceful and prosperous time the world has ever known.

NARRATOR: This is the story of how the new global economy was born, the story of a century-long battle of ideas to determine who would control the "commanding heights" of the economy -- central governments or free markets.

In the 1990s, a worldwide capitalist revolution fueled the new era of globalization, the greatest expansion of world trade in history.

RICHARD CHENEY, U.S. Vice President: Millions of people a day are better off than they would have been without globalization, and very few people have been harmed by it.

NARRATOR: But with the promise came a debate about the impact of globalization.

GRETCHEN KING, Media Activist, Independent Media Center: And should the world's wealthiest people really dictate how the world's economy is going to run?

NARRATOR: Tonight, the battle over who should write the new rules of the game for the global economy.

GEORGE W. BUSH, U.S. President: Out of the sorrow of September 11, I see opportunity, a chance for nations to strengthen and rethink and reinvigorate their relationships. When nations open their markets to the world, they find in America trading partners, an investor, and a friend.

NARRATOR: We are living through a revolution. The 1990s saw the creation of a new kind of global economy, a single market in which everyone has a stake, but no one has control.

Globalization has brought unprecedented prosperity, but it has also brought crises and risks we are only beginning to understand. It has unleashed a worldwide debate about wealth and poverty, about the "rules of the game" for this new era of globalization.

DANIEL YERGIN: Historians may well say that a new era began at the beginning of the 1990s with the end of the Cold War and the Gulf crises. It was this new era of globalization, of a world being tied together by flows of investment, of trade, of ideas, of culture, of people traveling 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.

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.


Onscreen title: 1992 presidential debate

ROSS PEROT, Reform Party Presidential Candidate, 1992: You have to admit that NAFTA, the Mexican trade agreement, where they pay people a dollar an hour, have no health care, no retirement, no pollution controls, etc., etc., etc., you're going to hear a giant sucking sound of jobs being pulled out of this country.

GEORGE BUSH, U.S. President, 1989-1993: Ross says with great conviction that he opposes the North American Free Trade Agreement. I am for the North American Free Trade Agreement. My problem with Governor Clinton is that one day he says he's for it, the other he wants to make some changes. When you're president of the United States, you cannot have this pattern of saying "I'm for it, but I'm on the other side."

BILL CLINTON: I am the one who's on the middle on this. Mr. Perot says it's a bad deal; Mr. Bush says it's a hunky-dory deal. I say it does more good than harm if we can get the Mexicans to live up to their own labor standards, their own environmental standards, and if we have genuine protection for workers displaced in America .

NARRATOR: Once in office, Bill Clinton's economic policy was aimed squarely at restoring the confidence of financial markets. His first term was dominated by the battle to reduce the deficit.

On trade, the president changed his position, and announced he would wholeheartedly support NAFTA as it stood.

ROBERT RUBIN: President Clinton gave a speech in the East Room at the White House that set out how he wanted to discuss NAFTA with the American people. It was really quite a remarkable speech. He talked about NAFTA in a much broader context. He talked about NAFTA in the context of the rapid changes taking place in the global economy, not only from trade, but from technological development, spread of market-based economics.

BILL CLINTON: This debate about NAFTA is a debate about whether we will embrace these changes and create the jobs of tomorrow, or try to resist these changes hoping we can preserve the economic structures of yesterday. Nothing we do in this great Capitol can change the fact that people can move money around in the blink of an eye. I tell you, my fellow Americans, that if we learned anything from the collapse of the Berlin Wall and the fall of the governments of Eastern Europe, even a totally controlled society cannot resist the winds of change that economics and technology and information flow have imposed in this world of ours.

NARRATOR: To some of his supporters, the president's change of heart on NAFTA was nothing less than a sellout.

THEA LEE, Assistant Director for International Economics, AFL-CIO: The AFL-CIO, the labor movement in the United States, opposed NAFTA as it stood because we saw that as a corporate-dominated trade and investment agreement, one that served the interests of multinational corporations, that improved their flexibility, their mobility, their clout. And at the same time NAFTA did nothing to protect the rights of workers to form unions, to bargain collectively, and to really raise their voices in the political system so that workers could be formidable countervailing power to multinational corporations. I think Clinton did sell out his traditional blue-collar supporters on the NAFTA issue, and a lot of people haven't forgiven him for that.

BILL CLINTON: Our adversaries tried to make it look like the whole American establishment's on one side and the little guys are on the other. And they could, you know, stir that fear factor, and it was a tough sell. It was a tough sell.

NEWT GINGRICH, Speaker, U.S. House of Representatives, 1995-1999: I thought it was the most courageous act of his presidency, and we worked with him very hard. The Republicans in the House provided a much bigger percentage of the votes than the Democrats did.

NARRATOR: Sixty percent of congressional Democrats voted against NAFTA. It passed only with Republican support.

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 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
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 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 no-brainer. We've got to do this. If we don't do this, Mexico will certainly fail. Then the borders will be flooded with illegal immigrants who are starving and need food and a job. We'll have an enemy on our Southern border, people that will remember when they were down and they were in need [and that] we were not a good neighbor, and we will pay hugely for that. All over the developing world, people who look at us and think that we are smug and rich and unresponsive and don't care about anybody else will have all that confirmed. If we help, at least people will know we tried in a good cause, and it will resonate throughout the developing world."

NARRATOR: The bailout worked. Mexico paid back the loan -- early.

For some, the intervention set a dangerous precedent: protecting big investors from risks they had willingly taken.

LARRY LINDSEY, Assistant to the U.S. President for Economic Policy: Remember, the people that got bailed out were foreign holders of Mexican obligations, so in a sense we were trying to bail out our own citizens. But it signaled to banks and other rich investors that the U.S. Treasury at that time was going to adopt a bailout policy. People who take risks should bear those risks. They got the reward for them; they should take the downside.

NARRATOR: As the Mexican crisis made clear, technology had transformed financial markets: Money could literally be moved across borders in seconds.

Chapter 8: The Global Village [ 6:47 ]

NARRATOR: During the 1990s, technology, too, leapt over national borders, spreading commerce and ideas.

DANIEL YERGIN: It's hard to believe that at the beginning of the 1990s, e-mail was virtually unknown; most people didn't have it. And a decade later it was everywhere, and it would just become part of people's lives. And so this communications network is so powerful. The price of telephone calls plummeted. The number of telephone calls around the world skyrocketed. And people are in contact and connected in a way that had never happened before.

NARRATOR: In two decades, the number of international phone calls from the U.S. increased from 200 million to 5.2 billion.

This AT&T control center handles 300 million calls each day.

Americans were often connected to the developing world without even knowing it. Consumers checking their credit-card balance could be routed seamlessly to call centers like this one in India, where operators identify themselves with made-up American names.

OPERATOR, Call Center, India: Good evening. My name is Tracy. How can I help you?

NARRATOR: In a remote Indian village, farmers took their crop to market as they had for generations, But an Internet connection ensured they were now paid the world price for their crop, a price set at the Chicago Mercantile Exchange 8,000 miles away.

This borderless world created a new kind of businessperson. Entrepreneurs could now think like multinationals, and see the entire world as a single market. Narayana Murthy understood this revolution earlier than most.

NARAYANA MURTHY, Founder and CEO of Infosys Technology: We were all children of a different generation. We were all mesmerized by the charisma of Nehru. Nehru believed in central planning; Nehru believed in socialism. But then I realized that if you want to eradicate poverty, you don't do it by redistribution of existing wealth; you have to create more wealth. And that's when I got somewhat disillusioned by the socialism as is practiced in India .

NARRATOR: With only $250, Murthy helped found a computer software company. His headquarters in Bangalore became the world's second largest software campus. Only Microsoft's was bigger.

Thirty percent of the world's software engineers are from India.

NARAYANA MURTHY: You know, I define globalization as producing where it is most cost-effective, selling where it is most profitable, sourcing capital from where it is without worrying about national boundaries.

Onscreen caption: Silicon Valley, California

NARRATOR: People as well were becoming increasingly mobile. America relaxed its immigration laws, attracting a huge influx of high-tech workers from across the developing world.

PROGRAMMER, Silicon Valley: This is the land of opportunity. This is the place; this is the happening place, so many people come here.

PROGRAMMER, Silicon Valley: This is a place of opportunity. We get a chance to prove ourselves. We get a chance to prove ourselves, to show our skills.

Onscreen caption: Two hundred thousand Indians found jobs in Silicon Valley .

NARRATOR: In many ways, Silicon Valley was the spiritual center of the new global village -- the source not only of its technology, but of its entrepreneurial ethos.

The Draper family had invested in entrepreneurs since the 1950s, when they brought venture capital to Silicon Valley. In the early '90s, Bill Draper's son Tim funded Hotmail. Its instant global success convinced him that the world was fundamentally changing.

TIM DRAPER, Venture Capitalist: We knew the Internet was going to change the whole way the world worked. You could do commerce; you could do communication; you could do all these things over the Web. India and Africa, Pakistan, China had all been trapped, and they were not really participating in the world economy. They could now. They could because now they could communicate with the rest of the world through this Internet. It was a big opportunity, and we saw it; we jumped on it.

I think entrepreneurship can happen anywhere. All it takes is someone with a vision and an idea for how to do something better.

NARRATOR: One of the Drapers' best investments was in David Lee, the first foreign-born American to take a high-tech company public.

DAVID LEE, Entrepreneur: When we came over we had nothing -- $600, 20 kilos of clothes. And this society provided, gave us opportunity and everything.

CECILIA LEE, Wife of David Lee: Being an entrepreneur sounds very good, but being a spouse is very difficult, because most of the time he's traveling or he's not home. I raised my three children by myself. And sometimes he doesn't remember how old they are.

NARRATOR: David Lee manufactures high-end telephones. He embodies the new breed of global entrepreneur.

CECILIA LEE: Don't eat too much.