In the 1940s, two prophets made lasting predictions about the future of freedom.

When he first made his mark, James Burnham was a well-bred, well-mannered, neatly dressed, bespectacled young man, a gracious intellectual from a wealthy family—railroad money. He was a star student at Princeton, then at Balliol College, Oxford. In conversation or writing he could move fluently from literature to philosophy to politics.

And young Burnham was an ardent communist. He remained one through most of his thirties, which were also the 1930s. In 1940 he publicly broke with his icon, the exiled rebel communist Leon Trotsky.¹ Burnham still thought democracies like that in America were doomed. But he was developing a different sort of prophecy to explain why.

His first great book, published in 1941 during the Second World War, offered a distinctive and powerful view of future society. It was called The Managerial Revolution. A runaway bestseller, widely discussed on both sides of the Atlantic, the book was translated into more than a dozen languages and made Burnham a celebrity. He followed this success in 1943 with another, The Machiavellians.

Burnham argued that ideologies like “socialism” or “capitalism” were already outmoded. Class warfare was so old-fashioned, so early twentieth century. The more complex societies of the midcentury powers would be led neither by men of great wealth and property, nor by the proletariat. They would be steered by the increasingly efficient dictatorships of the elite managers and technocrats—the planners, administrators, generals, engineers, financial operators, and scientists.

At the height of World War II, as total war demanded total control over all of a country’s mobilizable resources, these predictions seemed to be coming true. Victory, Burnham predicted, would go to the best and most ruthless managerial dictatorships, like those in the Soviet Union, Nazi Germany, or Imperial Japan. They seemed best at warmaking. Burnham expected them to dominate all of Europe and Asia.

As for the United States, which Burnham regarded as a more primitive case of “managerialism,” it was better off just staying out of the war, as doing so would be the only way it could preserve what was left of its democracy. Before Pearl Harbor, Burnham was against American entry into World War II.

However, the United States did join the war. Burnham then elaborated a theory that would blend both democracy and dictatorship. The dictatorship had to limit liberty and the rule of law. There could be no alternative centers of power or independent constraints on core authority that would compromise the dictatorship’s effectiveness. The rulers would do what they had to do; the law would be for everyone else.

Democracy would therefore be largely symbolic, a veneer of democratic forms for the ruling elite. They would hold plebiscites or managed elections to show off public support. Such support would duly exhibit gratitude, even love, as the ruling elite built and sustained a good society. Burnham’s label for his vision was “democratic totalitarianism.”

The dictatorial elite would cement their public support with mass appeals to irrational myths. These could evoke nationalism or nativism, fascist style. Or they could use equality of material wealth, socialist style. Whatever worked.

Burnham freely confessed that the elite rulers, so scientific in their approach to wielding power, also had to “profess, indeed foster, belief in the myths, or the fabric of society will crack and they be overthrown. In short, the leaders, if they themselves are scientific, must lie.” In practice, he observed, “The tendency is for the deceivers to become self-deceived, to believe their own myths.”²

Burnham expected the whole world to fall under the sway of about three managerial “super-states.” He was philosophical about this. It seemed inevitable. Burnham’s characteristic style was stoic pessimism.

Such pessimism was common among the leading political thinkers of the 1940s. Others, like Joseph Schumpeter or Karl Polanyi, also doubted the viability of free societies. Similarly gloomy was Friedrich Hayek, who really believed that once-free countries were on the “road to serfdom.” Burnham took the logic further.³

During and just after the Second World War ended, another prophet decided to challenge Burnham. He is best known as George Orwell, the pen name of Eric Blair.

Orwell was about the same age as Burnham. There the similarities diminish. Orwell was English, not American. He grew up in poverty, not wealth. His formal schooling was just enough to get him a job in the empire’s colonial service, as an imperial policeman. He detested it, quit, and tried instead to make a living as an obscure writer. Tall and lanky, he dressed shabbily. His health was bad. His lungs were rotten and he would not live long.

During the Depression decade of the 1930s, Orwell, like Burnham, was a man of the left. He knew he was against capitalism and imperialism. Acting on his convictions, he (and his new wife) made their way to Spain at the end of 1936. They volunteered to fight for the new Spanish Republic, which was allied with the Soviet Union, in its civil war against the Spanish fascists and their German and Italian allies.

Orwell served on the front lines. He miraculously survived being shot through the neck by a sniper. Recovering, he found himself a target from his own side, running from Spanish communists and Soviet agents. Orwell and his wife barely escaped. “He went to Spain to fight fascism, but instead wound up being hunted by communists.”⁴

Orwell came to hate the distortions of truth that had become so common in the age of extremes. He also hated overweening state power, whatever its ideological guise. He despised the “amoralism” of a good party man who could call abstractly for death and suffering. It was only possible, he wrote, to be that kind of intellectual “if you are the kind of person who is always somewhere else when the trigger is pulled.”⁵

Thus Orwell found Burnham’s work compelling, yet deeply disturbing. He noticed Burnham’s idea that the elites would manipulate myths in order to gain a veneer of democratic consent. Orwell would later make up a word for this deceiving self-deception. He called it “doublethink.”

As Burnham developed his vision of the new superstates and their demigod rulers, to Orwell this seemed like Burnham had surrendered to “a sort of fascinated admiration.” He wrote that Burnham thought that “Communism may be wicked, but at any rate it is big: it is a terrible, all-devouring monster which one fights against but which one cannot help admiring.”

To Orwell, Burnham’s mystical picture of “terrifying, irresistible power” amounted to “an act of homage, and even of self-abasement.” This attitude revealed “a major mental disease, and its roots lie partly in cowardice and partly in the worship of power, which is not fully separable from cowardice.”⁶

This power worship, Orwell thought, “blurs political judgment because it leads, almost unavoidably, to the belief that present trends will continue. Whoever is winning at the moment will always seem to be invincible.”

In his 1941 book, Burnham had predicted Nazi victory. Later, he had predicted the Soviet conquest of all Eurasia. By 1947 he was calling for the United States to launch a preventive nuclear war against the Soviet Union, as the only way to head off the coming disaster.

It was typical, Orwell thought, for “writers like Burnham, whose key concept is ‘realism,’… [to] overrate the part played in human affairs by sheer force.” He was not “wrong all the time.… But somehow his picture of the world is always slightly distorted.”

Orwell thought Burnham underrated the qualities of open and civilized societies. Orwell thought they were more resilient. He also believed in “the fact that certain rules of conduct have to be observed if human society is to hold together at all.”⁷

Orwell’s attacks on Burnham appeared in publications hardly anyone read. So he decided to try and make his case against Burnham in a more indirect and literary way. Orwell had just published his first really successful book in 1945, a fictional allegory of Stalinist communism called Animal Farm. He tried out that form again to make his anti-Burnham argument.

Orwell decided to call his anti-Burnham novel Nineteen Eighty-Four. The novel came out in 1949. As the book’s fame grew, Orwell did not live to see it. He passed away the year after it was published.⁸

The world of the novel, the world of Nineteen Eighty-Four, is Burnham’s vision. There are three superstates: Oceania, Eurasia, and Eastasia. The British Isles are part of Oceania—“Airstrip One.” The superstates conduct an indefinite, unending, small-scale “warfare of limited aims between combatants who are unable to destroy one another [and] have no material cause for fighting.”

The actual fighting involves “very small numbers of people, mostly highly trained specialists, and causes comparatively few casualties.” The superstates fight “on the vague frontiers whose whereabouts the average man can only guess at.… In the centres of civilization war means no more than… the occasional crash of a rocket bomb which may cause a few scores of deaths.” The main fact is that there is a war, a perpetual state of war against perpetual enemies.⁹

The government of Oceania appears to be popular, to the extent anyone can tell. People have enough to eat. They have heroes and enemies. The state subtly, and occasionally not so subtly, guides them. The main character’s job is to rewrite history to accord with the current ruling line, dropping old facts into the “memory hole.”

Obviously, Orwell himself was very uneasy about the prospects for humanity. In 1947, in a nonfiction essay about the future of Europe, he speculated that the world would indeed divide into the spheres of two or three Burnham-type superstates. These would have “a semi-divine caste at the top and outright slavery at the bottom, and the crushing out of liberty would exceed anything that the world has yet seen.” Orwell had written his novel as a dying man’s last warning.

Had Orwell given up hope? He did not place great faith in the United States, a country about which he was ambivalent, a country he had never visited and did not know well.

He did still nurture the hope that somewhere, perhaps in Europe, some states might develop a successful alternative. Freedom would not prevail just because it was right. Being “good” was not good enough. Countries had to show that freedom worked.

The ideas had to work in practice, work so well, so vividly, that history might then flow a different way. Leaders who sought to preserve freedom had to fashion “the spectacle of a community where people are relatively free and happy and where the main motive in life is not the pursuit of money or power.”¹⁰

At the beginning of 1950, when Orwell died, Burnham was a consultant to the CIA. He was giving advice to that new agency’s new office for covert action. That was how he met the young William F. Buckley. The two men had much in common. Buckley too had been against American entry into World War II. He too was preoccupied with the danger of communist tyranny and the rule of elites.

Burnham mentored Buckley. Together, the men became editors of a new magazine, called the National Review, that would become a flagship for the ideas of a generation of American conservatives. Burnham was a major figure at the magazine for decades, usually helming its foreign policy commentary.

Not that his core vision had changed. In 1964 he published another book of prophecy, Suicide of the West: An Essay on the Meaning and Destiny of Liberalism.

In this book Burnham defined “liberalism” in many ways (nineteen criteria and three corollaries). They all boiled down to a belief in human progress, in the possibilities of rational action to make society better, and in the power of truth and reason.

Burnham still did not share these beliefs. He thought his more tragic view of human possibility was more realistic. There was an inevitable struggle for power. Nonrational factors usually held sway. And he thought “the West” would fail.

The West would fail, he argued, because it disarmed itself. Facing Soviet communism, Western “liberalism” would not confront it decisively enough with force overseas. As the “Third World” rose, as less developed countries drained away the West’s power and wealth, again the “liberals” would not use decisive force. They would not confidently defend their superior civilization.

At home, given its ideals about liberty, the West would not crush communist subversion. Facing the challenge of crime in the United States, a growing “anarchy,” again liberals did not have the will to defeat it.

In sum, the Soviet Union and its allies had the will to power. Liberalism and its defenders did not. So, Burnham concluded, “Liberalism is the ideology of Western suicide.”¹¹

The 1970s and early 1980s were a battle about whether Burnham’s dark prevision was right. What about the “alternative” of free societies in which Orwell had rested his dying hopes?

During the second half of the 1960s, protest movements challenged managerial elites all over the world, from Washington to Paris to Prague to Beijing. The established order fought back.¹²

From the start, one of the problems with Burnham’s theories was that they understated or ignored the tendency of tyrants to regard managerial elites, this “new class,” as their enemy, a rival source of authority. In 1937–38, Stalin and his creatures had murdered most of the Soviet civil and military elite. In 1966–69, China’s Mao Zedong organized a populist “Cultural Revolution” against his own country’s managerial elite. He rallied mobs of young Red Guards to overthrow experts of all kinds, at all levels. Planners, professors, or generals—most were humiliated or brought low, if they were not abused to death.¹³

Elite intermediaries between rulers and people, intermediaries to manage the principal “social systems,” had in fact long been a safeguard for liberty, a major source of checks and balances in a stable democratic society.¹⁴ Nonetheless, visions like Burnham’s have thoroughly worked their way into popular culture across the world. It is the vision in all those science-fiction dystopias. Everyone has seen it in the movies or on television, all the stories in which the gilded masterminds rule from their swank towers, video screens, and conference rooms. Indeed, Burnham’s vision, including his vision of state-directed capitalism, seems—much more than anything in Karl Marx—to be the guiding ideological bible for China’s present-day rulers.

During the 1970s, free societies certainly did not seem to be working well. In 1975 a widely discussed report by the Trilateral Commission (representing leaders from the United States, Europe, and Japan) was entitled The Crisis of Democracy. The authors of this prestigious report opened by describing what all their readers were observing every day, a crisis born in the “disintegration of civil order, the breakdown of social discipline, the debility of leaders, and the alienation of citizens.”¹⁵

By comparison, the communist world seemed orderly. It was expanding. Soviet allies extended new beachheads of influence in Africa and Latin America. The Soviet bloc rapidly modernized its military forces. In China, Mao’s death in 1976 seemed likely to bring about a return to a more stable model of Soviet-style socialist rule.

In 1983, when President Ronald Reagan honored the elderly Burnham with the Presidential Medal of Freedom, there was therefore some irony in that award. In that year, Burnham’s gloom about the West might still seem farsighted. To one admiring commentator on his work (writing, coincidentally, in 1984), “the dark prescience of Suicide of the West is profound.”¹⁶

But it was Orwell’s prophetic hope, that future generations might build a compelling and appealing alternative of free societies, that was making a comeback. Few, in fact, spoke more eloquently of such hopes than Ronald Reagan.

Amid trauma and strife, the capitalist West redesigned and rebooted its operating system. The dramatic new thinking in the West and in China emerged in fits and starts, concentrated in a set of choices made between 1978 and 1985. During the mid-1980s the results of those choices started becoming evident to the world.

The new thinking in the West did not fit neatly under any one nation’s agenda or party program. Yet there was a common theme. It was a message of more individual freedom and opportunity. That theme, in essence, was the antithesis of Burnham.

Those who embraced this new thinking pushed to extend individual rights. They trimmed back or scrapped state economic controls. They lowered barriers to the flow of money, people, goods, and services. They lent new spirit and resolve to the denunciation of communist dictatorships.

By the middle of the 1980s it felt like much of Europe and Asia was coming together with a sense of growing confidence. Meanwhile, it was the communist world’s turn to feel that history was leaving them behind.

The “Rights” Revolution

During 1968, as protesters overturned cars in Paris and burned neighborhoods in Washington, DC, the West felt defensive about civil and human rights. Western leaders who claimed that their side clearly stood for liberty would be met with counterarguments about systematic racial discrimination, or police brutality, or oppression in the rule of colonies, or association with vicious right-wing tyrannies in places like Greece or Guatemala. And as the capstone for all the denunciations, there was the omnipresent argument that shadowed all the others: Vietnam.

By the end of the 1970s the dynamic felt different. America’s war in Vietnam was over. European colonies were becoming a thing of the past. Inside the United States, in 1974, the president had been forced to resign for acting as if he was above the law. During the 1970s, the civil rights laws of the 1960s were finally applied countrywide and on a massive scale. A move to amend the Constitution to add an Equal Rights Amendment for women failed, but it did so because the U.S. Supreme Court interpreted another part of the Constitution (the equal protection clause of the Fourteenth Amendment) to provide essentially the same protections.¹⁷ Landmark decisions had transformed institutions, from a case that had rebuffed presidential power to curtail the freedom of the press (the Pentagon Papers case of 1971) to cases changing routines everywhere in the treatment of criminal suspects.

Inside Europe, landmark protections of rights were being extended by national governments as well as by the European Community. Beginning in 1978, the European Court of Human Rights began strongly asserting the rights of criminal suspects, allowing individual petitions (with France finally accepting such jurisdiction in 1981), and in general reflecting a sense of “European standards,” less about economics and more “derived from sociopolitical developments of the more permissive and less patriarchal society that was taking form in many European countries.”¹⁸ Laws that outlawed abortion, for example, became a test of women’s rights and the right to privacy. Such laws were struck down or repealed across the Atlantic world, in the United States (1973), in France (1975), and in Italy (1978).

These changes were not subtle. Elites might also talk about international human rights, but those were not the changes that had a huge cultural impact.

Guarantees of press freedom were very important. What also touched the lives of ordinary citizens was a broader discourse about “rights”—rights against discrimination in private employment, rights of criminal suspects, rights of reproductive freedom. These debates riveted the attention of ordinary citizens everywhere. Comparisons and precedents went back and forth across the Atlantic and then extended across the Pacific and into Latin America as well.

For instance, when governments began banning employment discrimination based on race or gender, moves that started getting applied en masse to private businesses on both sides of the Atlantic during the 1970s, the effects were enormous. Tens of millions of people sought new opportunities.

At one level, these antidiscrimination mandates could be, and were, portrayed as “big government,” authoritarian and antidemocratic, imposed by judicial decrees. Yet the old discriminatory systems had been quite authoritarian too, in a different way. The net effect of the changes was liberating: Power was redeployed to take the side of individual opportunity against institutions that sought, indefensibly, to thwart it.

Some in the West thought all the new rights went too far. Some thought they did not go far enough. But everyone had to acknowledge that some very significant changes were happening in their societies.¹⁹

These changes created a public discourse about “rights” that had greater reach than ever before. So in the early 1970s it seemed natural for Western diplomats, mainly from Western Europe, to insist that any solemn document about Europe’s future, negotiated between East and West, had to include commitments to respect human rights. The Soviet bloc went along with these requirements for the agreement that became known as the Helsinki Final Act of 1975.²⁰

The Soviet government and its Eastern European allies were confident that they could handle any dissenters who seemed to take these “Helsinki” rights too seriously. And when the dissenters did arise, in countries like the Soviet Union or Czechoslovakia or Hungary or Romania, those governments did indeed handle them. The dissidents were jailed and tormented. Neither the Helsinki process nor the dissidents were able to become especially influential in the East bloc.

The net effect was not that communist dissidents were empowered. It was to sharpen the contrast between “West” and “East.” The “rights” revolution dramatized the difference between cultures that did or did not respect individual rights.

Recall that during the 1960s the essential argument of the left in Europe or the United States was not that the Soviet Union and its allies were good. It was not so much that communism was superior. The essential critique had been that both sides were similarly abhorrent. It was that the establishments on both sides were domineering, militaristic rights abusers. It was that ordinary people everywhere were victims.

By the 1980s, in an age full of discussions about rights, now one side seemed to stand far more clearly for individual rights than did the other. By the 1980s, an ordinary citizen in the East bloc who had never heard much about “international human rights” would nonetheless know that in the West there was a lot more talk and emphasis on individual rights and opportunity. Democracy enjoyed a “third wave” of popularity (after the first in the late eighteenth and nineteenth centuries and a second after the Second World War), as authoritarians yielded power in countries like Greece, Portugal, and Spain.²¹

In the West, by the beginning of the 1980s, the cause of human rights was embraced by parties on the right as well as the left, in both America and Western Europe. For the fate of Europe, what was more important were the swings in intellectual opinion in West Germany, in France, and elsewhere in Western Europe.

These trends had slowly been gathering strength through the 1970s and on into the early 1980s. Intellectuals, politicians, and organized movements of young people led a counterattack, a trend (in German, a Tendenzwende) against the old talk of equivalence between East and West. They rallied fresh resolve to oppose a totalitarian enemy.

In December 1973 the Soviet dissident Aleksandr Solzhenitsyn’s massive smuggled history of Soviet slave labor camps, The Gulag Archipelago, had been published in the West. The reviewer of the English translation wrote, in the Guardian, “To live now and not to know this work is to be a kind of historical fool, missing a crucial part of the consciousness of the age.”²²

For Europeans, as for many Americans, the people of Poland were once again a blazing symbol of heroic struggle to the rest of Europe. Economic strains had brought impoverished and desperate workers out into the country’s streets, joined by a Catholic countryside inspired as one of their own, Cardinal Karol Wojtyła, ascended to the papacy as Pope John Paul II in 1978. In 1981 the Polish government finally declared martial law to crush these protest movements, which had sought the right to form an independent union and demand a better life. West Europeans led in denouncing the Polish military rulers and those in the Soviet Union and Eastern Europe who had applauded such repression.

As countries in southern Europe like Portugal, Greece, and Spain shook off their dictatorial regimes in the 1970s and early 1980s, even the establishment figures who took charge in those countries—and these were still men of the old regime—felt the influence of this new current in Europe. The new governments in southern Europe felt that they too had to follow the trend toward individual rights, a riptide drawing their new governments into the work of building democracy.

The identification of the West with “rights” also had a powerful influence on thinkers inside the Soviet Union. For some, who regarded themselves as more cultured and reflective, the “rights” discourse affected the way they thought of themselves, of what it meant to be a civilized European in this era. These reflections visibly affected the way they talked and felt about their personal values and norms of political behavior. After 1985 some of these individuals came into positions of great authority. A perfect example of such an emergent cultivated and thoughtful Soviet couple would be Mikhail and Raisa Gorbachev.²³

Reconstructing Global Finance (But Not Global Trade)

In the West the 1970s were “a decade of crisis.” Economic difficulties were “part of a general sense of meltdown, whether measured in family stability, criminal statistics, or Western military capacity,” the historian Charles Maier recalled. The problems of the decade were “comparable to the earlier period of twentieth-century economic hammering in the 1930s and to the geopolitical meltdown that preceded World War I.”²⁴

What was at stake in this crisis was the viability of the experiment in social democracy. Beginning in the 1930s with New Deal America and experiments in Sweden, and reaching fruition after the Second World War, social democracy answered the critique of capitalism that had emerged during the previous hundred years. Social democracy rejected Marxist socialism and it retained the core elements of a capitalist economic system. But it balanced this core with government commitments to “stabilize the business cycle, provide social insurance, and reserve a central place for organized labor in politics and society.”²⁵

The Cold War economic system in the capitalist world had two basic dimensions: global finance and global trade. By the late 1970s both of these systems were breaking down. The United States had lost the postwar economic dominance to manage the Cold War economic system.

The global financial system had used the dollar, backed by gold, as a main reserve currency (the use of a dollar-gold standard being more flexible than a purer gold standard). The old “Bretton Woods” international financial system, set up in 1944–45, had maintained the stability of the dollar-gold system by prioritizing national control over money. It strictly controlled movements of capital across borders, then fixed exchange rates in relation to gold and American dollars. That system collapsed in 1971. The postwar system of fixed exchange rates among the leading capitalist countries quickly eroded and collapsed too, in 1973. It has never been restored.

What followed this collapse were years of financial instability, alarms, unpredictable exchange rate fluctuations that discouraged trade, and high inflation as countries simply printed more money to pay their bills.

In global trade, the postwar system had also been fashioned with American leadership. Strongly influenced by the view that international protectionism had been a major source of the awful and destabilizing conditions of the 1930s, and that the United States had been a major culprit, after the war the U.S. government led a general effort to open up international trade. Back then, U.S. leaders were confident about their country’s global trading position. They were eager for Cold War allies to be able to sell enough goods so that their economies could recover and flourish. They led the way in negotiating a General Agreement on Tariffs and Trade (GATT) to lower tariff barriers among the developed countries.

By the late 1970s “the liberal world economy that was conceived and built during the 1950s gradually broke up.”²⁶ The Europeans were building a regional trading bloc in their European Economic Community. Protectionism was gaining strength, exacerbated by the global financial turmoil. The Japanese and other Asian capitalist countries had taken advantage of their tolerant treatment in the GATT system and the backlash in the United States was growing.

The less developed world had been largely left out of the system. They demanded a new system that helped them too. The GATT system itself was “crumbling.” In 1978 a leading expert on it observed that “almost every rule of GATT is inadequate to the present problems of world trade.”²⁷

Between 1978 and 1983, leaders in Western Europe, the United States, and Japan successfully rebuilt part of the global capitalist system, for global finance. The foundation was unsteady, but it held together under great strain. This new system for global finance restored price stability to the developed world. It enabled a return to economic growth and reduced unemployment.

These leaders were not able to rebuild the other part of the global capitalist system, for global trade. In fact, the new system of global finance actually made the trade problems worse, especially in the United States. During the late 1980s, Reagan’s second term in office, his activist treasury secretary, James Baker, tried heroically to manage the economic and political fallout from the reconstruction of global finance.

The reconstruction of global capitalism from the postwar Cold War system to something new had begun. Part of the design, for global finance, took form. But the rest, global trade and the broader future of the global capitalist system, was still very much unsettled when Reagan’s successor, George H. W. Bush, took office.

Among the economic problems of the 1970s, constant double-digit inflation was the worst. It remorselessly eroded purchasing power, discouraged saving, and forced workers to protest constantly for higher wages, even as mass unemployment also became endemic. The shocks from huge increases in oil prices in 1973–74, then again in 1979, made the problems much worse.

Governments and companies tended to try to solve the problem with more spending to keep up with prices and wages and to provide more welfare support, while experimenting with government controls on wages or prices. Since a lot of the spending was with borrowed money, the U.S. central bank, its Federal Reserve Board, kept interest rates down.

For a long time, a number of Europeans and some Americans had favored an alternative approach. These thinkers were skeptical about government intervention to manipulate the economy and also doubted whether governments had the political will to make the tough choices about either spending or interest rates. They, especially the Germans and Austrians, had deep historical memories and worries about inflation dating back to times when their countries’ currencies had been practically worthless. Many of them also feared that growing government intervention to patch up more and more problems would turn into socialist and authoritarian rule.

These thinkers were sometimes known as “neoliberals.” They reflected a classical European liberal caution about the scope of government (Americans often use the term “liberal” in just the opposite sense). Today “neoliberal” is often used as an epithet to describe an affirmative agenda to shift power to global capitalists. But that is a present-day reaction. It is not necessarily the way these people thought about their agenda back then.²⁸

The neoliberal alternative welcomed the relaxation of government controls on the movement of capital across borders. They thought investors would naturally put their money where it would hold its value (low inflation) and earn a profit (encouraging to business), and would lend money to governments that seemed solvent.

After Bretton Woods collapsed, these neoliberals found an American supporter in the U.S. treasury secretary, George Shultz (in that job from 1972 to 1974), and Shultz’s key deputy, Paul Volcker. These Americans joined efforts to roll back national controls on the movement of capital. Such a relaxation of capital controls would make it easier for international holders of dollars, or other currencies, to accumulate and move their money back and forth across borders.

But these growing money flows became a major source of instability, rushing to wherever bank rates or inflation prospects were best. Exchange rates fluctuated. The dollar tended to depreciate, aggravating American inflation. To dampen speculative rushes from one currency to another, the key players—especially the holders of the most valued “reserve” currencies like the dollar (above all), the Japanese yen, and the main European currencies—would have to present a coordinated set of incentives to money managers.

The credible, coordinated front was not there. During the crisis, the West German economy held on relatively well. The relatively tight money policies of its central bank, the Bundesbank, became an anchor.

Led by Helmut Schmidt, a brilliant and abrasive finance minister, then chancellor, West Germany became a focal point for organizing European economic crisis management. As France moved away from its recent Gaullist patterns of fierce independence, Schmidt forged a powerful partnership with the centrist and pro-European French president, Valéry Giscard d’Estaing.

In 1975, Schmidt and Giscard then worked with Shultz, whom they liked (Shultz was then out of government but working as a private emissary for President Gerald Ford and Secretary of State Henry Kissinger), to work out a new kind of partnership among Western leaders. They built on a recently created habit of regular meetings among leading finance ministers.

Giscard hosted the secret meeting of the three men at a small house near Versailles. Schmidt walked in, looked over the little living room with its blazing fireplace, and promptly asked Giscard, “Who built this for his mistress?”

In this cozy setting the partners worked out a group to try and do a better job of coordinating their policies. This eventually became a Group of Seven, or G-7, made up of the heads of government of the United States, West Germany, France, Britain, Italy, Canada, and Japan. The president of the European Commission became a formal member in 1981.²⁹

Yet the new American administration of Jimmy Carter argued for more spending to stimulate growth. Disagreeing, despairing of the Americans, Schmidt and Giscard again took the lead. Britain could not help much: Britain’s financial crisis was so grave that in 1976 London had to seek humiliating and conditional debt relief from the International Monetary Fund. Schmidt and Giscard set up a scheme that could at least try to stabilize exchange rates within Europe itself. During 1978 the West German and French leaders sponsored the initiative to create a European Monetary System.³⁰

In July 1978, European leaders unveiled this new system to coordinate their exchange rates, anchored on the “hard money” inclinations of the Bundesbank. At first, Britain was outside this system. But in 1979, led by Britain’s new conservative prime minister, Margaret Thatcher, the Bank of England informally joined the hard money consensus.³¹

The growing European determination to tighten controls on spending, both directly and through hiking interest rates, created more runs on the dollar, aggravating America’s inflation. The crisis was nearing its peak.

The Carter administration gave in and changed course. During July 1978 the G-7 (meeting in West Germany’s capital, Bonn) developed a package of real policy coordination. In November 1978, Carter’s Treasury officials launched a carefully prepared package of emergency measures relying on strong monetary discipline and coordinated currency interventions, working with the Europeans to restore faith in the dollar.

The following year, Carter made Volcker (then head of the New York Federal Reserve Bank) the new chairman of America’s Federal Reserve Board. Volcker then joined his European and Japanese colleagues in a conscious hard money approach, coupled to decontrol of capital markets.³²

Under Volcker’s leadership the United States drove up its interest rates to hitherto unthinkable levels and kept them there for three years. To avoid runs on their own currencies, the Europeans and Japanese had to follow suit.

The short-term result of these policies was the most severe economic recession in the United States, and much of the world, since the Great Depression. Interest rates skyrocketed. Unemployment hit new heights.

Debtor countries around the world, especially concentrated in Latin America and Eastern Europe, entered a prolonged debt crisis. Mexico’s crisis led the way; Mexico defaulted on its debt in 1982.

Yet by the end of 1983, the Western economies began to turn around. Inflation was finally tamed. Exchange rates were not nearly fixed, but the fluctuations began to settle down. The flows of capital and trade surged.

By the mid-1980s the basic operating system of global finance had been redesigned. The old system had put government economic control first, along with exchange rate stability. That system therefore deemphasized the free flow of capital.

In this new system, unlike the Cold War Bretton Woods system, free movement of capital was given top priority. Such a system still relied on government power, above all on the choices of central bankers and finance ministers who set key market conditions. But, to gain more stable exchange rates, leaders had to sacrifice some of their national monetary autonomy, to be coordinated enough so that investors would not have great incentives to switch their investments from one side of the Atlantic to the other. That coordination also yielded significant economic authority to “market discipline” imposed by private bankers and investors.³³

The new system for global finance relied on the dollar as its principal reserve currency, along with a group of European currencies that were now more tethered to each other, and the Japanese yen. The G-7 governments—including the once-dominant United States—accepted an unprecedented level of true economic interdependence.

To reassure investors, Reagan reappointed Volcker in 1983. When Volcker left in 1987, his long-serving replacement, Alan Greenspan, also exemplified the hard money commitment (at least until the last years of his service, in the 2000s).

The new system could not fix exchange rates, although Volcker and others never stopped trying. Especially after 1985, the new system tried at least to dampen the range of fluctuations and keep markets relatively stable.

For the new system to work, it required an active partnership among finance ministers, central bankers, and their heads of government. G-7 summit meetings were focal points for this partnership.

A consequence of the new system was the central role in it of West Germany. Within Europe, this meant a core partnership of the West Germans with the French. The British tracked the European Monetary System’s guidelines but they were not formal members and did not steer the system.

The economic turmoil of the hard money system tested the politics in all three of these countries. The severest test, the most important test, was in France.

In 1981 the French people voted out the centrist government that had gone along with the European Monetary System and had cooperated so closely with the West Germans. They voted in the left: the first Socialist president in the history of the Fifth Republic, in a governing coalition in which the Socialists would rule together with the Communists.

The supporters of the new president, François Mitterrand, expected a radical transformation. In its first year, the new government nationalized dozens of banks and five of France’s largest companies, raised wages, and reduced working hours.

Mitterrand then faced a financial and political panic. Firms, people, and money were leaving the country. To maintain these policies, France would have to detach itself from those being pursued by its two large neighbors, West Germany and Britain. Elected in March 1979 after a winter of paralyzing labor strikes and discontent, British prime minister Thatcher was an ardent and idea-driven proponent of rolling back the scope of government control over the economy.

To sustain his policies, Mitterrand might even have to pull France out of the European Economic Community itself. If France had to run the currency printing presses to finance its ventures, it would break out of the hard money constraints it had accepted. The French would have to accept the requisite inflation.

Other Europeans were watching closely what was happening in France. The American secretary of state, Shultz, visited Madrid in December 1982, and met with its new democratically chosen leader, Felipe González. González led a large socialist majority in Spain’s parliament.

González explained to Shultz that his policy program now owed a great debt to Mitterrand.

“How is that?” Shultz asked.

“President Mitterrand,” González answered, “came in with a big majority on a Socialist ticket, just as I did. He put the Socialist program into place, and the result was a catastrophe for France. Therefore I have learned something: don’t implement the Socialist program. Use the marketplace. Encourage investors. That is what I am going to do.”³⁴

During 1982 and early 1983, Mitterrand and his advisers struggled. Mitterrand buckled first in June 1982. Then he fought to hold on to an independent economic policy, telling his prime minister, “I did not appoint you to carry out the policies of Mrs. Thatcher. And if, for some extraordinary reason, I intended to follow in her footsteps, I would not choose you to do so.”³⁵

Yet “follow in her footsteps” is what Mitterrand did by the end of March 1983, though he relied on taxes on the rich to help do it (which Thatcher most certainly would not have advised). France and Europe could see that Mitterrand had firmly gripped the wheel and swerved into a hard U-turn. The entire direction of government economic policy was reversed. Public spending would be cut; taxes raised.

Talk of a “French path to socialism” was abandoned. Instead Mitterrand’s finance minister, a pro-European former banker named Jacques Delors, was put in the driver’s seat along with a new, young prime minister appointed in 1984, Laurent Fabius. The Communists were out of the government.

The French government began to deregulate capital markets and privatize enterprises across the economy, not nationalize them. One historian of global finance looks on this period in France as “one of the most consequential turning points in modern economic history.”

It was not a simple right-left issue. French conservatives tended to prefer nationalist protectionism, not open markets. “When it comes to liberalization in France there is no Right,” one top French economic adviser observed. “The Left had to liberalize because the Right would not.”³⁶

The French people approved of the liberalization. By 1984, French leaders emphasized the theme of “modernization.” And there were the Americans with their microelectronics and entrepreneurial dynamism. “America, even among the Socialists, that’s what’s chic,” declared Le Nouvel Observateur.³⁷

The drive to privatize had its biggest proponent right across the English Channel, in British prime minister Thatcher. One of her signature moves was to privatize the nation’s telephone and telecommunications company, British Telecom (BT).

Thatcher’s biographer recalled how in 1981 he bought his first home. It had no telephone and he wished to install one. He called the government phone company, BT, and was told, sorry, to get a telephone “would take six months because of a ‘shortage of numbers.’” But, he was told, if his newspaper’s editor would just call the chairman of BT, then matters might be fixed up. His well-connected editor made the call. The phone was promptly installed.³⁸

Anyone living in the East bloc in the 1980s would recognize such a story. It illustrates how a highbrow concept like “privatization” could easily connect to the everyday experience of ordinary citizens.

On the other hand, the Western governments and Japan had done all this without abandoning the original postwar bargain at the foundation of social democracy. Although the power of organized labor weakened across the Atlantic world, these governments held on to their commitments to provide a significant level of individual economic security. Deregulation and privatization of government services was tried and sometimes it worked. But none of the countries tried to strip away their core commitments to provide social insurance of various kinds. None of them radically pared back their government spending on such programs. In most cases, such spending actually increased during the 1980s.³⁹

Partly because of such spending, especially in the United States, the new system of global finance created new problems for global capitalism. It had restored price stability and economic growth in the developed world, which was a great tonic in the 1980s and thus greatly influenced the political tone in the socialist world during the crucial years from 1988 to 1991. But the new system of global finance delivered a hard blow to the future of global commerce.

For many less developed countries, easy loans dried up and it was hard to repay or even service their debts. They desperately sought ways out, trying harder to profit from a global trading system undergoing great stress. Their plight had global geopolitical consequences as it played out in Eastern Europe, as we will detail in chapter 2.

The new system of global finance delivered a shock to America’s trading position in the world. The Reagan administration had cut taxes and increased spending. In the short term this helped growth, as inflation was held down by the Fed’s tough policies. But the high interest rates, combined with huge budget deficits, meant that America established a huge market of buyers for its high-yield dollar bonds. Investors were happy to buy. The United States thus sucked in a disproportionate share of global capital to finance its consumption-led growth. Although the Federal Reserve Board tightened money on traditional banks, the U.S. savings and loan industry went on a domestic lending spree that would eventually send much of that industry into bankruptcy. The painful politics and economics of addressing the fiscal deficits and the savings and loan debacle would fall on Reagan’s successors.

Meanwhile, the American need to sell such high-yield bonds meant that the value of the dollar went up and up. By 1985 economists regarded it as overvalued by at least 30 percent. Every American export thus carried, in effect, a kind of price surcharge of 30 percent or more. American exports and trading businesses were devastated. Imports flooded in.

In Reagan’s first term, the Treasury Department took a laissez-faire, hands-off view of this. Politically, the result by 1985 was a tremendous surge of protectionist sentiment in the country and in Congress. In 1986 the Republicans lost control of the Senate (which they had taken over in 1980) and the Democrats increased their majority in the House. The question was no longer whether protectionist legislation would advance; the issue was how far it would go.

Reagan and his top officials still believed in free trade, in principle. The Reagan administration supported the 1986 launch, in Uruguay, of negotiations to replace the tattered GATT system (hence the talks were called the “Uruguay Round”). The work stalled.

The Reagan administration had trouble with the trade issue. At first, they could not follow through on commitments to reduce America’s spending, so they still had to offer all those high-yield bonds. The Reagan officials then had little choice but to try some protectionism. On trade, their mix of managed exchange rates and partial protectionism was meant to head off much more radical protectionist proposals, moves that would have demolished even the crumbling postwar free trade system.

In Reagan’s second term, his new treasury secretary, Reagan’s former chief of staff, James Baker, took a much more activist approach than his predecessor. Tax reforms at least kept the budget problem from getting worse. Baker succeeded in driving down the value of the dollar with coordinated interventions on both sides of the Atlantic, urging Europeans to raise their own interest rates to keep investors from bidding up the dollar, while everyone still tried to keep inflation in check. In the bruising diplomacy he became accustomed to orchestrating deals with the West Germans, French, British, and Japanese.

Meanwhile, in sectoral and bilateral trade talks, the United States added more trade restraints than it removed, a turnabout for the first time from the long-standing postwar pattern. As one Reagan adviser later put it, the administration’s strategy was “to build a five-foot trade wall in order to deter a ten-foot wall [that would have been] established by Congress.” These measures did reduce the trade deficits enough to avoid the ten-foot wall. Stepping in at the request of the White House, Baker was even able to rescue a free trade agreement with Canada, a precedent that would become important later.⁴⁰

Overall, on balance, to the socialist world, and to European publics in the late 1980s, capitalism seemed to be working far better than it had in the 1970s. Although the conventional wisdom was that the United States itself was overextended and in relative decline, the dark general pessimism about capitalism’s future had dissipated. The social democratic model again seemed like an attractive alternative.⁴¹

Lowering Barriers: The Momentum of Three Examples

Beyond “rights” or the recovery of global finance, the West came to symbolize something more. It then also seemed to stand decidedly for a freer flow of people, goods, and ideas. By the mid-1980s three powerful illustrations of this freer flow and lowering of barriers were China’s opening, the advent of personal computing, and Europe’s “Single Market.”

China’s opening

This came after Mao’s death in 1976 and with the rise of Deng Xiaoping to the height of power in 1978. The Chinese leaders developed a very clear assessment of the outside world of the late 1970s, and about themselves. They believed that they had learned a lot from the Soviets during the 1950s, but they now regarded the Soviet Union as the “main enemy.”

They took an especially hard look at Europe. Deng had spent time in France in his youth. He returned there in 1975, the first state visit ever by a senior Chinese communist official to a Western country.

In 1978 the Chinese organized an astonishing set of foreign study tours. Beijing dispatched hundreds of senior officials, including more than a dozen of the most senior ministers, to nearly fifty countries. The most important sets of trips were to Eastern Europe (Yugoslavia and Romania), to Hong Kong, to Japan, and above all to Western Europe.

The West European trip had an especially powerful impact. The officials visited fifteen cities in five countries. They studied harbors, transportation, factories, power plants, farms, and much more.

“The more we see,” Deng summarized, “the more we realize how backward we are.” The head of the State Planning Commission remarked, “We thought capitalist countries were backward and decadent. When we left our country and took a look, we realized things were completely different.”

The Chinese were also taken aback by how friendly and open their hosts were, how much flexibility their local governments and enterprises had to operate. The West European models, and the neighboring ones in Japan, South Korea, Singapore (with whose leader Deng developed a particular friendship), and even Taiwan all seemed to show an alternative pathway for China.

Deng turned all these reflections into policy guidance. “Our nation’s system… is basically taken from the Soviet Union. It is backward, deals with issues superficially, duplicates structures, and advances bureaucratism.… If we can’t grow faster than the capitalist countries then we can’t show the superiority of our system.” Chinese leaders “embarked on a process of learning from abroad on a scale that has few parallels in human history.”⁴²

At first this openness to new economic ideas seemed to have a political corollary. In December 1978, Deng announced the new party line, to “emancipate our minds, seek the true path from facts.” The party had to be open to critical discussion. “Centralism can be correct only when there is a full measure of democracy,” he explained.

By March 1979, Deng had to quickly clarify that “democracy” only meant more open debate and choice within the ruling party. Some who took such words too literally had to be arrested to set an example. As a party official put it, “Lord Ye loved looking at a book with pretty pictures of dragons, but when a real dragon appeared, he was terrified.” Deng did not care for the reality of the democratic dragon. The rule came down: No one should challenge the dictatorship of the proletariat through the leadership of the party.

Meanwhile, China would now open itself to the world and the world economy. In January 1979, Deng made a historic visit to the United States. He toured the length and breadth of the country. In Texas, he went to a rodeo. A young girl on horseback gave him a big cowboy hat to wear. He theatrically put it on. One reporter observed that “in this one simple gesture, Deng seems not only to end thirty years of acrimony between China and America, but to give his own people permission to join him in imbibing American life and culture… arresting China’s historic resistance to the West.”⁴³

The advent of personal computing

Adding to that sense of openness and new vistas was the rise of personal computing. In the 1980s there was not yet an Internet. It was the dawn of the digital revolution, like the 1820s were in the first industrial revolution, just as the first steamships and steam-powered factories were coming into use but before the railroad.

It was then called an “information revolution,” before its broader significance became apparent. This revolution enabled and accelerated the more globalized financial markets. But it was also “a very antiestablishment revolution, born in the California youth culture of the Vietnam War era.”

In the 1980s it seemed that, for the first time, the power of large computers was now available to businesses of any size, even to many individuals, combined with software that could allow ordinary people to use the machines. One of the revolutionaries, Steve Jobs, promoted the motto of “one person—one computer,” with the goal of democratizing and personalizing computer power.⁴⁴

In 1980–81, IBM began developing a “Personal Computer,” using software designed by a new company called Microsoft. On the horizon were PC “clones” united more by the software than the hardware and new kinds of graphical user interfaces. But people were already realizing that they had vastly new capacities to communicate and process information.

If knowledge is an element of power, the PC revolution was empowering, and it was decentralizing. In 1982, Time magazine, for the first time in its history, did not name a man of the year. Instead it designated the personal computer as “machine of the year.” Most Americans, Time reported, believed that “in the fairly near future, home computers will be as commonplace as television sets or dishwashers.”⁴⁵

Young people living in communist countries were aware of the PC revolution. Computers became one of the few industries that really interested them. Homegrown models were usually inferior imitations of earlier Western models. By 1986 one Czechoslovakian computer innovator reported:

In Czechoslovakia there are at present several tens of thousands of Western-made microcomputers, and each summer their number increases by about 10,000. With these computers comes not only technology but also ideology.… Children might soon begin to believe that Western technology represents the peak and that our technology is obsolete and bad.…

One of these days I will record on the tape for you what the children say and how they laugh when they see how we are unable to meet our plans for computer production, how they laugh when [the casings on] our computers have to be opened periodically to prevent them from burning out.… We must look at it from the political point of view, because in 10 years time it will be too late to change our children. By then they will want to change us.⁴⁶

It did not take ten years.

The single European market

As the West seemed even more to symbolize new technology to empower individuals, Europe was embracing a whole new dimension of political and economic openness. For leaders and people living in Central and Eastern Europe, or in the Soviet Union, perhaps no development was more vivid, on their doorstep, than the final 1986 adoption of the Single European Act that was on track to create, by 1992, a single European market with free movement of goods, services, and people largely unhindered by special national barriers.

The story behind the Single Market was itself a miracle of policy entrepreneurship. Although West European political leaders had declared themselves in favor of moving toward a European Union, their path to do so was incremental and traditional.

By 1984 a remarkable operating partnership had been formed in the heart of Europe. Its core was a triumvirate of three leaders and their respective teams.

There was a new West German chancellor. In 1982, Schmidt had been deposed by his Social Democratic Party (SPD) for being too conservative on defense and economic issues. The SPD then fell from power, replaced by the centrist conservative Helmut Kohl, in partnership with the small liberal (Free Democrat) party headed by Schmidt’s, now Kohl’s, foreign minister, Hans-Dietrich Genscher.

Kohl had been a teenager when World War II ended in his home state of Rheinland-Pfalz, close to the French border. Mentored by Catholics from Germany’s old Catholic “Center” party, Kohl completed a doctorate in history but he prided himself on his connection to ordinary people. He thought the new Germany had to find a new normalcy, a comfort with its German identity, tolerant, partnered with America, with European integration at the “center of his political desires.”⁴⁷

As Mitterrand completed his economic U-turn in 1983, he became Kohl’s core partner in Europe. This veteran of World War II and the French Resistance, a political survivor too, was committed—much more than France’s Gaullists—to the cause of European integration. The belief in European integration was a view he and other French socialists had fostered from the start of the project at the beginning of the 1950s. He and Kohl cemented their operational partnership in coordinating policy during frequent battles within the European Community, including a formative one in 1984 in which they schemed together to contain and manage Thatcher’s effort to renegotiate Britain’s financial contributions.⁴⁸

The third member of this triumvirate was another Frenchman, Jacques Delors, who became the new and much more activist president of the European Commission in 1984. The European Economic Community had a governing board, its council made up of the heads of government. Its day-to-day executive entity was the Commission, with nationally selected commissioners heading the major departments.

The image of Delors is of the bespectacled former finance minister and central banker, the stereotype of the “Brussels technocrat.” In fact he came from rural roots, raised as an observant Catholic in a family whose politics were centrist. He had been a very good basketball player in his youth, an ardent devotee of American movies and jazz, and had gone to work for France’s central bank more from parental pushing than personal inclination. World War II had disrupted his education. He had never gotten the kind of formal college training some of his colleagues had, and he became known for his ability to articulate technical ideas in a plainspoken and often passionate way.

Delors and Mitterrand respected each other but were not really close. To Mitterrand, Delors, an overtly Catholic and idealistic minister, “smells of the sacristy.” As Delors’s biographer put it, “Delors is direct. Mitterrand sibylline. Delors reads books about economics and social problems while Mitterrand prefers literature and history.” Delors had gotten the Commission job as the French candidate on whom Mitterrand, Kohl, and Thatcher could agree.⁴⁹

As Delors took the job, the European Commission was a passive entity, administering its programs. European leaders had recently pronounced that they hoped someday to create a European Union, but there were no operational plans for how to do it. The European leaders had decided in 1984 to proceed with letting Spain and Portugal join the EEC. Delors had the opportunity to try to convert these Union goals into action.

Delors decided to concentrate on a “big idea” that would relaunch the European enterprise. What he chose, where he thought he could gain maximum political convergence, was the idea of a truly common European market. It could not be done within the existing treaty. It would need a new treaty that, Delors announced, would be done and implemented by the end of 1992.

His crucial teammate was a British conservative, Arthur Cockfield (pronounced “ko-field”), later Lord Cockfield, who was the commissioner for the “Internal Market.” A former chairman of Britain’s Boots chain of drugstores, Cockfield had long held jobs at the intersection of business and government. He had been a favorite of Margaret Thatcher, and had helped her spearhead the privatization moves.

Cockfield was no politician, but he was a clear thinker who knew how to cut to the root of a matter and relate ideas to concrete action. Thatcher used to say, “half-admiringly, half-teasingly,” that “Arthur can’t walk past a row of pigeon-holes without wanting to fill every one of them.” The combination of Cockfield’s “cool” logic with Delors’s intuition and vision turned out to be extraordinary.⁵⁰

Thatcher pushed Cockfield for one of Britain’s two “spots” on the European Commission in 1984, to be the internal market commissioner. Thatcher liked the idea of a European market that would lower barriers to free commerce. What she got was even more than she had bargained for.

Cockfield, backed by Delors and aided by his own talented multinational team, proceeded within six months, during the first half of 1985, to produce “a massively detailed—yet elegantly shaped—programme of no fewer than 279 measures that they considered necessary to the operation of a ‘frontier free Europe.’” By clearly and precisely delineating how to do it, more by taking structures down or harmonizing them than by requiring construction of elaborate new castles, the Cockfield team had in effect called the bluff of the European leaders.

As Cockfield put it, “The proposals in the White Paper programme are a coherent whole. You cannot pick what you like and discard what you do not. Unless the internal frontiers and frontier controls are abolished, the benefits of the Single Market cannot be achieved.” The leaders were now faced with an up-or-down choice of a plausible, concrete plan to do exactly what they had vaguely promised to achieve.⁵¹

That was not all. For the system to work, the old requirement of unanimous decisions by all member states of the European Economic Community had to go too. It would be replaced by “qualified majority voting” among the members to create an organization far more able to act, an organization that now would just be called the “European Community.”

The leaders ratified the plan, some with a good deal of reluctance. They realized that if they reopened some of the package, the whole thing would fall apart. Then the Single Market 1992 target would have to be abandoned. The European project would seem derailed. So they said yes.

Thatcher herself felt obliged to go along, while being surprised and annoyed by Cockfield’s skill and insistence on harmonizing British taxes as well. She did not reappoint him to the Commission when his term expired in 1988. As his estrangement from Thatcher became evident, that only added to his influence with the other Europeans.⁵²

Nothing since the original Treaty of Rome in 1957 did more to transform the economies and societies in the revamped European Community. As Greece and Spain joined the EC on this path to create a European Union, it was a decisive signal that a new Europe seemed to be coming into being. Those in the East were being left out, left behind.

The Renewal of Anticommunism

During the 1960s and well into the 1970s, anticommunism seemed tarnished and frightening. It was associated with forces of reaction, preservation of privilege, imperialism, and the dehumanizing violence of the Vietnam War. The United States seemed to be waging wars to contain communism, overt and covert, all over the world. The Soviet Union and its allies were not doing so much, except to police their own bloc, as with their brief and decisive invasion of Czechoslovakia in 1968.

By the mid-1980s the situation seemed very different. There were still plenty of people who believed the United States was threatening and were worried about the policies of its president, Ronald Reagan. But the war in Vietnam was over. The United States had quit waging big wars of containment.

Elsewhere in the less developed world, the Americans did not seem very scary. During the 1970s the American defeat in Vietnam helped inspire a new generation of decolonization movements and “liberation struggles” in Africa and the Middle East, as well as in Latin America. The United States did not invade Iran after the 1979 revolution there, settling for a hostage rescue mission that failed badly.

The United States considered military intervention to contain the left-wing revolution in Nicaragua in 1979 that was supported by Cuba and the Soviet Union. But the Carter and Reagan administrations both decided against it. The CIA’s programs for covert action were largely wound down, accompanied by public revelations and recrimination. The Reagan administration tried to subvert the Nicaraguan government and assist neighboring El Salvador, but these efforts were not very effective and were visibly hamstrung by the U.S. Congress and other domestic opponents.

The American humanitarian intervention in Lebanon in 1982 had turned into an effort to help pacify that country. This failed disastrously in 1983. Outmaneuvered and defeated by the Syrians, the Soviets, and their allies (which included a militia linked to Iran), the Americans gave up and withdrew early in 1984. A meaningless intervention to restore order in the little Caribbean island of Grenada (after a violent military coup overthrew a left-wing government there) did not seem to count for much.

The most dramatic Western foreign intervention of the early 1980s did not come from America at all and it was not against communists. It came from Britain. In the spring of 1982, Thatcher dispatched a task force that successfully reversed the Argentine dictatorship’s invasion of the small Falkland Islands in the South Atlantic, which Argentina claimed. The Reagan administration had wavered for months about how to respond, before it finally lined up in support of the British.⁵³

In Africa, the Cuban and Soviet bloc military intervention in southern Angola was winning. The Cuban and Soviet bloc military intervention in Ethiopia was winning. The Soviet invasion of Afghanistan had taken over the country; the Soviets and their Afghan allies were fighting continued resistance.

In other words, from the 1970s on into the mid-1980s, in the Third World it was the Soviets and their allies who seemed more active and menacing. In the critical swing states of Europe and East Asia, the 1970s were a time of increasing worry about Soviet military modernization and momentum. The swing states reacted by drawing closer to the United States.

On both sides of the Atlantic, anticommunism came to stand for principles more associated with classical liberalism: limited government; individual rights; lowered barriers to the free movement of goods, ideas, and people; and defenses designed more to reassure than to threaten. The key states of Europe and East Asia did not plead for American wars of containment. Instead they urged the United States to build up more military power in their regions in order to reassure them that they were safe.

This the United States did. In these core regions the U.S. response, diplomatic as well as military, was competent and effective.

The Chinese leadership had stopped worrying about American aggression in 1969. By 1979, when China’s leader took his triumphant tour of the United States, he was attacking American leaders—for not being tough enough on the Soviets! He said that American policy seemed to amount to the appeasement of the Soviet Union. An editorial in the Chinese government’s People’s Daily warned, “Certain leading figures of the U.S. monopoly bourgeoisie have forgotten the lessons of Munich.”⁵⁴

In 1979 the Carter administration resolved its earlier doubts and reaffirmed American security partnerships in East Asia. The Reagan administration strengthened these commitments. Amid all its internal squabbling on other matters, the administration had a cohesive and purposeful team working on Asia policy. Led by Secretary of State George Shultz, the United States “set in place a sustained forward strategy in the Pacific that resulted in significantly diminished Soviet ambitions; improved ties with all the other major powers—particularly Japan, but also China and India; movement toward an integrated economic vision of an Asia-Pacific community; and democratic transitions in South Korea, the Philippines, and Taiwan.”⁵⁵

But the prime military confrontation was not in Asia. It was in Europe.

It is difficult now to remember the scale and intensity of the military rivalry in Europe, readying for war between the opposing alliances, NATO and the Soviet-led Warsaw Pact. In all of recorded history, as one well-informed American official noticed, “No other war has been so thoroughly planned and well prepared, yet never fought.”⁵⁶

As the Vietnam War ended, the European and American forces deployed in the NATO alliance were hollowed out, and their cohesion and morale sagged. More and more reliance was placed on “flexible response,” the U.S. readiness to use nuclear weapons if Soviet conventional forces began overrunning Germany.

Well informed by their intelligence sources in the West, the Soviets understood NATO’s problems. During the mid-1970s both sides initiated massive efforts to modernize and improve their forces in Europe, conventional and nuclear.

At all times the American and NATO side felt they were starting from a position of relative weakness. If they could build up their conventional forces and at least slow a Soviet conventional advance, perhaps, their strategists thought, they could reduce the danger of nuclear escalation. If they could match Soviet nuclear weapons targeting Europe with better U.S. weapons of their own, based in Europe, perhaps their nuclear deterrent would also be more credible. That way they would not have to lean so much on threatening to set off a global thermonuclear war by relying on the American weapons based in North America or at sea.

In the mid-1970s the Soviet side built up and added to its military advantages in Europe. Presuming that the capitalist system was inherently aggressive, “Soviet strategy betrayed an inherent sense of insecurity that was to be offset by overwhelming military power. The Soviet military, whose ideological commitment remained strong while the political leadership was faltering, were increasingly influential in shaping the Warsaw Pact’s military planning although it was their Kremlin superiors who controlled it.”⁵⁷

As NATO was responding to its obvious weaknesses, the Soviet bloc elaborated and began implementing a breathtakingly ambitious military strategy. Using a highly capable theater-range missile based in the Soviet Union, the SS-20, to deter NATO nuclear use and “hold all of Europe hostage” (as a key Soviet war planner later put it), the Soviet military’s “strategy of deep operations” planned to be able to advance at least three hundred miles in the first week of an offensive after war broke out.⁵⁸

American and West European governments could see the staggering scale of these Soviet and Warsaw Pact military developments. A small number of officials also had access to key Soviet strategic documents provided by two well-placed agents, one a general in Soviet military intelligence and the other a senior staff officer in the Polish military.⁵⁹

Both sides sought a conventional military advantage that would avoid any nuclear war. The conventional arms race was thus the most costly and dynamic aspect of the rivalry.

The military confrontation in Europe from the mid-1970s until the end of the 1980s spurred “the greatest renaissance of military thinking in the 20th century. High-quality intelligence, in both senses of the word, shaped the actions of the two sides, and each was often very quick to adopt the other’s innovations.” Yet, the analyst added, “In the arms race that followed, Central Europe gained the disturbing distinction of having the heaviest concentration on earth of conventional and nuclear weapons.”⁶⁰

In 1978–79, NATO decided it also needed a better nuclear deterrent, based in Europe, to offset the SS-20s. The leadership for this defense initiative, the most consequential and controversial defense move in Europe since the 1950s, had come from Western Europe. The central figure was West German chancellor Schmidt, whose pressure for American reassurance was one more facet of his unease about American reliability during the Carter administration. The key policy development was done by West German, British, and Norwegian officials, allied with supporters inside the American government. The Carter administration decided to accept the European challenge and provide the nuclear missiles for this NATO deployment.⁶¹

NATO coordinated a plan to deploy new American missiles in West Germany, Britain, and three other NATO countries, while offering to negotiate an arms control agreement to limit them. After Carter was voted out of office, the Reagan administration followed through on this “dual-track” commitment, balancing military and diplomatic moves.

The United States also turned to a strategy that tried to leverage American technology against Soviet brute strength and numbers: the creation of precision-guided munitions and new weapon systems that depended on sophisticated technology Moscow could not hope to match.⁶² At the end of his term President Carter requested the sharpest increase in U.S. defense spending since the height of the Vietnam War.

For Ronald Reagan that was not enough. He believed that the West had been soft on communism and had paid dearly for it as Soviet power and influence spread across the globe. He came to office determined to confront and convert his foe.

Reagan’s confrontational style was evident in the way he thought and talked about nuclear weapons. Convinced that the Soviets believed nuclear war to be winnable, he redirected American nuclear strategy toward “warfighting” as the basis of deterrence. In doing so he frightened many Europeans and made many Americans uneasy.

That style was evident in arms control too, which the Reagan administration was certain had codified Western weakness and Soviet strength. Reagan assumed an all-or-nothing negotiating stance, insisting on a “zero option” for U.S. and Soviet intermediate-range nuclear forces in Europe. He made clear that the United States would deploy its own nuclear missile forces in the five NATO countries if Moscow did not remove every single one of the more than four hundred SS-20 intermediate-range missiles that appeared to pose a distinct new threat to Western Europe. The deployment of the U.S. missiles was to begin in 1983.

The Soviet government used every available political and diplomatic asset to prevent the deployment of the American missiles. The standoff in Europe was tense, the most dangerous period of U.S.-Soviet confrontation since the 1961–62 crises over Berlin and missiles in Cuba.

The governments in Western Europe were trying to maintain a delicate balance. They wanted to preserve cordial political and economic relations with the East, but they also wanted to address their fears about security. The governments were assailed by a huge and growing movement of peace activists. The activists argued that the military policies of both sides were insane and endangered everyone.

By 1982 and 1983 the security and economic debates converged in a great debate over Europe’s future. The enormous political battle in Western Europe over NATO deployment of what were called the “Euromissiles” joined the already high tensions over the painful economic adjustments of the “hard money” era. It was a tipping point in a “global election” between alternative systems.

As we mentioned earlier, the socialist-led French government made its choice on the economic issues. In 1982, reacting to the nuclear and economic issues, the West German Social Democrats withdrew their support from their own chancellor.

The small centrist liberal party that had been part of West Germany’s ruling coalition, led by foreign minister Hans-Dietrich Genscher, was determined to hold the line on both economics and the Euromissiles. Genscher joined a new governing coalition led by Helmut Kohl. West Germany became the supreme political battleground.

In January 1983, Mitterrand decided that he felt so strongly about the Euromissile question that, although France had not taken a direct part in the NATO nuclear decision, this was a debate France had to join. He and his circle worried that a set of beliefs were developing “with great speed” that excused Soviet behavior and inclined toward pacifism.

With his own sense of history, the sixty-six-year-old Mitterrand “rebelled against this state of mind vehemently, spontaneously, and viscerally.” He journeyed to Bonn and, in a remarkable move, spoke directly to the West German parliament, the Bundestag. He asked the West Germans to stick by the Euromissile choice.⁶³

The Soviet foreign minister visited West Germany too. Also intervening in West German politics, he urged the German people to reject the missiles. In July 1983 the G-7 nations decided, for the first time, to join together to address a noneconomic topic: a statement of support for the missile deployment.⁶⁴

In elections later in 1983, the West German people voted decisively to support the Kohl-Genscher coalition. The missiles were deployed.

Thatcher was overwhelmingly reelected the same year. Reagan was easily reelected in 1984, as were Thatcher and Kohl in 1987, and Mitterrand in 1988.

Although it was four years before Moscow accepted Reagan’s “zero option,” NATO had taken the Soviet Union’s best shot at derailing Western policy and won. The failure of that confrontational approach had a lasting effect on the Soviets’ thinking about their policy toward Western Europe. As Mikhail Gorbachev later acknowledged, this setback weakened faith in a purely military approach to Soviet security problems.⁶⁵

More upbeat economic news was important. But where it mattered, the West had also strengthened its association with “security.”

“Security” was not just a matter of the West-East military balance. Publics were greatly disturbed by the host of terrorist incidents in the 1970s and 1980s, whether carried out by mainly radical left groups in Italy and West Germany, or the Irish Republican Army in Britain (including a serious attempt to kill Thatcher), or the spectacular acts of terror associated with radical groups supporting the Palestinian cause.

The images of terrorism and disorder tended to rally citizens more toward anticommunism, toward the conservative parties. Some of the East bloc governments, like that in East Germany, actually seemed to have secret connections with some of the terrorist groups.

The Carter and Reagan administrations’ reluctance to mount large foreign interventions turned out in this period to be an asset, not a liability. With “imperialism” and “Vietnam” off the table, America seemed less ogreish, more reassuring. It was Soviet activism that grabbed the most attention and worry. In Western Europe and in East Asia, American help was sought, not forced.⁶⁶

By the late 1980s it seemed that the metaphorical “West” had gone a long way toward crafting the “alternative” Orwell had desperately hoped for in the dark days of 1947. It was creating “the spectacle of a community where people are relatively free and happy and where the main motive in life is not the pursuit of money or power.”

The pursuit of money and power was certainly still there. Most people did not quite separate it from the pursuit of happiness. Still, it seemed clear that something deep had changed from the old class struggles of the mid-twentieth century.

Some thought the age merited a new label like “post-materialist.” In this emerging post-materialist age, public concerns were shifting away from material necessities or physical security. People were more concerned about the wider environment and their quality of life.⁶⁷

Meanwhile, the Soviet Union still seemed to epitomize Burnham’s vision of a “managerial state.” As its top leaders had aged, the managerial elite in the ruling party seemed decaying and dangerous, not awe-inspiring. In September 1983, Soviet air defenses had dispatched an interceptor that destroyed a South Korean airliner which had strayed accidentally into Soviet airspace. The Soviet government ardently defended this action.

Also in 1983, and more secretly, the Soviet military and intelligence complex nurtured greatly exaggerated fears about a possible U.S. nuclear attack. These fears elevated the danger of a major war in ways the West only discovered later.⁶⁸

In April 1986 an ill-managed Soviet nuclear reactor in Chernobyl, near Kiev, exploded. The disaster forced a mass evacuation. The tragedy was concealed by the Soviet government for weeks until Western sources detected what had happened.

The West had changed. Arguments about rights and expressive freedom had taken the place of Jim Crow and race riots. Disputes about nuclear arms control had taken the place of “imperialism” and “Vietnam.” Speculations about the new Europe or personal computers or Chinese growth had taken the place of hand-wringing about capitalism in crisis.

The East had not changed. Its symbols were the leaders for the last ten years from 1975 to 1985: Leonid Brezhnev, senile and dying; Yuri Andropov, sick and dying; Konstantin Chernenko, sick and dying.

So the biggest symbol of change, at least at first, was the new leader named in 1985: Mikhail Gorbachev, smiling and vigorous.

CHAPTER 1

The Renewal of the Free World