BNE INVISIBLE HAND: Why Fukuyama is still wrong, 25 years after the fall of the Berlin Wall

It’s 25 years since the fall of the Berlin Wall. Billed as the most important political event of the second half of the twentieth century, the collapse of Communism has been much commented upon but rather less widely understood.

Far from marking the “end of history”, the demise of state-planning in Russia and Eastern Europe, and the subsequent dissolution of the Warsaw pact, ushered in an era when history significantly sped-up. Developments that took decades or even centuries in other parts of the world, have been compressed into just a few tumultuous years.

As the Wall fell in November 1989, the entire Soviet power structure – with its closed borders, economic oppression and ghastly mind-controls – started to come down with it. A welter of previously closed, moribund economies across Eastern Europe, the CIS and Central Asia, spluttered into life, enduring much hardship and uncertainty, yes, but clearly lurching forward.

Diverse nations, lumped together as the “Eastern bloc” in the news bulletins of my youth, began to open up and adopt free markets. Controlled prices were liberalized and voucher privatizations spread, constitutions were hastily re-written and companies began to incorporate.

Above all, across the region, people previously living under communism, in their hundreds of millions, were suddenly able to work for themselves, get a normal job, do business, travel, consume foreign media, express themselves, be part of the rest of the world. The “transition” was confused, chaotic, often deeply unfair and, in many countries, still has a long way to go. But, on balance, it’s extremely good news economic and political freedoms have been extended and totalitarian nostrums smashed.

Despite all that, Francis Fukuyama’s “end of history” thesis, coined the year the Berlin Wall fell, was still glib, triumphalist nonsense. The message from this Harvard-trained Japanese-American academic was that now communism is over and the US has won, we’re on a fast-track to liberal democracy across the globe, an Anglo-centric nirvana where “the Western model” will reign supreme.

It hasn’t happened like that. A quarter of a century after the demise of an essentially bi-polar world, with two superpowers on either side of an Iron Curtain, we’ve ended up with something more complex. History in our new multi-polar, globalized age isn’t only faster and less predictable, but a lot more unstable. The West’s enemies are now numerous and extremely hard to identify, clustered under headings ranging from “terrorists” and “separatists” to “radical Islamists”.

While the ideological battle of the Cold War is over, it strikes me the true battle has only just begun. It’s no longer Marx versus the market, but a sustained struggle between the determination of Western hawks to maintain and sustain our economic and political hegemony, pitted against the determination of non-Western and increasingly powerful nations to assert themselves, finally taking full charge of their own natural resources and affairs.

As such, we now see the West directly involved, or pulling the strings, in a quite staggering range of crises and conflicts, not least in Iraq, Syria, Gaza, Libya and – in a (sort of) Cold War throwback – East Ukraine. All these tragedies, and thousands of related deaths, demonstrate that globalization hasn’t brought global governance. Since the Berlin Wall fell, a pattern of officially-recognized, easily-explained conflicts has given way to an anarchic, belligerent mess.

Catch-up economics

Politically-speaking, then Fukuyama’s “end-of-history” thesis could hardly have been more mistaken. But it was wrong economically too. For while state-planning has thankfully retreated, and property rights have spread, the “Western model” most certainly hasn’t won. On the contrary, it’s suffering from a deep crisis of credibility.

Back in November 1989, songs of freedom rang out over Alexanderplatz. Thousands of scruffy students braved the cold to smash down the Wall. I was proud to be among them, having absconded from university in the UK and hitchhiked to Berlin.

I vividly remember, during those heady early days of change, and in the months that followed, taking part in numerous discussions in Berlin and elsewhere about what would happen next. There was a near-universal opinion among mainstream Western academics and commentators, almost an imposed blanket view, that we were about to see a worldwide upsurge of capitalism and liberal democracy. It wasn’t just Fukuyama arguing that Western economics and its associated lifestyle was the final destination of mankind’s social and political evolution. He just seemed to get the most publicity.

What we’ve seen, though, is that all kinds of countries have taken all kinds of economic routes -part capitalist, part state-planned – combined with democracy in various guises, from universal suffrage to none. It’s not true that nations across the CIS, Central Asia and beyond – with their own distinctive histories, cultures and codes of moral conduct – must go through some kind of replica Western European or American historical experience to achieve economic and political success. That was always an absolutist, nonsensical argument, however fashionable it was back in 1989.

The non-Western world, despite developing its own economic and political models, is catching up fast. In 1999, after a decade of traumatic transition, Russia’s GDP per head was roughly a quarter that of America. Today, the figure is almost a half. Kazakhstan’s income per head was just a fifth of America’s fifteen years ago. This year, it’s two fifths. In Poland the same proportions are 30pc and 44pc. In China, they’re 8pc and 22pc.

These numbers are clearly dependent on many factors – including starting point, resource endowments and population growth. But they show that while these four nations have each achieved an impressive partial “catch up”, they’ve used entirely different political and economic means to do so.

Russia’s model, while far more democratic and market-oriented than most Westerners give it credit for, still involves significant state intervention. China and, to a lesser extent, Kazakhstan, meanwhile combine rather vibrant and increasingly modern market economies with authoritarian dictatorship. Poland, by far the most “Western” of the countries mentioned above, while growing quite well, has actually staged the least impressive economic performance.

I’m not saying liberal democracy isn’t a good thing. But non-Western nations aren’t petri-dishes for Western social scientists and ancient societies aren’t made up of laboratory rats. Various emerging markets, across Eastern Europe, the CIS, Central Asia and beyond are finding their own way, with no inclination to emulate the route we took – and doing fine, thank you.

Why would they follow the West, anyway, when they’re now seeing where the Western model leads? The 2007 sub-prime crisis was self-imposed, as woefully under-regulated Western banks collapsed, sparking a systemic meltdown of over-leveraged equity markets, so exposing and then compounding the fiscal weaknesses of some of the world’s leading economies. We’ve responded not by fixing the underlying causes of the most catastrophic break-down of Western economics in 80 years, by making meaningful regulatory changes and getting our public finances in order.

On the contrary, we’ve extended and pretended, hosing down difficult decisions with virtually printed money and sticking our heads in the sand. Across the “advanced world”, inequality is now spiraling, as is political unrest. And what growth we have lately mustered is largely dependent on debt. Why would anyone emulate that?

War by other means

I’m less worried about non-Western nations not following precisely in our footsteps than I am about growing signs of systemic East-West conflict. The end of Soviet Communism, combined with the earlier decolonization of Africa and Asia, has seen the creation of a group of emerging markets which, while diverse and with conflicts of their own, shares an extremely powerful economic and emotional interest in showing that the West can no longer assume to run the world.

Such nations now account for over half of global GDP, three-quarters of foreign exchange reserves and four-fifths of humanity. Their economies, while very far from perfect, are certainly much faster-growing, more dynamic and far less indebted than those of the West. That makes them far better able, in an increasingly unstable world, to endure global financial shocks.

Yet, the West continues to snub such countries, printing money like crazy and imposing self-serving currency depreciations, excluding them from the higher-echelons of supra-national institutions, promising to change voting quotas at the likes the International Monetary Fund but refusing to do so in practice. Then we scoff when Brazil, Russia, India and China – countries with a combined GDP now nine-tenths that of the US and EU combined – set up their own development bank.

The adoption of Fukyama’s absurd, ego-centric, West-is-best thesis was just about forgivable during the early flush of our Cold War victory. Twenty five years on, its enduring influence amounts to dangerous delusion.

Liam Halligan is Editor-at-Large of Business New Europe.

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