ECONOMY WATCH

It was in the last decade of the last century that capitalism started the process of becoming the face of a common world order. With the demise of the Soviet Union in 1991 and the collapse of most other socialist countries, the Cold War came to an end, and the fully government-controlled economy known as socialism was confined to two or three countries. Capitalism became the accepted economy of most countries in the world. It was in same decade that new windows for capitalism opened up as markets expanded across national borders. Countries such as India, which has a mixed economy, have opened up a lot of opportunities for the private sector through economic reforms, shortly after the disappearance of socialism. Almost the whole world has shifted to a new economic order that exploits the potential of a free market economy.

Evolutionary theory that went astray

The world of globalisation was very different from the days when economies of two opposites, capitalism and socialism, existed and their mutual purchases were very limited in the context of the Cold War. This change was beyond the comprehension of those who held socialist views and practised opposition to capitalism as a religion. The reactions of such people at that time to what could be called a turning point in history were strange and irrational. For example, at the time of the collapse of the socialist nations, Communist thinker EMS Namboodiripad said: “Socialism cannot return to capitalism as man cannot return to the ape.”

The observation of Namboodiripad was based on Marxian mathematics on the evolution of economics and history. But that socialist bloc collapsed, proving that the growth from feudalism to capitalism, from capitalism to socialism, and from socialism to communism was only a concept confined to the book ‘Social Darwinism’ and that it was impossible to put into practice.

Man did not return to be an ape; but socialist countries abandoned the government-controlled economy that had existed until then and embraced the free market economy. (In fact, countries such as Russia did not return to capitalism, but abandoned socialism and embraced capitalism for the first time.

History with no end

Yoshihiro Francis Fukuyama, historian and thinker, described the transition to a new world order, ending the Cold War between capitalist nations and socialists, as ‘the end of history’. In his book, The End of History and the Last Man, Fukuyama observes that Marxian theory of the evolution of human society has become irrelevant and that liberal democracy has proved to be the most acceptable final social model for human society. He said that humanity have witnessed the end of the ideological dimension of human society and the pervasiveness of Western liberal democracy as the ultimate form of government.

But three decades after the end of “history”, there is a worldwide debate about the crisis faced by capitalism. At the same time, liberal democracy is in crisis. COVID-19 put this political and economic system in even greater danger. At a time when the spread of COVID has become one that adversely affects the dynamics of the free market, the far-right political forces who have anti-democratic genes ingrained in their genes see it as an opportunity for dominance. Is it any accident that we see economic downturns and the decline of democracy coinciding in many parts of the world including the United States, the United Kingdom, Russia and India.

Even before COVID-19, we faced a world order that was very different from the global context in which Fukuyama actually described the end of history. It is a very strange and paradoxical one.

We were witnessing a competition between the free trade model of capitalism in countries, including the US, and the government-controlled model of capitalism in China before COVID. Although Fukuyama claimed in 1992 that Western liberal democracy was becoming ubiquitous as the end of the ideological dimension of human society, what actually happened around the world was not such an evolution within the set boundaries of certain parameters.

China, which aims to become the world’s largest economic power, is ruled by the Communist Party and is a government-controlled capitalism. Over the past few decades, China has become one of the fastest growing economies in the world, proving that the notion that Communist rule and capitalism are incompatible with each other is wrong. In the same decade since the collapse of the Soviet Union, China has made it clear that it will never tolerate the mass thirst for democracy by massacring young people in Tiananmen Square. Much water has flowed down the river since.

China’s dictatorship was further strengthened and now the the president could remain in power until the death as in a monarchy. At the same time, China has become one of the most effective free market economies under government control.

The ideological war between the two political streams, known as the Cold War three decades ago, ended as a result of the democratic thirst of the people in the socialist countries. In the language of Fukuyama, the end of history. But the complex picture of today’s world shows again and again that we cannot put an ‘end’ to history so easily. Politically, liberal democracy is the most acceptable final model for human society, but China is still far behind. If the free market economy is the most acceptable final model, then China is far ahead.

The country where democracy does not exist has used capitalism most effectively for economic growth. China’s government apparatus aims to overtake the United States to become the number one economic power by 2050. But the unique global environment created by COVID-19 has put up huge obstacles on the path to that goal.

The future of history

The United States and China have come to terms with the political and economic tensions that existed between the United States and the Soviet Union three decades ago. One of the major changes of the COVID era was that the whole world turned against China, which was moving forward with a clear agenda of overtaking the United States as an economic power. The road to China’s goal of becoming number one in the world by 2050 has become extremely difficult.

There is a widespread perception that the health care system created under the capitalist model will not be capable enough to deal with the global epidemic at the same pace as COVID. It has been described as a fall of capitalism. At the same time, the world has to be aware of another great danger. In fact, the root of this failure lies in a dangerous cocktail that the world has never seen before, with a totalitarian and government-created free market economy.

While it is true that the health care system in the capitalist countries has not been able to prevent the dangerous march of corona, if the disease had erupted in a country where democracy existed, it would have taken precautions to prevent its spread at the very outset. But China had a lot to hide from the world and its own people. It was not ready for any transparent disclosure that would affect their financial goals. In fact, the COVID period revealed the dangers of dictatorship rather than the limitations of capitalism.

In 2018, addressing a world context in which the possibility of a return to socialist thought in the face of the challenges of liberal democracy was being explored, Fukuyama said in an interview, “In the light of two-and-a-half decades of new experience, the potential structural threat to liberal democracy is not that of socialism, but that of China’s state capitalist model. The Chinese openly claim that their model is superior because it can guarantee stability and growth in the long run rather than democracy. If it is bigger than the US in the next 30 years, the Chinese people will be richer and the country will stand together, then we would have to concede that their stand was the right model.”

But now it is not easy to get away with that claim anymore. It is quite doubtful whether China will be able to tell us that this is the way forward. The realisation that over-reliance on China is putting themselves at risk (not only emotionally, but also by the nations of the world recognising that it is a problem of long-term economic stability) has led the whole world to move towards a trade war with China.

The word trade war, familiar to the US world, is now included in their dictionaries all over the world. Prior to the coup, almost all countries except the US believed that a trade war between the US and China would adversely affect the global economy and should be avoided. But after the advent of COVID, these countries are choosing the path of a trade war against China (even if they do not know how long it will last and what price they would have to pay).

Of course, the post-COVID era will be a new one full of experimentation for a free market economy. And as countries move towards a de-globalisation, market contraction will occur. We are deliberately preparing to close many of the windows that were previously open. At present, we are aware of its long-term effectiveness. But what we can do with optimism is to put aside the ambitions of overgrowth and see the recession and trade war as a healthy corrective step.