Saturday, April 4, 2020

Economic ‘End of History’ Now Even More Consequential than Political One Fukuyama Spoke of 30 Years Ago, Inozemtsev Says

Paul Goble

            Staunton, April 1 – Given the retreat from democracy around the world, many people have rejected the notion of the kind of political “end of history” Francis Fukuyama wrote of three decades ago; but perhaps more important, they have missed the economic “end of history” that has taken place more recently, Vladislav Inozemtsev says.

            The new “end of history,” he suggests, is an economic one, reflecting a remarkable development: “Beginning from the 1970s, Western countries have not so much adapted themselves t new economic realities as created them,” moving far beyond the model of the industrial era some like Russia are still mired it (

            And it has meant, Inozemtsev continues, that they, as “competitive and technologically flexible” economies have stolen a march on those based on the export of raw materials or technological borrowing. The latter countries briefly looked as if they were the winners and people talked about “the decline of the West.” But that isn’t how things have worked out.

            In fact, “China and Russia have prepared for opposition to the America of the end of the 1990s and not of the beginning of the 2020s.” And that is doomed to fail: “Reserves cannot today be an effective means of salvation” given that “the West has created its own ideal ‘economic fortress,’ any struggle with which today is practically impossible.”

            “The dollar is dominant in the world economy not because oil is traded in it as it seems to geniuses in Moscow and Tehran who want to shift accounts to rubles or euros. It is the world currency because the US is the purchasers and creditor of last resort – that is, as a result of its openness and recklessness that in Russia or China are considered risk factors.”

            The current use of the dollar is “a condition of stability” because the more dollars are in circulation, the lower the borrowing costs for the US and thus the greater ability of Washington to borrow and deploy money, as now, to defend against economic shocks and promote renewed growth.

             “But that is not all,” Inozemtsev says. “Besides the formation of almost an ideal balance in foreign accounts, one must not fail to see the radical change of the situation within the country.” In 1989, the capitalization of the stock market in the US was 58 percent of GDP; now, it is 159 percent. Some say this is a bubble, but it is not just that.

            According to the economist, “in the new ‘economy without complexes’ [of the US and other Western countries], the more and decisively you spend, the richer you become,” a sharp contrast with 20th century economies like the Russia where everything is exactly the opposite. This has enormous consequences for both the former and the latter.

            First, “today, the more developed economies have created a new model of production in which consumption itself is a form of investment.” Second, in response to crises, the Western world has learned to mobilize unlimited means at almost zero percent,” while Russia and China have to pay far higher rates.

            And third, “the new economic reality with a high degree of probability is destroying prices on globally traded goods … which is leading to an unprecedented redistribution of wealth in favor of the developed countries.” Very low prices for oil and other natural resources are likely to be the “new normal” for some time to come.

            “In this situation,” Inozemtsev continues, for Russia and China, “the optimal strategy is cooperation and even ‘integration’ into this new world.” But Moscow and Beijing have “in recent decades chosen the method of the USSR: seeking growth by exporting raw materials to the West or industrial production” and waiting for concessions.

            But neither capital seems to recognize that in the current competition, its resources are “not only unequal but not even comparable.”  They are fighting a war that no longer exists with weapons that no longer work.

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