Fukuyama's Post-Historical Model Got Politics Wrong and Economics Right
The 1989 economic revolution that left the United States at the top of the global economic hierarchy didn’t provoke any political quarrels—to the contrary, it caused a short post-historical era in world politics.
Thirty years have passed since Francis Fukuyama published his famous essay on the end of history. I don’t want to go into the details of his argument, but his major idea was that, since the authoritarian communist regimes and the planned economies were crumbling around the world, liberal democracy and market economy will prevail in a manner which excludes the major conflicts common for centuries—and therefore the traditional “history” terminates. In the years that passed since the essay went out, dozens of scholars have dedicated their time and efforts in denouncing Fukuyama’s thesis by arguing that history is alive and well, while those who think another way are simply “dreamers.”
Of course, there is some evidence these days that not every trend supports the idea that history has ended—but I would say that outside of the political dimension, there was another one which firmly stood for quite a long time behind Fukuyama’s proposition. If one looks on the global economy, then one should admit it has changed from 1989 to 2019 much more than global politics has. While the political rivalry actually never disappeared entirely, and nations like Russia never became liberal democracies, the “end of economic history” could be easily recorded. 1989 was not only the year when the Central European nations revolted against communism, but it was the year when Japan suffered its biggest ever financial debacle and the Soviet Union started its economic decline; both developments deprived the world of two economic powerhouses the United States was aware of for several decades. The scenarios of Japan becoming number one were forgotten and gave way to the idea that the United States entered the era of “unlimited wealth.”
The major difference between the post-historical economy that emerged in the 1990s compared with the traditional industrial economies of the nineteenth and twentieth centuries was the new type of cooperation between major economic areas. Previously the nations that tried to “catch up” actually used the same technologies as the others, but in a more effective way; this explains why their economic rivalry only reinforced the political one. The fight for the markets excluded compromises simply because the entire game was a zero-sum one: if someone’s share rose, the other’s lebensraum decreased.
The post-industrial revolution of the 1970s and 1980s changed all this. In the new globalized world the United States appeared a frontrunner in producing computers and semiconductors, in creating the operational systems these computers used, and in making the most effective economic uses of new technologies. Selling its software, the Western powers didn’t sell the knowledge embodied in the original program, they sold just the copies which could be reproduced in any additional quantity at zero cost. At the same time, the newly emerged economies in Asia used the American technologies to create the sophisticated hardware producing these goods in increasing amounts therefore establishing themselves as “ultimate industrial societies.”
This new configuration was perfectly post-historical in Fukuyama’s sense. Both parts of the world’s economy became well dependent on each other, and in this new order there were no reasons for economic wars and quarrels. If one remembers the economic history of both the 1990s and 2000s, then one will find few cases of rivalry. Being an absolute economic superpower (by 1992 producing 26 percent of the world's gross product and controlling around a half patents in force), the United States performed a super-friendly and an extremely decent economic policy vis-à-vis all potential rivals. It supported the economic reforms in Russia in the early 1990s, it bailed out Mexico from its debt crisis in 1994, it refrained from introducing any restrictions on the cheap Asian imports after the 1997–1998 financial crisis, and advocated the acceptance of China to the World Trade Organization on conditions designed rather for a mid-sized developing economy rather than for a rising industrial powerhouse. During these decades the peripheral economies grew fast, increasing the demand for U.S. technologies and software and supplying the Western nations with affordable industrial goods, thus improving the quality of life in the global North. This perfect interdependence was in itself the essence of globalization, and so the globalized world might be treated as a post-historical one.
The consequences of globalization are well known. Between 1991 and 2015, more than one billion people were taken out of extreme poverty with “emerging Asia” accounting for roughly 75 percent of this number. China emerged as the world’s largest exporter of goods in 2009, became the largest industrial producer in 2010 and the world’s largest economy by GDP measured with purchasing power parity in 2016; observers once and again repeat that “the Asian century is set to begin.” The U.S. share of the global gross product measured by purchasing parity ratio decreased to 15.1 percent by 2018 and its trade deficit grew from $31 billion in 1991 to $622 billion in 2015. The Asian nations appeared to become the holders of the largest foreign currency reserves (China, Hong Kong, South Korea, Taiwan, Malaysia and Thailand account for more than $4.65 trillion in combined international currency reserves) while the United States is now called the largest debtor nation in the world. It seemed that the resurging industrial world successively challenged the post-industrial one, and the final outcome of this epic combat was far from predetermined. But all these numbers that formally confirm that the gap between the leader and the follow-ups has dramatically been bridged do not reflect the whole situation in the global economy—and if one looks at the United States’ technological dominance, one recognizes that it’s as remarkable as it was a quarter of a century ago.
As of early 2019, more than half of all desktop or notebook computers in the world were produced in China, but the country can furnish with locally made microchips less than one-third of this number, therefore remaining highly dependent on imports while up to 60 percent of all global manufacturers rely on Intel microchips. In server processors, the Intel domination is much larger—98 percent. Both Intel and AMD lead the development of new generation chips while the mass manufacturing of these devices has been relocated to Asia—where many companies like SK Hynix of South Korea or TSMC and UMC of Taiwan position themselves as the competitors of American firms but depend on them for the most vital technologies used.
In 2018, more than 65 percent of all smartphones produced in the world were manufactured in China—and among these 78 percent were built by “genuine” Chinese brands, from Huawei and Xiaomi to OPPO and Vivo. But at the same time, 97.98 percent of all the smartphones in the world run either on Windows, Android or iOS operating systems (if all the computer and computer-like devices are counted, the share of either Microsoft, Google or Apple software comes to nonetheless impressive 95.93 percent). As the market for searches in the world wide web is concerned, Google possesses 92.82 percent compared to 1.02 percent held by Baidu, the Chinese search engine, and to 0.54 percent by Yandex pretending to be Russian high-tech sector’s undisputed leader. Among the ten most popular social networks, U.S.-based Facebook, YouTube, WhatsApp, and Instagram account for 8.12 billion users while the Chinese or Chinese-oriented QQ, Douyin and Sina Weibo for just 1.67 billion. Of close to three hundred billion emails traded in the world daily, up to 92 percent are received by email boxes registered with the U.S.-based companies—Apple and Google are clear leaders with 75 percent.
I would also argue that the U.S. “retreat” looks a bit questionable in the world where in 2007, PetroChina became the first trillion-dollar company by market value and in 2008, Russia’s Gazprom advanced to the fourth position in the list of world’s most valuable companies. As of March 2017, all the top ten companies by market capitalization were once again American—for the first time ever since the 1970s! I believe that, these days, purely financial achievement shouldn’t be overestimated: as of April, 2019, both mainland China and Hong Kong hold around $1.33 trillion in U.S. Treasuries—but if they try to sell them off no “financial tsunami” will arise since U.S. banks can easily buy them out and get loans from the Federal Reserve using Treasuries as a perfect collateral: one may remember that between 2008 and 2011 the Federal Reserve’s balance sheet grew by $2.1 trillion, so the same can well be repeated if China engages in a full-scale financial confrontation.
Two decades deep into the twenty-first century, the United States still appears to be an undisputed global leader in terms of technological domination and enjoys its superiority in each and every domain of the information economy. If any other nation tries to engage in “economic war” against the United States, then it would certainly be defeated—and not so much by financial sanctions, asset freezes, or trade embargoes but first of all through the denial of access to all U.S.-made or U.S.-controlled technological and/or communication capabilities.
Why, if all this is true, were the vast part of the global economic agents unaware of this U.S. dominance or did not take steps to counter it? My answer is simple: because the American political leadership never used this component of the U.S. strategic power for subjugating any foreign government or foreign company. Since 1990, the United States waged many wars and was engaged in a series of conflicts boldly making use of its military power in Iraq (twice), Bosnia, Serbia, Kosovo, Afghanistan, Somalia, Libya, Syria and many other corners of the globe—but it never relied on its technological superiority for promoting its political goals (I would mention that the United States applied many sanction regimes but they never ever extended these sanctions outside the domain of either financial or trade restrictions). As the information technology domain is considered, the history of war and conflict seemed to firmly end there for all the years that passed after Fukuyama outlined his famous hypothesis.
But much of this has changed in recent years as President Donald Trump decided to “stay firm” towards China and finally launched a full-scale trade war against Beijing. I contend that the United States without any doubt has good reasons for doing this, since China kept the protective tariffs against U.S. goods for years (in 2017, the United States cashed $13.5 billion in custom duties from $506 billion large Chinese imports into the United States while Chinese authorities levied $14.1 billion in duties on $127 billion U.S. imports into China), violated many American laws protecting intellectual property, forced foreign investors to share their technologies while outsourcing their production facilities to China, failed to introduce the market exchange rate for renminbi, etc. But the fundamental difference from all other trade and investment tensions that arose in the times of economic globalization was that the American authorities invoked sanctions against several Chinese hi-tech companies—most notably Huawei and ZTE—actually accusing them of industrial espionage in the United States. And even this wouldn’t change the situation much if the restrictions imposed aimed at curbing the companies’ imports to the United States or the purchases of U.S. manufactured components. But as of June 1, 2019, several U.S. companies, following the authorities’ orders, effectively banned Huawei from their services: Microsoft discontinued the supply of its Windows operating systems for Huawei laptops and other content-related services, and Google announced it blocked some elements of its Android operating system such as GoogleMaps, YouTube, Google play app and Gmail on Huawei smartphones.
It might be said that the recent developments are quite routine—once again, some U.S. companies deny access to their products due to the government regulation. But it seems to me that in this case the U.S. government crossed an important “red line”: it undermined the trust of the foreign hi-tech companies in the technological platforms that for decades secured America’s preponderance in the globalized world. Global companies like Microsoft or Google don’t produce only American software—they have for a long time been producing American soft power. Now it appears this soft power can easily be turned into a hard one at some point, and the long-term consequences of such a change may be profound.
What may happen in the foreseeable future? Of course, the affected Chinese corporations will suffer a major blow from the U.S. sanctions; Huawei and ZTE may well be stopped from their future expected expansion—but I expect the Chinese government will to retaliate. Unlike the oil producing countries or other commodity economies, China already produced billions of units of hi-tech products and definitely will continue its industrial expansion. Therefore it’s crucial for Chinese companies to develop their own operating system (Huawei already announced it will have one at its disposal as soon as by the end of this year)—and the Chinese government will do its best to help them achieve this end. Alongside, Chinese producers will aim on developing their own microchips (today not a single Chinese company is listed within top-twenty-five semiconductor producers in the world) which will not be a great problem since all the major technological recipes are already either acquired or stolen from the Western companies (but certainly it will take far longer than to introduce an original operating system). Sooner or later, another technological platform will emerge that will be able to become a competitor for the currently dominating American one.
If one looks at the growth of China’s hi-tech sector, then she or he may mention that Chinese software and Chinese social networks are predominantly used either in China itself or by overseas Chinese. This situation hasn’t changed for years—while China-manufactured goods conquered the world, Chinese software remained locked inside the Chinese community. Now the United States seems to facilitate the internationalization of the Chinese hi-tech making it a real rival to the American one. China’s strength consists of its incredible reach to the most important consumer markets in the world. While for Russian exports, e.g., the consumer products accounts for less than 3.1 percent of its overall value, in the case of China the figure exceeds 59 percent. The users of China-made computers and mobile devices abroad—around two billion people all over the globe—are China’s main economic asset, and now it will be used with all possible ardour. As a result, a real alternative to the U.S. technological platforms will emerge for the very first time after the advent of the information age.
Of course, the United States is a “die hard” opponent. In recent years it initiated at least two major economic shifts of global importance. On the one hand, the so-called Fourth Industrial Revolution put a start to fully automated production techniques, thus endangering the position of labor in the entire production chain. This undermines China’s and other rapidly developing countries’ main competitive advantage—their relatively low labor costs that propelled them towards the global industrial leadership. Therefore, American companies might be able to dissociate with their overseas production capacities and bring not only their capital but also their industrial facilities back to the United States, thus delivering an additional blow to China.
On the other hand, the United States and Europe embarked on a way towards energy independence—focusing either on non-conventional extraction techniques (in the case of the United States) or on developing renewable energy sources (in the case of Europe). Both trends will make the West much more independent from the industrial as well as from the commodity economies; they will enable the West to fight very effectively against either Chinese or OPEC/Russian claims over their role in the global economy—but at the same time they will make the West less concerned with China’s technological advances.
All this will definitely produce a kind of dissociation in the current post–historical economic system. Both parts of what some analysts prematurely started to call “Chimerica” will rely on their strongholds. In the case of China, it’s the hardware produced in the mainland and supplied all over the world: in quite a short perspective these devices will be furnished with the Chinese operational system and with microchips under Chinese brand names—and the Chinese will do their best for securing that this software cannot be uninstalled. I would also expect all the Chinese smartphone manufacturers to introduce a system replicating one created by Apple with all its free iMessages, FaceTime calls, etc. which will lift the overall demand on their produce.
In the case of the United States there are many competitive advantages as well: first of all, the United States will make full use of its total domination on the microchip market which can hurt Chinese manufacturers dramatically; secondly, it may increase its pressure on Chinese consumers as more and more software applications will not work on Chinese smartphones, and, last but not least, the West can use the global internet projects it develops for increasing its dominance—e.g., announcing that China-produced devices will not fit with the space-based internet providers. As a result, the global economic and informational realm that exists today will split with each part of it leaning to one or another dominant technological “core.” It’s difficult to say how far this dissociation may go, but the general trend it’s easy to see.
Undoubtedly, the ongoing economic and technological split will be followed by the reinforcement of political contradictions between different blocks and alliances. Today the United States has, by far, the largest number of loyal supporters: in Europe, Latin America, and Japan, local leaders will take the Americans’ side with all their devotion. The financial capabilities of the United States, its economic reach and the long-term strategic alliances will contribute to the making of the Western economic and technological area cautiously opposing the one created by China. But the Chinese also have made remarkable progress in recent two decades.
While even I wouldn’t call the Shanghai Cooperation Agreement an effective military-political alliance, China shows its capability to put it footprint in different parts of the world. Its investments into the African economies boomed from $23 to $352.7 billion between 2005 and 2018; the Chinese companies invested around $170 billion into Latin America; the government proclaimed a One Belt One Road strategy in 2014 that seeks to develop transit routes in the Indian Ocean and continental Central Asia; and, of course, Beijing did a lot in turning Moscow into its economic vassal (I would mention that in the midst of Huawei scandal, all the leading Russian mobile communication companies opted for Huawei’s hardware to comply with the new law that makes them obliged to collect and keep all the customers records for at least a year (some observers even accused the Russian parliament of acting on behalf of Huawei when enacting the law). Therefore, I would suggest that both economic superpowers may well press their allies and economically dependent nations for adopting technological and software standards that they have been developing in recent years.
How significant is the probability of “Chimerica” being destroyed due to the current economic showdown? I wouldn't exclude such a chance at all. Even though China exported more than $539.5 billion worth of goods to the United States in 2018, this made up only 4 percent of its nominal GDP while the government increased the amount of loans banks provided the local companies and households with more than 16.2 trillion renminbi ($2.4 trillion or 17.9 percent of the country's nominal GDP) during the same year. Chinese authorities seem to be reluctant in creating the greatest credit bubble in history while seeking economic growth driven by local demand—so the preparations for “decoupling” from the United States are in full swing. Of course, if the situation worsens, the world might face a full-scale economic recession—but it may well be the last recession of the globalized world and the political rhetorics during it (with praise for protectionism, export substitution, and reliance on different nations’ own competitive advantages) may contribute greatly to the creation of a “multiple globalization” scenario centered around either the United States or China. Taking into account both countries’ economic policies, I would doubt that any of them cannot survive without the other—moreover, I would argue that both nations seem to be really fascinated these days by the perspective of doing so.
The last, and maybe the most important, issue is the question whether the economic confrontation between the United States and China may cause the political tensions leading to a military showdown, not to mention war. I would argue that the current developments differ enormously from those that had led to World War I and to the profound “deglobalization” of the first half of the twentieth century. The political imperialism that used to be the world’s main feature completely disappeared in recent decades; the military and political control over huge territories proved to be far less effective than economic influence; and new military capabilities excluded the prospect of direct conflict between nuclear powers since the 1950s.
Moreover, as the ideological tensions between the United States and China (as well as its satellites, Russia included) had risen since the start of the twenty-first century, the overall economic confrontation might even have a positive effect as it looks to consume both nations’ energy and devotion, which would otherwise be channeled into the military-political buckle-up. Both China and America are now the world’s top powers not because of their stealth fighters, aircraft carriers or well-trained troops but due to their economic outreach and soft power, and this “multiple globalization” may become the perfect chance for testing how strong each country is.
The model for the new era of economic and political competition was proposed more than ten years ago by the young American strategist Parag Khanna, who argued back in 2008 that the coming world will be led by three “empires”: the United States, China, and the European Union—which all are capable of projecting their economic and societal models across the globe. All the other nations, Khanna argued, will be downgraded to either the “second” or “third world” countries as the first will be able to influence the outcome of “imperial” competition while the latter will entirely lose any role in world affairs. I would not go into greater detail of Khanna’s work, but the proposed scenario looks more realistic as the technological showdown advances than it seemed to be prior to 2008 financial crisis.
To conclude, I would argue one shouldn’t fear the advance of the post-globalized world. Economic progress has proved many times to be uneven, favoring either relative cooperation or fierce competition between major rivals. As potential adversaries mature and grow, the contradictions between them increase—but the most crucial point here is that since World War II, economic competition has become increasingly peaceful. The 1989 economic revolution that left the United States at the top of the global economic hierarchy didn’t provoke any political quarrels—to the contrary, it caused a short post-historical era in world politics. In the economic and technological sphere, the post-historical age became even longer—but it seems that while economic tensions rise, the risk of political confrontation isn’t increasing.
The main result of the twentieth century seems to be a complete shift from the military towards the economic capabilities as the main lever of the global power—and this still leaves some room for talking about our times as remarkably different from the “historical” era where war was the ultimate and beloved instrument of resolving the systemic contradictions between superpowers. Today, technological superiority, soft power and the infiltration of both hi-tech products and platforms is the key factor for executing worldwide dominance—and this might be a very good news for all of us, the news that is fundamentally compatible with what Fukuyama wisely observed thirty years ago.
Vladislav Inozemtsev writes on global economy and modernization from Moscow and Washington. He is the author of Catching-Up? The Limits of Rapid Economic Development (Transaction Publishers) and Unmodern Nation: Russia in The 21st Century World (Alpina Publishing, in Russian). Dr. Inozemtsev advised both Commission on Modernization of the Russian Economy under President Medvedev in 2009–2011 and several Russian liberal politicians in more recent years.
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