When, some twenty years ago, Francis Fukuyama wrote his article, “The End of History?”, it was greeted with much skepticism.

In the eyes of many commentators, this was naive and simplistic American capitalist triumphalism (many did not notice the question mark at the end of the title).  Fukuyama developed his ideas further in a book published a couple of years later entitled The End of History and the Last Man.

According to Fukuyama, the end of the Cold War represented something very fundamental in world history.  It was the ultimate triumph of Western liberal democracy following a century of violence during which “liberalism contended first with the remnants of absolutism, then bolshevism and fascism, and finally an updated Marxism that threatened to lead to the ultimate apocalypse of nuclear war”.

The twentieth century, which began full of self-confidence, turned full circle with the victory of economic and political liberalism.  “What we may be witnessing is not just the end of the Cold War, … but the end of history as such: that is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government.”

Fukuyama was cautious enough to recognize that while liberal democracy may have won the victory of ideals, it may only be in the long run that we see it in existence everywhere.  Indeed, he argues that at the end of history it is not necessary that all societies become successful liberal societies, merely that they end their ideological pretensions of representing different and higher forms of human society.

The victory of economic and political liberalism was in many ways the beginning of real globalization.  While following the second world war, flows of international trade and finance expanded to a progressively broader of countries, the end of the Cold War meant that virtually all the countries of the world were participating or had the potential to participate in the global economy.

So, twenty years down the track, it seems valid to ask whether globalization is still the end of history, particularly at this moment of global financial and economic crisis.

Despite their attraction in the 20th century, there seems to be no threat of communism or fascism returning.  And while nationalism and religious fundamentalism are ever present, again there seems to be no threat of them emerging as global ideologies.

However, the crisis has highlighted many weaknesses in the model of globalization.  The threats to globalization come from within, rather than without.  It is a model that has favoured the short term over the long term, the financial sector more than industry, and almost blind faith in markets rather than government.  It is a system that generated financial innovation that no-one could effectively regulate, or barely understand.  Wall Street had seduced Washington into believing that everything was under control.

It had of course been a very successful model, as poverty reduction, especially in East Asia, was enormous.  But it is a model that led to massive imbalances in terms of US borrowing and the buildup of foreign reserves, especially in China.

Governments have responded massively and quickly to the crisis, and seem to have steadied the boat.  It is still a bit rocky, but the mood has changed.  While we cannot be certain, the US may even bounce back from the crisis more quickly than everyone expected.

In responding to the crisis, there are of course many differences of view in terms of the necessary extent of financial market regulation, and also the extent to which such regulation should operate at the international level, or be merely co-ordinated between national governments.  There are even questions about how effective we can expect regulation to be -- implementation is easier said than done.  And there are also differences regarding how much stimulus our economies require.

But no-one is suggesting dismantling globalization.  The developing and emerging economies that benefited so much on the way up in the boom, are now squealing for assistance.  But they are also crying for markets to remain open.  They are not threatening to return to state-led development.  Even some of the Europeans who were rejoicing in America's demise, are now coming to terms with the fact that their financial sector also went off the rails with housing bubbles in some countries and reckless investments in Eastern Europe, not to mention investments in US toxic assets.

Overall, it seems that globalization has survived its first major test.  Globalization is still the end of history.  "Globalization is dead; long live globalization."

But as we know from our reading, that history does not end.  Economists' ideal of a steady state or long-term equilibrium has never occurred.  US Federal Reserve Governor, Ben Bernanke, must now be regretting his 2004 speech on the "great moderation".

What seems clear is that globalization is becoming even more boom-bust.  Also, it is clear that markets are not always characterised by traditional economic rationality, psychological factors play an important role in consumer and market behaviour.

The next boom will be energy and commodities again.  Prices are already picking up.  This will provoke an investment boom in alternative energy.  Followed by a bust.

All that I can say is "hold on tight to your dreams"!

Reference:

“The End of History?”, Francis Fukuyama, The National Interest, Summer 1989 -- http://www.wesjones.com/eoh.htm

"The Great Moderation", remarks by Federal Reserve Board Governor Ben S. Bernanke, at the meetings of the Eastern Economic Association, Washington, DC, February 20, 2004 -- www.federalreserve.gov

http://www.amazon.com/End-History-Last-Man/dp/0380720027