Democracy and free markets

25 years after the fall of the Berlin Wall

This year marks 25 years since the fall of the Berlin Wall and the publication of Francis Fukuyama’s essay ‘The End of History?’ The collapse of communism in Central and Eastern Europe ended the long ideological struggle between free-market liberal-democracy and centrally-planned totalitarianism.  

With communism completely discredited, free-market liberal democracy emerged triumphant. It represented, in Fukuyama’s estimation, the pinnacle of economic and political institutional development. 

To be sure, Fukuyama argued, conflict would continue in “the vast bulk of the Third World [that] remains very much mired in history.” National and religious hatreds, for example, were not about to go away. Post-historical societies, however, would embark on “’common marketization’ of world politics.”

Taking their cue from Western Europe’s successful creation of the common market, Western offshoots in North America and Asia would embrace free trade, and usher in an era of peaceful coexistence and material abundance.

By 1992, the year that Fukuyama turned his original essay into a book entitled “The End of History and the Last Man,” the Soviet Union was gone. Mikhail Gorbachev’s experimentation with “glasnost” and “perestroika” had failed, and independent Russia embarked on its ultimately doomed attempt at economic and political liberalization. In less than a decade, Islamic fanatics flew airplanes laden with people and fuel into the Twin Towers in New York City, and the United States launched its disastrous campaigns in Iraq and Afghanistan.

History, it seemed, has made a very decisive comeback.

Since the end of the post-Cold War euphoria, and the onset of the War on Terror and the Great Recession, the world has acclimatized to a steady stream of bad news. Yet the data shows something rather different. It shows that Fukuyama has been, if anything, not sanguine enough. The “future,” it seems, has turned out to be better not only in post-historical countries, but also in counties still stuck in history.

Free trade continues to flourish

Since the end of the Cold War, there has been a venerable explosion in free-trade agreements. As the World Trade Organization, a successor to the Global Agreement on Tariffs and Trade recently put it, “In the period 1948-1994, the GATT received 124 notifications of RTAs [Regional Trade Agreements] and since the creation of the WTO in 1995, over 400 additional arrangements covering trade in goods or services have been notified.” New free-trade mega-deals, including the Transatlantic Trade and Investment Partnership between the United States and the European Union, and the Trans-Pacific Partnership between the Pacific Rim countries, are in the works. Moreover, as the graph A shows, the trend toward freer trade has not stopped as a consequence of the Great Recession. See graph A 

Marian_Figure-A.jpg
GRAPH A

(In this graph, the solid red line represents all RTAs that are currently in force, while the solid blue line represents all RTAs in existence, including those RTAs that are currently inactive. The red bar chart represents all RTAs concluded in a given year that are currently in force, while the blue bar chart represents RTAs that were concluded, but are currently inactive.)

Perhaps more surprisingly, the appeal of free trade transcends the divide between the “historic” and “post-historic” parts of the world. Africa, for example, already has a number of functioning free trade zones, including Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC). In 2008, African leaders signed a pan-African Free Trade Zone. While AFTZ remains little more than an ambitious goal, it is telling that the case in favor of free trade is accepted even in this most economically illiberal part of the world.

As Fukuyama understood, free trade had been instrumental in the rise of the West. Today, it is also seen as instrumental to the well-being of the Rest. As David Dollar and Aart Kraay of the World Bank put it in a 2001 study, “Openness to international trade accelerates development: This is one of the most widely held beliefs in the economics profession, one of the few things on which Nobel prize winners on both the left and the right agree.”

The link between free trade and peace is more controversial. Specifically, the skeptics argue, high volumes of trade and concomitant interdependence did not prevent Germany from going to war with Great Britain and France in 1914. True, free trade is no guarantee of peace. That said, the political and military leaders who led the European continent to mass slaughter in 1914 and, inadvertently, contributed to the rise of communism and fascism, did not have the benefit of knowing what the world would look like in the absence of free trade. Thanks to World War I, we know exactly what to avoid.

Democracy is on the rise

As with free trade, democracy has blossomed since the end of the Cold War. The Center for Systemic Peace in Virginia collects a highly regarded and widely used data series on trends in global governance. The latest version of the CSP data called “Polity IV” measures the level of democracy in independent countries of more than 500,000 people between 1800 and 2013. The Polity score “ranges from -10 to +10, with -10 to -6 corresponding to autocracies, -5 to 5 corresponding to anocracies, and 6 to 10 to democracies.” As can be seen in graph B, beginning in 1989, there has been a great increase in democracies (blue line) and a corresponding decline in autocracies (red line). The number of anocracies (black line), or “regimes where power is not vested in public institutions but spread amongst elite groups that are constantly competing with each other for power,” has also risen. See graph B 

Marian_Figure-B.jpg
GRAPH B

As with free trade, the process of democratization has spread into the “historic” parts of the world. In Africa, for example, the 1990s were marked by a significant decrease of autocracies and a moderate increase in democracies. See graph C 

Marian_Figure-C.jpg
GRAPH C

Of course, not all democracies are liberal democracies. To simplify, a democracy is a system of government where all citizens get a say in the creation of laws through elected representatives. A liberal democracy also allows for universal suffrage, but limits the power of the democratic majority through the protection of individual and minority rights. It is characterized by the separation of powers, the rule of law and civil liberties.

The CSP differentiates between democracies along analogous lines. For example, the CSP’s democracy “scale discriminates among Western parliamentary and presidential systems based on the extent of constraints on the chief executive. Charles de Gaulle as president of the French Fifth Republic operated within slight to moderate political limitations. Thus the early years of the Fifth Republic have lower democracy scores than the United States or the Federal Republic of Germany, where constraints on the executive approach parity.”

The closer a country gets to a perfect score of ten, the more it can be described as an “institutionalized democracy” characterized by “three essential, interdependent elements. One is the presence of institutions and procedures through which citizens can express effective preferences about alternative policies and leaders. Second is the existence of institutionalized constraints on the exercise of power by the executive. Third is the guarantee of civil liberties to all citizens in their daily lives and in acts of political participation. Other aspects of plural democracy, such as the rule of law, systems of checks and balances, freedom of the press, and so on are means to, or specific manifestations of, these general principles.”

In 1989, only 40 countries in the world scored eight and above. By 2013 that number rose to 72. In 1989, only one African country (Mauritius) had a score of eight or higher. By 2013, Mauritius was joined by Botswana, Ghana, Comoros, Kenya, South Africa and Cape Verde. In the light of the reversal of democratic gains in Russia and continued autocracy in China, some commentators have been tempted to despair about the future of political liberty, especially in the developing or “historic” world. The numbers do not support such pessimism and the appeal of the Chinese (let alone the Russian) political models to other countries, should not be overestimated.

Expanding circle of empathy

The spread of liberal (and non-liberal) democracy and free trade was accompanied by a remarkable decline in violence. According to the CSP data, “societal,” or intrastate, conflict in the world reached its apex in the early 1990s, while intrastate conflict reached its highpoint in the mid-1980s. Since then, there has been a precipitous decline in both kinds of violence, with interstate conflict virtually ceasing to exist. See graph D 

Marian_Figure-D.jpg 
GRAPH D 

To this salutary trend, we have to add other remarkable developments. According to the World Bank and the OECD, women hold more political and economic power than ever before. Similarly, girls are attending schools at a record rate, even in truly “historic” places like Afghanistan. In 1989, Professor Steven Pinker of Harvard University has shown, homosexuality was decriminalized only in 49 countries. By 2009 that number rose to 83. According to the same author, racial discrimination has been declining for a long time. After 1990, as graph E demonstrates, the decline in racial discrimination gathered more speed. See graph E  

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GRAPH E

Data suggests that we are living in an age of rapidly “expanding circle,” to borrow Princeton University’s Professor Peter Singer’s phrase, of empathy. While intra-state ethnic and religious conflicts persist in some parts of the world, the trend points to a growing acceptance of the moral imperative for equal treatment of women and other races. This trend could, in turn, further stimulate the democratic and economic trends identified by Professor Fukuyama.

As more people exercise their right to participate in the political process and freely engage in economic exchange across borders, the future of free-market liberal democracy should be even brighter.

 

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Marian Tupy

Marian  is the editor of HumanProgress.org. He specializes in globalization and global wellbeing, and the political economy of Europe and sub-Saharan Africa. His articles have been published in the Financial Times, Los Angeles Times, Wall Street Journal (U.S. and Europe), The Atlantic, Spectator (UK), Weekly Standard, Foreign Policy, Reason magazine, and various other outlets both in the United States and overseas. Tupy has appeared on The NewsHour with Jim Lehrer, CNN International, BBC World, CNBC, MSNBC, Al Jazeera, and other channels. He has worked on the Council on Foreign Relations’ Commission on Angola, testified before the U.S. Congress on the economic situation in Zimbabwe, and briefed the Central Intelligence Agency and the State Department on political developments in Central Europe.
 
 

Marian Tupy
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Cato Institute,
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