Francis Fukuyama’s 1992 book “The End of History” propounded a Utopian vision in which the fall of Communism had left liberal democracy as the universal global ideology, ending conflict and producing an era of universal prosperity. Thirty years later, we can see the reality more clearly: the intellectual mainsprings of Communism never fell, “liberal democracy” was a myth and the society towards which we are heading is a dystopia, not a Utopia.

In retrospect, the victory of 1989-91, caused by the wise statesmanship of Ronald Reagan and Margaret Thatcher, was a victory not over Communism, but over a particular manifestation of Communism represented by the Soviet Union and its satellites in Eastern Europe. Other Communist societies – China, Vietnam, North Korea and Cuba, for example – never transitioned to free capitalist states, though at the time Fukuyama wrote they were expected to do so. Only in the former Communist countries of Russia and Eastern Europe (with the possible exception of Belarus) did Communism truly die, at least for the moment

In Russia itself Vladimir Putin is a kleptocratic tyrannical thug, as were many Russian rulers before the 1917 Revolution, but he is definitively not a Communist. Russia has a free-market economy with many fine publicly listed companies, and its income tax was until 2021 levied at a “flat” 13%, a better tax system than in almost anywhere else in the world. The income tax rate is expected to rise a second time in 2024 because of the Ukraine war, but only to a top rate of 22%, still far below U.S. levels, let alone the exorbitant tax rates in Western Europe. As a result, while the largest Russian companies are heavily influenced by the state, medium sized and smaller companies have flourished, and Russian GDP per capita has increased from $1,898 in 2000 to $15,487 in 2022, a compound growth rate of 10.0%, comparable to that in China, above India and far ahead of the West.

Even in 1992, the Western liberal democracies that Fukuyama extolled were not purely capitalist and suffered from their divergence from capitalism. The “Washington Consensus” propounded in 1989 by John Williamson was intended to represent Fukuyama’s idea of liberal capitalism, yet when examined in detail it was unpleasantly statist. For one thing, it assumed a large and meddlingly intrusive state. Public expenditure was to be redistributed from subsidies towards provision of “pro-growth” services – which sounds sensible, until you reflect that subsidies mostly reach their recipients and are spent as the recipient wishes, whereas public services, however “pro-growth” generally involve a huge overpaid lumpen-bureaucracy sucking out cost and allocating services in ways annoying and intrusive to the recipients thereof. The Washington Consensus also favored free trade, particularly in imports, thereby hollowing out domestic industries and creating inefficient, over-complicated and therefore fragile global supply chains.

Other elements, such as market interest rates, fiscal discipline, privatization, deregulation and secure property rights conformed more closely to the ideals of capitalism, but in doing so they were naturally unattractive to the global left who even in the 1990s had an unpleasantly large influence on the world’s decision-makers. The Washington Consensus, inevitably tweaked leftwards, was thus already not capitalism — at most a second-best solution to the problems of economic development. Alas, after 2000 the world’s policymakers drifted away from the Washington Consensus, inevitably in the wrong direction, distancing the world from even second-best capitalism.

The first major deviation from the Washington Consensus came in monetary policy. The Consensus had called for interest rates that were “market determined but positive (but moderate) in real terms.” In February 1995 Fed Chairman Alan Greenspan had changed the direction of monetary policy, ending the rise in the Federal Funds rate at 6% and beginning to lower it. By the end of 1996, even though the stock market had risen to record levels – up more than 50% in 21 months, Greenspan merely denounced its “irrational exuberance,” then proceeded to do nothing to check it. That allowed the dot-coms to create a gigantic wasteful bubble of idiotic investment, which duly burst in 2000.

After the bubble burst, Greenspan was far more aggressive in cutting interest rates than in previous cycles, reducing the Federal Funds rate from 6.5% to 1.75% by the end of 2001, making real interest rates substantially negative. He then lowered rates even further to an unprecedented level of 1% by the end of 2003. This was far below the rate of inflation even as the economy was recovering; it marked the beginning of a 19-year period ending in 2022 during which Greenspan and his successors Ben Bernanke, Janet Yellen and Jerome Powell kept U.S. interest rates consistently negative in real terms for almost two decades.

This period of ultra-low interest rates, copied worldwide by central bankers as convinced as the ineffable Ben Bernanke that their superior wisdom allowed them to set the price of money at a rate far from the market-clearing level, violated both parts of the Washington Consensus prescription. Interest rates were nether market-determined nor modestly positive in real terms. This policy has pushed the global economy far from a healthy path, causing through misdirected investment a worldwide blight of slow or even negative productivity growth and allowing the centrally planned China to outperform the supposedly free-market West.

Today’s Western weakness and “Axis of Evil” strength is due primarily to this appalling and prolonged monetary error, which has been accompanied by massive Central Bank buying of government bonds, a strict no-no under Washington Consensus policies (I remember being lectured on the subject by IMF economists when I was in Croatia in 1996-7). In the monetary area, the global economy has been subjected to Soviet-style central planning, and the results have been a prolonged Soviet-style malaise

A second deviation from the Washington Consensus, related to the first, has been the abandonment of fiscal discipline. In 1999 and 2000, the Federal budget was balanced, but the George W. Bush administration, allured by the enticing prospect of endless wars in the Middle East, both cut taxes and increased military and security spending, thereby unbalancing it. Following Bush’s departure, the 2008 financial crisis and subsequent sluggish recovery, together with negative real interest rates, gave governments all over the world an excuse to indulge in an orgy of debt creation, which was worsened by the “stimulus” follies of the 2020 Covid-19 epidemic.

Consequently, public debt to GDP ratios are far above historic levels throughout the world, and immense resources are yearly being transferred from the productive private sector to the bloated public fisc. Small decisions such as the new U.K. Labour Chancellor of the Exchequer Rachel Reeves’s decision to abolish the modest heating support payment to pensioners, a cash payment that helped with spiraling U.K. energy costs, and devote the proceeds to 22% public sector pay rises may theoretically follow the Washington Consensus recommendations; in fact they demonstrate that program’s statist folly. Reeves and her counterparts in Europe and probably the United States are going to put taxes up even further rather than cutting government bloat, thereby plunging the global economy even further into decline.

Finally, in the last decades the Washington Consensus’ recommendation for reducing regulation has been grossly flouted by the “climate change” mania. This has caused a blizzard of new regulations in all Western countries (not matched in the Third World, now the major carbon emitter) aiming to achieve “net zero” carbon emissions by some fanciful date in the future. The crazed enthusiasm of the Left to boss around their fellow citizens has been given full rein. Moreover, criticisms of this insanity are increasingly being punished by imprisonment, through court systems where judges, lawyers and juries are all thoroughly infected by the mania.

We have come a long way since the glory days of the faltering “Washington Consensus” and are now fully embarked on economic policies that fall firmly on the Communist side of the line, with elections increasingly suspect and imprisonment for dissent increasingly common. History did not end; it has returned us to the economic prison from which we thought the world had escaped. Joseph Stalin would crack a grim Slavic smile.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)