Thirty years on from the Berlin Wall and capitalism needs a serious makeover

Graphic drawing of Germany and graffiti
The Eastern bloc of diverse nations began adopting free markets in the 1980s as prices were liberalised and voucher privatisations spread property rights

Amid the election madness, this weekend marks 30 years since the fall of the Berlin Wall. The most seismic political event of the second half of the 20th century, it has been much commented upon but less widely understood.

The peaceful revolution of November 1989 sparked the collapse of communism, of course. But far from the “end of history” – as the historian Francis Fukuyama famously claimed – the Soviet Union’s demise heralded an era when history significantly sped up.

The state-planned economies – with their ghastly oppression and inefficiencies – rapidly disintegrated. A welter of previously closed, moribund economies across Eastern Europe, Russia and Central Asia spluttered into life, enduring much hardship and uncertainty, but lurching unequivocally forward.

Diverse nations, lumped together as the “Eastern bloc” in the news bulletins of my youth, began adopting free markets – as prices were liberalised and voucher privatisations spread property rights. Changes that took decades or even centuries in previous eras were compressed into just a few volatile years. Other Soviet- influenced nations, too – including China and India – shed most vestiges of communist economics, embracing free markets to a far greater extent.

Yet Fukuyama’s “end of history” thesis was still glib, triumphalist nonsense. This Japanese-American academic claimed that, with communism beaten, the entire world would be on a fast-track to liberal democracy, an Anglo-centric nirvana where Western capitalism would reign supreme.

In this picture taken on November 10, 2019 in Berlin, West-Berliners break the Berlin Wall with hammers and crosses Credit: DPA

Three decades on since the bipolar world of the Cold War, two superpowers separated by an Iron Curtain, that hasn’t happened. In today’s multipolar, globalised age, the West’s enemies are numerous and hard to identify, clustered under headings from “cyberterrorists” to “radical Islamists”. Since the Berlin Wall fell, a pattern of clear, easily explained conflicts and divides has given way to an anarchic, belligerent mess of shifting alliances.

Politically-speaking, then, Fukuyama’s “end-of-history” thesis could not have been more wrong. He was wrong economically, too. For while state-planning has thankfully retreated, the “Western model”, rather than winning, is suffering a deep credibility crisis.

Back in November 1989, songs of freedom rang out over Alexanderplatz. Thousands of scruffy students braved the cold to smash down the Wall. I was among them, having absconded from university and hitchhiked to Berlin – a life-changing experience which saw me later spend years living and working in the post-Communist world. During those early days of change, I vividly recall the near-universal mainstream Western view of what was to come – a worldwide upsurge of free markets and liberal democracy.

Since then, billions of people have indeed been lifted from poverty. As the former Soviet economies and most developing nations have grown richer, the share of the global population in “extreme poverty” has plunged from 37pc in 1990 to under 10pc of a much bigger number.

This unalloyed triumph, the most important economic phenomenon of the last three decades, has been driven by the spread of property rights, contract law and enterprise – in other words, by capitalism.

What we’ve seen, though, is that all kinds of countries have taken all kinds of economic routes to greater prosperity – part capitalist, part state-planned – under all kinds of democratic and non-democratic systems, from universal suffrage to none. It is by no means true that the post-Communist nations – with their distinctive histories, cultures and moral codes – must replicate or even follow West European or American historical experience to achieve economic and political success. That was always absolutist nonsense, however fashionable it was as the Berlin Wall fell.

In 1999, after a decade of traumatic transition, Russia’s GDP per head was roughly a quarter that of the US. Now it is almost half – considerable progress, despite a still state-heavy economy and, at best, managed democracy. China’s per capita income over the same period has soared from 8pc of the US level to almost 30pc now – with a closed capital account, a highly-restrictive international trade regime and ongoing political dictatorship. Incomes in Poland, a relatively liberal post-Communist nation back in 1999, were 30pc of those in the US a decade after the Berlin Wall came down. Now they are 51pc – only slightly ahead of Russia.

These numbers reflect many factors – not least each country’s starting point. But the point is all three nations, having each achieved impressive partial “catch up” over recent decades, have done so under economic and political systems entirely different from each other – and very different from those in the West. What’s more, any inclination to “Westernise” has long since started to ebb.

Traders working in the product options pit at the New York Mercantile Exchange in New York in 2008 as the collapse of Lehman Bros began to hit home  Credit: Seth Wenig/AP

#The 2008 financial crisis was sparked when woefully under-regulated banks collapsed in New York, London and other Western capitals, sparking a systemic global meltdown – exposing and then compounding the fiscal weaknesses of some of the world’s most advanced economies.

We’ve responded not by fixing the underlying causes of the most catastrophic breakdown of Western economics in almost a century, but by maintaining our “too-big-to-fail” banks, implementing largely ineffective financial reforms, taking on yet more debt and massively expanding central bank balance sheets. Another major crisis now looks to be in the works – to which Western leaders and financial authorities have even less scope to respond.

Thirty years on from the Berlin Wall, then, far from being triumphant, it would be fair to say capitalism needs a serious makeover. This is a reality Boris Johnson must grasp.

Because, for millions of UK voters, “the system” isn’t working. Too many sectors – from banking, to telecoms, utilities and house-building – are dominated by a few large companies, resulting in bad consumer outcomes, including poor service, low trust and high prices. When Jeremy Corbyn claims “the system is rigged”, that statement hits home in countless British hearts and minds.

Since 2008, UK lawmakers, as in many Western nations, have become far too tolerant of monopolies, oligopolies and other restrictive practices. When important sectors become over-concentrated, capitalism misfires, losing the broad consent on which it depends – allowing Corbyn and Co to offer simplistic, highly-interventionist solutions that make matters far worse.

Capitalism takes many forms – as we’ve seen since the Berlin Wall fell. It can be state-dominated and repressive – or it can be democratic and progressive, which is what we want. That means promoting consumers over producers, small firms over big business, efficiency over cronyism, competition over collusion. Such outcomes don’t just happen, Boris. They need to be won.