COMMENT: 2014 – when the "End of History" ended

By bne IntelliNews December 15, 2014

Peter Szopo in Vienna -


It seems 2014 will not be remembered as the year when World War III started. Probably it did not even come close – although, as historians like to point out, a hundred years earlier at the beginning of 1914 even well-informed commentators had thought that the risk of another big war was slim. Of course, the personnel in charge matters. Just imagine the Ukraine crisis taking place under a President John McCain and a Secretary of State Victoria Nuland, with Dmitry Rogozin leading the Russian side, and Anne Applebaum and Sergey Glazyev acting as respective government spokespeople.

Fortunately, things will likely turn out less dramatic, but still bad enough. We will not end up in another Big War but in a stalemate, which has been somewhat euphemistically labelled ‘frozen conflict’. Fights may continue, but will (hopefully) stay local, occasional spats between the US/EU and Russia will keep the core of the sanctions in place for an extended period, and Europe will struggle to prevent a complete collapse of Ukraine’s economy.

Still, 2014 will play a prominent role in future history books – from a global, a European and a Russian point of view.

China rises

Globally, 2014 will enter history books as the year when China overtook the US as the world’s largest economy based on IMF calculations. This is, of course, mostly a symbolic change without any immediate real impact. It is also worth noting that China only takes the lead when its GDP is calculated in terms of purchasing power, while at current exchange rates the US economy is still 70% bigger. However, many see this as technical finesse and, like Nobel laureate Joseph Stiglitz, announced the dawn of "The Chinese Century”, which will not only raise the awareness for the Chinese model of state capitalism as an alternative to US-style capitalism, but also carries the risk of growing geopolitical tensions between the old and the new superpower.  

This year will also be remembered for its 40-plus percentage decline in the price of crude oil – the steepest fall since 2008 and the second steepest in the past 25 years. Its impact on the global economy – whether it is providing a boost to global growth or just represents a wealth transfer from oil-producers to consumers – is going to fill scholarly journals and financial blogs. Whether 2014 will also be the starting point of a lengthy period of low oil prices, as some hope, is less certain, however. While the US shale-oil revolution will have a lasting impact on the functioning of the oil market, boom-and-bust cycles in the sector are not a new phenomenon. Current low prices will trigger supply adjustments – given that the new supply is “fairly expensive oil” – as well as demand reactions, leading some analysts to expect that “the global surplus of oil is likely to correct itself fairly quickly in the first quarter of 2015.”

For Europeans, 2014 will live in the memory as the year when a long-lasting alienation between Europe and Russia started. Of course, political and economic relations between countries are never beyond repair. However, with no resolution of the Ukraine crisis in sight and the mistrust between Western leaders and President Valdimir Putin, with the latter portrayed as a quasi-lunatic dictator in Western media, it is hard to see relations turning normal over the next couple of years. Even if European sanctions were not extended into 2015, US sanctions alone will remain an obstacle to normal economic relations between the EU and Russia. For years to come, therefore, Europe’s role in investing in and providing technology to Russia will remain subdued, energy-related disputes will continue and the access of European companies to the Russian market for consumer and capital goods will suffer.

Of course, 2014 will also feature prominently in future books on Russian economic history. Due to the souring economic relations with Europe and the drop in crude prices, it will probably be labelled “Year of the double-whammy”. While the Russian economy turned out to be more resilient during 2014 than initially thought, the situation is deteriorating, with sovereign yields touching 13% in December, persistent pressure on the currency and growing recession risks in 2015, which will likely be followed by an extended period of slow growth. Even more important than the economic outlook as such will be another aspect, related to the fallout from the confrontation in Ukraine: 2014 will be seen as the year, when Russia adopted a new economic and, in fact, political model. “Russia will be in the business of import substitution industrialization, promoting domestic agricultural production, and seeking to create a measure of financial autonomy,” as Dmitri Trenin put it.

The new model will be characterised by an even higher degree of state involvement in economic affairs, efforts to become autarkic in key areas and attempts to form new alliances in the developing world. Russia’s widely discussed Asian pivot will be seen as part of this strategy, although Asia is unlikely to replace Europe as its main trading partner anytime soon.

Future Russian historians will also note that the new economic strategy came in tandem with a more authoritarian bias in Russian politics. On the back of his surging popularity – with 2014 probably marking the peak - and following his etatist instincts, President Putin will see even less benefits from catering to the country’s liberal elite. In contrast to what some in the West naïvely had hoped for, the confrontation in Ukraine failed to unsettle the incumbent president, but turned the crisis into a setback for “whatever prospects remained in Russia for further democratization or re-democratization, possibly a whole generation”, in the words of Stephen Cohen.

Lost decade

How Ukrainians will remember 2014 is uncertain. There are those who argue that it was the year when resistance to Russian aggression ultimately resulted in a big “win” for the country, because 23 years after independence Ukrainians – at least a huge majority – began feeling “a sense of identity and affinity with the state of Ukraine”. Others, however, will see 2014 not only as the year when Crimea was lost, but when a bitter civil war started that strengthened the centrifugal forces in the country, leading to the de-facto separation of its Eastern provinces.

Even if Ukraine will survive as a unified state, 2014 – like the historical role of Stepan Bandera – will forever be seen differently in its Western and Eastern parts. In economic terms, 2014 will be remembered as the beginning of a prolonged period of hardship and macroeconomic troubles. There are serious doubts whether the country will be able to avoid bankruptcy in the near-term and whether the economy will start benefitting from its reorientation from Russia to the West, given Western limitations to provide support.

There are a couple of more developments – even if they started already a couple of years earlier – which future historians may link to the year 2014. Candidates include the growth slowdown of China’s economy or the Eurozone’s failure to keep track with the US recovery, which many fear is marking only the beginning of a “lost decade” for Europe’s economy.

Possibly less consequential than the developments mentioned above but still worth pointing out, is the fact that 2014 will be seen as the year when “The End of History” ended. That history as we know it ended together with the collapse of communism was the main message of Francis Fukuyama’s brilliant and influential 1989 essay, in which the author – mostly leaning on the work of the Russian émigré Alexandre Kojève – predicted the emergence of the “universal homogenous state”, reflecting any “viable systematic alternatives to Western liberalism”. This new state of “liberal democracy in the political sphere combined with easy access to VCRs and stereos in the economic” would see “no need for generals or statesmen”, as all prior contradictions would be resolved and all human needs satisfied. Of course, being a sophisticated scholar, Fukuyama identified the two main counteracting factors, ie. religion and nationalism, but he essentially dismissed the idea that they could turn out to be serious threats to his post-historic utopia. Yes, conflicts between states would be possible but increasingly unlikely, because “large-scale conflict must involve large states still caught in the grip of history, and they are what appear to be passing from the scene.”

In retrospect, Fukuyama’s vision, for all its scholarship, now reads somewhat credulous, if not naïve. The events of 2014 show why.

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