Turning Points

 2012 in review


WE yearn for turning points. Just as economists have predicted nine out of the last five recessions, so journalists have surely reported nine out of the last five revolutions. Every election is hailed as epoch-making. Every president is expected to have a new foreign policy “doctrine.” A minor redesign of a cellular phone is hailed by the devotees of the Apple cult as a “paradigm shift.”

The point about paradigm shifts, as Thomas Kuhn pointed out in “The Structure of Scientific Revolutions,” is that they don’t happen every other year. They are slow, because even when a new insight is right — dazzlingly right in hindsight — vested interests and other forms of inertia resist its adoption. The same is true for big political discontinuities. They just don’t happen that often.

In 2012 there were a whole bunch of elections, not only in the United States but also in France, Mexico, the Netherlands, Russia, South Korea, Taiwan and Venezuela. In China a new standing committee of the Politburo was named, after a selection process so opaque as to be papal.

In countries like Egypt, Libya and Yemen, there was no mistaking the revolutionary character of the change as the misnamed Arab Spring continued its evolution into an Islamist Winter. But in other places the political changes hardly qualified as turning points. In France a jaded Left mounted one last feeble rally against economic reality. In Mexico the old regime, in the form of the Institutional Revolutionary Party, returned to power. Contrary to expectations, anti-European populists lost in Holland and the genial Mark Rutte was re-elected. In Russia, Vladimir Putin abandoned his pretense of being prime minister and returned to his real job as president. Turning points? Turn over and go back to sleep.

The great English historian A.J.P. Taylor said of the year 1848 that “German history reached its turning point and failed to turn.” This verdict could in fact be applied to most countries in most years.

History is like an oil tanker. It does not turn on a dime. Mankind sails forward through time in seas that are sometimes calm, sometimes stormy. At times it seems almost becalmed, at other times it can do 12 knots. Depending on who captains the ship, it veers sometimes to port, sometimes to starboard. When it changes direction, the turn is generally slow.

The things that change suddenly on an oil tanker are the emotions of the crew. Nine hundred and ninety-nine days out of a thousand, they obey their orders and do their work. But very occasionally there is a drama. The men mutiny and the captain is clapped in irons. Or pirates board the ship. Such events are what historians love to study and call “revolutions.” Still, the ship plows onward.

In other words, do not expect 1989 to happen every year — and don’t exaggerate how big a turning point even 1989 was. Nearly a quarter of a century ago, Francis Fukuyama hailed “an unabashed victory of economic and political liberalism… the Triumph of the West.”

It seemed so true. Who could forget the thrill of that night — Nov. 9, 1989 — when the Cold War ended not with Armageddon but with a street party? Yet, as I write, the People’s Republic of China is poised to overtake the United States in terms of gross domestic product (adjusted for differences in purchasing power) in 2017. If you invested in the West in 1989 you fared much worse than if you had invested in the Rest. Emerging stock markets have risen by a factor of five since 1989; the U.S. market, fourfold; Europe, less than threefold.

One attractively simple way of thinking about the world is to say that wealth, and with it power, are shifting from the West to the Rest. In that sense, the real turning point was not 1989 but 1979, the year Deng Xiaoping visited the United States and China’s economic reforms began in earnest. From that point, the “great divergence” of the West from the Rest came to an end, and the world embarked on a “great reconvergence.”

 The Six Drivers of Historical Change

But the reality is more complicated than suggested by phrases like “the post-American world.”

There are six slow-acting drivers of historical change in our time, as in most of recorded history. A common error is to focus on only one. They are:

1. Technological innovation;

2. The spread of ideas and institutions;

3. The tendency of even good political systems to degenerate;

4. Demographics;

5. Supplies of essential commodities;

6. Climate change.

The first three essentially explain why the West has lost some of its predominance. But the others remind us that, in that wonderful line often attributed to Bismarck, “a special Providence watches over children, drunkards and the United States of America.”

Measured (crudely) in terms of international patents granted by country of origin of applicant, the West no longer leads. Japan has been out in front of the United States for nearly 20 years and, in the past decade, first South Korea and then China have overtaken Germany to take the third and fourth places.

Measured (less crudely) with standardized tests of mathematical attainment at age 15, the West has also slipped. In the most recent report, published by the Organization for Economic Cooperation and Development, the gap between teenagers from the Shanghai District of China and those from the United States was as big as the gap between the Americans and their Albanian contemporaries. The silver medal went to young mathematicians from Singapore, the bronze to their counterparts in Hong Kong, then came South Korea, followed by Taiwan. Proficiency at math isn’t everything, of course, but societies that teach the average student so much better than the West does are probabilistically more likely to turn raw genius (which is pretty randomly distributed through humanity) into Nobel prizes.

The third driver of change — nearly always overlooked by political scientists — is the tendency of even the best systems to degenerate as rent-seeking special interests grow on the body politic like barnacles on a ship’s hull, and civic virtue yields to human frailty. Westerners are justly proud of their various democratic systems, and Americans in particular regard their Constitution as the world’s best. Yet every comparative study of institutional quality — from the World Economic Forum’s Global Competitiveness Index to the World Bank’s Worldwide Governance Indicators — tells the same depressing story. In many Western countries there has been a perceptible decline in the rule of law. Among the worst cases are South European “cradles of democracy,” Greece and Italy, which receive shockingly bad scores from the World Economic Forum. In the United States, meanwhile, the World Bank reports marked declines since 2000 in the control of corruption, regulatory quality, accountability and government effectiveness.

This “great degeneration” helps explain the slowdown in growth and productivity we have witnessed in the West in the past decade. We cannot blame it solely on the financial crisis, nor on the fact that (as the economist Robert Gordon recently argued) the information technology revolution has delivered much less than its own hype led us to expect. The world is changing not just because the Rest have got better, but also because — quite independently — the West has got worse. Indeed, much of the developed world today reminds me of what Adam Smith said about China in “The Wealth of Nations”: It has reached a “stationary” state in which growth is near zero and prosperity is enjoyed only by a corrupt bureaucratic elite.

Nevertheless, there are three important reasons why the United States is more likely to escape from this condition of stasis than Southern Europe or Japan.

First, partly because of immigration, partly because of fertility and partly because of inefficient health care, the United States is aging much less quickly than countries like Japan and Germany. By 2050, according to the United Nations, more than a third of Japanese will be 65 or over. For Germany the figure will be 31 percent. Even in China, more than a quarter of the population will be older than 64. But for the United States, the figure will be just 21 percent. China’s labor force will start to shrink in the 2020s. That will not happen in the United States.

 Beyond 2012

Secondly, unlike Europe and Japan, the United States is one of the global Big Five in terms of mineral wealth, with known reserves of fossil fuels and minerals worth at least $30 trillion — more than Australia, Saudi Arabia and China, though less than Russia. In particular, the United States is poised to profit from an energy revolution that has seen shale gas leap from 1 percent of U.S. natural gas production in 2000 to 35 percent today. American natural gas is a quarter the price of East Asian and a third the price of German. The combination of an increasingly competitive labor market and cheap energy is going to spark a remarkable recovery of U.S. manufacturing in the near future.

Finally, as the world warms and climate becomes more volatile, North America will fare better than East Asia. Natural disasters will happen, of course, as Hurricane Sandy reminded us. But there will be more on the other side of the Pacific. Good luck to Asia’s coastal megacities. They will need it.

Already things look better for the United States than for the rest of the West. The I.M.F. projects 2.3 percent growth next year, compared with 1.2 percent for Japan and 0.7 percent for the euro zone. That divergence will persist.

In America, the economic trends toward self-sufficiency and manufacturing recovery may encourage a new phenomenon: liberal isolationism, as the country reverts to its default aversion to “foreign entanglements.” By contrast, Europe and Japan will continue to languish, denying themselves the relief of higher immigration or nuclear power, stagnating under piles of debt that will become harder and harder to finance. In these stationary states, populism will take uglier forms. After more than half a century, European integration may turn into disintegration.

Meanwhile, in the mobile states of the developing (and still growing) world, there will be more bourgeois revolutions, in the classical sense of revolutions against autocracy led by aspirant middle classes. Already, according to Credit Suisse, more than 300 million Chinese adults have wealth of between $10,000 and $100,000, while close to 20 million have wealth above $100,000. These people are discovering that their hard-won private property needs to be protected by the rule of law, and that the biggest threat to that is a corrupt Communist Party, which they are increasingly able and willing to criticize in online microblogs.

In the big emerging democracies — India, Brazil, Nigeria — there is less need for a bourgeois revolution. Indeed, Dilma Rousseff, the Brazilian president, recently declared that she wants “a middle-class Brazil.” In North Africa and the Middle East, by contrast, the bourgeois revolutions have begun. It was in Libya last year that the following graffiti was seen: “We want a constitutional role and for the president to have less authority and the four year presidential term should not be extended.” That is the authentic voice of 1848, though it remains to be seen whether Arabia will truly turn at this turning point.

The American empire-in-all-but-name is leaving the Middle Eastern stage, having dominated the region since the 1970s and — I would argue — having sparked the revolution by toppling the most vicious of the Arab dictators. Now the real contest is between those who would impose a medieval legal order on Arabia, as the ayatollahs imposed it on Persia after 1979, and those who dream of the long-awaited Islamic Reformation, which would allow Muslims to coexist in peace with modernity — not to mention with the state of Israel, modernity’s representative in the region. The choice between the Iranian and the Turkish (or Indonesian or Malaysian) models should not be hard to make. Yet the Arabs may have to endure a period of sectarian warfare before that Reformation can occur.

The hardest question to answer, as the great tanker of history slowly turns, is whether the two dominant powers of the age, America and China, will be able to maintain what Henry Kissinger has called “co-evolution,” or whether they are doomed to re-enact the rise of the Anglo-German antagonism that culminated in world war nearly a century ago. Will it be Chimerica — or what Noah Feldman has christened “Cool War”?

Or blazing hot war? The approaching centenary of 1914 is a sobering reminder that, while elections may come and elections may go, it is wars that change history’s direction most decisively. World War I did not sink the human ship, but it certainly sank the first age of globalization. Should a similar conflict occur in our time, we shall know that world history has reached a turning point. We must hope it will only turn — and not keel right over.

The Cure for Our Economy’s Stationary State

 Adam Smith knew what ails us—and he prescribed the cure.

Jesse L. Jackson Jr. has been suffering from “a mood disorder.”

He is not alone. The world economy may not be in a depression as bad as that of the early 1930s. But it’s certainly got emotional problems.

A year ago, according to Gallup, economic confidence in the United States plunged, touching bottom in late August. It then rallied, only to start sliding again with the arrival of summer. Sunshine doesn’t seem to work like it used to.

What is going on?

The answer is that much of the developed world, including the United States, is stagnating. The founder of economics, Adam Smith, had a term for this. He called it “the stationary state.” In his day it was China that looked stationary: a once “opulent” country that had simply ceased to grow. Smith blamed China’s unfavorable institutions—including its bureaucracy—for the stasis. He also noticed how the stationary state favored the super-rich and civil servants, leaving poor laborers to slide toward subsistence wages.

Now the boot is on the other foot. It is Westerners who are in the stationary state, while China is growing faster than any other major economy in the world. The World Bank expects the European economy to contract this year and the U.S. to grow by just 2 percent. China will grow as much as four times faster than that.

The mood disorder is especially bad for investors. Only seven out of 47 national stock markets around the world have posted gains in the last 12 months.

The currently voguish explanation for the slowdown is “deleveraging.” The argument is that the excessive debts the West ran up in the past 10 or 20 years are now acting as a drag on growth. Households and banks are desperately trying to reduce their debts, having gambled foolishly on ever-rising property prices. To prevent this process from generating a lethal debt deflation, governments and central banks have stepped in with fiscal and monetary stimulus. That helps for a time, but it ultimately transforms a crisis of excess private debt into a crisis of excess public debt.

Yet more is going on here than deleveraging. Consider this: the U.S. economy has created 2.6 million jobs since June 2009. In the same period, 3.1 million workers have signed up for disability benefits. Back in 1992 there was one person on disability benefits for every 36 people in employment. Now the ratio is 1 to 16. Unemployment is being concealed—and rendered permanent—in ways all too familiar to Europeans.

The stationary state is literally stationary. People claim to be disabled. And they also stay put. Traditionally around 3 percent of the U.S. population moves to a new state each year. That rate has halved since the crisis began. You can’t blame all this on deleveraging.

Question: if you want to open a lemonade stand in New York City, how long does it take to jump through the necessary bureaucratic hoops?

The answer is 65 days (including a wait of up to five weeks for your Food Protection Certificate). That’s the kind of crazy red tape that development economists like Hernando de Soto used to blame for Third World poverty.

So is there any way out of the stationary state? Smith made it clear that he thought imperial China’s sclerotic “laws and institutions” were the root of the problem. More free trade, more encouragement for small business, less bureaucracy, and less crony capitalism: these were his prescriptions. Well, we can live in hope that such policies get adopted by the next occupant of the White House.

The alternative is to escape stagnation through technological innovation. One man who seems to have declared war on stasis is Elon Musk, the South African–born engineer-entrepreneur who, in the space of just a few weeks, has celebrated both the docking of his spaceship Dragon at the International Space Station and the launch of his electric car, the Tesla Model S.

I met Musk for the first time earlier this summer and was captivated by his energy and vision. Whenever the prevailing mood of economic gloom gets me down, I remind myself that it was men like Musk who—for fully two centuries after Adam Smith published The Wealth of Nations—propelled the West onward and upward simply by doing things that their contemporaries considered impossible.

It is time to shake off the “mood disorder” caused not just by excessive debt but also by excessive bureaucracy. Only entrepreneurial optimism can get us out of the stationary state—and moving again.

Henry Kissinger Coming Home to Harvard

 Niall Ferguson on Henry Kissinger Coming Home to Harvard

A successful college graduate is, as a general rule, loved by his alma mater. The more prominent he becomes, the more phone calls he receives. If he really makes the big time, there are invitations to host grand dinners, receive honorary degrees, give commencement addresses ... and of course, bestow his name on this or that chair or building (as well as on a very large check).

There are, however, a few painful exceptions to this rule. No graduate of Oxford University did more to restore Britain’s postwar economic fortunes than Margaret Thatcher. Yet in 1985 Oxford dons voted against giving the then–prime minister an honorary doctorate degree, an unprecedented snub.

There was a similar—though if anything more bitter—rift between Henry Kissinger and his alma mater, Harvard. But last week, after decades of estrangement, Kissinger returned to the university where he studied and taught. It was an emotional occasion. It was also a fascinating sign of how liberal America is changing.

Full disclosure: I am writing Henry Kissinger’s biography. I also happen to teach at Harvard, as he did between 1954 and 1969. And, having been an undergraduate at Oxford when Thatcher was denied her degree, I have long believed that universities should show respect to alums who attain high office, regardless of political disagreements.

In the 1970s and ’80s that was not a fashionable view. Back then, liberal academics took pride in repudiating their most successful conservative alumni because they disagreed with their policies. In the case of Oxford, it was Thatcher’s cuts in university funding. In the case of Harvard, it was the war in Vietnam. On May 8, 1970, shortly after U.S. forces invaded neighboring Cambodia, a deputation of Kissinger’s former colleagues—among them the economist Thomas Schelling—visited Kissinger in Washington.

Kissinger welcomed his “good friends from Harvard University.” “No,” retorted Schelling, “we’re a group of people who have completely lost confidence in the ability of the White House to conduct our foreign policy, and we have come to tell you so.” It was the beginning of a schism that would endure for 42 years.

Books like the late Christopher Hitchens’s The Trial of Henry Kissinger have perpetuated the notion that the foreign policy of the Nixon administration was uniquely wicked. For liberals of a certain age, it is an article of faith that (for example) Nixon and Kissinger were personally responsible for the coup that overthrew the Chilean Marxist President Salvador Allende. So it was entirely predictable that, if Kissinger ever did return to Harvard, there would be protests against his alleged “war crimes.” That’s why it was courageous of Harvard President Drew Faust to invite him to an open discussion in the university’s Sanders Theater on April 11—and even braver of Kissinger to accept.

Sure enough, just after Kissinger had been introduced and applauded, the protest started. But what was far more extraordinary was the protest against the protest.The protester—singular—was the kind of aging hippie who always shows up at such occasions, gray hair in a ponytail. There was an almost ritualistic quality to his rant, which began: “I am making a citizen’s arrest ...” Wearily, the campus cops escorted him off the premises. Then something remarkable happened. Spontaneously, the audience gave Kissinger an ovation—a standing ovation in many cases. The remarkable thing is that most of those clapping were undergraduates.

Welcome to the new generation gap. In the question-and-answer session, the handful of nasty questions came from aging baby boomers. The attitude of the students was diametrically opposite. Many had stood in line for an hour to get in. At the end, they thronged the stage to take photographs with Kissinger and ask for his autograph.

A cynic might put this down to youthful innocence. “To them, Vietnam is just history,” I heard a faculty member mutter, “like the Civil War.” Yes and no. The 1970s are indeed history if you were born in 1992. But the generation that came of age after 9/11 has a fundamentally different attitude to war than the ponytailed protester. The Obama presidency has shown that liberals, too, must sometimes use force to uphold the nation’s security: surging in Afghanistan, helping overthrow a bad regime in Libya, killing foes (among them a U.S. citizen) with drones and hit squads.

Who knows? Maybe one day a successor to Hitchens will denounce the “war crimes” of Barack Obama. But if so, his readers will be in their 60s or older. A younger and wiser generation has welcomed Henry Kissinger back to Harvard. Now it is Oxford’s turn to grow up.

The Year the World Really Changed


What exactly was the historical significance of Nov. 9, 1989? Having spent much of the summer of that year in Berlin, I have long bitterly regretted that I was not there to join in the party the night the wall came down. I mean, what kind of an aspirant historian misses history being made?

But two Berlin friends recently made me feel better by confessing that, despite being in the right city on the right date, they too missed the fall of the wall. One simply slept through the tumultuous events that unfolded after an East German official casually stated that the border was open. Her brother tried to rouse her, but she assumed he was joking when he shouted through her bedroom door: "The wall's coming down!" My other friend deliberately went to bed early to be fresh for a morning yoga class. It took her a while the next morning to work out why she was the only one to show up.

Embarrassing, no? A bit like being in Petrograd in late 1917 and catnapping while the Bolsheviks stormed the Winter Palace. Or perhaps not. For it is only with the benefit of hindsight that the Bolshevik coup proved to be a major historical turning point; at the time, the Russian press represented it as just another extremist stunt.

That set me thinking. Could it be that my friends and I didn't in fact miss an event of world-historical importance? Was the fall of the Berlin Wall not really History with a capital H, but just news with a lower-case n-a wonderful story for journalists but, 20 years on, actually not that big a deal? Could it be that what happened 10 years earlier, in the annus mirabilis 1979, was the real historical turning point?

Sure, it was nice for East Germans, Czechs, Hungarians, and Poles-not to mention the peoples of the Baltics, the Balkans, Ukraine, and the Caucasus-that they got rid of dreary communism and discovered the pleasures (and occasional pains) of free markets and free elections. What the British historian and eye-witness Timothy Garton Ash has called the "refolution" (reform plus revolution) that swept Central and Eastern Europe was a splendid thing, not least because the communist regimes were toppled with amazingly little bloodshed. Only in Yugoslavia, where the communists clung to power in the guise of Serbian nationalists, was there the kind of carnage that usually accompanies the end of empire-and Yugoslavia, paradoxically, was the Eastern European country that had been the first to break free of Moscow, and the first to introduce market reforms

It may seem perverse to question the historical significance of the collapse of the Soviet empire in Mitteleuropa, and then the collapse of the Soviet Union itself. I suspect most Americans today share the Yale historian John Lewis Gaddis's view that 1989 saw the triumphant end of the Cold War, a victory achieved above all by President Ronald Reagan, though nobly assisted by Margaret Thatcher-despite her deep reservations about the unintended consequences of German reunification-and the Polish Pope John Paul II.

Yet for Princeton revisionist -Stephen Kotkin, the real story of 1989 is that of a cynical pseudo-revolution from above. Only high oil prices had kept the bankrupt Soviet empire alive during the 1970s, Kotkin argued in his 2001 book, Armageddon Averted. Now, in his iconoclastic follow-up, Uncivil Society: 1989 and the Implosion of the Communist Establishment, Kotkin dismisses the role of Eastern European dissidents, much less Western leaders, in the Soviet collapse. No, Mikhail Gorbachev and other communist reformers wrecked their own system, partly out of naivet', partly out of a cynical desire to grab the system's few valuable assets in what became the scam of the century: the privatization of the Russian energy industry. For the wilier members of the nomenklatura, the road from KGB apparatchiki to Gazprom biznesmen was a remarkably short, though crooked one.

Not only did the same kind of people end up running Russia as had run it before 1989-step forward, Vladimir Putin-but they managed to avert a complete breakdown of the vast Russian Federation itself. The Soviet empire had gone, but to a large extent the Russian empire remained, extending all the way from Volgograd to Vladivostok: still the last European empire in Asia, with a territorial extent that would have delighted Peter the Great.

Viewed this way, 1989 was a moment of revelation, not revolution: it revealed the true nature of Russian power by stripping away the deceptive trappings of superpower status. Denuded of its Central European sphere of influence, with its economy exposed to market forces for the first time since 1914, Russia turned out to be somewhere between a BRIC (along with Brazil, India, and China, the biggest of the world's emerging markets) and "Upper Volta with missiles" (in Helmut Schmidt's famous put-down)-or maybe Nigeria with snow.

Consider the following. Russia's economy is set to be one of the world's worst performers this year, with gross domestic product forecast to decline in real terms by 7.5 percent. True, this comes after a decade of 7 percent average annual growth, but much of that merely represented recovery from the shattering post-communist depression of the mid-1990s. Russian GDP recovered to its 1989 level only in 2006. Calculated in terms of dollars, it now represents a meager 9 percent of U.S. GDP (compared with China's 23 percent). Unlike China's, Russia's currency has been all over the place in the past year, rising to above 36 rubles to the dollar in 2008, though now back to 29. Inflation is back in double digits, at about 13 percent. And Russian stocks have been the worst performers among the BRIC economies over the past three years, returning minus 12 percent a year, compared with 16 percent for China.

Add to the poor economic picture demographic projections that foresee the population of Egypt overtaking that of Russia by 2045, and it becomes clear that the once mighty Russian bear is in fact a distinctly mangy old bruin. Not really surprising, with a tuberculosis infection rate that is just half that of Bangladesh, but 27 times that of the United States.

The biggest danger for the United States, 20 years after this Russian revelation, is that we overrate Moscow, whether as a potential partner or an antagonist. At times, President Obama shows signs of believing his Russian counterpart, Dmitry Medvedev, when he offers to work in tandem with the United States on issues ranging from radical Islamic terrorism to Iran's nuclear program-hence Obama's decision to cancel the planned missile-defense installations in Poland and the Czech Republic. The reality, however, is that today's Russia is more of a troublemaker than an ally-in-the-making. Whether assassinating critics in foreign capitals, reneging on deals with Western oil companies, or aiding Iran with nuclear technology, Russia today is about the least reliable of all the major powers in our brave new multipolar world.

It is not so much that Prime Minister Putin seriously believes he can reconstitute the old Soviet Union, though some interpreted his invasion of Georgia last year in those terms. Rather, we need to understand Russia today as an extreme case of what Marxist-Leninists used to call "state-monopoly capitalism"-a political regime in which the interests of monopolistic companies (in this case Gazprom and Rosneft) become indistinguishable from the interests of the state and the elites running it.

The real question about Russian policy today is not whether Russia will invade Ukraine, but whether Gazprom's strategy of investing in new pipelines and gas fields will pay off. Should Gazprom focus on developing its dominant position in the European natural-gas market? Or should the vast gas fields of Russia east of the Urals (Yamal, Arctic, Far East) be given precedence with a view to capturing market share in China? Could Russia one day establish an Organization of Gas Exporting Countries, modeled on the Saudi-dominated oil cartel? Or is the simpler strategy simply to stoke trouble in the Middle East, covertly encouraging the Iranians' nuclear ambitions until the Israelis finally unleash airstrikes, and then reaping the rewards of a new energy price spike?

These questions themselves indicate the limited long-term significance of the Soviet collapse of two decades ago. By comparison, the events of 10 years earlier-in 1979-surely have a better claim to being truly historic. Just think what was happening in the world 30 years ago. The Soviets began their policy of self-destruction by invading Afghanistan. The British started the revival of free-market economics in the West by electing Margaret Thatcher. Deng Xiaoping set China on a new economic course by visiting the United States and seeing for himself what the free market can achieve. And, of course, the Iranians ushered in the new era of clashing civilizations by overthrowing the shah and proclaiming an Islamic Republic.

Thirty years later, each of these four events has had far more profound consequences for the United States and the world than the events of 1989. Today it is the Americans who now find themselves in Afghanistan, fighting the sons of the people they once armed. It is the free-market model of Thatcher and Reagan that seems to lie in ruins, in the wake of the biggest financial crisis since the Depression. Meanwhile, Deng's heirs are rapidly gaining on a sluggish American hyperpower, with Goldman Sachs forecasting that China's GDP could be the biggest in the world by 2027. Finally, the most terrifying legacy of 1979 remains the radical Islamism that inspires not only Iran's leaders, but also a complex and only partly visible network of terrorists and terrorist sympathizers around the world.

In short, 1989 was less of a watershed year than 1979. The reverberations of the fall of the Berlin Wall turned out to be much smaller than we had expected at the time. In essence, what happened was that we belatedly saw through the gigantic fraud of Soviet superpower. But the real trends of our time-the rise of China, the radicalization of Islam, and the rise and fall of market fundamentalism-had already been launched a decade earlier. Thirty years on, we are still being swept along by the historic waves of 1979. The Berlin Wall is only one of many relics of the Cold War to have been submerged by them.
Ferguson is Laurence A. Tisch professor of history at Harvard and William Ziegler professor at Harvard Business School. He is also a senior fellow at the Hoover Institution, Stanford, and author of The Ascent of Money (Penguin Press), out now in paperback.

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