Leading Article: The collapse of Russia is not the end of capitalism

AT THE beginning of this decade, the bright, optimistic talk was of the End of History. The collapse of communism, crushed by the cost of fighting the Cold War, was thought to usher in a post-ideological era of global tranquillity. The triumph of liberal economics was final, and would bring in its wake the world-wide spread of liberal democracy. It was never likely to work out like that, but the pitching of embryo Russian capitalism into crisis has revealed the the end of that particular stage of history to be a much more complicated - and more exciting - phenomenon than it might have seemed.

The immediate consequences of the Russian crisis for the rest of the world are perhaps limited, however ghastly they are for the Russian, Ukrainian and Belarussian peoples. The increased size and complexity of the international trading system makes it more resilient to regional shocks and less vulnerable to domino effects - although the simultaneous sharp and deep downturns in east Asia, Brazil and Argentina are hardly good news. British exposure to bad Russian loans is minimal - certainly in comparison to Germany's commitment - but the real impact will be on the IMF, which will now have less to lend to other developing countries.

Indeed, it is in the poor world that the lasting effect of economic anarchy in Moscow might be felt. Not just because the supply of capital will be temporarily reduced, but because the glaring omission from Francis Fukuyama's elegant thesis was a theory of precisely how the benefits of liberal economics would be transmitted to the poorer two-thirds of the world's population. If poor countries no longer have a choice between the planned economy and the free market, they still face agonising dilemmas in their choice of route from agrarian poverty to free-market prosperity. The apparent failure of Russia's seven-year experiment in Chicago-school capitalism calls into question the laissez-faire route.

Since Mr Fukuyama's essay appeared in 1990, there has been a vogue for books modelling themselves on Adam Smith's 18th-century classic, attempting to improve our understanding of the laws of national prosperity. The Work of Nations, by Robert Reich, laid the emphasis on the educational level of workforces - people being less mobile than either capital or information in the modern global economy. That, in part, has been the route adopted by the east Asian "tigers".

Earlier this year David Landes, in The Wealth and Poverty of Nations, was accused of showing an "almost Whiggish confidence" in the superiority of the Anglo-Saxon brand of capitalism. While his analysis of national markets and a culture of individualism is fine in explaining the development of early industrial societies, it is less useful as a guide to the economics of "catching up" which is what matters to the developing world.

The implication of the "End of History" argument was that it was enough to send in Western bankers and business school graduates into the so-called "emerging markets". But setting up a stock exchange, auctioning off state assets and waiting to see what happens is clearly not sufficient to ensure a fast track to first-world status for countries of either the second (ex-communist) or third worlds. Certainly if, as in Russia, the infrastructure does not exist for the efficient collection of taxes.

Mr Fukuyama was right to suggest there is no present alternative to capitalism, but that is far from the end of the matter, let alone of history. Capitalism is a bumpy road. Nor does a free market mean a nightwatchman state. It is important that the state should command authority through consent, which is why it is too simple to see political reform as following economic development - the two should go hand in hand. While there may not be much we can do for Russia in the short term, its crisis should open up a debate about the many routes to capitalist salvation.