(FORTUNE Magazine) – BARELY 100 years after Karl Marx's body was laid in a north London grave, his truth no longer marches on. In all the major developed democracies, and many smaller ones as well, voters in the 1980s have been spurning political candidates whatever their party labels who do not talk and act like committed capitalists. Meanwhile, from Peking to Brighton, socialists of every stripe have lost faith in Marx's bedrock belief in the superiority of state control over the means of production. Increasingly they are relying on market forces and individual entrepreneurship, rather than government diktat, to spur economic growth. Even the Soviet Union, for 50 years the very model of the modern command economy, has since 1985 begun to rouse itself from its slumber. During his hectic visit to Washington, Mikhail Gorbachev took time out to meet with a group of top U.S. businessmen. Like many of his predecessors, he sought investment dollars and technology. But more than Soviet reformers of the past, he also hopes some of the businessmen's capitalistic expertise can rub off on his own captains of industry. Though Black Monday shook a lot of people's confidence in financial markets, and by extension, the dealmaking that helps make capitalism go, it is not likely to halt the long-term march away from socialism. On the other hand, the trend will not eliminate big government as an integral part of the modern mixed economy. ''The welfare state is here to stay,'' says economist Herbert Stein of the American Enterprise Institute, a Washington research organization. But whether bears or bulls prowl the world's stock markets, the new climate ensures that the 20th-century dinosaur of centralized socialism -- like the unfettered capitalism of the last century -- is destined for extinction. For most of the postwar era, the smart money bet the other way. Writing in 1949, economist Joseph Schumpeter declared that ''centralist socialism'' -- which he defined as ''the conquest of private industry and trade by the state'' -- was the ''likely heir apparent'' to capitalism. Even by the mid- 1970s, when socialism's flaws had become glaringly apparent, Schumpeter still seemed prescient with his prophecy that ''the remedy for unsuccessful socialization . . . will be not less but more socialization.'' In developing countries a decade ago, governments countered recession by tightening their economic grip. In Mexico, for example, the number of nationalized industries rose from 86 to 740. In a Western Europe dominated by ''democratic socialist'' governments and haunted in its southern half by the specter of ''Eurocommunism,'' politicians attacked soaring oil prices and stagflation with a barrage of interventionist policies -- wage and price controls, big spending programs, and more regulation. In 1975 it seemed plausible for a free-marketer like Milton Friedman to fret that capitalism would prove only a brief historical ''accident.'' But instead of quickstepping smartly into history's dustbin, capitalism made a dramatic comeback. Since 1980 more than 56 state-owned companies from every continent, with a pricetag of more than $90 billion, have been sold, either partially or outright, to private shareholders. Another 2,000 candidates, ranging from Britain's electricity industry and large chunks of France's insurance business to sugar mills in Mexico and steel mills in & Bangladesh, have been marked for privatization by the early 1990s. Slumping share prices will slow the pace of privatization -- and, of course, lower governments' take. But even after Black Monday, New Zealand managed to place its state-owned steel company in the hands of private investors, while Japan raised more than $35 billion by selling shares in Nippon Telephone & Telegraph. Investors have even ponied up more than $1 billion of equity to back the kind of massive construction project once deemed possible only by government -- the risky bid to dig a tunnel beneath the English Channel. In recent weeks, social democratic leaders in Portugal, socialists in New Zealand, and conservatives in Britain, France, and West Germany have all reaffirmed their faith in the economic case for privatization. THOUGH not directly related to centralized economic control, high marginal tax rates designed to redistribute wealth, or at least make it harder to achieve, have been a prominent feature of the West's long march to the left. Now rates are dropping around the globe. In the United States, the top rate on individual income will have plummeted from 70% at the beginning of the decade to 28% by next year. ''Seven years ago I'd have put the chances of that happening at about 0.001%,'' says a far cheerier Milton Friedman. Conservative governments in Britain, France, West Germany, and Belgium, and socialists in Spain, Australia, and New Zealand have already made or announced cuts in their top rates. Even Sweden's Social Democrats, Europe's most stalwart redistributors, are contemplating similar action. By the early 1990s European highfliers will be paying top tax rates that average around 50% -- higher than in the U.S., but far lower than the 60% to 80% range they have endured since the war. Australia's recently reelected Labor government is going one step further. In addition to trimming the top rate for individuals from 60% to 49%, Bob Hawke's kangaroo ''socialists'' are ending double taxation of corporate dividends by giving share owners a tax credit for a portion of taxes paid by corporations. Enterprising individuals in the statist economies of the Third World and the Communist bloc are also getting new incentives. Nine years ago China broke up collective farms and let food prices rise toward market levels. Since then peasants have tripled per capita incomes and transformed China from a big grain importer to an exporter. New wealth in the countryside has fueled an explosion in the output of rural industry -- up 266% since 1983. Much of this increase comes from small, locally financed startups that make everything from television sets to motorized carts. At last October's Communist Party Congress, Zhao Ziyang, China's new leader, called on his comrades to ''accelerate and deepen'' these market-oriented reforms, whose stunning success is now inspiring socialists in countries like Tanzania and Ghana to adopt similar measures. Like the ''new economic mechanisms'' devised in the late 1960s in Hungary and Czechoslovakia, Mikhail Gorbachev's reforms in the Soviet Union aim to foster growth of private agriculture, individual moonlighting, and small private service businesses -- petty bourgeois activities targeted by Marx for extinction. Since private cooperatives were legalized early in 1987, several thousand have been formed. The number of self-employed individuals has grown from 15,000 to more than 100,000. WITHIN Russia's still state-owned industrial sector, managers are being encouraged to pay more attention to customers and less to central planners. By the early 1990s, all but a thousand or so of the more than 500,000 prices currently fixed by Moscow are meant to be set by negotiations among individual enterprises. Some members of Gorbachev's economic brain trust have even raised the prospect of allowing Soviet citizens to invest their spare rubles in ''shares.'' Like similar financial instruments recently introduced in China, these would probably be more akin to Western-style bonds, paying dividends but allowing no voice in management. Nobody would get to vote at a stockholders' meeting. As he vigorously peddles his perestroika (restructuring), Gorbachev doesn't want to hear the old Marxist dictum, ''from each according to his ability, to each according to his need.'' He lambastes past tendencies to ''level off'' incomes and hails reliance on performance-based pay, insisting that ''no limit be set.'' Without unusually strong leadership, the global retreat from Schumpeter's ''centralist socialism'' that began in the late 1970s would undoubtedly have been less abrupt. Had Margaret Thatcher not been such a determined and successful denationalizer -- Britain alone accounts for more than $31 billion of the worldwide revenues raised from selling state-owned companies -- the privatization tidal wave might have remained a steady trickle. Without Ronald Reagan's deep supply-side convictions, America's tax-cutting crusade is unlikely to have progressed so far. Nor would a less masterful and committed pragmatist have been as successful as Deng Xiaoping proved in shaking off Marxist orthodoxy in China. Still, some sort of worldwide revival in the fortunes of free enterprise would have occurred anyway. And the trend seems set to continue long after Reagan rides off into next year's sunset, Deng's successors take charge, and Thatcher either grows weary of governing or is finally retired by the voters in the 1990s. AT THE HEART of capitalism's comeback lies centralized socialism's utter inability to deliver the goods. Over the past two decades the world champions in growth, as measured by increases in GNP per capita, are Asia's Four Little Dragons -- Singapore, South Korea, Hong Kong, and Taiwan -- and black Africa's Botswana. All boast low taxes, smallish state-owned sectors, and an abundance of vigorous private capitalists. In pro-market Thailand, GNP per capita is now more than four times higher than in its staunchly socialist neighbor Burma, which started from roughly the same point three decades ago. A recent study by Keith Marsden, an economist with the World Bank, offers some of the clearest evidence yet of the damage wrought when the bureaucrat's fist replaces the market's invisible hand. Marsden tracked growth in GNP per capita in 17 African and East Asian countries, all of which in 1962 had roughly the same income levels and comparable dependencies on agriculture. Except for Cameroon in Africa, the big winners were in Asia -- South Korea, Thailand, and Malaysia. All, including Cameroon, had directed their financial resources toward boosting the private sector's share of credit. But in nine African countries where income growth had either stagnated or declined, socialist governments had made outsize claims on credit at the expense of private business. Though some Asian countries started with higher literacy levels, Marsden argues that the stark contrast between Pacific Rim prosperity and African poverty has more to do with differences in economic policy than with regional characteristics. As the assembly line gives way to the microchip, the shortcomings of centralized control become more obvious -- and intolerable. In one generation, capitalist South Korea and Taiwan have advanced from producing mainly food and raw materials to exporting computerized machine tools and customized integrated circuits. But more than a decade after the advent of the personal computer, the Soviet Union still has not mass-produced basic PCs for internal use, much less sold them abroad. Says W. W. Rostow, a leading economic historian: ''In the 1950s and 1960s, the age of what Nikita Khrushchev called the steel eaters, you could look fairly impressive running some kind of command economy. But no one can operate a satisfactory socialist system in a world dominated by highly diversified, high-technology manufacturing.'' State-owned and state-managed economies are technological laggards because in practice, if not in theory, they have inevitably engendered the most extreme sort of protectionism. ''The key to achieving industrial flexibility and constant innovation is intense domestic competition, which requires letting losing firms fail,'' notes Harvard professor of political economy Robert Reich. ''State-owned companies generally exhibit a remarkable unwillingness to die off.'' Faced with unsustainable increases in unproductive subsidies, pressured by their enormous foreign debt burdens, and fearful of falling further behind in the intensifying international battle for new markets, more and more commanders of command economies are gradually tearing down the barricades. Both Mexico and India have begun trimming their sky-high tariffs and reducing the suffocating number of export and import licenses that domestic entrepreneurs and foreign investors must obtain.The percentage of Mexican imports requiring licenses, which peaked at 75% in the mid-1970s, should shortly fall to 25%. In the Soviet Union, Gorbachev talks tough about letting perennial losers go belly up. His top advisers predict that 15 million to 20 million production workers will lose their jobs by the turn of the century -- transferred, they hope, to Russia's exceedingly underdeveloped service sector. UNLIKE hard-line Marxist-Leninists or most Third World socialists, postwar socialists in Europe and Asia have mostly been content to leave the means of production largely in private hands and simply use the tax system to redistribute the gains. Historically they distinguished themselves from the Democrats in the U.S. and the Liberals in Canada mainly through sporadic forays into nationalization, a fondness for quasi-Marxist rhetoric about things like the ''class struggle,'' and a generally deeper hostility toward business. In France and Britain, out-of-power socialist parties have recently dropped nationalization from their policy arsenal -- a step their West German and Scandinavian comrades took decades ago. In democracies where socialists have retained or regained power in the 1980s, including Sweden, Spain, Australia, and New Zealand, they have been busily cutting government spending, trimming taxes, and generally deregulating their economies. Says Dr. David Owen, a former leading light in Britain's Labour Party and since 1981 the head of the new centrist Social Democratic Party: ''Today no party in Europe can speak on health, education, and welfare expenditure and be believed unless it also demonstrates a full-blooded commitment to the market economy.'' The rising affluence of workers along with the shift from smokestacks to higher tech has made business bashing and appeals by politicians to class conflict less relevant. In last June's election in Britain, only 42% of trade unionists voted Labour. Spain's ruling Socialist Party dropped the Marxist label from its platform eight years ago. Now leaders are proposing that the party call itself ''progressive,'' rather than the party of ''the working class.'' As a commentator for the Soviet newspaper Izvestia ruefully observed last year, ''The prospect of socialist transformations in developed capitalist countries has receded indefinitely.'' And where capitalism flourishes under authoritarian sponsorship in Asia, South America, and the Middle East, the prospects for democracy grow brighter as the charms of Marxism pale. During the late 1970s Portugal and Spain negotiated the transition from capitalist dictatorship to capitalist democracy without taking a great leap backward into state socialism. Now the increasingly prosperous citizenry of Turkey are heading down a similar road. South Korea has been moving in that direction but with more bumps. Predicts Irving Leveson, senior trend spotter with the Hudson Strategy Group, a New York consulting firm: ''In coming years the rise of the middle class in the Third World will generate a pressure for more individual freedom and dispersal of political power.'' Despite this global turn toward the market, state spending as a share of total world output is unlikely to fall in coming years -- and may well go up. In many Third World countries, capitalist-generate d prosperity should enable governments that once could only afford the bread line to begin rewarding voters with new spending on health, education, and other benefits. That, after all, has been the postwar experience of that ex-NIC, Japan. In Europe and the U.S., the rightward tilt of the past decade has utterly failed to trim state spending's share of total output. The era of rapid expansion in Western welfare states may have ended in the 1970s. But the twin pressures of rising debt costs and pricey pensions will continue to make holding steady the burden of state taxing and spending a Sisyphean task. Some conservatives cite the failure to check growth of big government as proof that the world is still merrily ambling down what economist Friedrich Hayek called ''the road to serfdom.'' What they overlook is the extent to which economic decision-making within modern welfare states around the world increasingly reflects the choices and interests of individuals and private companies rather than those of government central planners. Thirty years ago total state spending may have been lower. But enterprising Chinese could not hire workers, European investors faced harsh foreign exchange controls, and high marginal tax rates everywhere reduced individual incentive. SHORT OF economic Armageddon -- a major war, say, or a truly crippling global outbreak of protectionism -- capitalism's comeback seems certain to hold fast. More than 100 years ago the English economist and philosopher John Stuart Mill predicted that the competition between capitalism and socialism would ultimately come down to which system was ''consistent with the greatest amount of human liberty and spontaneity.'' For more and more of the world's five billion citizens -- even those who at present have no vote -- the answer is no longer in doubt: Market capitalism, not socialism, is the winner.

CHART: TEXT NOT AVAILABLE CREDIT: NO CREDIT CAPTION: Socialism is dying, but the welfare state is alive and well. Government spending has gone up steadily and probably will continue to rise. DESCRIPTION: Government spending by United States, Japan and OECD countries, 1960-1987.