(FORTUNE Magazine) – The world is entering unknown territory. For two out of three living Americans -- and about as many Russians and Europeans -- the bipolar system forged by the cold war is all they have ever known. But with that war ending, the world's political and economic map will rapidly be redrawn. What lies ahead? At a time when almost anything seems possible, detailed prophecies are worth even less than usual. But we can identify powerful forces that have shaped the present -- and seem likely to shape the future.

-- Democracy's global advance will continue. South Korea, the Philippines, Argentina, Taiwan, and most recently Poland and Chile: The roll call of countries that either joined the ranks of democracies or took large strides in that direction was long in the 1980s. Also impressive was the way India, the world's largest democracy, brought the Gandhi family's 40-year lock on political power to a peaceful end last fall. Now, within the next 12 months, Hungary, East Germany, and Czechoslovakia are planning to hold free elections. Could Russia join the pack sometime later in the 1990s? Well, in December, Mikhail Gorbachev barely defeated a call by the increasingly feisty Congress of People's Deputies to debate the hitherto unmentionable topic of ending the Communist Party's monopoly on political power. In doing so, Gorbachev didn't denounce the idea -- just the timing. -- Reversals almost certainly will occur. Democracy's roots grow deep only when growth is consistent and prices are stable. Ask Cory Aquino about that. In Eastern Europe and the Soviet Union, the short-term pain that the shift from central planning to the market inevitably entails could well produce a backlash. Poland's Solidarity government forecasts that its radical plan to slash subsidies, free prices, and adopt a convertible zloty in 1990 will force a 20% drop in real incomes and put hundreds of thousands of people temporarily out of work. And that's the optimistic forecast. Finally, even if all the new recruits keep in step, free societies -- defining ''free'' broadly -- will still account for fewer than 70 of the world's 170 sovereign states as we approach the next millennium. (For more on what could go wrong, see box on page 54.) But the big news of the 1980s remains the utter rout of the political model proffered by Marxism-Leninism. No other challenger with democratic capitalism's ideological and economic clout is in sight. That's why Francis Fukuyama, who was an obscure State Department planner at the time, declared the ''end of history'' last June in an essay in The National Interest magazine that has become the most talked-about polemic in years. (For Fukuyama's summary of his own thinking and its implications for business, see page 75.) You don't have to be a millenarian to believe that the Democratic Idea will gain further ground in the years ahead. -- The danger of large-scale war will continue to diminish. Give the cold war credit. Its 45 years were the longest period in modern history without a hot war between major powers. Now some pundits worry that with the superpowers poised to make deep cuts in their nuclear arsenals and to reduce their role in Europe, the Continent might again prove fertile ground for conventional war. Already, Poland seeks German assurances about its Western borders. In the Balkans -- remember them? -- acrimonious territorial squabbles have resurfaced. Are we in for deja vu all over again, as Yogi Berra would put it? Not likely. Democratically secure states haven't gone to war with each other since such regimes appeared in the early 19th century -- another great reason to cheer the spread of the ballot box. Yes, petty tyrants like Panama's Noriega will from time to time provoke a fight. On a larger scale, foolish dictatorships may continue to battle one another, as Iran and Iraq did, to horrendously bloody standstills. But onlooking superpowers are no more likely to pile on in the future than they did in the Iran-Iraq war. Basically, big armies, navies, and air forces are useful for keeping small fry in line -- witness Grenada -- and, of course, defending the homeland. But $ as the U.S. learned in Vietnam and the U.S.S.R. in Afghanistan, they are remarkably costly and ineffectual in grabbing territory or forcing one nation's will upon another's. And between developed powers, even conventional war would be economic suicide. Says John D. Steinbruner, director of foreign policy studies at the Brookings Institution in Washington: ''Military forces are no longer the cutting edge of power. They are simply for preserving your status quo.'' -- The global village will get even smarter -- and smaller. Since the mid- 1960s, the percentage of the high-school-age population enrolled in secondary education has nearly doubled worldwide. College enrollments have also doubled. These statistics will continue to climb. As the assembly line gives way to the microchip, wealth creation demands workers who are better able to make independent decisions. The technological advances behind this well-known shift reinforce the global march away from statism and toward democracy. As Poland's Lech Walesa has observed: ''Technology enforces certain solutions -- satellite dishes, computers, videos, and international telephone lines force pluralism and freedom onto a society.'' What made the difference between the peaceful revolution in Berlin and the bloody crackdown in Beijing last spring? ''Television,'' says Louis Finch, an analyst at the Rand Corp., a public policy research center. ''The Europeans have it, and the Chinese don't. When they get it, Tiananmen Square will end differently.'' -- Economic interdependence will grow. Yes, you've heard it before, but hear it again. Since 1950 world trade has grown twice as fast as GDP (see chart, next page). That expansion has been buttressed since the late 1970s by a 50% real increase in foreign direct investment and even more astronomical growth in international stock, bond, and foreign exchange markets. The result has been an unprecedented expansion in global opportunity -- and competition. You probably know that the Japanese have been spending $15 billion or more a year buying American companies and real estate. But did you notice that in December the government of Taiwan and a group of Taiwanese businessmen agreed to buy Wyse Technology, a small California computer maker, for $157 million? That was Taiwan's first purchase of a publicly held U.S. company. But since its foreign exchange holdings now exceed $70 billion, this surely won't be the last. (For advice on managing in the new era, see the following article.) ; -- Economic performance rather than military power will increasingly be the index of national power. Yes, Ronald Reagan's defense buildup and NATO's steadfastness in installing medium-range missiles probably put the Russians and the Eastern bloc on the road to reform sooner than they might otherwise have chosen. But that's not the main reason Aeroflot now offers business class. The true key has been centralized socialism's utter inability to produce either rising living standards or technological competitiveness. As a result, by the late 1970s the Soviets found themselves falling behind not only the U.S. and Europe but also Japan and the fast-charging Asian tigers, such as South Korea. Asian capitalism's growing muscle was a major force behind Western Europe's own version of perestroika -- the drive to create a true Common Market by 1992. Only a unified European market, Brussels bureaucrats and national political leaders argued, could keep up with the U.S. and Japan in the race to develop future technologies. By cutting defense spending dramatically, both the U.S. and the U.S.S.R. hope to boost their relative competitiveness in the 1990s. If the thaw holds, America's annual military budget could be half its current $300 billion in real dollars by decade's end. But there's no guarantee that the superpowers will get hefty returns from the peace dividend. In the U.S., defense spending fell 37% between 1968 and 1976, as the Vietnam war wound down. Those savings, however, were swiftly swallowed by rising inflation and increased social spending. Diverting tomorrow's savings to reducing the deficit -- which should lower interest rates -- and increasing civilian research spending would probably give the U.S. economy the biggest competitive bang for its reduced defense bucks (see FORTUNE, January 1). But a host of petitioners is already forming to spend the savings on such noble causes as housing, bridges, and the drug war. The debate will be fierce. In the Soviet Union perestroika has so far produced only a sharp fall in living standards. French scholar Jacques Rupnik has proposed a new label: catastroika. To buy social peace, Mikhail Gorbachev is shifting state money from modernizing industry to consumer goods. Without more radical moves toward the market, the Soviet economy will continue to bleed steadily. But any bolder moves could cause Gorbachev's sprawling empire -- full of fractious Lithuanians, Tatars, Armenians, and other nationalities -- to shatter. Says Lester Thurow, dean of the Sloan School of Management at MIT: ''Even with lower defense spending, it's going to prove fiendishly difficult to move away from central planning in a country that has known nothing else for 70 years.'' -- Trade wars may replace Star Wars. According to various recent polls, a significant percentage of Americans see Japan as Public Enemy No. 1 now that the Soviet threat has waned. Nearly two-thirds of those who participated in a survey by the Harris Organization, for example, agreed that the U.S. should take steps to discourage further Japanese investment in America. While you shouldn't count free trade out, the signs are ominous. The share of global trade subject to quotas and ''voluntary'' restraints soared in the 1980s. Cars and semiconductors joined textiles and steel on the list of manufactured products that seem condemned to remain governed by such agreements. Writing in Time recently, conservative columnist Richard Brookhiser predicted that in post-postwar America, ''the most important foreign policy issue, after bringing the boys home, will be keeping the Japanese out.'' More managed trade -- and ever fiercer political battles over that issue -- seem likely. -- Saving the environment will climb to the top of the East-West as well as the West-West agenda. Pessimists fret that a world made safe for rampant capitalism won't be safe from it. What if, they ask, VCRs and cars are bought in the same volume by the 2.2 billion citizens of the Soviet Union, China, and India as in the developed world? Then, says Daniel Yergin, president of Cambridge Energy Research Associates, a consulting firm, ''there would be a vast upsurge in demand for fossil fuels, which produce greenhouse gases.''

Still, a case can be made for optimism. Until recently, data on pollution was a state secret in the Communist bloc. What's become clear since the new openness began -- and was clear to any Western visitor before -- is that Communism has proved even more devastating to the environment than capitalism. Poland, for example, creates about five times more solid waste and sulfur dioxide per unit of GNP than does Western Europe. By raising demand for scarce resources, capitalism may exacerbate environmental woes. But unlike socialism, it also creates wealth that can be used to seek solutions. So why shouldn't a richer Eastern bloc prove less, rather than more, harmful to the planet's ecosystem? West Germany has already offered $550 million of aid to help Eastern Germany control pollution. Sweden has advanced about $45 million to clean up Polish factories, whose smoke has an unpleasant tendency to drift northward. Look for this Euro-trend to grow and get copied wherever developed and developing countries nestle cheek by jowl. -- Immigration may become the West's most divisive domestic issue in the 1990s. The baby bust is a demographic certainty. Starting now in Japan, soon in Western Europe, and a little later in the U.S., the pool of new labor will begin shrinking. What's unclear is the effect this will have on our economic well-being. It could prove devastating. In Japan labor shortages have already sent salaries soaring in a few industries. Norbert Walter, senior economist of West Germany's Deutsche Bank, predicts that the advanced industrial economies will soon be forced to accept a huge influx of immigrants from the developing world to fill their labor needs. Says he: ''By the mid-1990s we're going to see the strongest surge in migration ever on this planet.'' Coping with either the lack of workers or the social turmoil large-scale immigration brings will prove far more difficult for Europe and Japan than for the U.S. Immigrants have accounted for more than one-quarter of America's population growth since 1900. -- Business executives will be drawn into a larger public role. Capitalism may have sent Communism packing. But within the broad church of the free market faith, believers will continue to divide into sects that advocate different balances between security and dynamism, the welfare state and risk taking. In an era when the business of nations is business, executives will be affected by where the line is drawn -- and should help governments draw it. With Western nations neurotic about fiscal flabbiness, corporations may well be forced, through mandated benefit plans, to shoulder a bigger share of new social welfare initiatives. Business decisions on whether to invest in Eastern Europe will likely affect modernization in those countries more than government aid will. Finally, in the West, business insight on how to boost competitiveness will be in greater demand than ever. What do all these trends point to? Quite possibly the emergence in the 21st century of a fundamentally different international order. In this brave new world, nations may well find it makes sense to band together into regional confederacies one might describe as meganations. No, this has nothing to do with World Federalism. The U.N. will remain a sideshow. If meganations do emerge, they will do so out of self-interest rather than idealism. In a world focused on economic pursuits, shrunken by technology, and endangered by environmental degradation, the participants will be better off standing together than alone. How quickly could this evolution occur? That depends largely on the progress made by the European Community. What's aborning right now in Brussels is the very model of the modern meganation. The key questions are, How united will the EC get -- and how big? For the next decade, even if the EC achieves all its ambitious economic goals, its member governments will still be more independent -- and its central body's power weaker -- than the states in the U.S. But if recently reaffirmed plans for rapid monetary integration after 1992 materialize, then something a lot closer to a United States of Europe would emerge. With 325 million consumers, the 12-member EC already forms the world's largest, richest market. Toss in the 32 million citizens of the European Free Trade Association, which recently signed a treaty linking its economies more closely with the EC, and add the 140 million residents of the Eastern bloc, and you're suddenly up to 497 million. Now breathe deeply and make room for a radically reformed Soviet Union in this common European house, and you're talking about a behemoth almost 800 million strong -- about the size of India and more than 20 times richer. Long before that happened, the U.S. and Canada would have cobbled together a more perfect union to counter Europe's growing strength, just as they recently forged an unprecedented free-trade pact to offset the EC's purely economic union proposed for 1992. Maybe Japan would affiliate with North America as well. Or maybe, despite the profound anxieties of its Asian neighbors, it would become the leader of a Pacific Economic Union. Perhaps Britain and Australia would join Canada and the U.S. in a Greater Federation of English Speaking Peoples. It wouldn't be the first time they were all in one family, though the parent-child relationships would be rather different. Okay. By now you may suspect we're drifting too far into the wild blue yonder. But here's the point. With the cold war fading and what Francis Fukuyama calls the ''common marketization'' of international relations rising, the geopolitical deck chairs will almost certainly get rearranged far more than most people now expect. Where will the cold war's end leave the Third World? Paul Bremer, managing director of Kissinger Associates, sees two possibilities. For many countries, the superpower rivalry acted both as a damper on regional conflicts and as a source of aid, since the U.S. and Russia were everywhere passing out money in vying for influence. With that competition over, local conflicts could rise and aid fall. At the same time new powers, like Brazil or India, could begin assuming larger roles in their regions. Wherever it leads, the trend toward great multiethnic, free-market commercial confederacies is something Americans ought to welcome. After all, that's a pretty apt description of the country they already live in. For those hoping to make the most out of the new era of possibilities, that experience could prove a tremendous advantage.

CHART: NOT AVAILABLE CREDIT: SOURCE: GATT CAPTION: GROWTH GOES GLOBAL The speed with which trade has outpaced world economic growth offers compelling evidence that no nation -- and no company -- is an island.