Competing Civilisations

Summary extract from Huntington's book: In the First Crusade the entire West was seen as moving into Muslim lands. In the 19th century spectacular population growth in Europe again produced a European out-migration into other lands. Other factors have increased the conflict between Islam and the West in the late 20th century (a) Muslim population growth has led to large numbers of unemployed and disaffected people, who exert pressure on neighbours and migrate to the West (b) Islamic resurgence has given renewed confidence in the worth of its civilization - relative to the West (c) The West's efforts to universalize its values and institutions to maintain military and economic superiority has led to resentment (d) The collapse of communism removed a common enemy (e) closer contacts made each more aware of their own identity and of differences (f) the rights of members of each civilization in countries dominated by the other were of increased concern, and tolerance declined sharply in the 1980s and 1990s. Thus the causes of conflict relate to culture and power - and will remain as long as each remains unchanged. Conflict over territory is no longer as important as it was. But 19 of the 28 points of conflict which Muslim societies have are with Christians. The West is facing a mood and movement which far transcends the policies of particular governments - a clash of civilizations - and needs to avoid a similarly irrational response. Islamic observers believe there is a clash - between civilizations, not between religions. Islamic resurgence in the 1980s and 1990s has been anti-Western, because of the perceived Westernization of Islamic societies. They see Western culture as materialistic, corrupt, decadent and immoral. They fear and resent Western power, and see it as seductive. The West is attacked, not for adhering to an imperfect religion, but for not adhering to any religion at all. The West labeled its opponents in the Cold war as 'godless communists'. It is now being labeled as the 'godless West' ('Two civilizations defined by difference', Courier Mail, 22/11/01)

Other views:

Modernity has reached a crisis point. The expansion of Western power has drawn great religions and civilizations such as Islam into systems of imperialism and globalization in ways that have stimulated resistance. India struggled against British rule - and succeeded through non-violence. The cause of discontent by those who have now used violence must be understood and responded to. There is a need for a sustained effort to do so in Australia if it is to be a prosperous multicultural society. Scholars specializing in comparative religions must analyze the processes that have transformed the world in recent centuries and given rise to intense cultural and religious tensions. Demographics will be a critical concern, because the West's population is rapidly aging and slowing, while population growth is most rapid in impoverished areas, and especially in Muslim nations. This will produce enormous pressures in coming decades. These people must be integrated into the global system in ways that are equitable and respectful. This will require the West to re-examine the excesses of its own materialistic and secular culture. Australia has organizations that could work on these topics (eg Australian Association for the Study of Religion and ANZ Society for Theological Studies (Bendle M 'Multicultural voices trained in harmony', Australian, 19/9/01).

Christian leaders need to recognize that actions by Islamic terrorists are based on warlike traditions of Islam, and that it is a threat to the liberty which has been the basis of the success of Christian countries [1]

The Muslim world's primary objection to the West relates to sexual rather than to political liberty [1]

Malaysian Prime Minister Mahathir Mohamad:

called for Muslims to emphasize economic development as the basis for building an independent military capabilities to resist oppression [1];
called for Muslims worldwide to unite against Jews who were seen as the ultimate manipulators of Western societies - and to use economic, political and diplomatic pressures rather than violence [1]; and
blamed terrorism on Europe and Israel (especially in relation to the situation in Palestine), and suggested that the numbers of victims of terrorists were modest when compared with European precedents [1].

Alternative perspectives suggest that 'clashes' between civilizations might arise between:

the US and Europe [1] or
'Southern Christianity' (eg in Africa, Asia and Latin America where orthodox Christian values are being widely accepted) and Western societies that have shifted away from Christian values [1];
the West and 'Confucian' East Asia [1].

Some of the dimensions of the latter potential 'clash' can be identified by reading between the lines of President Hu's address to Australia's Parliament in October 2003. There are also indications that a 'silent clash' may have been underway for decades in relation to economic and financial systems which is now leading to a situation in which structural incompatibilities put global growth at risk.

Moreover it has been suggested that it was the tensions in the 1920s and 1930s associated with attempting to modernize to adapt to the globalization of Western society which led Japan to try to achieve independence through aggression in Asia in World War II [1].

Illustration: The central importance of culture to material prosperity can be illustrated by the fact that economists have long regarded knowledge as the key factor in economic growth while various cultures have entirely incompatible epistemologies (ie assumptions about the nature of knowledge).

For example, the Western view of abstract knowledge about nature derived from Platonic-Aristotelian traditions in classical Greece is anything but universally shared:

in East Asia abstract knowledge seems to be viewed as overly simplistic (see Asia literacy);
Islamic science apparently views knowledge about natural and social systems as merely symbolic of Divine will. If it is assumed that that there are no aspects of nature that are not constantly subject to manipulation by God, it is impossible to develop technologies that depend on understanding the material world.

If the very nature of the key factor in economic growth varies amongst cultures, then clearly culture must affect economic performance.

Historical views of wealth

The world's greatest 21st century problem and danger is the gap in wealth and health between the rich and poor. It is in everyone's interest to narrow this gap - yet doing so requires recognition that inequality has its roots in the past 800 years of world history. The Wealth and Poverty of Nations (Landes D, Harvard) suggests that the industrial revolution is the key to national wealth. It was begun in Britain in the 18th century - and has spread around the world. However even more important is what conditions allowed the industrial revolution to occur. Landes dismisses conventional explanations such as natural endowments (landscape, soil, water minerals). An industrial revolution always depended on a society' culture. The first industrial revolution arose in a society that had developed: a sense of national cohesion; a capacity to compete; a respect for empirical technical knowledge; a preference for advancement by merit or competence; and ability to use (not just acquire) money. Other societies could follow by copying Britain's example, perhaps because they shared a medieval legacy of: curiosity; inventiveness; multiple sources of initiative; and could forego current consumption for future gain. Other societies have proven unable to generate within themselves the necessary conditions for wealth. Religion is a major obstacle - as both Roman Catholicism and Islam have: elevated authority and suppressed initiative; and discouraged experimentation. Islam's coincidence with oil riches and its authoritarian governments that have attracted little loyalty, and a capacity to discourage investment in skills and knowledge has been very damaging. Landes argues that many common theories are false - dependency theory; new economic historians who neglect older trends and the industrial revolution; econometricians; multiculturalists; and ethnologists who deny that there are reasons for speaking of weaknesses in any cultures. He admires Weber (who developed theories based on the protestant work ethic) and Wittfogel (who studied 'oriental despotism'). Culture makes all the difference, and success or failure is ultimately determined from within, not imposed from outside. Conventional explanations of Western success and the relative failure of others include: conquest of the Americas; European diseases; slavery; the imprisoning effect of Western scholarship on oriental societies - which have had only limited effect. This is not to deny that problems associated with colonization were not real, but that they did not ensure failure (noting many successes in East Asia; mixed results in Latin America; and general regression in much of Africa). Imperial rule was neither new nor uniquely linked with capitalism. Colonization delayed opportunities for development, but did not stop late-comers cultivating the values that count - work, thrift, honesty, patience and tenacity. Economics can not explain wealth without a study of history (Porter A 'Culture has everything to do with the wealth of nations', FR, 27/3/98)

Until 300 years ago there was little growth in per capita income that was not eventually reversed. This was the basis of Malthus' grim theories about the limits to population that were based on observing history. Adam Smith founded scientific economics - and his Wealth of Nations suggested that growth required peace, easy taxes and tolerable administration of justice. 50 years later John Stuart Mill listed three requirements for less industrialized countries to catch up (a) better government and property law (b) less superstition (c) growth of mental arts and (d) hospitality to foreign arts and capital. The economists believed that growth was natural - except for prejudices which could be displaced by scientific knowledge. However this left unanswered the question of why Western civilization was more successful. Sociologists argued that growth required overcoming cultural obstacles - namely objections to making money. Weber suggested that this shift occurred in Western Europe through Protestantism. An aptitude for making money was seen to explain growth. Since 1945 economics has advanced relative to sociology. Weber's theory emerged when Europe alone experienced significant growth - and growth could be explained in terms of its unique characteristics. This conclusion had been reinforced early in 20th century by failures of centrally directed plans. Japan's miracle provided materials for an alternative theory of development based on export led growth. It was followed by other East Asian economies. This seemed to show that if western standards of good government were created, then growth would follow automatically. Liah Greenfield's Spirit of Capitalism and Robert Lucas' Lectures on Economic Growth reflect the two main traditions for thinking about growth. Greenfield sees growth as explained by the history of ideas and the sociology of culture. Lucas sees growth as automatic as knowledge accumulates. Greenfield denies the naturalness of human behaviour. The modern economy has to be seen as a problem in the cultural construction of reality. Why is individual self interest seen as producing collective good? The harnessing of greed to efficiency and ethical goals requires a Factor X. Weber's Factor X was Protestantism. - which converted greed into frugality. Calvinism abolished the distinction between the sacred and profane - and extended ascetic ideals to everyday life. Greenfield accepts the need for a Factor X, and Weber was right to see that it required a new morality. But the mechanism was nationalism, not Protestantism. Nationalism freed money from subordination to religion Britain's success made it a superpower which triggered a reactive nationalism elsewhere - and greatly contributed to the formation of economic civilization. Nationalism is seen to promote the social structures that societies need to develop - eg equal rights, social mobility, market forces. Nationalism also leads to perception of international competition. Greenfield attacks economics on the basis that economic behaviour is shaped by cultural values, and that growth resistant cultures can not simply be explained by ignorance and superstition. There are three reasons to doubt that nationalism is a better explanation than Weber's protestant ethic. (a) how does nationalism change individual behaviour (b) protestant ethic explains why growth occurs in some societies but not others - which nationalism doesn't (c) Britain developed the core institutions of capitalism long before nationalism emerged as political doctrine - at the time of French Revolution. And far from being egalitarian and democratic, England was an hierarchical society headed by a monarch who suppressed parts of dominion by force. Some have seen the political foundations of capitalism in Europe's failure to establish a central authority after fall of Holy Roman Empire - and the resulting feudalism saw many competing jurisdictions, which coalesced in the16th century into competing national monarchies. Feudalism checked arbitrary rule leaving space for the growth of free cities, European markets and private property, while military competition stimulated national feeling and rulers concern for national wealth. Greenfield tries to show that economics can't explain growth without nationalism - by reference to Holland. Lucas by contrast presents an economist's explanation - based in mathematics. Lucas seeks explanation which is not only reasonable in explaining growth - but based on individual rational behavior. Post 1940s, growth models have sought to link growth and capital accumulation - which (because eventually the marginal product of additional capital declines) was traditionally seen as predicting income convergence. Lucas rejected this on the bass that it did not explain the income divergence that occurs in practice, and made growth depend on two external factors : population and technology. Lucas's alternative is 'endogenous' growth theory. This distinguishes between physical and human capital. Human capital is not subject to diminishing returns. However this model cannot explain the catch-up that arises under East Asian economic miracle. Lucas assumes that this is due to spillover effects of human capital development to other countries. However he also looks at population. Modern growth theories look only at income. Earlier ones also looked at population. A more integrated approach follows from treating decisions about numbers of children as economic choices. Lucas' more general view is that growth requires that people experience changes in the possible lives that they imagine for themselves and their children. This is opposed to Greenfield's view that growth requires exceptional circumstances - which means that there is no universal solution. Lucas believes that growth is open to all cultures and races - and that inequality is at a peak. His effort is to derive growth purely from attempts by households to maximize their wellbeing. Greenfield and Lucas take different approaches and so help build understanding. Greenfield questions whether growth is rational. There is evidence that wants are insatiable, and that greater wealth does not make people happier. Lucas assumes that little is required from governments for countries to break out of poverty. But government actions with respect to law, taxation, education, heath care, infrastructure etc are important. In many poor countries governments lack the capacity to implement appropriate policies. Lucas's endogenous growth theory prepares the way for new forms of intervention in which Western countries take over some part of of the development of human capital. The language of 'failed states' is the embryonic language of new imperialism (Skidelsky R., 'The mystery of growth', FR, 21/3/03)

Moreover it is hypothesized that there are fundamental obstacles to 'understanding' economic growth because:

seeking understanding (ie a scientific approach to economics) reflects a paradigm which assumes that cause and effect relationships are fixed (and thus able to be known), whereas the essence of economic development (and innovation within enterprises) may be that they change cause / effect relationships (eg see Transforming the Tortoise);
economic systems that are quite different to those of Western societies have emerged in East Asia from the different concepts of knowledge, power, problem solving, governance, economic goals etc that arise in societies with an ancient Chinese cultural heritage, and these can not be understood in terms of Western ways of thinking (eg see Asia Literacy)

Judeo-Christian traditions incorporated an amalgam of:

the Mosaic law of 10 Commandments and an extensively elaborated Jewish religious legalism detailed in the Old Testament;
faith as an alternative to moral legalism (eg see Mark 16:16; John 10:4; Acts 13: 39; Romans 10: 4-13). Moral behaviour became an indicator, rather than the main determinant, of spiritual success (Galatians 3);
a simple yet incredibly demanding ethical ideal of self-denial / putting God and others first - which Jesus of Nazareth had advocated about 2000 years ago as the essence and consolidation of the Mosaic Law and other detailed religious legalism of Old Testament Law;
universalist values (ie valuing all people and seeking truth);
a belief that events move forward in time from a beginning towards an end - which made scientific inquiry possible [1];
an emphasis on forgiving those who cause harm, leaving judgment and punishment to God; and
the separation of religion from political and economic affairs [consider: Jesus' rejection of of earthly kingdoms - Luke 4:5-8 ; 'My kingdom is not of this world' - John 18:36; 'Give unto Caesar that which is Caesars' - Matthew 22:21] - though this only occurred in practice in Europe after the breakdown of the link between religion and state which had characterized medieval 'Christendom' .

Freedom for individuals was promoted because (apart from the freedom from the pursuit of frivolous goals and from fear of the future that Christian believers gain):

law created scope for individuals to make decisions with much less need to try to second-guess the reactions of the powerful;
the Mosaic Law started a process of separating judgments about individual behaviour from the role of the state by created a core moral law which was completely free from manipulation by human authorities - which is a major point of difference from tribal societies (who rely on elders), and 'Eastern' societies with a Chinese cultural heritage (who rely on elite bureaucracies who have studied history);
the ethical ideal of 'self denial and putting God and others first' both consolidated the Old Testament law and raised the goalposts. The test of fulfilment of moral requirements was changed from compliance with 'n' simple specified rules, down to two complex rules and individual conscience. And Jesus taught that the moral standards to be sought were infinitely high (and thus humanly impossible). This consolidation, complexity and unattainable standards are major points of difference from Islamic Law;
the search for public 'truth' blocked the arbitrary exercise of authority. Political authority could shift from raw power or social status to having to be be justified in terms of widely acknowledged values and facts. A search for truth also promoted peace by suppressing the superstitions and conspiracy theories that can emerge from human imaginings;
the expectation that individuals would give ethical attention to others' interests and help the less fortunate reduced the perceived need for social hierarchy or strict religious rules to ensure 'right' behaviour;
an emphasis on forgiveness promoted an innate relative peacefulness / stability in society at grass roots level. This can be contrasted with traditions which perpetuate conflict by encouraging families to seek revenge for harm a member suffers [1].
'moral sentiments' provided the foundation for a liberal market economy (as argued by Adam Smith in Wealth of Nations).

Individual liberty could eventually become the core of a legal and governance system (initially in Britain) because it was taken as given that interpersonal relations would be guided by a 'put-others-first' ethical ideal that was deeply embedded in individual consciences. In societies without an 'embedded' ethical ideal, legal and governance systems seem invariably to be deeply involved in determining the nature of, and enforcing, moral interpersonal relationships (see below).

Individual liberty created significant advantages.

In the first place it enabled rationality to be useful as a very efficient means for technological and economic problem solving.

Why: Rationality involves a style of thinking derived from classical Greece - and involves manipulating abstract ideas that are seen to model various aspects of reality. Like science, rationality promotes efficiency because, through reliable abstract analysis of problems, it saves a lot of trial-and-error effort (eg see Mendelssohn K. Science and Western Domination, 1976)

However rationality involves a highly simplistic modelling of reality, and is only effective where problems are actually simplified. At the level of the social and economic systems that affect whole communities, rationality tends to fail - as illustrated by:

public administration literature on the counter-intuitive and unwanted effects that can plague public policies;

management theories about the limits to rationality;

economists' arguments for a market economy (based on the perceived impossibility of assembling the information required inability for centralized decision making); and

the foundational precept of Daoism, 'The Dao (truth / way) that can be known is not the true Dao', - which is a statement of the limits to rationality that allows much that is different about East Asia to be understood (see Asia Literacy);

Given a number of other factors (such as a system of law, money as a measure of value and means of exchange, and market institutions), an artificially simplified 'economic' space was created in which individual rationality could reliably be used to predict the results of decisions, thus enabling a large mass of specialists to work together with great efficiency in a coherent way.

An emphasis on individuals also made the quite rapid and radical re-formation of social and economic systems simpler than when a community's structure was relatively immutable. This flexibility, though stressful, can be an adaptive advantage - and is critical to economic productivity because it provides a means (by responding to new market and technological opportunities) to escape from the squeezed profit margins that accompany the emergence of heavy competition in any mature economic function.

An emphasis on individual liberty (and thus its economic advantages) emerged sooner and more strongly in Britain than elsewhere in Europe as indicated by:

the signing of the Magna Carta (a charter of English liberties) in 1215;
the relatively early demise of the feudal system;
the more-complete embrace of the reformation insistence that individuals could interpret the Bible without reliance on religious authorities; and
the British legal system under which individuals are given legal precedence over the state (assumed to be the creation of the free association of individuals), as compared with Roman (European) law under which the state (representing the culture of a society as a whole) is taken to have legal precedence over individuals. [Others have suggested that the core difference between British and Napoleonic law is that the latter forbids unless specifically allows, while Common law allows unless specifically forbidden - a tradition which is seen as the foundation of Anglo-Saxon creativity [1] ]

At the same time political and economic affairs were able to be more effectively governed, because it was not expected that these should have to conform solely to religious principles.

The latter is very significant because, while a religion may define fundamental guidelines for human behaviour, it can never allow the complexity of human affairs to be effectively analyzed or understood (or change fast enough to match (say) economic conditions). That this must be so can be seen by analogy with the fact that the behaviour of complex biological systems can not be deduced solely from the (fundamental) laws of physics. The latter laws determine the behaviour of the micro-elements of such systems, but the environment constantly stimulates the creation of sub-systems of relationships amongst such elements and those relationships (as well as the fundamental laws which are analogous to religious principles) have to be taken into account in analysing / understanding the system as a whole. The result is that where fundamental religious principles are seen to apply to governance or to fully prescribe daily life, societies and individuals can never have the flexibility to cope with more complex and rapidly changing circumstances. Also in trying to force 'square pegs into round holes' religious principles themselves must be distorted / corrupted.

Other Views: Another explanation [1] of the dominance of Western societies focused on:

the turning inward of previously successful Chinese and Islamic civilizations;
the invention of commercial techniques (eg property rights);
the separation of church and state;
factors which permitted the spread of knowledge eg the valuing of individuals as children of God, the invention of the printing press

These constraints are further compounded by:

internal weaknesses of human / knowledge resources, government / economic institutions, industrial capital, and infrastructure;
the arrangements which the strongest societies sometimes set up which benefit those who are best equipped to compete;
the potentially disabling effect of reliance on foreign aid [1]; and
others' prejudices based on the real or imagined character of particular ethnic groups.

Firstly, there is the (so called) 'curse of natural resources'.

For example, it is a truism in the developing world that petroleum wealth can also be a curse [1]. In particular in Iraq, oil resources are seen as a major impediment to economic growth and democracy - because they impede the development of necessary institutions and values [1]

Even quite legal and ethical foreign investment can have unintended and un-recognized adverse effects on the political economy of less developed regions (eg by encouraging repressive regimes), especially where valuable natural resources are involved. The process can involve:

political and business elites (either those with traditional authority or popular support) may believe they can help their people progress by securing investment in resource-extraction projects. However all they may be doing is providing poor economic leadership because of the limited scope for adding value in the production of un-differentiated commodities. The challenge under-developed economies face is not just to 'produce' goods and services but to 'earn' enough to buy them. To achieve the latter, learning (so as to gain competitive advantages) is essential and this may well be very limited through merely securing resource investment.
consequence of this version of 'progress' can be that:
- civil institutions able to provide a sophisticated level of public and economic policy leadership are not established (eg see Queensland's Weak Parliament) - and this makes it essentially impossible for a 'vision' to emerge of economic advancement independent of foreign investors. The absence of local sources which have a realistic understanding of workable economic policy options was described at one stage as the defining characteristic of a 'banana republic';
- international engagement separates communities from the traditional environment they could make sense of; subjects them to various social dysfunctions; and then leaves them alienated in a 'global' environment they can not cope with;
- large segments of the population may suffer very low incomes because of a lack of leadership in development of a productive economy - and the resulting social stresses (and inequalities) can give rise to political instability;
other populist political leaders can then arise with the simplistic view that sharing wealth through revolution would solve their people's problems (but with no insight into how a developed economy really works). As they create financial and economic chaos, local authoritarians may seize power and re-establish a 'client' status with the international investors;
a 'brain drain' of those most able to develop a modern economy then follows because they are alienated or ostracized (or worse) by the authoritarians

This cycle of (a) political 'client-ism' / poor quality economic growth and (b) political nationalism / economic ignorance seem to have been a feature of the Middle East - and contributed to a negative view in the region of Western societies (on which local elites have been dependent) and also of Western-style democratic governance [1].

Suggestions about the presence in all societies which lack Western traditions and institutions of an economically dominant ethnic minority and an impoverished ethnic majority can be noted in relation to this notion of 'progress' [1];

Secondly, economic advice favouring liberal market policies may require individuals and firms to compete, without ensuring that they gain the capabilities to be competitive. The problem is that some of the capabilities needed for successful competition have a systemic character (eg require complementary elements in different types of firms, in government regulations, in people's attitudes and the way things are done).

Example: In the CIS, for example, markets were liberalized after the end of the Cold War without creating key institutional capabilities (eg effective accounting competencies), and the economy contracted for several years.

In the absence of leadership in the development of economic systems as a whole it may be beyond the power of individual enterprises or democratic institutions to create these systems (see comments in The Second Failure of Globalization?). Ways to overcome this constraint have emerged in East Asia (initially in Japan - see below), and this has substantially affected that region's economic development both positively and negatively.

Thirdly the operation of financial markets may contain an inbuilt but unrecognized tendency towards instability (rather than equilibrium) because, as Soros suggested, there can be a positive feedback between such markets' biases and real economic outcomes [1]. Those instabilities can have very damaging impacts - especially in immature economies;

aid damages growth prospects by making corruption into the main path to wealth [1];
aid has damaged the Pacific region [1, 2]
the interaction between foreign aid and corrupt governments has led to loss of hope in the Pacific and Africa [1]
aid has been seen to be counter-productive (eg by keeping harsh elites in power, allowing domestic resources to be used for warfare) [1] - though efforts are being made to develop better practices [1];
numerous adverse unintended consequences have been identified in foreign aid [1] - similar in many ways to those seen to affect public policy generally;

Background note: the following observations are based on the author's close study over many years of systemic approaches to organisational development and economic strategy (see also CV), which led to involvement in concept development for a centre in Australia for international technological and cultural interchange that was first suggested by Japan's Ministry for International Trade and Industry. In the course of this work the intellectual foundations of Japan's rapid economic advancement was studied, resulting in the production of a document, Towards an Understanding with Japan, which was favourably reviewed by various Asia experts (eg Professor Chalmers Johnson, author of MITI and the Japanese Miracle, described it as 'dealing with matters on the leading edge of the social sciences') though it was never published.

Earlier attempts by the present author to develop and explore the economic implications of East Asian traditions were in a book, Transforming the Tortoise: A breakthrough to improve Australia's place in the economic race (1993), and Asia Literacy (1998).

The core of those cultural traditions seems to be an epistemology (ie a way of thinking about knowledge) based on ancient Chinese traditions that is quite different from the concept of 'rationality' that Western societies inherited from classical Greece (ie the concept that abstract ideas usefully model reality - which, as noted above, has been critical to effective problem solving in Western societies).

An aside: Interestingly there seems to be a parallel between with 'concrete' thought (as compared with Greek 'abstract' though) that has been seen to have characterised ancient (ie pre 800 BCE) Hebrew society [1] - though an internet search revealed no comments on the relationship between ancient Hebrew and Chinese thought.

The alternative view may be most simply expressed in terms of the central precept of Daoism which states that 'The Dao (truth / way) that can be named is not the true Dao'. This view (which is related to Shinto and to Zen) is a statement of the limits to rationality which is equivalent to Hayek's observations about the inability of central authorities to gather the information needed to make reliable economic decisions (see The Use of Knowledge in Society, 1945) that is the basis of mainstream Western economists' rationale for a market economy. It was this ingredient, when added to traditional Confucianism (which sought wisdom from a study of history and had been associated with a century of economic decline by China), that produced dynamic neo-Confucianism. This epistemology leads to:

an intuitive (arational) style of problem solving. One observer realistically described this as an "ancient Chinese philosophical outlook that makes little distinction between theory and practice" [1];
an 'information-divergent / chaos-creating' role for leaders in identifying strategic issues, rather than a 'convergent' role in making decisions on a rational basis;
a concept of power as the avoidance of decisions (rather than as being a decision maker) - see Pye J., Asian Power and Politics, 1985. The consequence of this in Japan for example is 'bottom up' decision making (by employees within organizations, and by firms on behalf of 'Japan' as represented by bureaucratic elites) whereby subordinates make decisions on behalf of their social superiors - and so overcome to some extent the limits-to-rationality problem Hayek identified;
authoritarianism presumably because, in the absence of any agreement about 'public truth', this is the only way in which a society can be held together. One observer noted that (a) in the 1980s 'party secretaries' were present everywhere and given huge resources - as their role was to 'control thought' and (b) before modern era Chinese governments have always been obsessed with 'correct thinking' by their subjects [1];
valuing outcomes that are 'real' or 'concrete' - with little importance attached to 'abstracts' such as ideas, ideals, financial returns or intellectual property;
equating economic success with 'real' production rather than with financial returns on capital. Preference is given to market share (ie 'real' production / power / security) over profitability (ie paper or symbolic gains) - [1]. In Japan, for example, a survey found at one stage that profitability was not one of the top 5 goals of the groups of major firms surveyed [1 - though others have suggested that this perception may be exaggerated]. China's banking system has likewise been seen as unconcerned with return on capital [1], and there is no Chinese word for 'unprofitable' [1]. Limited interest in financial outcomes as such, it may be noted, is quite consistent with:
- the strong desire for commercial power that exist amongst the Chinese diaspora in particular;
- the wealth that that the latter have often accumulated - by spending less than is earned in accordance with Confucius' instructions about becoming rich by saving and avoiding consumption [1] (a preference which, when applied by nations rather than clans, has translated into a major fiscal obstacle to sustainable global economic growth);
presenting unreliable data about economic / corporate performance - because such data is not the basis on which decisions are made;
distrust of the concept of law (ie universal rules). Confucianism had basically provided a set of rules for interpersonal relationships without any concept of universal law.

Other features of East Asian traditions which to varying degrees are complementary to that epistemology appear to include:

societies built on social hierarchy - rather than on equality before law;
a strong (Confucian) concept of obligation - which means for example in Japan that (a) precedence is given to customers' requirements in 'bottom up' decisions and (b) any help provided must be repaid to those who arranged it - so no one asks for help (eg from government) if they can avoid doing so;
a preference for invisibility to outsiders by those who are really powerful;
a Confucian concept of government as teacher and guide, rather than as regulator, and of government by man rather than by a rule of law;
control of government by a bureaucratic elite selected through the education system, while 'democratic politics' exists only for show, and society works in terms of the obligations of people to their superiors, not in terms of the rights of individuals. Consumerism would be inconsistent with such social structures;
an approach to industry policy which in Japan long involved (a) 'vision development and administrative guidance' through MITI whose effect was to accelerate learning within firms, rather than to make centralized strategic decisions and (b) similar leadership of change within business groups through banks and trading companies.
coordination of economic activity through hierarchical social relationships under Confucian traditions - with little regard for financial outcomes. Rapid development of economic capabilities were catalysed in Japan through intelligence gathering and networking by social elites in: MITI; trading companies; banks; and corporate management;
funding of firms mainly by debt capital with very little equity. This ensures that return on capital does not drive business decisions, but also provides very little buffer in the event of an economic shock;
structuring financial systems (at times) to direct funds earned from exports back into additional productive capacity, rather than to consumers;
a strong savings ethic based on Confucian teaching that wealth should be acquired by saving and avoiding consumption;
communitarian / mercantilist economic goals, ie building the power of particular ethic and cultural communities (and their social elites in particular) rather than improving the economic welfare of citizens as consumers. All components of an ethic / cultural community (business, politics, communities, government agencies and even organized crime) will work together under bureaucratic leadership to achieve these goals (eg see Kaplan and Dubro's Yakuza and Seagrave S. Lord's of the Rim, 1995). [It may be that this emphasis on power derives from the fact that, because of other features of traditional culture, 'harmony' can only be assured if elites have the power to suppress dissent];
maintaining power in relation to other nations by working harder. China's 'tributary' system by which it was the centre of regional economic power until 200 years ago involved symbolic gifts to China by 'tribute' nations who received much more real benefits in return (ie they allowed China to exert political and economic control) [1]. Barbarian invaders were defeated by serving then - so that they became dependent and weak [personal communication] -

Another account of the radically different cultural frameworks which make it difficult for communication about even such issues as the nature of management is 'Contrasts in Chinese and Western Management Thinking', (Garran B. LODJ, V2, N1, 1981). Similar observations about the characteristics of China that (as well as etiquette) are mentioned in accounts of what need to be considered for business success [eg 1]

Financial systems arise because money is used as a means of economic exchange, a store of economic value and a means for signally the need for economic change.

Financial systems have often been a source of problems because of (a) the self-interest of the owners of capital - that can distort the economy and the political system, (b) the inherent 'boom-bust' character of financial markets (due to speculators' use of such markets as a primary way of wealth creation; the 'herd' behaviour of investors; cycles in the 'real' economy; and periodic failures in monetary and credit management) - and (c) the possibility that financial 'busts' can affect the real economy.

However Japan's economic system has involved a mercantilist policy goal of creating production capacity far in excess of domestic demand and without regard to profitability through the creation of credit by a tightly regulated financial system - which resulted in large current account surpluses that have been recycled into further expansion of production capacity and, in recent decades, into investments in $US assets (see Why Japan cannot deregulate its financial system).

Even more significantly Japan's economic model involved the coordination of production capacity in terms of 'neo-Confucian' social relationships (amongst elites and by subordinates to superiors) rather than in terms of symbolic / financial outcomes (such as a search for profitable investments).

In Asia outside Japan, variations on this model had been adopted since the 1960s. China in particular eventually became very successful in attracting foreign investment and growing export-oriented manufacturing industries - following its acceptance of a variation of the Japanese economic model in 1979. This allowed large current account surpluses and holdings of foreign currency reserves to be accumulated - and so allowed China's financial institutions (though they carry enormous quantities of bad debts [1] which put their solvency at risk) to continue providing credit - because there has been no requirement to seek external capital.

The different (relative to US / Western) characteristics of Japan's and some other East Asian economic systems first started to have obvious impacts on financial systems in the 1980s, when:

Japan built a financial bubble by increasing the availability of credit on the basis of property values which were in turn sustained by this credit. Industrial capacity was created and many foreign investments were made - which were often unprofitable;
in 1985 the US encouraged Japan to revalue its currency by 50% and to boost the availability of credit under the Plaza Accord in the vain hope that this would overcome a trade / current account deficit which had emerged (due to the US's rapid consumer driven growth, and the communitarian / mercantilist character of Japan's economy). This hope had to be in vain because:
- currency revaluation can have only a minor impact on trade flows if production / distribution capacity does not exist;
- Japan's financial system is set up so that, domestically, any stimulus must mainly flow into industrial capacity rather than into consumer demand (op cit);
the $US fell by around 50% against major currencies in the two years after 1985 [1];
withdrawal of some $400bn from US Treasury bonds in 1987 led to increasing interest rates which triggered a crash in the value of US equities. This crash was interrupted when authorities (eg US Federal Reserve - and later IMF) developed methods to prevent this and later financial busts from affecting the real economy - through providing liquidity to prevent losses compounding. Ultimately those techniques enabled an asset bubble to grow in the 1990s especially in the USA because:
- P/E ratios escalated as investors concluded that they could ignore equity risks;
- cheap credit cut corporate costs, increased consumer spending and boosted profits; and
- increases in asset values fed-back into consumer spending.

Japan's financial bubble burst with a collapse in equity and property values around 1990, leaving Japan's financial institutions with large portfolios of bad loans, and considerable risk of insolvency. A decade of stagnation has followed with: impeded bank ability to invest in industry; heavy public spending to maintain growth (resulting in very large public debts); growing unemployment; and apparent difficulty in overcoming the bad debt problem. The problem could have been resolved by writing-off the bad debts, but this would have required:

a 'fire sale' of assets to investors - and reduced control of Japan's economy;
a loss of status and control of financial institutions by the 'merit-aristocratic' elites at the top of Japan's social system;
challenging the socially and politically powerful nationalistic gangsters [1, 2] who dominate Japan's politically-and economically-important construction (and leisure) industries - and play a key role in enforcing discipline on behalf of Japan's social elites.

Across East Asia foreign investment grew rapidly in the 1980s and 1990s - until the Asian financial crisis emerged in 1997 as foreign investors found that profits were often likely to be limited (see The Asian Financial Crisis). Many events can be seen to have triggered that crisis, however it also reflected the institutional characteristics of the East Asian economies that have followed versions of the Japanese development model.

Sakakibara, a senior official in the Ministry of Finance which developed Japan's financial model, proposed an Asian Monetary Fund to protect against the effect of capital outflow - and under the Miyazawa Initiative assistance was provided to some countries [1].

The crisis was widely interpreted by nationalists in Asia as a deliberate US attack on the 'Asian' economic models though:

it has been suggested that the financial weaknesses in SE Asia that gave rise to the 1997 crisis were exposed by the withdrawal of Japanese capital from 1995 on because of Japan's domestic financial predicament (see Hartcher ‘Look East, Dr Mahathir, for the source of Asia’s decline’, Australian Financial Review, 25-26/10/97); and
the author saw no evidence suggesting that culturally-introspective US analysts even properly understood how the Confucian / 'Asian' economic models worked;

A cultural revolution would have be required for many East Asian economies to operate profitably under Western / US financial principles. However:

under East Asian traditions such difficulties would never be disclosed to, or discussed with, outsiders - (a) to save face and (b) because (given a lack of universalist ethics) there would be no expectation of a sympathetic response - but rather that any sign of weakness would merely be exploited;
instead of a cultural revolution, all that has happened is that Asian countries adopted IMF principles for financial market liberalization and transparency in varying ways - while all countries in East Asia concluded that suppressing consumption so as to acquire substantial foreign exchange reserves (as Japan and China had done) was the key to avoiding a repeat of the financial crisis.

Since 1990:

the US has continued to draw upon:
- cheap imports which kept inflation under control; and
- external capital inflows generated by: the strength of its financial system; the different economic character of East Asian economies; and the US's rapidly growing consumer-driven economy. This inflow has been offset by large US current account deficits, and has also further boosted the value of US assets;
a great deal of the latter capital has come through:
- investment of the current account surpluses generated by Japan's (and greater China's) non-consumer-oriented economies;
- the Yen 'carry-trade' which has resulted from the creation of cheap credit by Japan, which (because of the structure of Japan's financial and monetary systems) could never boost domestic consumption, but only boost the availability of credit in capital importing countries;
Japan has led efforts to establish an AMF (an Asian Monetary Fund) which would operate under 'Asian values' (ie the rule of ethnic elites) as an alternative to the IMF (which is based on democratic-capitalist values) - See Note 17 of Queensland's Challenge ;
Japan continued as the world's major source of capital - because of its high savings rate (eg see Abegglen J. 'Prospects for Japan's Economy, Journal of Japanese Trade and Industry, Sept / Oct 2001) - a role which could well be founded partly on poor accounting practices if the losses in its financial institutions were as bad as expected;
large financial losses remain in Japanese financial institutions (and have also accumulated in Chinese institutions - see China's Development: Assessing the Implications);
Japan seems to have been going to extra-ordinary lengths to create large quantities of credit that are made available to US consumers to maintain East Asian current account surpluses [1];
there has been periodic concern that financial difficulties like those at the time of the Asian financial crisis could be re-occurring (eg Hughes H. 'Tigers return to endangered list', Australian Financial Review, 3/8/01);
unexpected withdrawal of Japanese capital apparently played a significant role in triggering both the stock market crash of 1987, and the Asia Financial Crisis of 1997;
Japan shifted in the 1990s to a policy of 'internationalization' and suddenly presented itself as a firm ally of US (quite the reverse of its tense economic rivalry of the 1980s). Getting close to one's enemies is reputedly a tradition 'Art of War' tactic, and provides much greater scope for insider influence. Moreover the methods for exerting influence that Japan seeks to use would not involve overt 'lobbying', but would tend to be invisible (eg by providing access to information to influence others' thinking without stating what conclusions should be drawn);
the US Federal Reserve was clearly subject to Japanese influence in setting its low interest rate policies which contributed to the development of an asset bubble and ultimately the GFC. Fed chairman, Alan Greenspan, often referred to the need to prevent deflation as justification for setting very low interest rates - though this was a risk that only Japan faced. It wasn't a US problem. Thus it is clear that US Fed was seeking (presumably being influenced by Japanese officials) to use US monetary policy to keep global growth going in the face of deflationary demand deficits in East Asian economies. Greenspan also periodically expressed the hope that associated financial imbalances would eventually be resolved by market forces.

It eventually became obvious to financial authorities (eg Bank of International Settlements, World Bank) that the continued dependence of global economy on US demand and escalation of US debts could not continue - and that the global economic system itself was at risk. In this regard Structural Incompatibility Puts Global Growth at Risk (2003) suggested that:

major East Asian economies (eg Japan and others who have adopted variations on the Japanese model such as China) contain an inbuilt demand deficit (ie a massive surplus of production for export over domestic consumption). Consumption of this production has been maintained by the US by creating credit - which has also flowed into escalation of asset values. In the process the East Asian economies built up current account surpluses, and claims against the foreign debts of the US;
Western societies are increasingly developing largely symbolic, rather than real, production capabilities - and the former are of no use if the global financial system disintegrates;
the demand deficit in the major East Asian economies is the result of a deliberate mercantilist policy (ie one that seeks to build national power by economic means, and one which views economics as a win-lose contest between nations rather than as a win-win partnership). Furthermore, it is likely that such economies were never intended to be sustainable - because economic capacity has been created with little regard to financial profitability (resulting in insolvent financial institutions).

This situation can even be interpreted as a 'clash of civilizations', which is presumably 'invisible' to Western economists and bankers who lack understanding of East Asian social and governance arrangements, and thus can't conceive that:

financial profitability might be considered irrelevant; or that
economic dealings could be used to construct a 'bomb' to destroy the global financial system;
masterless samurai could view destruction of their dead master's enemies - as a worthy, though suicidal, goal (see 'The Tale of the 47 Ronin', Japan's most popular folk tale)

Speculative scenarios that suggest how such an 'invisible clash' might relate to the September 11 2001 attack in America could also be considered - particularly because the Jewish interests who are often claimed to dominate the US financial system also appear to support Israel as a Jewish homeland in the midst of Islamic societies.

In SE Asia there certainly appears to be some association between countries whose political and economic systems were dislocated by the financial crisis and those in which al Qa'ida reportedly has connections [1].

The situation of Malaysia in particular seems interesting because it:

is widely regarded as providing a model to demonstrate how Islamic societies might become economically successful - and has in fact developed an ideology about how Islam can be associated with modernization [1];

has a large ethnic Chinese community who have key economic roles - but have often been subjected to discrimination;

has repeatedly emphasized a 'look East' approach in developing policy;

inhibited the impact of the Asian financial contagion on its economy by regulating its financial system - which seems likely to have been possible only if substantial foreign exchange reserves were available from somewhere;

was in communication with very senior Japanese financial officials during that crisis.

Moreover its Prime Minister, Mahathir, spoke of:

the need for Islamic societies to develop economically in order to defend themselves;

opposing Jews who are seen to exert secret control over Western societies;

the undoubted fact that Australia (seen as a US ally) does not know everything.

In brief he suggested that:

East Asian economic systems are radically different to Western capitalism yet, to the surprise of economists, they are very effective in boosting exports and growth, so there is a need to understand why this is so. Characteristics include (a) a lack of commitment to truth, and a manipulative approach to citizens and outsiders; (b) authoritarian government control of the economy (through regulation / market rigging / selective enforcement of regulations); (c) suppressed consumption (through small living spaces / tight control of credit etc) which leads to high savings rate; and (d) a key role for cartels in ensuring that favoured investments are profitable and controlling industrial capacity;
these systems were originated by the Japanese military in the 1930s and subsequently spread throughout Asia - with China's authorities having become convinced in 1979;
while East Asian economic systems have advanced their people's welfare, the suppressed consumption that they are based on adversely affects others. Western and East Asian economic systems are incompatible and need to be kept apart (as was done with the former Soviet Union). This could be achieved by gradual introduction of tariffs - as something quite severe is needed to overcome structural trade imbalances;
despite theatrical bickering, Japan did all it could to boost China's development - because it would prefer China as the world's superpower. East Asian societies prefer to be isolationist - eg they will ignore others human rights abuses. Western / US influence is resented for it forces a pretence of (say) democracy. Moreover it is believed that China will outlast the US empire as it has done many others in the past;
Western societies have never before had to cope with Asian authoritarianism. But China's leaders believe they have to become the world's dominant power, as external influences are now so significant that isolationism is not an option.

Comment: Fingleton's conclusion (ie that East Asian and Western economic models are incompatible) parallels the present writer's conclusions in Structural Incompatibility Puts Global Growth at Risk (2003). However Fingleton's suggestion that the erection of defensive tariff barriers would be best / only solution seems suspect, because:

there is doubt about the future sustainability of the demand-deficient economic models that Japan originated and spread throughout East Asia - for reasons outlined in Are East Asian Economic Model's Sustainable? For example, the fact that East Asian economic models involve coordination of economic activities by social relationships amongst elites (rather than in terms of 'abstracts' such as financial outcomes) can be an advantage in organising production systems in response to external market demand. But this depends critically on outsiders providing strong demand and scope for investing savings. In isolation, suppressed consumption would lead to macroeconomic catastrophe. And, given the limited role of price signals, these models contain no internal arrangement for managing the relationship between supply and demand that would be any more reliable than in the former Soviet Union - and so could not be viable on the basis of domestic consumption;
societies such as the US and Australia have pro-active options for developing the supply side of their economies by accelerating 'learning' within whole economic systems - perhaps along the lines suggested in A Case for Innovative Economic Leadership (which deals with the Australian context). Information is regarded as the key factor in economic productivity and growth. However just as information can be used to drive innovation within enterprises, it can also potentially be used to drive productive change within whole economic systems - providing leadership in this process can be successfully disentangled from political systems.

Thus, in future, it is possible that aid to East Asia in establishing more sustainable economic models may be more necessary than the fear that Fingleton expressed about Asian authoritarianism.

A 'Virtual Asian Monetary Fund'

An Asian Monetary Fund is taking shape as nations pledge to help one another. ASEAN, China, Japan and Korea agreed to expand the scope of the Chiang Mai Initiative - an agreement amongst their central banks to advance funds in times of crisis. The Chiang Mai Fund was expanded to $120bn - 80% of which is to be provided by China, Japan and Korea. This is growing into an Asian Monetary Fund - like that Japan suggested at time of 1997 Asian Financial Crisis (which US opposed). China and Japan are main buyers of US government bonds. They have saved and lent so US could borrow and spend. Regional integration will increase regional stability. Asian crisis occurred because foreign capital lost confidence in region with world's highest savings rate. If Asia had kept money at home it would not have needed foreign capital. Recent step increases sovereignty and reduces scope for IMF intervention (which seeks to expand the role of markets and reduce role of governments - policies that have produced few development successes). All countries in East Asia prospered through government intervention that Washington consensus would never have permitted. An Asian Monetary Fund will allow Asia to steer its own course, and be good news for Australia as its linkages into the region increase [1]

However, what has been going on and what a "virtual AMF's" prospects for success are, can't be understood without considering the cultural framework in which this has been developing. As noted above , there are differences in the nature of knowledge, power, governance, strategy and economic goals in societies which lack Western societies' classical Greek heritage but rather are derived from ancient Chinese traditions.

This is essential to understanding the implications of a 'virtual AMF' because it would involve the creation of credit and the control of monetary systems by social elites operating under neo-Confucian traditions whose concern was with building the power of their ethnic communities rather than with generating profits by meeting the needs of their citizens as consumers.

The monetary and financial systems which have been the basis of economic miracles in East Asia have not taken the profitable use of capital seriously - primarily for cultural reasons related to difficulties in handling abstract concepts.

This was the reason for the 1997 Asian Financial Crisis (see Understanding the Cultural Revolution Needed for Success under Global Financial Systems). The fact that the region is characterised by high savings does not imply that that those savings would be used productively or that sound bank / corporate balance sheets would be seen to be needed.

It was also the reason for the global financial imbalances that have arisen, as the US (mainly) tried to sustain global growth in the face of the macro-economically unsustainable demand deficit that has been necessary in major East Asian economies to protect banking systems from having to demonstrate the sound credit rating needed to borrow in international markets (see Financial Imbalances in Financial Market Instability: A Many Sided Story). Some have seen those imbalances as significant in causing the global financial crisis.

Establishing a 'virtual AMF' seems to be part of attempts that are being made to permit Asia's nationalists to continue economic growth by creating credit and using savings without serious concern for return on capital.

However this would not be economically viable under a Western-style global economic regime in the absence of sufficient final demand for the production capabilities that are being established (eg see China: Victor or Victim?). It may be that efforts are in place to overcome that constraint which would not be easily understood by Western observers, and may not be effective either (see After the GFC?).

Feedback: An observer with considerable background in Asian culture and history suggested that:

.. we are witnessing the success of superior East Asian strategies and culture that are re-establishing the global order that existed 200 years ago, when China was the world's dominant production economy and technological leader, having more or less held that position for several millennia.

Western conceptual (particularly economic) structures and theories are a handicap for Westerners in trying to understand all this but are an ally for Easterners, because they are so predictable and clumsy. The East learned much from 1997 but the West nothing.

To talk of return on capital as a meaningful rationale for any community in the midst of the ongoing farce on Wall Street smacks of a form of racial and intellectual insensitivity and arrogance that can only lead to disaster. China already has critical and unrivalled leverage in global consumer, commodity and financial markets. Indeed, it has already established a tributary relationship with America, where it manages the 'barbarian' by giving more than it receives. This allows it to progress much more than what the Americans denied the Japanese in 1997 - in fact the Chinese and like-minded neighbours have established a nascent alternative global financial system. The game is already over, but the Chinese will move discreetly and slowly.

The above issues are difficult. However a sense of what is involved can be gained by considering the implications of 'post-modern' views about knowledge.

A distinction can be made between philosophical 'realism' (ie that knowledge reveals something about what is 'really' true, and that it is thus primarily assessed against empirical / 'does-it-work' tests) and philosophical 'idealism' (ie the concept that knowledge is mainly assessed against individual or cultural preferences and has political implications in reflecting a world-view that advantages elites). The 'realist' view was arguably a key cultural factor in the strength that Western societies acquired (eg as the foundation of science).

However in recent decades there has been significant change in emphasis by students of the humanities. This has been described as 'post-modernism' [1], or post-structuralism or relativism. This view is partly justified by limitations in philosophical 'realism'. For example:

scientists are unable to prove that scientific laws are universally true - because the principle of induction (the basis on which universal laws are implied from limited numbers of observations) is not logically valid;
theories are never regarded as proven, merely not yet shown to be false;
observations which are the basis of developing theories, depend on the assumptions which scientists make about what they are searching for;
all knowledge of reality is ultimately filtered through our senses;
there are endless different ways of interpreting historical events - and thus no way of identifying a useful / universal theory to explain history [1]
some knowledge reflects arbitrary human judgments;
the nature of knowledge depends on a society's world-view;

But post-modern assumptions are also a massive over-reaction to those limitations. For example:

Scientific conclusions that work in all known cases are useful, even if no one can prove they will work in all cases. Thus in the physical sciences there is a high level of 'positive knowledge'. For example:

though it seems intuitively obvious from daily experience that heavier objects fall faster than lighter objects, experiments show that they fall at the same rate (in a vacuum). Thus simple positive, but non-intuitive, statements can be made about gravitation which are useful;

Even in social systems where 'knowledge' may be more-or-less a product of society's assumptions, those assumptions have real consequences. Moreover:

claims about what is true of social systems are tested by experience over time. Whether claims withstand this test does become obvious;

ways of understanding can be constructed which give deep insights into aspects of reality which allow useful positive statements to be made, eg:

Paul Krugman argued that economies that grow rapidly through increased inputs of labour and capital (rather than through increasing the productivity with which those inputs are used) must eventually stagnate. This applied to the rapid growth in the Soviet Union in the 1950. Thus useful (but non-intuitive) advice could be given to others who might be going down a similar path (as he argued applied to many economies in SE Asia in the 1990s) [ref?]

Muslim nations often experience political authoritarianism and economic failure. However a core assumption in Arabic thought has apparently been that free will is impossible - a formula for fatalism (which makes economic initiative uncertain) and authoritarianism. Thus almost the entire problem of disadvantage and political failure in the Middle East - and the potential 'clash of civilizations' - could probably have be avoided if someone had bothered to consider whether this Arabic world-view is consistent with the way to universe works.

cause / effect relationships can often be counter-intuitive because of the complexity of the systems involved. Thus it can be essentially impossible for even the most expert analyst to define superior alternatives to established wisdom on the basis of rational analysis, and potentially dangerous to proscribe arbitrary changes to cultural 'truths';

The fact that historical events reveal no 'theory of history' in themselves, does not mean that they do not yield useful understanding when viewed in a utilitarian framework (ie in terms of positive knowledge derived from experience about what is required to achieve particular practical outcomes). Thus if one knows, for example, what is required to create a technologically advanced society, then a point of reference is available for understanding history. And the continued functioning of the society (or the achievement of similar outcomes by others) requires that that knowledge be able to be shared. Moreover it is 'truth' because it describes what works in practice. Also

The concept of 'fuzzy logic' implies that, while oversimplified models (such as natural language and traditional logic) may not fully describe complex systems, there is no better way of doing so.

In spite of this it seems that some students of the humanities have taken post-modern insights too far and argued that all that is possible is subjective interpretations, and any attempts to identify objective facts should be abandoned [1].

Government

Public administration (see the Decay of Australian Public Administration) has been affected by practices that have post-modern parallels such as:

managerialism - which sees management as a generalist activity and assumes that one does not need to have knowledge of a subject in order to manage it;
politicisation - which values political compliance by senior administrators over the knowledge of practical realities gained through professional experience. This makes sense only on the uncritical post-modern assumption that the claims which members of a profession make to valuable specialized knowledge and experience merely reflects their own political agendas. A practical example involves the failure of an electricity distribution because the organization involved was required to comply with directives from persons who did not understand the need for network maintenance (see Failure in Queensland's Electricity Distribution Network)

Community

Community suffers dysfunctions that emerge because behavioural standards and truth are seen as matters of personal taste (ie humanity is again 'Eating of the tree of knowledge of good and evil' - with apologies to Genesis 2-3).

The view that 'right' or moral behaviour is merely a matter of opinion seems to have justified a radical individualism. The problem with this is that good moral judgments are anything but easy for individuals to make no matter how much they try to understand other's interests, because the cause / effect relationships involved are so complex.

Individual rationality is a good guide to economic decision making only because this takes place in a framework of law, contract, accounting systems and standardized weights and measures (etc) which bridge the gap between individual considerations and beneficial society-wide outcomes.

Without a system of agreed moral law which individuals subscribe to the same can not apply to moral judgments. This is presumably the reason that the writers of Genesis 2-3 saw trying to make moral judgments about impossibly complex situations on the basis of local considerations as humanities' 'original sin'. The problem of complexity can perhaps be illustrated by debates about the acceptability of homosexual practices - where (despite 20 years of debate) the apparently very real linkage between homosexual behaviour and child abuse and neglect has not been publicly considered though it seems critical to making any moral judgment (see Public Acceptance of Homosexuality).

Liberty

Individual liberty is facing several threats which are outlined below.

Democracy

Democracy has become less viable because in the absence of 'public truth' it is impossible to justify public support for a 'right' course of action or to contest the autocratic opinions of the powerful [1].

For example, anyone who argues (in effect) that all texts reflect a hidden political agenda [1], automatically invalidates any policy they might suggest. What could anyone gain (apart from an insight into its author's prejudices) from an 'analysis' which assumed that a positive or useful account of reality is impossible. This approach could reasonably be described as a 'negative circular argument' (ie one whose basic assumption disproves any conclusion).

Such assumptions make political debate meaningless so that power must revert to those who are strongest. An uncritical 'post-modern' disbelief in the relationship between ideas and reality (ie in 'truth') seems to be a characteristic of societies that have an ancient Chinese cultural heritage (as many do in Asia) - see Asia literacy. Such such societies are traditionally despotic, and subject to the rule of elites rather than a rule of law.

Egalitarianism

Similarly social equality must be at risk, because in the absence of 'public truth', national unity can only be assured by social hierarchy, which once again is characteristic of many societies in Asia.

Rule of Law

The rule of law is at risk because the words out of which laws or contracts are constructed might be seen as having only arbitrary or personal meanings.

The credibility of institutions has also been undermined - noting concerns that have been expressed in Queensland about distrust of decisions made by major institutions because of the view that they reflect bias [1].

Education

Education suffers because of the uncertainty about the relevance of educational content. This problem is illustrated by:

the perception that all cultures' assumptions are equally valid (see also The Importance of Values Taught in State Schools)
the trend towards outcomes-based education which emphasizes the ability to use knowledge rather than whether particular knowledge has been learned. This approach is useful in that it improves the integration of knowledge. However (a) it is easier to give a misleading impression of having knowledge in a generalized activity (eg writing a letter about a subject in which the subject is only 10% of the activity) than it is in answering probing questions about the subject alone and (b) a person's ability to acquire higher-level knowledge depends on their ability to relate new information to detailed knowledge which they have already acquired. Outcomes-based approaches may produce a cohort with restricted ability to learn - a serious handicap for a knowledge base economy.;
the conflict that has emerged at QUT about the nature of social knowledge - see A Crisis in Education at QUT?

This leads to problems such as:

a general lack of analysis or discussion of the practical (eg economic) consequences of different cultural assumptions and institutions perpetuates disadvantage and increases the risk of conflict. This is considered below in Cultural Ignorance as a Source of Conflict.
the risk of conflict is also increased because different cultures have different ways of exerting power - and if this is not recognized then not only is conflict between and within states more likely, but there will be little understanding of what is needed to prevent this.
an inability to advance the position of indigenous communities in particular - because the implications of culture for the disadvantages they often suffer could not be examined (see The Challenge of Aboriginal Advancement);
the tolerance of intolerance - because regarding all cultures as equally valid requires endorsing those based on inequality and on intolerance [1, 2, 3];

Critics have suggested that post-modern assumptions grew to dominate the humanities because English professors (who were the first to accept this were poorly trained) - in that they lacked basic knowledge of philosophy. [1]

Firstly (as above) the uncritical post-modern challenge to 'public truth' could remove the major instrument that can be used to resist authoritarians.

It has been correctly said that 'The truth shall set you free' - and it seems likely also that 'The loss of truth will enslave you'.

Furthermore conspiracy theories, which are often circulated as an alternative to proposing serious global public policy alternatives, appear to have post-modern roots (because the latter encourages the view that disadvantage results from exploitation - because 'any argument that policy X is better than policy Y merely reflects the fact that some elites would be politically advantaged by policy X'). And those conspiracy theories in turn provide some of the 'rationale' for terrorists and other extremists (see Discouraging Pointless Extremism).

Secondly individual liberty could well become socially and politically intolerable, as it seems to translate into immorality and irresponsibility where the Christ-ian ideal of individual self-denial / putting-God-and-others-first is displaced by a radical individualism (see Moral foundations of individual liberty).

The latter argues that this trend has the potential to undermine systems of law and government which have been built on the concept of individual liberty - because in societies where a put-others-first ethical ideal is not embedded in individual consciences, legal and governance systems need to be deeply involved in determining and enforcing the nature of moral interpersonal relationships - and liberty is a foreign concept

Thirdly weakening morality associated with radical individualism provides at least some explanation of attacks against Western societies by Islamist extremists [1, 2]. And the alienation from the 'new Christendom' (ie that in the third world) could lead to even more significant frictions in future [1]

A distinctive characteristic of Western societies it may be noted has been a belief in the possibility of progress (eg see Robert J. The Triumph of the West, 1985).

Sakakibara's argument was based on the existence of supposed intractable difficulties in resolving global environmental conflicts and social inequalities (ie the types of issues pursued by anti-globalization demonstrators). A similar view the West should abandon its belief in the possibility of further progress (ie history) has been expressed by Fukuyama [1].

By way of example of the intellectual difficulty in cross-cultural understanding, consider the suggestion (by an Australian academic arguing for debate about the causes of the September 11 attacks) that the most essential element of human culture is 'the capacity to reflect, argue, speak and mediate the aggression of the ego and bring it under the jurisdiction of symbolic law'. [1]

Such an approach seems perfectly reasonable from a Western cultural viewpoint (the product of classical Greek thinking).

But it is not correct, because from (say) an East Asian viewpoint (ie in societies with an ancient Chinese heritage), the notions of abstract ideas and symbolic law are not the most essential element of human culture. For example: government under Confucian traditions is by man (eg social superiors, elite bureaucracy) rather than by law; power is defined as the avoidance of decision making (see Pye, Asian Power and Politics) because abstract understanding is distrusted; decisions in Japan are seen a preferably coming from 'the belly' rather than the head; the core precept of Daoism is 'the Dao (way / truth) which can be named is not the true Dao" - which is a statement of the limits to rationality; and silence can be seen as more useful than speaking (see Matsumoto, The Unspoken Way). (see also Asia Literacy).

For example

it can be almost impossible to overcome disadvantages that result from cultural assumptions;
differences can be seen as evidence that others are stupid or immoral;
disadvantaged communities may have nothing better to do than blame 'oppressors' for their problems, and listen to conspiracy theories (see About Conspiracy Theories, and Competing for Control of Global Financial Systems). In practice conspiracy theories about the motivations and actions of elites by those who know little about practical economic and political affairs seem to provide extremists with a rationale for terrorism (see Conspiracy Theories and Philosophical Idealism). This triggers a cycle of conflict (ie attacks against 'oppressors' who are not actually the main source of a peoples' problems lead to reprisals), and also provides a kind of 'moral' basis for real ethnic prejudice;
democracy can be discredited as a system of government - and has been in the Middle East because it is presented by Western governments as 'the solution' though it is not in itself sufficient (see below);
it is difficult to demonstrate that extremists' manifestos are very weak, though this would be simple if the issues were able to be rationally debated (see Discouraging Pointless Extremism);
outsiders might inadvertently damage disadvantaged communities (eg as appeared to be the case with the Asian financial crisis - and with the IMF's role in Indonesia in particular);

Moreover a failure to analyse or discuss the practical implications of culture may also lead to perceptions that the problems facing indigenous communities are primarily the result of discrimination or racism (see The Challenge of Aboriginal Advancement).

For every view that damage will be severe (eg Hartcher P. 'Global economy faces harsh reality', Financial Review, 28/9/01), there seemed to be a counterview (eg Stelzer I. 'American economy may yet defy the pessimists, Courier Mail, 6/10/01 )

Effective Democracy

Democracy appears to be seen as a 'good thing' by many different types of peoples - and has been widely adopted.

None-the-less this view is by no means universal. For example:

democratic government does not prevail in most Islamic countries [1], and, even though it has been suggested that a majority of Muslims would favour this [1],:
- deep divergences in political culture seem to flow from Islam and Christianity: “The virtues of Western political systems are, to a certain kind of Islamic mind, imperceptible—or perceptible, as they were to Qutb and Atta, only as hideous moral failings. Even while enjoying the peace, prosperity, and freedom that issue from a secular rule of law, a person who regards the shari‘a as the unique path to salvation may see these things only as signs of spiritual emptiness or corruption.” (Scruton R., The West and the Rest);
- the traditional ideal ruler under Islam was one who imposed (divine) law autocratically on the people, rather than one who responds to their wishes [1];
- democracy is intrinsically evil, but none-the-less perhaps a necessity to enable Muslims to achieve other religious duties [1];
- Australia's Islamic Youth Movement described democracy as a 'Satan-based' system [1];
- there is a division within Islam between Sunnis (the traditionalists who emphasize the traditional practices of Islam rather than inspired leaders) and Shias who seek divinely guided leaders - preferably those drawn from the prophet's family [1]
- it appears that at least some Islamist extremists believe that democracy is inconsistent with Islam, and that a world-wide Caliphate should be established to guide Islam (and some favour Osama bin Laden to fill the position of Caliph) [1]
- Malaysia's Prime Minister (Mahathir) described democracy (as well as human rights) as Jewish inventions to make it seem wrong to persecute them [1]
democracy is not respected in much of the Middle East because it is associated with Western societies who have long dominated the region [1];
democracy exists primarily 'for show' in East Asia (where real government is by bureaucracy with the powerful (Emperors in the past, elected governments or Communist Parties now) given status as long as they do not interfere with government). (see Asia literacy)
- [Aside: The author has a Chinese acquaintance (an amateur 'philosopher') who argues that most of the problems in the world are the result of the ignorance and base instincts of those who gain power in democracies];
- it has been argued that Western societies are 'barbarians' because the development of advanced weapons allowed common folk to be the equal of their aristocratic betters [1]
democratic reforms have been seen as inadequate in themselves in Latin America - and to be being at risk of rejection in favour of authoritarian alternatives due to their inability to ensure equal distribution of wealth [1]
concepts such as political liberty can be seen as Western cultural imperialism [1];
in non-Western societies it has been said that there is always a market-dominant ethnic minority (which controls most wealth) and an impoverished indigenous majority. Free market democracy increases the wealth of the former, and the resentments and political power of the latter - often with explosive results [1]
without the support of sophisticated civil institutions the combination of free markets (which create inequality) and democracy (which allows the resulting resentments to be given expression) can be an explosive combination [1]
constitutional liberty has been described as better for developing countries than democracy [1]

Furthermore democracy can (and in practice does at times) 'fail' where organized interest groups influence popular opinion by gaining control over information channels and using these to present favoured explanations of events and ideas for future actions. The political system in the USA (whose leaders claim to champion democracy globally) appears to be particularly badly distorted by organised lobbying on behalf of interest groups.

Moreover the power which a democratic mandate provides can at times result in poor strategic decisions in the absence of a politically independent civil service [1]. And the quality of democratic government also depends on the civil institutions that can provide analysis and policy inputs (see Queensland's Weak Parliament and Restoring 'Faith in Politics').

The effect of inadequate institutions can be illustrated by the US's response to the potential 'clash of civilizations' issues discussed in this document. Western societies face significant challenges from the practical results that East Asian societies are achieving under radically different paradigms - yet this (which requires cultural and economic skills) has received virtually no attention because challenges from Islamist radicals (who have essentially no prospects of achieving practical outcomes) have better suited the (military and industrial) skills of influential institutions.

Civil Institutions and Islam: it may also well be that the major cause of the general failure of democracy in Islamic societies could be that only poor quality advice is available from civil institutions - because (a) many do not believe that Islam envisages a separation between religion and state and (b) as noted above, it is impossible to understand or govern complex social and economic systems on the basis of the simpler rules appropriate for individual behaviour

For this and other reasons (eg see Fatal Flaws which comments on cultural preconditions) democratic government does not always ensure material prosperity and national strength - and this could be one reason that it is often resisted (eg in the Middle East [1]).

However despite such dissent, democracy has in its favour that:

the failures associated with authoritarian and elitist alternatives seem to be even worse (as Winston Churchill once argued);
it requires that elites take account of the needs and aspirations of common people;
powerful organized interest groups are forced to compete with one another, and can be challenged by anyone who invests the effort required to develop better explanations of past events and options for future action;
political stability is promoted because a substantial fraction of the population has to be supportive of those who rule, and there will be no other potential ruler who has greater support;
it does not in itself imply any particular social or religious order, but can accommodate whatever world-view is dominant in a community;
it can provide some political legitimacy to what may be quite naive policy agendas, and enable the weaknesses of those agendas to be made obvious to potential supporters rather than festering in secret (see also comments on Discouraging Pointless Extremism ). For example, democratic legitimacy was the means whereby the radical agendas of One Nation in Australia were defused.

However, unless it is supported by appropriate institutions (a competent bureaucracy, a developed civil society and cultural traditions which facilitate change), democracy can be ineffectual or self-serving (or be used to 'legitimize' narrow-minded populism). Thus it can always be made more effective by developing those institutions.

It may be that defeating Islamist terrorism mainly requires exporting effective democracy to the Muslim world (See Reform in Islamic Societies). However this is not an easy thing to do (see comments on Afghan reconstruction.)

Creation of effective democracy would need to be accompanied by cessation of Cold-War-style covert operations to achieve geo-political objectives which make it difficult for such societies be certain that they are not the victims of 'grand conspiracies' (see About Conspiracy Theories).

For example: Malaysia's PM has stated that any attempt by Australia to launch pre-emptive strikes against terrorist bases in Malaysia would be seen as an act of war (Cheesman B 'Pre-emptive strikes are acts of war: Mahathir', FR, 4/12/02)

Under the Bush administration the US sought to promote democratic government in the Middle East through advocacy and by invasion of, and subsequent efforts to 'reengineer', Iraq.

Perhaps a more powerful method of achieving this goal could involve imposing a 5% tariff on imports from all countries that lack an effective democratic style of government, and increasing this a further 5% every three months indefinitely.

Ethical renewal

The radical individualism which has threatened to make individual liberty (and its political and economic advantages) unsustainable could be abated if the Christ-ian put-God-and-others-first ethical foundations that Western societies have tended to lose in the 20th century were rediscovered - and expanded into the international arena.

One reason to suspect that this is possible is that the philosophical objections to those ethical foundations are themselves in trouble. In particular 19th century science's ideas of a 'clock-work universe' have lost credibility. Moreover the basis of scientific worldviews that are seen to make metaphysical speculations futile are also suspect because it seems that the 'deterministic' relationships in nature which science identifies are themselves changeable and an inadequate basis for explaining change.

Problems in an internally deterministic worldview: It had been suggested that it was now bad taste for philosophers to even raise the question of God's existence (Freeman P., 'No God in the Detail', Bulletin, 12/12/00).

However this conclusion may be suspect for several reasons. In brief and overly-simplistically, philosophers may need to consider whether it may be invalid to assume that material reality is self-sufficient, because

internal determinism (ie the assumption that outcomes are the result of the initial state of a system and universal laws) does not seem an adequate explanation of phenomena such as: irreversibility such as that associated the Second Law of Thermodynamics; nuclear fission; evolutionary change; the response of biological and ecological systems to their environment; the economic effect of knowledge; and free will - all of which appear to be evidence of the emergence or disappearance of order. In brief:

the Newtonian science of the mid 19th century (when Darwin's evolution proposals were advanced) had a critical defect in that it assumed a simple determinism (ie that outcomes depend on the existing state of a system and fixed causal relationships which could equally run backwards or forwards in time). Newtonian science could not account for irreversible phenomena, or the qualitative changes that often occur in systems (see Prigogine I., Order out of Chaos). Prigogine won a Nobel Prize for pointing out that something other than the laws of physics must be involved to result in the loss of information that increasing entropy revealed. Though Prigogine did not point this out, this also implied that Newtonian science was inconsistent with the view of evolution theory (and the Genesis account of creation) that things experienced qualitative changes [The basic theme of Prigogine's work had concerned the way in which disturbances / flows emerge in far-from-equilibrium systems, which translate into stabilizing feedbacks and the emergence of new order].

Though major scientific advances have since been made they continue to assume internal determinism. Evolutionary change is seen as the result of random internal variations though it is not clear how true randomness (and irreversibility) can arise - as it is not explained by either (say) quantum mechanics (which merely shifts determinism from physical 'things' to a wave function) or chaos theory which is also deterministic. Physicists seem to believe that the only way in which the information locked into the atomic states of particles can be lost is if they are sucked into a black hole [1] - which is hardly an everyday occurrence;

the Second Law of Thermodynamics requires that the 'order' within any closed system decays over time (ie entropy increases). The emergence of new order in any system thus requires the introduction of neg-entropy (free energy / information) from a system's environment. Likewise the decay of order that increasing entropy reflects, is likely to be the result of the termination of earlier neg-entropy flows (noting that living systems, for example, can exist in a stable non-equilibrium state because they have a continual inflow of neg-entropy from their environment - but cease to do so (ie die) in the absence of such an inflow;

Craig Venter, who first mapped the humane genome, argued that blind randomness can not explain evolutionary changes [1]

creative qualitative changes seem in practice to depend to some extent on a system’s environment. Living systems are flow systems, and as they develop (both as a life starts and as life generally evolves) respond to their environment. Information from its environment appears to drive change in internal (feedback) relationships which subsequently have a causal effect on the behaviour of the system. Thus:

the reductionist view (ie that the behaviour of a system follows from the characteristics of its components and natural laws) may often be incorrect;

Occham's razor (a philosophical test that always prefers a simpler explanation to a more complex one) may be unreliable and bias those who use it towards 'reductionist' interpretations;

not only are variations within a system selected in accordance with whether they are adapted to their environment, but the variations themselves must reflect either the start or ending of information / neg-entropy flows from the environment;

it may ultimately be necessary to take account of information from the ‘environment’ of the material universe (eg of a ‘metaphysical reality’) and of the 'Word of God' (if God is viewed as the 'environment' of the natural environment) as a feasible source of creation (and of trans-natural phenomena). Moreover knowledge about that 'metaphysical reality' would be intrinsically inaccessible through reason or science (both of which are simply derivatives of a given set of causal relationships in the natural environment - and thus not a way of dealing with changes in those relationships);

the assumption that genetic mutations are the raw material of evolution (eg Pomiankowski A., 'Evolution: 5 big questions (2); New Scientist, 14/6/03) may be an oversimplification of a far more complex reality;

there is frequently a 'factor x' which renders invalid rational expectations or analytical predictions about human affairs;

while genetic material is unstable, that instability does not seem likely to arise internally but rather from the breakdown of unstable equilibrium conditions that originated with information from its environment which could not be maintained without ongoing introduction of that information;

at least some causal relationships in the material world can be intentionally changed by introducing information / neg-entropy – as seems to be the case. For example, the main way in which knowledge impacts on economic systems so as to achieve growth may involve changing the production function - by stimulating changes in the organization of economic systems (see Transforming the Tortoise which equates economic development with changes in causal relationships; and Amplification which relates this to economists' traditionally-unsuccessful efforts to develop theories of growth and development);

one version of quantum mechanics suggests that (external) observers can have a role in determining the actual state of a system subject to a quantum wave function - based on what they choose to observe;

the laws of physics (which are insufficient to predict or explain their own existence) might be the result of creative qualitative changes - perhaps by a (conscious or unconscious) ‘metaphysical reality’. Both the precise values which various universal constants required for the universe to have attained its presumed (say 15bn year) age, and reported indications of changes to those constants over cosmological timescales [1] have interesting implications

Also as argued above the limitations on the value of empirical knowledge and 'truth' that uncritical post-modern and post-positivist philosophers have emphasized apparently reflects an over-reaction by students of the humanities to limitations in philosophical realism (ie the concept that ideas are judged by empirical tests) which has led to an over-emphasis on idealism (ie the concept that ideas are judged in terms of cultural or personal preferences).

Moreover there are clear signs of new debates about values and metaphysics in Western societies - which at present has no clear outcome. And the tide of public opinion may already be turning against radical individualism. For example:

some research implies that the (so called) 'Millennial' generation (those under 18 who can be seen as the 'victims' of dysfunctional social arrangements in the baby boomer generation) appear to be intent on 'rebelling' by rebuilding society [1];
youth have been described as leading a return to Christian values [1];
a previously unfashionable mood of seriousness and sincerity is being reflected in movies [1]

The attacks by Islamist extremists may offer good prospects of accelerating the rediscovery of Western societies' put-others-first ethical foundations, and thus reduce the potential risks to the social and political acceptance of individual liberty that have been accumulating, and which would have been economically disastrous.

Enhancing Communication

Facilitating some depth of cross cultural communication about important issues would also be useful as concerns which one culture may have may prove too hard to express in terms of others' language and cultural icons - so that the points being made seem trivial, nonsensical or primitive though they may actually be very significant in others' world-views if properly expressed. Moreover, Islamist extremists appear to be as much revolutionaries against the mainstream of their own societies as they are against anyone else - and to be gathering support because they offer a glimmer of hope that no one else does. That support base could well evaporate if:

reputable Islamic citizens and scholars seriously discussed the issues involved in advancing the status of Islamic societies with support from Western experts and scholars (see Discouraging Pointless Extremism );
efforts were made to remove the stumbling block represented by the role of religious issues in official discussions. The virtual complete absence of religious discourse amongst secularized Western institutions (who carry to extremes the limits to which it is possible to understand social and economic systems in terms of fundamental principles) inhibits real communication with Islamic societies (who are committed to 'submission to God' - and frequently ignore those limits altogether).

The activities of Al-Jazeera (the independent Arab satellite TV channel) appears likely to be quite useful in promoting effective communication as (a) it appears to seek balanced news coverage (which has apparently given rise in parts of the Middle East to reports that it is secretly sponsored by Israel) and (b) it is seeking a global coverage.

Reform of the Global Order

Since their origin at the start of the 18th century, market economies and capitalism have spread because of their economic efficiency, and this has repeatedly forced changes in social and political arrangements - which has led to resistance because of their effect on earlier values and institutions. There is nothing new about anti-globalization protests [1].

Attempts to create a global order to reduce such stresses and the potential for conflict have been made for a century. The first truly global order (a unilateral system, the British Empire on which 'the sun never sets') had ceased to be effective by around 1900. The second, a multilateral system established following the world war of 1914-18, was the League of Nations which had failed by the 1930s. The post WWII global order involves the United Nations and the financial institutions emerging from the Bretton Woods agreement (ie the IMF, World bank and what is now the WTO).

This global order has not been working well apparently for reasons suggested in The Second Failure of Globalization?. In particular:

there is no agreement about what form of socio-political-economy should be the basis of a global order. Current multilateral institutions reflect the universalist individualist democratic capitalist values that the US (who orchestrated their creation) favoured;
the United Nations, is too often of little practical value (being inadequately staffed, under-funded, pursuing ineffectual 'political' formalities, irresponsibly influenced by tin-pot despots and single-issue NGOs, and unable to enforce its security resolutions);
global financial institutions have been heavily influenced by the US to pursue its preferred liberal democratic capitalist model, and have attracted as much criticism as the UN system.

The security issues raised by the 9/11 attacks in America were seen by some as likely to force reform of the global order [1, 2, 3]. Other reasons for such reform include:

the unresolved plight of (about) 20m refugees worldwide;
environmental issues such as climate change. The latter potentially poses a significant global threat - which existing global mechanisms (eg Kyoto Protocol and the Intergovernmental Panel on Climate Change) appear seriously inadequate in generating solutions;
the potential which global financial imbalances have to make economic growth unsustainable;
the need to reduce global inequality - which requires both an effective trading regime (an unresolved goal of the Doha Round of world trade negotiations) and better means for economic development;
the self-perpetuating mutual stupidity of the Arab-Israeli conflict - which seems irresolvable due to the unsatisfactory political and economic status of most countries in the Middle East. Their distorted development (apparently due to features of current global systems of political economy; and unrealistic assumptions in the broader world views that Arab intellectuals have constructed around the religion of Islam) may have to be redressed before there can be any real possibility of peace.

Making constructive progress in the Middle East would appear to be particularly useful in reducing the potential for global terrorism [1] - as some Islamic communities appear to believe that this is a fundamental motivation [1].

Global institutions arguably need to be reformed to take account of (say):

the diversity of understandings of the nature of a satisfactory global order;
the adverse effect on local leadership which can be induced by foreign investment in resource rich regions, and by traditional foreign aid;
the inability of a liberal economic order to ensure that the economic systems which are required for individuals and enterprises to compete successfully are actually developed;
the practical consequences of cultural assumptions; and
global financial imbalances which threaten to derail economic growth - and which appear to arise from un-evaluated differences in cultural assumptions.

A method to progress such reform of global institutions, and simultaneous adjustment by individual societies, is suggested in A New 'Manhattan' Project for Global Peace, Prosperity and Security.

Effective Development Practices

Development of economic (and community) capabilities could be accelerated by:

systematic study of the practical implications of different cultural assumptions - which appears to have been neglected because (a) cultural relativists prefer to assume that such differences should make no difference (b) cultural leaders prefer not to have the world-view under which they can dominate challenged (c) economists prefer to assume that an economy is a 'machine' which can be constructed to an ideal blueprint and (d) outside political and business leaders fear being accused of 'imperialism'.
the use of methods like those suggested in Defects in Economic Tactics, Strategy and Outcomes and Developing a Regional Industry Cluster: A Possible Generic Process. The latter describe possible developmental processes in Australia which focus on information and the development of economic systems rather than on investment. These might be equally relevant as a new style of foreign aid. It is unlikely that massive aid payments would be of any real help as the key issue is the development of institutional capital, rather than merely building physical capital in an environment of established institutions (see also Towards a New Global Financial System ).

The suggested presence in all societies which lack Western traditions and institutions of an economically dominant ethnic minority and an impoverished ethnic majority needs to be considered [1].

Reviewing the Role of Money

A key future development issue may involve adjusting the role which money plays as a means of exchange, a store of value and a driver of economic change in democratic market-oriented economies, given:

the effect that that measuring value in monetary terms has on forcing rapid technological change which arises because high economic productivity requires constantly seeking competitive advantages (as the latter are transient because competitors soon catch up and cause prices and profit margins to decline). Technological advance, in turn, allows economic output and human populations to expand and this can have negative environmental impacts;
the cultural and other difficulties which some societies have in achieving success in monetary terms (ie in earning the income required to achieve an equitable share of consumption); and
the self-reinforcing effect which money flows can have on an economy's performance - which can lead to bubbles and busts (ie a high level of investment - or withdrawal of investment - can be self-justifying because of its effect on overall demand) [ 1 ].

A related question involves appropriate means for governance of companies in a democratic market-oriented economy (ie should 'capitalists' have control) given:

problems in corporate governance that arose in the 1990s (mainly in the US) when corporate managements were given incentives (by stock options) to give priority to shareholder value;
uncertainty about whether those who provide finance should be considered to be the 'owners' of business - when the latter's major assets are the knowledge and skills of its staff [ 1 ]

However changing the role which money plays could be difficult because:

money provides a means for calculating appropriate economic actions which would defeat human rationality because of the complexity of economic systems;
money can provide two 'grass roots' indicators of desired economic directions through empowering both consumers and a democratic electorate;
economic change that was required by the productivity slowdown of Western societies in the 1970s was only achieved when emphasis shifted to shareholder value in the late 1980s;
money would need to be replaced by some other means of arbitrating economic 'success' - and this could allow abuses by giving power to human elites with even more selfish and less 'grass roots oriented' agendas.

Furthermore technological advance also has the potential to reduce environmental impacts if:

a 'demand' for this, and information about what is required, can to be organized; and
cheap and 'clean' energy were able to be deployed - as increased energy intensity appears to allow other environmental impacts to be reduced.

In future attention might need to be given to (a) improving the economic productivity / incomes of the least developed economies - which is a 'learning / organizing' issue rather than an investment issue (b) arranging financial 'demand' for environmental values and grass-roots access to relevant information (c) seeking cheap and clean energy sources (d) promoting value systems that do not 'worship' money and (e) inhibiting the 'self-justifying' character of large money flows.

For example:

Traditional Islamic societies have much to teach others in terms of moving away from materialism and their ideal of submission to God.

However a very high rate of creative processing of matter and energy (which there are no traditional Islamic models for achieving) is required for the survival of the majority of humanity (especially those in cities) and, to a greater or lesser extent, to maintain the living standards of all. Current human populations are now around 6bn, and pre-modern economic styles would probably sustain much smaller numbers (eg only (say) 50m hunter-gathers or (say) 500-1000m in agrarian economies - noting the historical global populations at which humanity found it necessary to shift to more energy-intensive economic styles).

Also (if anyone thought seriously about the cultural issues involved) there is probably no reason why methods could not be developed for Islamic societies to be more successful under a democratic-capitalist model than they have been to date. For example:

a new-found dynamism which appears to have affected Islamic banking ;
there may be models to be discovered in the experience of countries such as Malaysia, which appears to have been economically successful with a majority Muslim population and a democratic capitalist framework (though to some extent results may have come through the networks and methods of Malaysia's 40% ethnic Chinese minority); and
Comparative Development Theory: Indonesia and Australia suggests that discovering ways to achieve market-relevant changes to economic systems is likely to be of key importance. Challenging the assumption that fundamental and relatively-unchanging religious principles can allow more complex and rapidly-changing economic and political requirements to be analyzed or deduced could be one key to progress (see detailed note in Discouraging Pointless Extremism )

East Asian societies have much to teach others about social relationships and the process of social and economic change. However traditional East Asian models (to oversimplify hopelessly):

tend to be based on particularist ethics (ie on obligations only to those with whom one has a relationship) - and thus do not lead to a concern for outsiders and can not be universal. Moreover particularist ethics allows deceptive 'Art of War' strategies (to erode an opponent's political and economic systems to advantage oneself) to be seen as an acceptable thing to do and result in a profound lack of trust between societies. For example, the Prime Minister of Japan is reportedly believed by his Asian neighbours to be 'a dangerous populist and nationalist leader using his charisma to steer Japan back towards imperialism and re-militarisation' (see also - Reverting to the Soul of a Samurai? ). And unfortunately (though this possibility can not easily be seen by Western eyes) such Asian suspicions are not impossible. Japan's history, culture and traditions probably doom its leaders to be seen in this way irrespective of their intentions;
give power to social elites - who can be hard to remove peacefully even if they cause failures. Also it appears that (Confucian) political authoritarians may be (incorrectly) ascribing East Asian economic progress to themselves (ie to those who learn strategy from the study of history), rather than to the opposing Daoist traditions (which emphasize learning from others); and
have difficulty dealing with finance as a problem in itself - because of concern for 'reality' rather than for abstracts. Whether the latter is a fundamental constraint is impossible as yet to say, though as noted above the use of money (if control of it is widely distributed amongst citizens) does avoid the need for elites to have to make impossible (or self-serving) judgments about what is in the 'community' interest;

There may however be general gains to be made by ceasing the worship of false 'gods', such as:

money - though it is a useful tool for coordinating economic activity through providing a means of exchange, a store of value and a means for signaling the need for economic change, many have made Mammon their god and pursue him ruthlessly;
self - though a positive self image is healthy many now seek God in themselves, and their self-absorption leads society to failure - and others, having learned something of the process of creation and used this to gain power, see themselves as unique Sons of Heaven;
law - though it is a useful tool for simplifying the reality individuals face, some have seen strict adherence to a law (as compared with acting in its spirit) as the path to God, or preached martyrdom whilst killing others in the name of such a legalism as the path to salvation;
nations - though useful containers for the institutions which particular cultures require, they are not the basis for presuming superiority over others;
democracy and other political styles - though they may be useful tools for managing aspects of human affairs, some expect far more of the institutions of democratic states than they can ever deliver.

One suggestion: War on terror needs to address social foundations of al-Qaida and remedy the unequal relationship that has kept Muslim societies on the receiving end, with no input into the agenda and values that govern an increasingly integrated world. Defeating terrorism by military means is a pure illusion. A multi-dimensional approach is needed that includes both Islamic political philosophy and international relations [1]

Introduction + Outline Culture Matters Western strengths Non-Western challenges Eroding the West Ignorance as a Source of Conflict Risks in a Clash Defusing a Clash	INTRODUCTION Samuel Huntington in his book The Clash of Civilizations and the Remaking of World Order suggested that the basis for divisions in the world following the Cold War would be cultural, rather than ideological. Summary extract from Huntington's book: In the First Crusade the entire West was seen as moving into Muslim lands. In the 19th century spectacular population growth in Europe again produced a European out-migration into other lands. Other factors have increased the conflict between Islam and the West in the late 20th century (a) Muslim population growth has led to large numbers of unemployed and disaffected people, who exert pressure on neighbours and migrate to the West (b) Islamic resurgence has given renewed confidence in the worth of its civilization - relative to the West (c) The West's efforts to universalize its values and institutions to maintain military and economic superiority has led to resentment (d) The collapse of communism removed a common enemy (e) closer contacts made each more aware of their own identity and of differences (f) the rights of members of each civilization in countries dominated by the other were of increased concern, and tolerance declined sharply in the 1980s and 1990s. Thus the causes of conflict relate to culture and power - and will remain as long as each remains unchanged. Conflict over territory is no longer as important as it was. But 19 of the 28 points of conflict which Muslim societies have are with Christians. The West is facing a mood and movement which far transcends the policies of particular governments - a clash of civilizations - and needs to avoid a similarly irrational response. Islamic observers believe there is a clash - between civilizations, not between religions. Islamic resurgence in the 1980s and 1990s has been anti-Western, because of the perceived Westernization of Islamic societies. They see Western culture as materialistic, corrupt, decadent and immoral. They fear and resent Western power, and see it as seductive. The West is attacked, not for adhering to an imperfect religion, but for not adhering to any religion at all. The West labeled its opponents in the Cold war as 'godless communists'. It is now being labeled as the 'godless West' ('Two civilizations defined by difference', Courier Mail, 22/11/01) Other views: Modernity has reached a crisis point. The expansion of Western power has drawn great religions and civilizations such as Islam into systems of imperialism and globalization in ways that have stimulated resistance. India struggled against British rule - and succeeded through non-violence. The cause of discontent by those who have now used violence must be understood and responded to. There is a need for a sustained effort to do so in Australia if it is to be a prosperous multicultural society. Scholars specializing in comparative religions must analyze the processes that have transformed the world in recent centuries and given rise to intense cultural and religious tensions. Demographics will be a critical concern, because the West's population is rapidly aging and slowing, while population growth is most rapid in impoverished areas, and especially in Muslim nations. This will produce enormous pressures in coming decades. These people must be integrated into the global system in ways that are equitable and respectful. This will require the West to re-examine the excesses of its own materialistic and secular culture. Australia has organizations that could work on these topics (eg Australian Association for the Study of Religion and ANZ Society for Theological Studies (Bendle M 'Multicultural voices trained in harmony', Australian, 19/9/01). Christian leaders need to recognize that actions by Islamic terrorists are based on warlike traditions of Islam, and that it is a threat to the liberty which has been the basis of the success of Christian countries [1] The Muslim world's primary objection to the West relates to sexual rather than to political liberty [1] Malaysian Prime Minister Mahathir Mohamad: called for Muslims to emphasize economic development as the basis for building an independent military capabilities to resist oppression [1]; called for Muslims worldwide to unite against Jews who were seen as the ultimate manipulators of Western societies - and to use economic, political and diplomatic pressures rather than violence [1]; and blamed terrorism on Europe and Israel (especially in relation to the situation in Palestine), and suggested that the numbers of victims of terrorists were modest when compared with European precedents [1]. Alternative perspectives suggest that 'clashes' between civilizations might arise between: the US and Europe [1] or 'Southern Christianity' (eg in Africa, Asia and Latin America where orthodox Christian values are being widely accepted) and Western societies that have shifted away from Christian values [1]; the West and 'Confucian' East Asia [1]. Some of the dimensions of the latter potential 'clash' can be identified by reading between the lines of President Hu's address to Australia's Parliament in October 2003. There are also indications that a 'silent clash' may have been underway for decades in relation to economic and financial systems which is now leading to a situation in which structural incompatibilities put global growth at risk. Moreover it has been suggested that it was the tensions in the 1920s and 1930s associated with attempting to modernize to adapt to the globalization of Western society which led Japan to try to achieve independence through aggression in Asia in World War II [1]. However Huntington described a situation - and a potential risk. He didn't draw up a 'blue-print' for the clash of civilizations that anyone should now be following. Different civilizations have different views about desirable goals and methods - and as improved transport and communication has made the world smaller those differences (which translate into quite different social, political and economic systems) are bound to cause friction. These differences have the potential to generate conflict if: they are not (as has too often been the case) recognized, discussed and managed; there is a naive response to the provocations of factions who seek advantages for their own causes in such clashes. While there are many options for defusing a potential 'clash of civilizations', the best prospect lies in reviewing the limitations of the 'post-modern' assumptions which have often discouraged critical analysis of the practical consequences of different cultural assumptions by students of the humanities and led some to a search for scapegoats for global problems rather than solutions.
Outline	OUTLINE This document considers the context to the September 11 attack in America, in terms of the cultural issues that might lead extremists to wish to challenge the West's now-dominant 'democratic capitalist' model of political economy. Cultural features have historically contributed to the economic strength of Western societies (including the individual freedom that the Judeo-Christian tradition allowed; and the rationality and science that emerged from classical Greek thought). However non-Western societies have faced difficulties in the global environment created by those cultural features, including: un-evaluated side-effects of democratic capitalist systems of political economy, and the dependency created by foreign aid; the difficulties faced by East Asian societies in achieving economic success when measured in financial terms; and the difficulty in Muslim societies in achieving the rapid change that economic prosperity requires. A 'hidden' clash of civilizations has been implicit in the threat to the global financial system from the communitarian / mercantilist strategies of major East Asian economies - whose in-built demand deficit made global growth unsustainable and contributed to the global financial crisis - and in the discrete development of a new international order in East Asia based on practices which are radically different to those which Western societies have established globally.. Moreover the benefits of globalization for Islamic populations may cause some to fear for Islam's future, if Western societies (and other religions) are not defined as 'enemies'. At the same time post-modern intellectual trends have been eroding Western advantages, while ignorance of the practical implications of cultural differences, which has been amplified by uncritical 'post-modernism', makes it hard to help those who suffer disadvantages and potentially leads to conflict (eg through misunderstanding, and the emergence of conspiracy theories). There are risks in a 'clash' with Islamist extremists (including diverting attention from other risks), and also scope to defuse any such 'clash' including: expansion of democratic models; ethical renewal, including a more serious metaphysics; reform of the global order on a basis under which all may reasonably hope to succeed; more effective mechanisms for development in disadvantaged regions; specific attention to problems of cross-cultural communication; and clarifying the lack of any obvious system of political economy that would be better than democratic-capitalism.
Culture Matters	the Cultural Potential for a 'Clash' The potential for a 'clash' of civilizations is very real, because culture is the principal determinant of a community's ability to be materially successful and to live in relative peace and harmony. Culture affects: people's goals and aspirations; the way they understand reality (and thus how they go about solving problems, and whether they can develop technologies); their ability to learn, to cope with risk and to change; and the institutions their society maintains. Illustration: The central importance of culture to material prosperity can be illustrated by the fact that economists have long regarded knowledge as the key factor in economic growth while various cultures have entirely incompatible epistemologies (ie assumptions about the nature of knowledge). For example, the Western view of abstract knowledge about nature derived from Platonic-Aristotelian traditions in classical Greece is anything but universally shared: in East Asia abstract knowledge seems to be viewed as overly simplistic (see Asia literacy); Islamic science apparently views knowledge about natural and social systems as merely symbolic of Divine will. If it is assumed that that there are no aspects of nature that are not constantly subject to manipulation by God, it is impossible to develop technologies that depend on understanding the material world. If the very nature of the key factor in economic growth varies amongst cultures, then clearly culture must affect economic performance. And it is easy for those with cultures which support material prosperity to feel superior, and for others to feel resentful, exploited and threatened. Moreover, the latter have great difficulty improving their position because differences in cultural frameworks make it hard to even understand what is really needed for success. Furthermore change could then challenge their sense of identity and religion as well as the status and power of traditional authorities. Also change will tend to take so long that popular political expectations will prove difficult to satisfy (making immature democratic government unstable), while those who do not change will find themselves relatively disadvantaged. The US (and the West) support a particular economic and political order (democratic capitalism) which is currently dominant and being 'globalized'. That order contains many strengths and many weaknesses. However for those who benefit from the strengths of that order or who suffer from its weaknesses (or their own weaknesses) or who fear cultural desertions because of the lure of the products of that economic, political and cultural order to scapegoat (or attack) each other will achieve nothing useful. The situation is too complex. They need to "pause, breathe deeply and reverse their megalomania before much more harm is done" (to quote a wise suggestion the author received from another person). Aspects that need to be considered include: the cultural origins of Western strengths; the difficulties that others may experience; factors that are eroding Western strengths; and the potential for ignorance of the practical consequences of cultural assumptions to lead to conflict.
Western Strengths	Cultural Foundations of Western Dominance There have been many attempts to explain the causes of economic growth, and particularly the advances made by Western societies. Historical views of wealth The world's greatest 21st century problem and danger is the gap in wealth and health between the rich and poor. It is in everyone's interest to narrow this gap - yet doing so requires recognition that inequality has its roots in the past 800 years of world history. The Wealth and Poverty of Nations (Landes D, Harvard) suggests that the industrial revolution is the key to national wealth. It was begun in Britain in the 18th century - and has spread around the world. However even more important is what conditions allowed the industrial revolution to occur. Landes dismisses conventional explanations such as natural endowments (landscape, soil, water minerals). An industrial revolution always depended on a society' culture. The first industrial revolution arose in a society that had developed: a sense of national cohesion; a capacity to compete; a respect for empirical technical knowledge; a preference for advancement by merit or competence; and ability to use (not just acquire) money. Other societies could follow by copying Britain's example, perhaps because they shared a medieval legacy of: curiosity; inventiveness; multiple sources of initiative; and could forego current consumption for future gain. Other societies have proven unable to generate within themselves the necessary conditions for wealth. Religion is a major obstacle - as both Roman Catholicism and Islam have: elevated authority and suppressed initiative; and discouraged experimentation. Islam's coincidence with oil riches and its authoritarian governments that have attracted little loyalty, and a capacity to discourage investment in skills and knowledge has been very damaging. Landes argues that many common theories are false - dependency theory; new economic historians who neglect older trends and the industrial revolution; econometricians; multiculturalists; and ethnologists who deny that there are reasons for speaking of weaknesses in any cultures. He admires Weber (who developed theories based on the protestant work ethic) and Wittfogel (who studied 'oriental despotism'). Culture makes all the difference, and success or failure is ultimately determined from within, not imposed from outside. Conventional explanations of Western success and the relative failure of others include: conquest of the Americas; European diseases; slavery; the imprisoning effect of Western scholarship on oriental societies - which have had only limited effect. This is not to deny that problems associated with colonization were not real, but that they did not ensure failure (noting many successes in East Asia; mixed results in Latin America; and general regression in much of Africa). Imperial rule was neither new nor uniquely linked with capitalism. Colonization delayed opportunities for development, but did not stop late-comers cultivating the values that count - work, thrift, honesty, patience and tenacity. Economics can not explain wealth without a study of history (Porter A 'Culture has everything to do with the wealth of nations', FR, 27/3/98) Until 300 years ago there was little growth in per capita income that was not eventually reversed. This was the basis of Malthus' grim theories about the limits to population that were based on observing history. Adam Smith founded scientific economics - and his Wealth of Nations suggested that growth required peace, easy taxes and tolerable administration of justice. 50 years later John Stuart Mill listed three requirements for less industrialized countries to catch up (a) better government and property law (b) less superstition (c) growth of mental arts and (d) hospitality to foreign arts and capital. The economists believed that growth was natural - except for prejudices which could be displaced by scientific knowledge. However this left unanswered the question of why Western civilization was more successful. Sociologists argued that growth required overcoming cultural obstacles - namely objections to making money. Weber suggested that this shift occurred in Western Europe through Protestantism. An aptitude for making money was seen to explain growth. Since 1945 economics has advanced relative to sociology. Weber's theory emerged when Europe alone experienced significant growth - and growth could be explained in terms of its unique characteristics. This conclusion had been reinforced early in 20th century by failures of centrally directed plans. Japan's miracle provided materials for an alternative theory of development based on export led growth. It was followed by other East Asian economies. This seemed to show that if western standards of good government were created, then growth would follow automatically. Liah Greenfield's Spirit of Capitalism and Robert Lucas' Lectures on Economic Growth reflect the two main traditions for thinking about growth. Greenfield sees growth as explained by the history of ideas and the sociology of culture. Lucas sees growth as automatic as knowledge accumulates. Greenfield denies the naturalness of human behaviour. The modern economy has to be seen as a problem in the cultural construction of reality. Why is individual self interest seen as producing collective good? The harnessing of greed to efficiency and ethical goals requires a Factor X. Weber's Factor X was Protestantism. - which converted greed into frugality. Calvinism abolished the distinction between the sacred and profane - and extended ascetic ideals to everyday life. Greenfield accepts the need for a Factor X, and Weber was right to see that it required a new morality. But the mechanism was nationalism, not Protestantism. Nationalism freed money from subordination to religion Britain's success made it a superpower which triggered a reactive nationalism elsewhere - and greatly contributed to the formation of economic civilization. Nationalism is seen to promote the social structures that societies need to develop - eg equal rights, social mobility, market forces. Nationalism also leads to perception of international competition. Greenfield attacks economics on the basis that economic behaviour is shaped by cultural values, and that growth resistant cultures can not simply be explained by ignorance and superstition. There are three reasons to doubt that nationalism is a better explanation than Weber's protestant ethic. (a) how does nationalism change individual behaviour (b) protestant ethic explains why growth occurs in some societies but not others - which nationalism doesn't (c) Britain developed the core institutions of capitalism long before nationalism emerged as political doctrine - at the time of French Revolution. And far from being egalitarian and democratic, England was an hierarchical society headed by a monarch who suppressed parts of dominion by force. Some have seen the political foundations of capitalism in Europe's failure to establish a central authority after fall of Holy Roman Empire - and the resulting feudalism saw many competing jurisdictions, which coalesced in the16th century into competing national monarchies. Feudalism checked arbitrary rule leaving space for the growth of free cities, European markets and private property, while military competition stimulated national feeling and rulers concern for national wealth. Greenfield tries to show that economics can't explain growth without nationalism - by reference to Holland. Lucas by contrast presents an economist's explanation - based in mathematics. Lucas seeks explanation which is not only reasonable in explaining growth - but based on individual rational behavior. Post 1940s, growth models have sought to link growth and capital accumulation - which (because eventually the marginal product of additional capital declines) was traditionally seen as predicting income convergence. Lucas rejected this on the bass that it did not explain the income divergence that occurs in practice, and made growth depend on two external factors : population and technology. Lucas's alternative is 'endogenous' growth theory. This distinguishes between physical and human capital. Human capital is not subject to diminishing returns. However this model cannot explain the catch-up that arises under East Asian economic miracle. Lucas assumes that this is due to spillover effects of human capital development to other countries. However he also looks at population. Modern growth theories look only at income. Earlier ones also looked at population. A more integrated approach follows from treating decisions about numbers of children as economic choices. Lucas' more general view is that growth requires that people experience changes in the possible lives that they imagine for themselves and their children. This is opposed to Greenfield's view that growth requires exceptional circumstances - which means that there is no universal solution. Lucas believes that growth is open to all cultures and races - and that inequality is at a peak. His effort is to derive growth purely from attempts by households to maximize their wellbeing. Greenfield and Lucas take different approaches and so help build understanding. Greenfield questions whether growth is rational. There is evidence that wants are insatiable, and that greater wealth does not make people happier. Lucas assumes that little is required from governments for countries to break out of poverty. But government actions with respect to law, taxation, education, heath care, infrastructure etc are important. In many poor countries governments lack the capacity to implement appropriate policies. Lucas's endogenous growth theory prepares the way for new forms of intervention in which Western countries take over some part of of the development of human capital. The language of 'failed states' is the embryonic language of new imperialism (Skidelsky R., 'The mystery of growth', FR, 21/3/03) A comprehensive evaluation of such theories is beyond the scope of this document. Moreover it is hypothesized that there are fundamental obstacles to 'understanding' economic growth because: seeking understanding (ie a scientific approach to economics) reflects a paradigm which assumes that cause and effect relationships are fixed (and thus able to be known), whereas the essence of economic development (and innovation within enterprises) may be that they change cause / effect relationships (eg see Transforming the Tortoise); economic systems that are quite different to those of Western societies have emerged in East Asia from the different concepts of knowledge, power, problem solving, governance, economic goals etc that arise in societies with an ancient Chinese cultural heritage, and these can not be understood in terms of Western ways of thinking (eg see Asia Literacy) However it is hypothesized that wealth creation primarily requires cultural characteristics that allow 'economic' problems to be solved (eg to know what others want and how to produce it, and to be able to organize production and distribution). It will be further suggested below that Western (originally European) societies have gained strength (economically, militarily and politically) as a bye-product of [Judeo] Christ-ian traditions. Judeo-Christian traditions incorporated an amalgam of: the Mosaic law of 10 Commandments and an extensively elaborated Jewish religious legalism detailed in the Old Testament; faith as an alternative to moral legalism (eg see Mark 16:16; John 10:4; Acts 13: 39; Romans 10: 4-13). Moral behaviour became an indicator, rather than the main determinant, of spiritual success (Galatians 3); a simple yet incredibly demanding ethical ideal of self-denial / putting God and others first - which Jesus of Nazareth had advocated about 2000 years ago as the essence and consolidation of the Mosaic Law and other detailed religious legalism of Old Testament Law; universalist values (ie valuing all people and seeking truth); a belief that events move forward in time from a beginning towards an end - which made scientific inquiry possible [1]; an emphasis on forgiving those who cause harm, leaving judgment and punishment to God; and the separation of religion from political and economic affairs [consider: Jesus' rejection of of earthly kingdoms - Luke 4:5-8 ; 'My kingdom is not of this world' - John 18:36; 'Give unto Caesar that which is Caesars' - Matthew 22:21] - though this only occurred in practice in Europe after the breakdown of the link between religion and state which had characterized medieval 'Christendom' . Those traditions were significant because it they really did set people free. Freedom then allowed effective methods of economic problem solving to be used, while government was more able to deal with the complexity of social and economic systems when it was not enmeshed in concerns about what constitutes right individual behaviour. Freedom for individuals was promoted because (apart from the freedom from the pursuit of frivolous goals and from fear of the future that Christian believers gain): law created scope for individuals to make decisions with much less need to try to second-guess the reactions of the powerful; the Mosaic Law started a process of separating judgments about individual behaviour from the role of the state by created a core moral law which was completely free from manipulation by human authorities - which is a major point of difference from tribal societies (who rely on elders), and 'Eastern' societies with a Chinese cultural heritage (who rely on elite bureaucracies who have studied history); the ethical ideal of 'self denial and putting God and others first' both consolidated the Old Testament law and raised the goalposts. The test of fulfilment of moral requirements was changed from compliance with 'n' simple specified rules, down to two complex rules and individual conscience. And Jesus taught that the moral standards to be sought were infinitely high (and thus humanly impossible). This consolidation, complexity and unattainable standards are major points of difference from Islamic Law; the search for public 'truth' blocked the arbitrary exercise of authority. Political authority could shift from raw power or social status to having to be be justified in terms of widely acknowledged values and facts. A search for truth also promoted peace by suppressing the superstitions and conspiracy theories that can emerge from human imaginings; the expectation that individuals would give ethical attention to others' interests and help the less fortunate reduced the perceived need for social hierarchy or strict religious rules to ensure 'right' behaviour; an emphasis on forgiveness promoted an innate relative peacefulness / stability in society at grass roots level. This can be contrasted with traditions which perpetuate conflict by encouraging families to seek revenge for harm a member suffers [1]. 'moral sentiments' provided the foundation for a liberal market economy (as argued by Adam Smith in Wealth of Nations). Individual liberty could eventually become the core of a legal and governance system (initially in Britain) because it was taken as given that interpersonal relations would be guided by a 'put-others-first' ethical ideal that was deeply embedded in individual consciences. In societies without an 'embedded' ethical ideal, legal and governance systems seem invariably to be deeply involved in determining the nature of, and enforcing, moral interpersonal relationships (see below). Individual liberty created significant advantages. In the first place it enabled rationality to be useful as a very efficient means for technological and economic problem solving. Why: Rationality involves a style of thinking derived from classical Greece - and involves manipulating abstract ideas that are seen to model various aspects of reality. Like science, rationality promotes efficiency because, through reliable abstract analysis of problems, it saves a lot of trial-and-error effort (eg see Mendelssohn K. Science and Western Domination, 1976) However rationality involves a highly simplistic modelling of reality, and is only effective where problems are actually simplified. At the level of the social and economic systems that affect whole communities, rationality tends to fail - as illustrated by: public administration literature on the counter-intuitive and unwanted effects that can plague public policies; management theories about the limits to rationality; economists' arguments for a market economy (based on the perceived impossibility of assembling the information required inability for centralized decision making); and the foundational precept of Daoism, 'The Dao (truth / way) that can be known is not the true Dao', - which is a statement of the limits to rationality that allows much that is different about East Asia to be understood (see Asia Literacy); Given a number of other factors (such as a system of law, money as a measure of value and means of exchange, and market institutions), an artificially simplified 'economic' space was created in which individual rationality could reliably be used to predict the results of decisions, thus enabling a large mass of specialists to work together with great efficiency in a coherent way. An emphasis on individuals also made the quite rapid and radical re-formation of social and economic systems simpler than when a community's structure was relatively immutable. This flexibility, though stressful, can be an adaptive advantage - and is critical to economic productivity because it provides a means (by responding to new market and technological opportunities) to escape from the squeezed profit margins that accompany the emergence of heavy competition in any mature economic function. An emphasis on individual liberty (and thus its economic advantages) emerged sooner and more strongly in Britain than elsewhere in Europe as indicated by: the signing of the Magna Carta (a charter of English liberties) in 1215; the relatively early demise of the feudal system; the more-complete embrace of the reformation insistence that individuals could interpret the Bible without reliance on religious authorities; and the British legal system under which individuals are given legal precedence over the state (assumed to be the creation of the free association of individuals), as compared with Roman (European) law under which the state (representing the culture of a society as a whole) is taken to have legal precedence over individuals. [Others have suggested that the core difference between British and Napoleonic law is that the latter forbids unless specifically allows, while Common law allows unless specifically forbidden - a tradition which is seen as the foundation of Anglo-Saxon creativity [1] ] At the same time political and economic affairs were able to be more effectively governed, because it was not expected that these should have to conform solely to religious principles. The latter is very significant because, while a religion may define fundamental guidelines for human behaviour, it can never allow the complexity of human affairs to be effectively analyzed or understood (or change fast enough to match (say) economic conditions). That this must be so can be seen by analogy with the fact that the behaviour of complex biological systems can not be deduced solely from the (fundamental) laws of physics. The latter laws determine the behaviour of the micro-elements of such systems, but the environment constantly stimulates the creation of sub-systems of relationships amongst such elements and those relationships (as well as the fundamental laws which are analogous to religious principles) have to be taken into account in analysing / understanding the system as a whole. The result is that where fundamental religious principles are seen to apply to governance or to fully prescribe daily life, societies and individuals can never have the flexibility to cope with more complex and rapidly changing circumstances. Also in trying to force 'square pegs into round holes' religious principles themselves must be distorted / corrupted. These factors allowed various cultural revolutions over the past 500 years - which have translated into: the search for an empirical understanding of nature (which was expected to be lawful because of creation by an orderly God) following the rediscovery of classical Greek ideas about science, a search which paid off handsomely in providing a foundation for industrial technology; social innovations (eg in financial, organizational, legal and welfare / equity institutions) that have further increased the scope for coordinated enterprising initiative by many members of society; and the creation of a series of economic revolutions. Other Views: Another explanation [1] of the dominance of Western societies focused on: the turning inward of previously successful Chinese and Islamic civilizations; the invention of commercial techniques (eg property rights); the separation of church and state; factors which permitted the spread of knowledge eg the valuing of individuals as children of God, the invention of the printing press This culturally-derived strength did not in itself oblige Western societies to pursue any particular goals - and it did increase the potential for individuals to abuse their freedom or to lose sight of the fact that the simplified 'economic space' created by a rule of law, money and market institutions was not the totality of reality but a convenient abstraction from it. However in history the result was an expansion by Western societies throughout the world over several centuries - involving trade, colonization, political and military influence and sharing of the cultural traits which provided that strength. However by the start of the 20th century the overwhelming advantages that Western societies had enjoyed, were being reduced as some others absorbed Western ideas (or developed alternatives), and as European societies squandered their energies in World War I. Overt political and military dominance through world-wide colonies faded in the first half of the 20th century though the United States has attained a significant (and now dominant) economic, military and political status in world affairs since that time. None-the-less Western societies appear to have been the only source of significant new ideas in the 20th century (see Islam and the West). This presumably is a result of the traditional negative attitude to abstract ideas in East Asia and to modernity in much of Islam. Others have argued in a similar vein that since 800BC Western European males have been responsible for most of the accomplishments that required mastery of rigorous constraints [1].
Non-Western Difficulties History Conventional Wisdom Constrained by Culture East Asia + Invisible Clash of Financial Systems + Emerging International Order Islamic Societies	Non-Western Societies - and the Difficulties They Face Many regions of the world (eg in Africa, South Asia, Latin America) have had difficulties in competing successfully in the Western-style economic system which dominates the global economy. The difficulties facing non-Western societies have deep historical and cultural roots. However defects in prevailing trade and business practices and in economic wisdom and institutions (combined with a universal failure to consider how these interact with different cultural assumptions) also seem to be significant issues. These constraints are further compounded by: internal weaknesses of human / knowledge resources, government / economic institutions, industrial capital, and infrastructure; the arrangements which the strongest societies sometimes set up which benefit those who are best equipped to compete; the potentially disabling effect of reliance on foreign aid [1]; and others' prejudices based on the real or imagined character of particular ethnic groups. One result is that a substantial fraction of the human population lives in relative or extreme poverty. History The legacy of history includes: European expansion from 16th to 19th centuries both imposed pressure on other societies and created an environment in which they were initially ill-equipped to prosper. This can be likened to way that the expansion of any successful species (including the worldwide spread of the earliest human beings out of Africa) disturbs the environment and forces others to adapt; European colonization (that was widespread in the 19th century and largely ended by the mid-20th century) left an unsound basis for future progress in some states [Comment: one cynical observer suggested that a major obstacle lay in the transmission of the 'statist' (ie anti-market) policies that were popular in Western countries in the mid 20th century [1]] the Cold War between communism and democratic capitalism was fought globally for most of the 20th century. In some states (especially in East Asia) the advocates of democratic capitalism aided nation building. But in others states (where there were very rich natural resources or cultural obstacles impeded effective nation building) the effect was often to reinforce despotic regimes. Moreover the global trading environment continues to contain serious distortions (such as the subsidization of agricultural production by most developed national economies [1] ). Problems with Conventional Wisdom Furthermore conventional contemporary business practices and also the economic theories promoted in good faith by global economic institutions seem to contain overlooked defects (eg adverse effects on local economic leadership in resource rich regions, and failure to deal with systemic requirements for a developed economy). Firstly, there is the (so called) 'curse of natural resources'. For example, it is a truism in the developing world that petroleum wealth can also be a curse [1]. In particular in Iraq, oil resources are seen as a major impediment to economic growth and democracy - because they impede the development of necessary institutions and values [1] Even quite legal and ethical foreign investment can have unintended and un-recognized adverse effects on the political economy of less developed regions (eg by encouraging repressive regimes), especially where valuable natural resources are involved. The process can involve: political and business elites (either those with traditional authority or popular support) may believe they can help their people progress by securing investment in resource-extraction projects. However all they may be doing is providing poor economic leadership because of the limited scope for adding value in the production of un-differentiated commodities. The challenge under-developed economies face is not just to 'produce' goods and services but to 'earn' enough to buy them. To achieve the latter, learning (so as to gain competitive advantages) is essential and this may well be very limited through merely securing resource investment. consequence of this version of 'progress' can be that: civil institutions able to provide a sophisticated level of public and economic policy leadership are not established (eg see Queensland's Weak Parliament) - and this makes it essentially impossible for a 'vision' to emerge of economic advancement independent of foreign investors. The absence of local sources which have a realistic understanding of workable economic policy options was described at one stage as the defining characteristic of a 'banana republic'; international engagement separates communities from the traditional environment they could make sense of; subjects them to various social dysfunctions; and then leaves them alienated in a 'global' environment they can not cope with; large segments of the population may suffer very low incomes because of a lack of leadership in development of a productive economy - and the resulting social stresses (and inequalities) can give rise to political instability; other populist political leaders can then arise with the simplistic view that sharing wealth through revolution would solve their people's problems (but with no insight into how a developed economy really works). As they create financial and economic chaos, local authoritarians may seize power and re-establish a 'client' status with the international investors; a 'brain drain' of those most able to develop a modern economy then follows because they are alienated or ostracized (or worse) by the authoritarians This cycle of (a) political 'client-ism' / poor quality economic growth and (b) political nationalism / economic ignorance seem to have been a feature of the Middle East - and contributed to a negative view in the region of Western societies (on which local elites have been dependent) and also of Western-style democratic governance [1]. Suggestions about the presence in all societies which lack Western traditions and institutions of an economically dominant ethnic minority and an impoverished ethnic majority can be noted in relation to this notion of 'progress' [1]; Secondly, economic advice favouring liberal market policies may require individuals and firms to compete, without ensuring that they gain the capabilities to be competitive. The problem is that some of the capabilities needed for successful competition have a systemic character (eg require complementary elements in different types of firms, in government regulations, in people's attitudes and the way things are done). Example: In the CIS, for example, markets were liberalized after the end of the Cold War without creating key institutional capabilities (eg effective accounting competencies), and the economy contracted for several years. In the absence of leadership in the development of economic systems as a whole it may be beyond the power of individual enterprises or democratic institutions to create these systems (see comments in The Second Failure of Globalization?). Ways to overcome this constraint have emerged in East Asia (initially in Japan - see below), and this has substantially affected that region's economic development both positively and negatively. Thirdly the operation of financial markets may contain an inbuilt but unrecognized tendency towards instability (rather than equilibrium) because, as Soros suggested, there can be a positive feedback between such markets' biases and real economic outcomes [1]. Those instabilities can have very damaging impacts - especially in immature economies; Somewhat similar adverse effects are increasingly seen to have resulted from traditional approaches to foreign aid: aid damages growth prospects by making corruption into the main path to wealth [1]; aid has damaged the Pacific region [1, 2] the interaction between foreign aid and corrupt governments has led to loss of hope in the Pacific and Africa [1] aid has been seen to be counter-productive (eg by keeping harsh elites in power, allowing domestic resources to be used for warfare) [1] - though efforts are being made to develop better practices [1]; numerous adverse unintended consequences have been identified in foreign aid [1] - similar in many ways to those seen to affect public policy generally; Constraints Due to Cultural Traditions However, both historically and currently cultural assumptions seem to be the most critical cause or limitation of a people's ability to be materially successful. For example cultures (in terms of social structures, leadership and rules dictating expected behaviour) may not traditionally allow efficiency in economic transactions or the rapid economic change required for economic prosperity (see Towards a Comparative Study on Development Policies: Indonesia and Australia). Unfortunately the practical implications of such constraints appear to receive no systematic attention. The absence of progress in Africa led one scholar to conclude that the destructive behaviour of elites was the principal cause of the problem - though he could not explain why this occurred [1] The most significant cultural constraint on non-Western societies may be that community pressure and authorities seem to have had to have a much greater role in enforcing interpersonal morality in societies that lacked the sort of 'embedded' ethical ideal derived from Christianity which enabled Western societies to construct legal and governance systems based on individual liberty. This could be significant because, as noted above, individual liberty was critical to Western economic advancement because it enabled more effective problem solving. In other major societies legal and governance systems traditionally tend to be deeply involved in determining the nature of, and enforcing, moral interpersonal relationships - and individual liberty is a foreign concept. For example: defining the nature of interpersonal relationships is the starting point of Confucian systems of governance. This in turn is a factor in the advantages and disadvantages of East Asia's 'communitarian' economic models (see below). The 'virtuous' notion that an ideal ruler should mainly promote virtue may have impeded effective economic leadership in China for two centuries, and now that economic leadership has been emphasized a breakdown in morality could perhaps bring economic leadership into disrepute (see China's Development: Assessing the Implications). the 'ideal' Islamic ruler is one who enforces detailed moral laws - and this seems to be a factor in the economic and political rigidities which affected societies suffer (see below). The case of East Asian and Islamic Societies may be further considered. East Asia Japan was the first to demonstrate that economic strength could be developed through cultural traditions which were derived from those of ancient China and are profoundly different to those of Western societies (eg in terms of the nature of: knowledge; power; governance; strategy; and economic goals). Societies whose cultural traditions have historically been heavily influenced by China (and have adopted various forms of the 'Asian' economic model) tend to have quite different economic goals to Western societies. Background note: the following observations are based on the author's close study over many years of systemic approaches to organisational development and economic strategy (see also CV), which led to involvement in concept development for a centre in Australia for international technological and cultural interchange that was first suggested by Japan's Ministry for International Trade and Industry. In the course of this work the intellectual foundations of Japan's rapid economic advancement was studied, resulting in the production of a document, Towards an Understanding with Japan, which was favourably reviewed by various Asia experts (eg Professor Chalmers Johnson, author of MITI and the Japanese Miracle, described it as 'dealing with matters on the leading edge of the social sciences') though it was never published. Earlier attempts by the present author to develop and explore the economic implications of East Asian traditions were in a book, Transforming the Tortoise: A breakthrough to improve Australia's place in the economic race (1993), and Asia Literacy (1998). The core of those cultural traditions seems to be an epistemology (ie a way of thinking about knowledge) based on ancient Chinese traditions that is quite different from the concept of 'rationality' that Western societies inherited from classical Greece (ie the concept that abstract ideas usefully model reality - which, as noted above, has been critical to effective problem solving in Western societies). An aside: Interestingly there seems to be a parallel between with 'concrete' thought (as compared with Greek 'abstract' though) that has been seen to have characterised ancient (ie pre 800 BCE) Hebrew society [1] - though an internet search revealed no comments on the relationship between ancient Hebrew and Chinese thought. The alternative view may be most simply expressed in terms of the central precept of Daoism which states that 'The Dao (truth / way) that can be named is not the true Dao'. This view (which is related to Shinto and to Zen) is a statement of the limits to rationality which is equivalent to Hayek's observations about the inability of central authorities to gather the information needed to make reliable economic decisions (see The Use of Knowledge in Society, 1945) that is the basis of mainstream Western economists' rationale for a market economy. It was this ingredient, when added to traditional Confucianism (which sought wisdom from a study of history and had been associated with a century of economic decline by China), that produced dynamic neo-Confucianism. This epistemology leads to: an intuitive (arational) style of problem solving. One observer realistically described this as an "ancient Chinese philosophical outlook that makes little distinction between theory and practice" [1]; an 'information-divergent / chaos-creating' role for leaders in identifying strategic issues, rather than a 'convergent' role in making decisions on a rational basis; a concept of power as the avoidance of decisions (rather than as being a decision maker) - see Pye J., Asian Power and Politics, 1985. The consequence of this in Japan for example is 'bottom up' decision making (by employees within organizations, and by firms on behalf of 'Japan' as represented by bureaucratic elites) whereby subordinates make decisions on behalf of their social superiors - and so overcome to some extent the limits-to-rationality problem Hayek identified; authoritarianism presumably because, in the absence of any agreement about 'public truth', this is the only way in which a society can be held together. One observer noted that (a) in the 1980s 'party secretaries' were present everywhere and given huge resources - as their role was to 'control thought' and (b) before modern era Chinese governments have always been obsessed with 'correct thinking' by their subjects [1]; valuing outcomes that are 'real' or 'concrete' - with little importance attached to 'abstracts' such as ideas, ideals, financial returns or intellectual property; equating economic success with 'real' production rather than with financial returns on capital. Preference is given to market share (ie 'real' production / power / security) over profitability (ie paper or symbolic gains) - [1]. In Japan, for example, a survey found at one stage that profitability was not one of the top 5 goals of the groups of major firms surveyed [1 - though others have suggested that this perception may be exaggerated]. China's banking system has likewise been seen as unconcerned with return on capital [1], and there is no Chinese word for 'unprofitable' [1]. Limited interest in financial outcomes as such, it may be noted, is quite consistent with: the strong desire for commercial power that exist amongst the Chinese diaspora in particular; the wealth that that the latter have often accumulated - by spending less than is earned in accordance with Confucius' instructions about becoming rich by saving and avoiding consumption [1] (a preference which, when applied by nations rather than clans, has translated into a major fiscal obstacle to sustainable global economic growth); presenting unreliable data about economic / corporate performance - because such data is not the basis on which decisions are made; distrust of the concept of law (ie universal rules). Confucianism had basically provided a set of rules for interpersonal relationships without any concept of universal law. Other features of East Asian traditions which to varying degrees are complementary to that epistemology appear to include: societies built on social hierarchy - rather than on equality before law; a strong (Confucian) concept of obligation - which means for example in Japan that (a) precedence is given to customers' requirements in 'bottom up' decisions and (b) any help provided must be repaid to those who arranged it - so no one asks for help (eg from government) if they can avoid doing so; a preference for invisibility to outsiders by those who are really powerful; a Confucian concept of government as teacher and guide, rather than as regulator, and of government by man rather than by a rule of law; control of government by a bureaucratic elite selected through the education system, while 'democratic politics' exists only for show, and society works in terms of the obligations of people to their superiors, not in terms of the rights of individuals. Consumerism would be inconsistent with such social structures; an approach to industry policy which in Japan long involved (a) 'vision development and administrative guidance' through MITI whose effect was to accelerate learning within firms, rather than to make centralized strategic decisions and (b) similar leadership of change within business groups through banks and trading companies. coordination of economic activity through hierarchical social relationships under Confucian traditions - with little regard for financial outcomes. Rapid development of economic capabilities were catalysed in Japan through intelligence gathering and networking by social elites in: MITI; trading companies; banks; and corporate management; funding of firms mainly by debt capital with very little equity. This ensures that return on capital does not drive business decisions, but also provides very little buffer in the event of an economic shock; structuring financial systems (at times) to direct funds earned from exports back into additional productive capacity, rather than to consumers; a strong savings ethic based on Confucian teaching that wealth should be acquired by saving and avoiding consumption; communitarian / mercantilist economic goals, ie building the power of particular ethic and cultural communities (and their social elites in particular) rather than improving the economic welfare of citizens as consumers. All components of an ethic / cultural community (business, politics, communities, government agencies and even organized crime) will work together under bureaucratic leadership to achieve these goals (eg see Kaplan and Dubro's Yakuza and Seagrave S. Lord's of the Rim, 1995). [It may be that this emphasis on power derives from the fact that, because of other features of traditional culture, 'harmony' can only be assured if elites have the power to suppress dissent]; maintaining power in relation to other nations by working harder. China's 'tributary' system by which it was the centre of regional economic power until 200 years ago involved symbolic gifts to China by 'tribute' nations who received much more real benefits in return (ie they allowed China to exert political and economic control) [1]. Barbarian invaders were defeated by serving then - so that they became dependent and weak [personal communication] - Another account of the radically different cultural frameworks which make it difficult for communication about even such issues as the nature of management is 'Contrasts in Chinese and Western Management Thinking', (Garran B. LODJ, V2, N1, 1981). Similar observations about the characteristics of China that (as well as etiquette) are mentioned in accounts of what need to be considered for business success [eg 1] These traditions and methods, though radically different to those of Western societies are effective in practice, ie they allow production to be organised and are very quick in generating economic change - hence the perception of 'economic miracles' emerging in East Asia. They exploit knowledge, which economics regards as the critical factor in economic growth, in a quite different way (eg see *Defects in Economic Tactics, Strategy and Outcomes). In the 1980s it was widely believed that Western societies would have no answer to the competitive challenges posed by Japan's fast-change abilities - a view which was generally (through not universally) reversed in the 1990s - due to further technological revolutions and radical changes in the organization of production (from hierarchy to networks) which particularly characterized the American 'new' economy and allowed faster learning. Furthermore from the late 1980s, it became apparent that Japan's methods could not handle finance as a problem in itself because its methods for problem solving, while extremely effective for 'real' economic variables, were ineffective in dealing with 'abstracts' like money. Its financial system had in fact been regulated in such a way as to make financial profitability largely irrelevant. Those traditions and methods can also have other limits (eg reliance on learning from someone else's technology, someone else's markets to provide demand). In the long term the US / Western emphasis on profitability (based on value-added) is likely to prove to be a more sensitive indicator of resource allocation that provides the basis for continued growth than turnover (volume of production). At least this is the lesson of the decline in support for mercantilist economic strategies in Europe in the 17th and 18th century. Variations on Japan's methods have been adopted throughout East Asia - permitting: rapid economic development; catch-up to Western societies in ways that no others achieved; the emergence over the last two decades of China as a potential superpower; and the Asian Financial Crisis of 1997-98. However it is very significant that these differences lead to great difficulties in achieving economic success if this is defined in terms of a positive balance sheet. An attempt to describe this was presented in relation to the Asian Financial Crisis in Understanding the Cultural Revolution (Needed for Success under Global Financial Systems).* The latter briefly discussed the epistemological issues, and considered the business, economic and especially financial consequences in more detail. Similar observations appeared independently in Why Japan cannot deregulate its financial system). East Asian cultural traditions can also make it hard to discuss such issues, as 'Art of War' strategy includes: a strong emphasis on deception - eg pretending to be what you are not; preventing others understanding one's true 'shape' (eg how economies actually work), and holding up a 'mirror' so that when others look, all they see is a reflection of themselves; getting close to enemies; encouraging opposing leaders and people to take steps which are not in their real interest so that they encounter internal failures (ie to 'win without fighting is best') ; seeking ways to turn opponents' strengths (eg democracy, financial system and military capacity) against themselves; making no distinctions, so that business, social relationships and even organised crime are part of a 'war'. In practice the result is that (a) outsiders who are prevented from understanding may then cause significant damage inadvertently, and (b) insiders may believe that they face a choice between either abandoning traditional cultural aspirations or challenging the US-led Western financial regime. An Invisible Clash of Financial Systems? Financial systems have thus been the most obvious focus for a potential 'clash of civilizations' - though this has received essentially no attention from Western analysts. Financial systems arise because money is used as a means of economic exchange, a store of economic value and a means for signally the need for economic change. Financial systems have often been a source of problems because of (a) the self-interest of the owners of capital - that can distort the economy and the political system, (b) the inherent 'boom-bust' character of financial markets (due to speculators' use of such markets as a primary way of wealth creation; the 'herd' behaviour of investors; cycles in the 'real' economy; and periodic failures in monetary and credit management) - and (c) the possibility that financial 'busts' can affect the real economy. However Japan's economic system has involved a mercantilist policy goal of creating production capacity far in excess of domestic demand and without regard to profitability through the creation of credit by a tightly regulated financial system - which resulted in large current account surpluses that have been recycled into further expansion of production capacity and, in recent decades, into investments in $US assets (see Why Japan cannot deregulate its financial system). Even more significantly Japan's economic model involved the coordination of production capacity in terms of 'neo-Confucian' social relationships (amongst elites and by subordinates to superiors) rather than in terms of symbolic / financial outcomes (such as a search for profitable investments). In Asia outside Japan, variations on this model had been adopted since the 1960s. China in particular eventually became very successful in attracting foreign investment and growing export-oriented manufacturing industries - following its acceptance of a variation of the Japanese economic model in 1979. This allowed large current account surpluses and holdings of foreign currency reserves to be accumulated - and so allowed China's financial institutions (though they carry enormous quantities of bad debts [1] which put their solvency at risk) to continue providing credit - because there has been no requirement to seek external capital. The different (relative to US / Western) characteristics of Japan's and some other East Asian economic systems first started to have obvious impacts on financial systems in the 1980s, when: Japan built a financial bubble by increasing the availability of credit on the basis of property values which were in turn sustained by this credit. Industrial capacity was created and many foreign investments were made - which were often unprofitable; in 1985 the US encouraged Japan to revalue its currency by 50% and to boost the availability of credit under the Plaza Accord in the vain hope that this would overcome a trade / current account deficit which had emerged (due to the US's rapid consumer driven growth, and the communitarian / mercantilist character of Japan's economy). This hope had to be in vain because: currency revaluation can have only a minor impact on trade flows if production / distribution capacity does not exist; Japan's financial system is set up so that, domestically, any stimulus must mainly flow into industrial capacity rather than into consumer demand (op cit); the $US fell by around 50% against major currencies in the two years after 1985 [1]; withdrawal of some $400bn from US Treasury bonds in 1987 led to increasing interest rates which triggered a crash in the value of US equities. This crash was interrupted when authorities (eg US Federal Reserve - and later IMF) developed methods to prevent this and later financial busts from affecting the real economy - through providing liquidity to prevent losses compounding. Ultimately those techniques enabled an asset bubble to grow in the 1990s especially in the USA because: P/E ratios escalated as investors concluded that they could ignore equity risks; cheap credit cut corporate costs, increased consumer spending and boosted profits; and increases in asset values fed-back into consumer spending. Japan's financial bubble burst with a collapse in equity and property values around 1990, leaving Japan's financial institutions with large portfolios of bad loans, and considerable risk of insolvency. A decade of stagnation has followed with: impeded bank ability to invest in industry; heavy public spending to maintain growth (resulting in very large public debts); growing unemployment; and apparent difficulty in overcoming the bad debt problem. The problem could have been resolved by writing-off the bad debts, but this would have required: a 'fire sale' of assets to investors - and reduced control of Japan's economy; a loss of status and control of financial institutions by the 'merit-aristocratic' elites at the top of Japan's social system; challenging the socially and politically powerful nationalistic gangsters [1, 2] who dominate Japan's politically-and economically-important construction (and leisure) industries - and play a key role in enforcing discipline on behalf of Japan's social elites. Across East Asia foreign investment grew rapidly in the 1980s and 1990s - until the Asian financial crisis emerged in 1997 as foreign investors found that profits were often likely to be limited (see The Asian Financial Crisis). Many events can be seen to have triggered that crisis, however it also reflected the institutional characteristics of the East Asian economies that have followed versions of the Japanese development model. Sakakibara, a senior official in the Ministry of Finance which developed Japan's financial model, proposed an Asian Monetary Fund to protect against the effect of capital outflow - and under the Miyazawa Initiative assistance was provided to some countries [1]. The crisis was widely interpreted by nationalists in Asia as a deliberate US attack on the 'Asian' economic models though: it has been suggested that the financial weaknesses in SE Asia that gave rise to the 1997 crisis were exposed by the withdrawal of Japanese capital from 1995 on because of Japan's domestic financial predicament (see Hartcher ‘Look East, Dr Mahathir, for the source of Asia’s decline’, Australian Financial Review, 25-26/10/97); and the author saw no evidence suggesting that culturally-introspective US analysts even properly understood how the Confucian / 'Asian' economic models worked; A cultural revolution would have be required for many East Asian economies to operate profitably under Western / US financial principles. However: under East Asian traditions such difficulties would never be disclosed to, or discussed with, outsiders - (a) to save face and (b) because (given a lack of universalist ethics) there would be no expectation of a sympathetic response - but rather that any sign of weakness would merely be exploited; instead of a cultural revolution, all that has happened is that Asian countries adopted IMF principles for financial market liberalization and transparency in varying ways - while all countries in East Asia concluded that suppressing consumption so as to acquire substantial foreign exchange reserves (as Japan and China had done) was the key to avoiding a repeat of the financial crisis. Since 1990: the US has continued to draw upon: cheap imports which kept inflation under control; and external capital inflows generated by: the strength of its financial system; the different economic character of East Asian economies; and the US's rapidly growing consumer-driven economy. This inflow has been offset by large US current account deficits, and has also further boosted the value of US assets; a great deal of the latter capital has come through: investment of the current account surpluses generated by Japan's (and greater China's) non-consumer-oriented economies; the Yen 'carry-trade' which has resulted from the creation of cheap credit by Japan, which (because of the structure of Japan's financial and monetary systems) could never boost domestic consumption, but only boost the availability of credit in capital importing countries; Japan has led efforts to establish an AMF (an Asian Monetary Fund) which would operate under 'Asian values' (ie the rule of ethnic elites) as an alternative to the IMF (which is based on democratic-capitalist values) - See Note 17 of Queensland's Challenge ; Japan continued as the world's major source of capital - because of its high savings rate (eg see Abegglen J. 'Prospects for Japan's Economy, Journal of Japanese Trade and Industry, Sept / Oct 2001) - a role which could well be founded partly on poor accounting practices if the losses in its financial institutions were as bad as expected; large financial losses remain in Japanese financial institutions (and have also accumulated in Chinese institutions - see China's Development: Assessing the Implications); Japan seems to have been going to extra-ordinary lengths to create large quantities of credit that are made available to US consumers to maintain East Asian current account surpluses [1]; there has been periodic concern that financial difficulties like those at the time of the Asian financial crisis could be re-occurring (eg Hughes H. 'Tigers return to endangered list', Australian Financial Review, 3/8/01); unexpected withdrawal of Japanese capital apparently played a significant role in triggering both the stock market crash of 1987, and the Asia Financial Crisis of 1997; Japan shifted in the 1990s to a policy of 'internationalization' and suddenly presented itself as a firm ally of US (quite the reverse of its tense economic rivalry of the 1980s). Getting close to one's enemies is reputedly a tradition 'Art of War' tactic, and provides much greater scope for insider influence. Moreover the methods for exerting influence that Japan seeks to use would not involve overt 'lobbying', but would tend to be invisible (eg by providing access to information to influence others' thinking without stating what conclusions should be drawn); the US Federal Reserve was clearly subject to Japanese influence in setting its low interest rate policies which contributed to the development of an asset bubble and ultimately the GFC. Fed chairman, Alan Greenspan, often referred to the need to prevent deflation as justification for setting very low interest rates - though this was a risk that only Japan faced. It wasn't a US problem. Thus it is clear that US Fed was seeking (presumably being influenced by Japanese officials) to use US monetary policy to keep global growth going in the face of deflationary demand deficits in East Asian economies. Greenspan also periodically expressed the hope that associated financial imbalances would eventually be resolved by market forces. It eventually became obvious to financial authorities (eg Bank of International Settlements, World Bank) that the continued dependence of global economy on US demand and escalation of US debts could not continue - and that the global economic system itself was at risk. In this regard Structural Incompatibility Puts Global Growth at Risk (2003) suggested that: major East Asian economies (eg Japan and others who have adopted variations on the Japanese model such as China) contain an inbuilt demand deficit (ie a massive surplus of production for export over domestic consumption). Consumption of this production has been maintained by the US by creating credit - which has also flowed into escalation of asset values. In the process the East Asian economies built up current account surpluses, and claims against the foreign debts of the US; Western societies are increasingly developing largely symbolic, rather than real, production capabilities - and the former are of no use if the global financial system disintegrates; the demand deficit in the major East Asian economies is the result of a deliberate mercantilist policy (ie one that seeks to build national power by economic means, and one which views economics as a win-lose contest between nations rather than as a win-win partnership). Furthermore, it is likely that such economies were never intended to be sustainable - because economic capacity has been created with little regard to financial profitability (resulting in insolvent financial institutions). This situation can even be interpreted as a 'clash of civilizations', which is presumably 'invisible' to Western economists and bankers who lack understanding of East Asian social and governance arrangements, and thus can't conceive that: financial profitability might be considered irrelevant; or that economic dealings could be used to construct a 'bomb' to destroy the global financial system; masterless samurai could view destruction of their dead master's enemies - as a worthy, though suicidal, goal (see 'The Tale of the 47 Ronin', Japan's most popular folk tale) Speculative scenarios that suggest how such an 'invisible clash' might relate to the September 11 2001 attack in America could also be considered - particularly because the Jewish interests who are often claimed to dominate the US financial system also appear to support Israel as a Jewish homeland in the midst of Islamic societies. In SE Asia there certainly appears to be some association between countries whose political and economic systems were dislocated by the financial crisis and those in which al Qa'ida reportedly has connections [1]. The situation of Malaysia in particular seems interesting because it: is widely regarded as providing a model to demonstrate how Islamic societies might become economically successful - and has in fact developed an ideology about how Islam can be associated with modernization [1]; has a large ethnic Chinese community who have key economic roles - but have often been subjected to discrimination; has repeatedly emphasized a 'look East' approach in developing policy; inhibited the impact of the Asian financial contagion on its economy by regulating its financial system - which seems likely to have been possible only if substantial foreign exchange reserves were available from somewhere; was in communication with very senior Japanese financial officials during that crisis. Moreover its Prime Minister, Mahathir, spoke of: the need for Islamic societies to develop economically in order to defend themselves; opposing Jews who are seen to exert secret control over Western societies; the undoubted fact that Australia (seen as a US ally) does not know everything. Signs of An Emerging East-Asian International Order? None-the-less regional efforts to create an alternative international order may be gaining support. China has incorporated other countries in the Asian region within its economic system by increasing imports (eg of components), in such a way that its overall current account surplus was small (eg perhaps $US 30bn pa) - though its surplus with the US was large (eg over $US 100 bn pa). This had the effect of sharing around the 'protection' offered by a current account surplus to countries who would also have difficulties operating under Western financial principles. In 2005 a 'Confucian Union', similar in scope to the EU, was suggested for East Asia based on the concept of a 'worker caste system' in which bureaucrats / technocrats would have power which would be different to the 'merchant caste' system in which capital is the source of power [1, 2]. This seems to parallel Ministry of Finance views (publicly expressed by Sakakibara) of Japan as a 'non-capitalist' market economy [1]. In 2008(?) Eamonn Fingleton, a long term close observer of East Asia (especially Japan), speculated about the possible future global political and economic dominance of 'Asian authoritarianism' [1] In brief he suggested that: East Asian economic systems are radically different to Western capitalism yet, to the surprise of economists, they are very effective in boosting exports and growth, so there is a need to understand why this is so. Characteristics include (a) a lack of commitment to truth, and a manipulative approach to citizens and outsiders; (b) authoritarian government control of the economy (through regulation / market rigging / selective enforcement of regulations); (c) suppressed consumption (through small living spaces / tight control of credit etc) which leads to high savings rate; and (d) a key role for cartels in ensuring that favoured investments are profitable and controlling industrial capacity; these systems were originated by the Japanese military in the 1930s and subsequently spread throughout Asia - with China's authorities having become convinced in 1979; while East Asian economic systems have advanced their people's welfare, the suppressed consumption that they are based on adversely affects others. Western and East Asian economic systems are incompatible and need to be kept apart (as was done with the former Soviet Union). This could be achieved by gradual introduction of tariffs - as something quite severe is needed to overcome structural trade imbalances; despite theatrical bickering, Japan did all it could to boost China's development - because it would prefer China as the world's superpower. East Asian societies prefer to be isolationist - eg they will ignore others human rights abuses. Western / US influence is resented for it forces a pretence of (say) democracy. Moreover it is believed that China will outlast the US empire as it has done many others in the past; Western societies have never before had to cope with Asian authoritarianism. But China's leaders believe they have to become the world's dominant power, as external influences are now so significant that isolationism is not an option. Comment: Fingleton's conclusion (ie that East Asian and Western economic models are incompatible) parallels the present writer's conclusions in Structural Incompatibility Puts Global Growth at Risk (2003). However Fingleton's suggestion that the erection of defensive tariff barriers would be best / only solution seems suspect, because: there is doubt about the future sustainability of the demand-deficient economic models that Japan originated and spread throughout East Asia - for reasons outlined in Are East Asian Economic Model's Sustainable? For example, the fact that East Asian economic models involve coordination of economic activities by social relationships amongst elites (rather than in terms of 'abstracts' such as financial outcomes) can be an advantage in organising production systems in response to external market demand. But this depends critically on outsiders providing strong demand and scope for investing savings. In isolation, suppressed consumption would lead to macroeconomic catastrophe. And, given the limited role of price signals, these models contain no internal arrangement for managing the relationship between supply and demand that would be any more reliable than in the former Soviet Union - and so could not be viable on the basis of domestic consumption; societies such as the US and Australia have pro-active options for developing the supply side of their economies by accelerating 'learning' within whole economic systems - perhaps along the lines suggested in A Case for Innovative Economic Leadership (which deals with the Australian context). Information is regarded as the key factor in economic productivity and growth. However just as information can be used to drive innovation within enterprises, it can also potentially be used to drive productive change within whole economic systems - providing leadership in this process can be successfully disentangled from political systems. Thus, in future, it is possible that aid to East Asia in establishing more sustainable economic models may be more necessary than the fear that Fingleton expressed about Asian authoritarianism. In 2009, increased substance appeared to be given to Japan's late-1990's proposal for the creation of an Asian Monetary Fund (AMF) as a 'virtual AMF' was emerging as a result of the Chiang Mai initiative whose existence and implications seemed to attract little attention in the West. A 'Virtual Asian Monetary Fund' An Asian Monetary Fund is taking shape as nations pledge to help one another. ASEAN, China, Japan and Korea agreed to expand the scope of the Chiang Mai Initiative - an agreement amongst their central banks to advance funds in times of crisis. The Chiang Mai Fund was expanded to $120bn - 80% of which is to be provided by China, Japan and Korea. This is growing into an Asian Monetary Fund - like that Japan suggested at time of 1997 Asian Financial Crisis (which US opposed). China and Japan are main buyers of US government bonds. They have saved and lent so US could borrow and spend. Regional integration will increase regional stability. Asian crisis occurred because foreign capital lost confidence in region with world's highest savings rate. If Asia had kept money at home it would not have needed foreign capital. Recent step increases sovereignty and reduces scope for IMF intervention (which seeks to expand the role of markets and reduce role of governments - policies that have produced few development successes). All countries in East Asia prospered through government intervention that Washington consensus would never have permitted. An Asian Monetary Fund will allow Asia to steer its own course, and be good news for Australia as its linkages into the region increase [1] However, what has been going on and what a "virtual AMF's" prospects for success are, can't be understood without considering the cultural framework in which this has been developing. As noted above , there are differences in the nature of knowledge, power, governance, strategy and economic goals in societies which lack Western societies' classical Greek heritage but rather are derived from ancient Chinese traditions. This is essential to understanding the implications of a 'virtual AMF' because it would involve the creation of credit and the control of monetary systems by social elites operating under neo-Confucian traditions whose concern was with building the power of their ethnic communities rather than with generating profits by meeting the needs of their citizens as consumers. The monetary and financial systems which have been the basis of economic miracles in East Asia have not taken the profitable use of capital seriously - primarily for cultural reasons related to difficulties in handling abstract concepts. This was the reason for the 1997 Asian Financial Crisis (see Understanding the Cultural Revolution Needed for Success under Global Financial Systems). The fact that the region is characterised by high savings does not imply that that those savings would be used productively or that sound bank / corporate balance sheets would be seen to be needed. It was also the reason for the global financial imbalances that have arisen, as the US (mainly) tried to sustain global growth in the face of the macro-economically unsustainable demand deficit that has been necessary in major East Asian economies to protect banking systems from having to demonstrate the sound credit rating needed to borrow in international markets (see Financial Imbalances in Financial Market Instability: A Many Sided Story). Some have seen those imbalances as significant in causing the global financial crisis. Establishing a 'virtual AMF' seems to be part of attempts that are being made to permit Asia's nationalists to continue economic growth by creating credit and using savings without serious concern for return on capital. However this would not be economically viable under a Western-style global economic regime in the absence of sufficient final demand for the production capabilities that are being established (eg see China: Victor or Victim?). It may be that efforts are in place to overcome that constraint which would not be easily understood by Western observers, and may not be effective either (see After the GFC?). Feedback: An observer with considerable background in Asian culture and history suggested that: .. we are witnessing the success of superior East Asian strategies and culture that are re-establishing the global order that existed 200 years ago, when China was the world's dominant production economy and technological leader, having more or less held that position for several millennia. Western conceptual (particularly economic) structures and theories are a handicap for Westerners in trying to understand all this but are an ally for Easterners, because they are so predictable and clumsy. The East learned much from 1997 but the West nothing. To talk of return on capital as a meaningful rationale for any community in the midst of the ongoing farce on Wall Street smacks of a form of racial and intellectual insensitivity and arrogance that can only lead to disaster. China already has critical and unrivalled leverage in global consumer, commodity and financial markets. Indeed, it has already established a tributary relationship with America, where it manages the 'barbarian' by giving more than it receives. This allows it to progress much more than what the Americans denied the Japanese in 1997 - in fact the Chinese and like-minded neighbours have established a nascent alternative global financial system. The game is already over, but the Chinese will move discreetly and slowly. By May 2008 it appeared that China may have responded to the global financial crisis by implementing a plan for a new international 'Confucian' economic order involving socially-coordinated economic activities - that would operate in parallel with the global system based on Western financial principles (and also that the socially-coordinated order faced severe risks). Islamic societies Islamic societies are the largest single cultural group to have had limited economic success - probably due to the above factors, and particularly to cultural features such as: enforcement of moral legalism through community and family pressure (which constrains individual behaviour), and the sometimes violent suppression of minorities when in the majority. People seem to be presumed to be responsible 'for others' (rather than 'for themselves', the Western tradition, or 'to others', the East Asian tradition). One observer argued that rejection or punishment of those who deviate from the authority that others exert over them is only partly supported by the Koran and arises mainly from Islam's Arab tribal background - where there was concern to preserve the cohesion / honour of the tribe at the expense of individuals. [1]. However no matter what its origin, this may well make it impossible for institutions and attitudes to emerge which enable economic change that is fast enough to promote prosperity . Enforcement of a single set of moral principles encourages a more uniform way of life amongst a people which, while promoting harmony, inhibits change. Likewise, a tradition of 'killing Fitna [that which could disrupt the community] at its inception' is incompatible with effective innovation [a key requirement for economic success] because such change always disrupts the established order; the world-view which was elaborated around the religion of Islam either (a) to justify enforcement of moral legalism or (b) because of an apparent rejection in pre-Islamic Arabic thought of the possibility / desirability of free will (if the Islamic world-view is the result of an interpretation within the framework of Arabic thought of a revelation to Muhammad that was similar to the Judeo-Christian message). About Arabic Thought and Islamic Science) attempts to outline some aspects of the resulting world-view, and speculates about consequences including an inability to adequately understand reality, because of an unrealistic assumption that it has to be simply viewed as a direct manifestation of Divine will; autocratic governments who suppress initiative because: the ideal ruler is seen as one who imposes (Divine) law on his subjects, rather than responding to human wishes; pressure by the Islamist minority committed to Divine sovereignty to apply fundamental religious laws to the management of social and economic affairs - whose complexity such laws can NEVER adequately deal with (see above); the major factions in Islam are Sunnis who advocate 'following the well-beaten path' (which is not a formula for change) and Shiites who favour following inspired religious leaders (which is not a formula for market-responsive economic management); a fatalistic view that all outcomes are the will of Allah (which apparently results from Islam's basic precept of submission to God, and a discounting of human efforts). Effective intellectual progress also appears to have been stifled by a constant focus on the importance which Arabs and the Arabic language are presumed to have - on the grounds that these are the people and the language through which God chose to reveal his message [1]. The movie Kingdom of Heaven suggested a useful distinction between Islam and the West's Christian tradition. One character stated that "Islam says 'Do this', whereas Jesus said 'Decide' ". [[An aside: The corresponding 'East Asian' tradition might be 'Get your subordinates to decide, and enforce their decision']] Those who were optimistic about the post-colonial era in the Middle East have seen their hopes dashed by: corruption, mediocrity; murderous regimes; a brain drain; and a cultural class in hiding [1] Some fundamentalists have interpreted their societies' weakness as resulting from punishment for their lack of adherence to Allah's words to the Prophet as recorded in the Qu'ran - and sometimes sought strict Islamic legalism as a response. This is a reasonable thing to do under what seems to be a central element in traditional Arabic thought (ie that reality conforms at all times to God's will - which is inherently just). On that assumption the only available alternative explanation is that weakness must be the result of the actions of evil foreigners - an assumption that makes conspiracy theories inevitable. However in practice these responses (which do not lead to any direct focus on political or economic reform) presumably further weakens their performance. While the September 11 attacks have been seen to be due to Arab grievances over Palestine and western policies in middle east, the real cause of Islamist terrorism has been suggested to be ideological and socio-economic and rooted in the Arab world's self-inflicted wounds [1]. More specifically it has been suggested that success is impeded because: modernity is despised; mobility is hated; liberty and autonomy are distrusted; those who deviate from norms are persecuted; conformity is imposed on how people work, love and live; and women are dis-empowered from education - so that children are brought up by people who know little of the world [1] These difficulties may be essential background to understanding both a general resentment of the West by Islamic societies and the motivations of Islamist terrorism - which are speculated in Discouraging Pointless Extremism.
Eroding the West's Cultural Foundations	Eroding the West's CULTURAL Foundations? The philosophical and theological foundations of Western societies have also been under challenge, eg: Christianity: Advances in scientific understanding in the 19th century (especially the evolution debate) called into question the literal interpretation of the creation story in the Christian Bible. The defensive reactions of fundamentalists to this contributed to a century long decline in the intellectual credibility and practice of Christianity - the foundation stone of Western societies which was particularly significant to Western economic and political advancement for reasons outlined above. There has been a strong challenge to Christian adherence in countries such as Australia by neo-pagan beliefs and a search for inner happiness [1] with the emergence of a large diversity of 'spiritualisms' [1]. Knowledge: The certainties of classical (19th century) scientific understanding and the presumed universality of human nature and knowledge were in turn challenged in the late 20th century - by advances in science (which showed that reality was not simply a 'machine'); by advances in the philosophy of science (which, for example, cast doubt on humanity's ability to identify universal laws); and by post-modern views of knowledge as primarily a 'social construct' which reflects political assumptions. The above issues are difficult. However a sense of what is involved can be gained by considering the implications of 'post-modern' views about knowledge. A distinction can be made between philosophical 'realism' (ie that knowledge reveals something about what is 'really' true, and that it is thus primarily assessed against empirical / 'does-it-work' tests) and philosophical 'idealism' (ie the concept that knowledge is mainly assessed against individual or cultural preferences and has political implications in reflecting a world-view that advantages elites). The 'realist' view was arguably a key cultural factor in the strength that Western societies acquired (eg as the foundation of science). However in recent decades there has been significant change in emphasis by students of the humanities. This has been described as 'post-modernism' [1], or post-structuralism or relativism. This view is partly justified by limitations in philosophical 'realism'. For example: scientists are unable to prove that scientific laws are universally true - because the principle of induction (the basis on which universal laws are implied from limited numbers of observations) is not logically valid; theories are never regarded as proven, merely not yet shown to be false; observations which are the basis of developing theories, depend on the assumptions which scientists make about what they are searching for; all knowledge of reality is ultimately filtered through our senses; there are endless different ways of interpreting historical events - and thus no way of identifying a useful / universal theory to explain history [1] some knowledge reflects arbitrary human judgments; the nature of knowledge depends on a society's world-view; But post-modern assumptions are also a massive over-reaction to those limitations. For example: Scientific conclusions that work in all known cases are useful, even if no one can prove they will work in all cases. Thus in the physical sciences there is a high level of 'positive knowledge'. For example: though it seems intuitively obvious from daily experience that heavier objects fall faster than lighter objects, experiments show that they fall at the same rate (in a vacuum). Thus simple positive, but non-intuitive, statements can be made about gravitation which are useful; Even in social systems where 'knowledge' may be more-or-less a product of society's assumptions, those assumptions have real consequences. Moreover: claims about what is true of social systems are tested by experience over time. Whether claims withstand this test does become obvious; ways of understanding can be constructed which give deep insights into aspects of reality which allow useful positive statements to be made, eg: Paul Krugman argued that economies that grow rapidly through increased inputs of labour and capital (rather than through increasing the productivity with which those inputs are used) must eventually stagnate. This applied to the rapid growth in the Soviet Union in the 1950. Thus useful (but non-intuitive) advice could be given to others who might be going down a similar path (as he argued applied to many economies in SE Asia in the 1990s) [ref?] Muslim nations often experience political authoritarianism and economic failure. However a core assumption in Arabic thought has apparently been that free will is impossible - a formula for fatalism (which makes economic initiative uncertain) and authoritarianism. Thus almost the entire problem of disadvantage and political failure in the Middle East - and the potential 'clash of civilizations' - could probably have be avoided if someone had bothered to consider whether this Arabic world-view is consistent with the way to universe works. cause / effect relationships can often be counter-intuitive because of the complexity of the systems involved. Thus it can be essentially impossible for even the most expert analyst to define superior alternatives to established wisdom on the basis of rational analysis, and potentially dangerous to proscribe arbitrary changes to cultural 'truths'; The fact that historical events reveal no 'theory of history' in themselves, does not mean that they do not yield useful understanding when viewed in a utilitarian framework (ie in terms of positive knowledge derived from experience about what is required to achieve particular practical outcomes). Thus if one knows, for example, what is required to create a technologically advanced society, then a point of reference is available for understanding history. And the continued functioning of the society (or the achievement of similar outcomes by others) requires that that knowledge be able to be shared. Moreover it is 'truth' because it describes what works in practice. Also The concept of 'fuzzy logic' implies that, while oversimplified models (such as natural language and traditional logic) may not fully describe complex systems, there is no better way of doing so. In spite of this it seems that some students of the humanities have taken post-modern insights too far and argued that all that is possible is subjective interpretations, and any attempts to identify objective facts should be abandoned [1]. In practice the confusion about knowledge associated with uncritical post-modern assumptions has undermined and threatens key institutions, including effective government; community; liberty; democracy; egalitarianism; the rule-of-law; and education. Government Public administration (see the Decay of Australian Public Administration) has been affected by practices that have post-modern parallels such as: managerialism - which sees management as a generalist activity and assumes that one does not need to have knowledge of a subject in order to manage it; politicisation - which values political compliance by senior administrators over the knowledge of practical realities gained through professional experience. This makes sense only on the uncritical post-modern assumption that the claims which members of a profession make to valuable specialized knowledge and experience merely reflects their own political agendas. A practical example involves the failure of an electricity distribution because the organization involved was required to comply with directives from persons who did not understand the need for network maintenance (see Failure in Queensland's Electricity Distribution Network) Community Community suffers dysfunctions that emerge because behavioural standards and truth are seen as matters of personal taste (ie humanity is again 'Eating of the tree of knowledge of good and evil' - with apologies to Genesis 2-3). The view that 'right' or moral behaviour is merely a matter of opinion seems to have justified a radical individualism. The problem with this is that good moral judgments are anything but easy for individuals to make no matter how much they try to understand other's interests, because the cause / effect relationships involved are so complex. Individual rationality is a good guide to economic decision making only because this takes place in a framework of law, contract, accounting systems and standardized weights and measures (etc) which bridge the gap between individual considerations and beneficial society-wide outcomes. Without a system of agreed moral law which individuals subscribe to the same can not apply to moral judgments. This is presumably the reason that the writers of Genesis 2-3 saw trying to make moral judgments about impossibly complex situations on the basis of local considerations as humanities' 'original sin'. The problem of complexity can perhaps be illustrated by debates about the acceptability of homosexual practices - where (despite 20 years of debate) the apparently very real linkage between homosexual behaviour and child abuse and neglect has not been publicly considered though it seems critical to making any moral judgment (see Public Acceptance of Homosexuality). Liberty Individual liberty is facing several threats which are outlined below. Democracy Democracy has become less viable because in the absence of 'public truth' it is impossible to justify public support for a 'right' course of action or to contest the autocratic opinions of the powerful [1]. For example, anyone who argues (in effect) that all texts reflect a hidden political agenda [1], automatically invalidates any policy they might suggest. What could anyone gain (apart from an insight into its author's prejudices) from an 'analysis' which assumed that a positive or useful account of reality is impossible. This approach could reasonably be described as a 'negative circular argument' (ie one whose basic assumption disproves any conclusion). Such assumptions make political debate meaningless so that power must revert to those who are strongest. An uncritical 'post-modern' disbelief in the relationship between ideas and reality (ie in 'truth') seems to be a characteristic of societies that have an ancient Chinese cultural heritage (as many do in Asia) - see Asia literacy. Such such societies are traditionally despotic, and subject to the rule of elites rather than a rule of law. Egalitarianism Similarly social equality must be at risk, because in the absence of 'public truth', national unity can only be assured by social hierarchy, which once again is characteristic of many societies in Asia. Rule of Law The rule of law is at risk because the words out of which laws or contracts are constructed might be seen as having only arbitrary or personal meanings. The credibility of institutions has also been undermined - noting concerns that have been expressed in Queensland about distrust of decisions made by major institutions because of the view that they reflect bias [1]. Education Education suffers because of the uncertainty about the relevance of educational content. This problem is illustrated by: the perception that all cultures' assumptions are equally valid (see also The Importance of Values Taught in State Schools) the trend towards outcomes-based education which emphasizes the ability to use knowledge rather than whether particular knowledge has been learned. This approach is useful in that it improves the integration of knowledge. However (a) it is easier to give a misleading impression of having knowledge in a generalized activity (eg writing a letter about a subject in which the subject is only 10% of the activity) than it is in answering probing questions about the subject alone and (b) a person's ability to acquire higher-level knowledge depends on their ability to relate new information to detailed knowledge which they have already acquired. Outcomes-based approaches may produce a cohort with restricted ability to learn - a serious handicap for a knowledge base economy.; the conflict that has emerged at QUT about the nature of social knowledge - see A Crisis in Education at QUT? The advancement of empirical knowledge, especially in relation to cultural issues, has also been impeded because of the view that knowledge is purely a politically motivated reflection of cultural assumptions, and that all assumptions are equally valid. This leads to problems such as: a general lack of analysis or discussion of the practical (eg economic) consequences of different cultural assumptions and institutions perpetuates disadvantage and increases the risk of conflict. This is considered below in Cultural Ignorance as a Source of Conflict. the risk of conflict is also increased because different cultures have different ways of exerting power - and if this is not recognized then not only is conflict between and within states more likely, but there will be little understanding of what is needed to prevent this. an inability to advance the position of indigenous communities in particular - because the implications of culture for the disadvantages they often suffer could not be examined (see The Challenge of Aboriginal Advancement); the tolerance of intolerance - because regarding all cultures as equally valid requires endorsing those based on inequality and on intolerance [1, 2, 3]; Critics have suggested that post-modern assumptions grew to dominate the humanities because English professors (who were the first to accept this were poorly trained) - in that they lacked basic knowledge of philosophy. [1] Ideologies of individual freedom, human rights and democracy which Western societies espouse may have been losing their theological and philosophical foundation (See Why Freedom?). And: *Individual liberty* in particular (which as noted above has had a critical economic role) is facing several threats. Firstly (as above) the uncritical post-modern challenge to 'public truth' could remove the major instrument that can be used to resist authoritarians. It has been correctly said that 'The truth shall set you free' - and it seems likely also that 'The loss of truth will enslave you'. Furthermore conspiracy theories, which are often circulated as an alternative to proposing serious global public policy alternatives, appear to have post-modern roots (because the latter encourages the view that disadvantage results from exploitation - because 'any argument that policy X is better than policy Y merely reflects the fact that some elites would be politically advantaged by policy X'). And those conspiracy theories in turn provide some of the 'rationale' for terrorists and other extremists (see Discouraging Pointless Extremism). Secondly individual liberty could well become socially and politically intolerable, as it seems to translate into immorality and irresponsibility where the Christ-ian ideal of individual self-denial / putting-God-and-others-first is displaced by a radical individualism (see Moral foundations of individual liberty). The latter argues that this trend has the potential to undermine systems of law and government which have been built on the concept of individual liberty - because in societies where a put-others-first ethical ideal is not embedded in individual consciences, legal and governance systems need to be deeply involved in determining and enforcing the nature of moral interpersonal relationships - and liberty is a foreign concept Thirdly weakening morality associated with radical individualism provides at least some explanation of attacks against Western societies by Islamist extremists [1, 2]. And the alienation from the 'new Christendom' (ie that in the third world) could lead to even more significant frictions in future [1] Progress: A rationale for the view that Western societies with their belief in ideas and progress might have been a temporary, and out-dated, phase in human history was argued by Eisuke Sakakibara (an ex-senior official with Japan's influential Ministry of Finance, known Mr Yen because of his role in manipulating the Yen / $US exchange rate) in 'The end of progressivism: A search for new goals' (Foreign Affairs, Sept-Oct 1995). Sakakibara was also the author of a book, Beyond Capitalism: The Japanese Model of Market Economics - which presented the case for Japan being a non-capitalist market economy; A distinctive characteristic of Western societies it may be noted has been a belief in the possibility of progress (eg see Robert J. The Triumph of the West, 1985). Sakakibara's argument was based on the existence of supposed intractable difficulties in resolving global environmental conflicts and social inequalities (ie the types of issues pursued by anti-globalization demonstrators). A similar view the West should abandon its belief in the possibility of further progress (ie history) has been expressed by Fukuyama [1]. Evil: The attacks in the US on September 11 indicate shaking of the foundations of the West that has been indicated for a century. The 50 year Golden Age from the 1950s may be over. Conrad's 'Hearts of Darkness' has been studied for 100 years - concerning people who believe that their lives in cities are not worthwhile, seek freedom in the wilderness and discover evil. In the 1960s a generation realized the excesses of the world and the cities about them - and sought a different path. For 200 years Encyclopaedia Britannica presented knowledge and progress to everyone. Now Al Qaeda has an encyclopaedia for guerrilla war and terrorism (Carroll J., 'With terror in our hearts', FR, 6/9/02) Some suggestions about how these difficulties might be resolved are made below.
Ignorance as a Source of Conflict	Cultural Ignorance as a Source of Conflict Differences in cultural assumptions, and particularly the inability or unwillingness to discuss the practical consequences of those differences, can result in conflict (see The Second Failure of Globalization?). It is very difficult for citizens of any country and their political leaders to perceive the implications of a fundamentally different culture because doing so requires moving outside the way they normally think and see the world (which few can do). By way of example of the intellectual difficulty in cross-cultural understanding, consider the suggestion (by an Australian academic arguing for debate about the causes of the September 11 attacks) that the most essential element of human culture is 'the capacity to reflect, argue, speak and mediate the aggression of the ego and bring it under the jurisdiction of symbolic law'. [1] Such an approach seems perfectly reasonable from a Western cultural viewpoint (the product of classical Greek thinking). But it is not correct, because from (say) an East Asian viewpoint (ie in societies with an ancient Chinese heritage), the notions of abstract ideas and symbolic law are not the most essential element of human culture. For example: government under Confucian traditions is by man (eg social superiors, elite bureaucracy) rather than by law; power is defined as the avoidance of decision making (see Pye, Asian Power and Politics) because abstract understanding is distrusted; decisions in Japan are seen a preferably coming from 'the belly' rather than the head; the core precept of Daoism is 'the Dao (way / truth) which can be named is not the true Dao" - which is a statement of the limits to rationality; and silence can be seen as more useful than speaking (see Matsumoto, The Unspoken Way). (see also Asia Literacy). Furthermore any attempt to seriously discuss the practical implications of cultural differences has been impeded by: the complexity of the issues involved; uncritical post-modern theories that have assumed that cultures are purely a matter of personal preference and are equally valid (see above). Edward Said's influence on Middle Eastern studies appears to have been part of that phenomenon. The practical consequences of uncritical post-modern theory include: a ('relativistic') blindness to the practical implications of different cultural traditions; and a preference for finding scapegoats rather than solutions; accusations of racist motives (in those societies that see racism as immoral) about any attempt to examine the practical implications of culture (see Complexities in the Refugee Problem); sensitivity to discussing issues that threaten a groups' sense of identity, or could bring accusations of cultural imperialism. Moreover endorsement of diverse cultures (providing they are (say) consistent with Australia's democratic traditions) has often been seen as an essential feature of a tolerant society. However this 'tolerance' is often espoused by persons who are unaware of what cultural features are actually required to sustain democracy [1], or that those features are not universal. The absence of analysis and serious discussion of the practical implications of culture has most unfortunate consequences. For example it can be almost impossible to overcome disadvantages that result from cultural assumptions; differences can be seen as evidence that others are stupid or immoral; disadvantaged communities may have nothing better to do than blame 'oppressors' for their problems, and listen to conspiracy theories (see About Conspiracy Theories, and Competing for Control of Global Financial Systems). In practice conspiracy theories about the motivations and actions of elites by those who know little about practical economic and political affairs seem to provide extremists with a rationale for terrorism (see Conspiracy Theories and Philosophical Idealism). This triggers a cycle of conflict (ie attacks against 'oppressors' who are not actually the main source of a peoples' problems lead to reprisals), and also provides a kind of 'moral' basis for real ethnic prejudice; democracy can be discredited as a system of government - and has been in the Middle East because it is presented by Western governments as 'the solution' though it is not in itself sufficient (see below); it is difficult to demonstrate that extremists' manifestos are very weak, though this would be simple if the issues were able to be rationally debated (see Discouraging Pointless Extremism); outsiders might inadvertently damage disadvantaged communities (eg as appeared to be the case with the Asian financial crisis - and with the IMF's role in Indonesia in particular); Moreover a failure to analyse or discuss the practical implications of culture may also lead to perceptions that the problems facing indigenous communities are primarily the result of discrimination or racism (see The Challenge of Aboriginal Advancement). The above argument suggests that the potential for a 'clash of civilizations' arises from both (a) limitations in the democratic capitalist model of political economy which is being globalized, and (b) the practical political and economic consequences of differences in cultural assumptions. It also leads to the conclusion that serious problems have arisen mainly because Western students of the humanities, who were the only ones positioned to analyse such difficulties, have failed to do so.
Risks in a Clash with Islamist Extremists	RISKS IN A 'CLASH' WITH ISLAMIST EXTREMISTS Islamist extremists apparently inflicted a new 'Pearl Harbour' in the US by a 'kamikaze' attack on some key financial and military structures on September 11, 2001. Though many people in Islamic countries (and conspiracy theorists elsewhere) prefer other explanations (see About Conspiracy Theories) there seems to be enough admissions of responsibility to settle the matter [1, 2, 3, 4]. The human and economic damage that was inflicted was significant, but not critical. For every view that damage will be severe (eg Hartcher P. 'Global economy faces harsh reality', Financial Review, 28/9/01), there seemed to be a counterview (eg Stelzer I. 'American economy may yet defy the pessimists, Courier Mail, 6/10/01 ) The US proposed a 5-10 year Operation Noble Eagle to eliminate terrorist networks involving military, diplomatic and economic responses - in which military action would play only a small part (eg see Evans M. 'Battle lines redrawn', Courier Mail, 22/11/01). But the situation is risky as detailed in Risks in a 'Clash' with Islamist Extremists, because: the likely inadequacy of primarily military solutions to terrorism by Islamist extremists. For example, the terrorists seem to be seen as struggling on behalf of radical Islamist ideologies that have had significant influence in the Muslim world - which reflect resentments that are partly justified. Far more could be achieved in other ways. the impossibility of stabilizing a country such as Afghanistan by military means; the difficulty of limiting the scope of conflict; the threats to the viability of the global economy that could arise; the lack of any effective system for global governance; and the need for devoting resources to overcoming environmental constraints on global population and economic activity rather than on futile conflicts. There is moreover considerable risk that a 'clash' with Islamist extremists might divert the attention of world leaders from other risks, and even a possibility that this may have been intentional.
Defusing a Clash Effective Democracy Ethical renewal Better communication Global order Development Rethinking money	Defusing a 'Clash'? Though sustainability problems are arising under current systems of political economy, it is unlikely that any of the extremists who might see advantages in trying to 'clash' civilizations out of a desire to replace the dominant democratic-capitalist order (or to prevent its feared impact on their cultural traditions or out of a desire for profit) have got much to offer to humanity generally as an alternative. The following is preliminary speculation about evolutionary change to Western-styles of democratic-capitalism that might lead towards a world in which all can reasonably hope to succeed. Suggestions of a similar nature have begun emerging from other sources (see Beyond MADness) Effective Democracy Democracy appears to be seen as a 'good thing' by many different types of peoples - and has been widely adopted. None-the-less this view is by no means universal. For example: democratic government does not prevail in most Islamic countries [1], and, even though it has been suggested that a majority of Muslims would favour this [1],: deep divergences in political culture seem to flow from Islam and Christianity: “The virtues of Western political systems are, to a certain kind of Islamic mind, imperceptible—or perceptible, as they were to Qutb and Atta, only as hideous moral failings. Even while enjoying the peace, prosperity, and freedom that issue from a secular rule of law, a person who regards the shari‘a as the unique path to salvation may see these things only as signs of spiritual emptiness or corruption.” (Scruton R., The West and the Rest); the traditional ideal ruler under Islam was one who imposed (divine) law autocratically on the people, rather than one who responds to their wishes [1]; democracy is intrinsically evil, but none-the-less perhaps a necessity to enable Muslims to achieve other religious duties [1]; Australia's Islamic Youth Movement described democracy as a 'Satan-based' system [1]; there is a division within Islam between Sunnis (the traditionalists who emphasize the traditional practices of Islam rather than inspired leaders) and Shias who seek divinely guided leaders - preferably those drawn from the prophet's family [1] it appears that at least some Islamist extremists believe that democracy is inconsistent with Islam, and that a world-wide Caliphate should be established to guide Islam (and some favour Osama bin Laden to fill the position of Caliph) [1] Malaysia's Prime Minister (Mahathir) described democracy (as well as human rights) as Jewish inventions to make it seem wrong to persecute them [1] democracy is not respected in much of the Middle East because it is associated with Western societies who have long dominated the region [1]; democracy exists primarily 'for show' in East Asia (where real government is by bureaucracy with the powerful (Emperors in the past, elected governments or Communist Parties now) given status as long as they do not interfere with government). (see Asia literacy) [Aside: The author has a Chinese acquaintance (an amateur 'philosopher') who argues that most of the problems in the world are the result of the ignorance and base instincts of those who gain power in democracies]; it has been argued that Western societies are 'barbarians' because the development of advanced weapons allowed common folk to be the equal of their aristocratic betters [1] democratic reforms have been seen as inadequate in themselves in Latin America - and to be being at risk of rejection in favour of authoritarian alternatives due to their inability to ensure equal distribution of wealth [1] concepts such as political liberty can be seen as Western cultural imperialism [1]; in non-Western societies it has been said that there is always a market-dominant ethnic minority (which controls most wealth) and an impoverished indigenous majority. Free market democracy increases the wealth of the former, and the resentments and political power of the latter - often with explosive results [1] without the support of sophisticated civil institutions the combination of free markets (which create inequality) and democracy (which allows the resulting resentments to be given expression) can be an explosive combination [1] constitutional liberty has been described as better for developing countries than democracy [1] Furthermore democracy can (and in practice does at times) 'fail' where organized interest groups influence popular opinion by gaining control over information channels and using these to present favoured explanations of events and ideas for future actions. The political system in the USA (whose leaders claim to champion democracy globally) appears to be particularly badly distorted by organised lobbying on behalf of interest groups. Moreover the power which a democratic mandate provides can at times result in poor strategic decisions in the absence of a politically independent civil service [1]. And the quality of democratic government also depends on the civil institutions that can provide analysis and policy inputs (see Queensland's Weak Parliament and Restoring 'Faith in Politics'). The effect of inadequate institutions can be illustrated by the US's response to the potential 'clash of civilizations' issues discussed in this document. Western societies face significant challenges from the practical results that East Asian societies are achieving under radically different paradigms - yet this (which requires cultural and economic skills) has received virtually no attention because challenges from Islamist radicals (who have essentially no prospects of achieving practical outcomes) have better suited the (military and industrial) skills of influential institutions. Civil Institutions and Islam: it may also well be that the major cause of the general failure of democracy in Islamic societies could be that only poor quality advice is available from civil institutions - because (a) many do not believe that Islam envisages a separation between religion and state and (b) as noted above, it is impossible to understand or govern complex social and economic systems on the basis of the simpler rules appropriate for individual behaviour For this and other reasons (eg see Fatal Flaws which comments on cultural preconditions) democratic government does not always ensure material prosperity and national strength - and this could be one reason that it is often resisted (eg in the Middle East [1]). However despite such dissent, democracy has in its favour that: the failures associated with authoritarian and elitist alternatives seem to be even worse (as Winston Churchill once argued); it requires that elites take account of the needs and aspirations of common people; powerful organized interest groups are forced to compete with one another, and can be challenged by anyone who invests the effort required to develop better explanations of past events and options for future action; political stability is promoted because a substantial fraction of the population has to be supportive of those who rule, and there will be no other potential ruler who has greater support; it does not in itself imply any particular social or religious order, but can accommodate whatever world-view is dominant in a community; it can provide some political legitimacy to what may be quite naive policy agendas, and enable the weaknesses of those agendas to be made obvious to potential supporters rather than festering in secret (see also comments on Discouraging Pointless Extremism ). For example, democratic legitimacy was the means whereby the radical agendas of One Nation in Australia were defused. However, unless it is supported by appropriate institutions (a competent bureaucracy, a developed civil society and cultural traditions which facilitate change), democracy can be ineffectual or self-serving (or be used to 'legitimize' narrow-minded populism). Thus it can always be made more effective by developing those institutions. It may be that defeating Islamist terrorism mainly requires exporting effective democracy to the Muslim world (See Reform in Islamic Societies). However this is not an easy thing to do (see comments on Afghan reconstruction.) Creation of effective democracy would need to be accompanied by cessation of Cold-War-style covert operations to achieve geo-political objectives which make it difficult for such societies be certain that they are not the victims of 'grand conspiracies' (see About Conspiracy Theories). For example: Malaysia's PM has stated that any attempt by Australia to launch pre-emptive strikes against terrorist bases in Malaysia would be seen as an act of war (Cheesman B 'Pre-emptive strikes are acts of war: Mahathir', FR, 4/12/02) Under the Bush administration the US sought to promote democratic government in the Middle East through advocacy and by invasion of, and subsequent efforts to 'reengineer', Iraq. Perhaps a more powerful method of achieving this goal could involve imposing a 5% tariff on imports from all countries that lack an effective democratic style of government, and increasing this a further 5% every three months indefinitely. Ethical renewal The radical individualism which has threatened to make individual liberty (and its political and economic advantages) unsustainable could be abated if the Christ-ian put-God-and-others-first ethical foundations that Western societies have tended to lose in the 20th century were rediscovered - and expanded into the international arena. One reason to suspect that this is possible is that the philosophical objections to those ethical foundations are themselves in trouble. In particular 19th century science's ideas of a 'clock-work universe' have lost credibility. Moreover the basis of scientific worldviews that are seen to make metaphysical speculations futile are also suspect because it seems that the 'deterministic' relationships in nature which science identifies are themselves changeable and an inadequate basis for explaining change. Problems in an internally deterministic worldview: It had been suggested that it was now bad taste for philosophers to even raise the question of God's existence (Freeman P., 'No God in the Detail', Bulletin, 12/12/00). However this conclusion may be suspect for several reasons. In brief and overly-simplistically, philosophers may need to consider whether it may be invalid to assume that material reality is self-sufficient, because internal determinism (ie the assumption that outcomes are the result of the initial state of a system and universal laws) does not seem an adequate explanation of phenomena such as: irreversibility such as that associated the Second Law of Thermodynamics; nuclear fission; evolutionary change; the response of biological and ecological systems to their environment; the economic effect of knowledge; and free will - all of which appear to be evidence of the emergence or disappearance of order. In brief: the Newtonian science of the mid 19th century (when Darwin's evolution proposals were advanced) had a critical defect in that it assumed a simple determinism (ie that outcomes depend on the existing state of a system and fixed causal relationships which could equally run backwards or forwards in time). Newtonian science could not account for irreversible phenomena, or the qualitative changes that often occur in systems (see Prigogine I., Order out of Chaos). Prigogine won a Nobel Prize for pointing out that something other than the laws of physics must be involved to result in the loss of information that increasing entropy revealed. Though Prigogine did not point this out, this also implied that Newtonian science was inconsistent with the view of evolution theory (and the Genesis account of creation) that things experienced qualitative changes [The basic theme of Prigogine's work had concerned the way in which disturbances / flows emerge in far-from-equilibrium systems, which translate into stabilizing feedbacks and the emergence of new order]. Though major scientific advances have since been made they continue to assume internal determinism. Evolutionary change is seen as the result of random internal variations though it is not clear how true randomness (and irreversibility) can arise - as it is not explained by either (say) quantum mechanics (which merely shifts determinism from physical 'things' to a wave function) or chaos theory which is also deterministic. Physicists seem to believe that the only way in which the information locked into the atomic states of particles can be lost is if they are sucked into a black hole [1] - which is hardly an everyday occurrence; the Second Law of Thermodynamics requires that the 'order' within any closed system decays over time (ie entropy increases). The emergence of new order in any system thus requires the introduction of neg-entropy (free energy / information) from a system's environment. Likewise the decay of order that increasing entropy reflects, is likely to be the result of the termination of earlier neg-entropy flows (noting that living systems, for example, can exist in a stable non-equilibrium state because they have a continual inflow of neg-entropy from their environment - but cease to do so (ie die) in the absence of such an inflow; Craig Venter, who first mapped the humane genome, argued that blind randomness can not explain evolutionary changes [1] creative qualitative changes seem in practice to depend to some extent on a system’s environment. Living systems are flow systems, and as they develop (both as a life starts and as life generally evolves) respond to their environment. Information from its environment appears to drive change in internal (feedback) relationships which subsequently have a causal effect on the behaviour of the system. Thus: the reductionist view (ie that the behaviour of a system follows from the characteristics of its components and natural laws) may often be incorrect; Occham's razor (a philosophical test that always prefers a simpler explanation to a more complex one) may be unreliable and bias those who use it towards 'reductionist' interpretations; not only are variations within a system selected in accordance with whether they are adapted to their environment, but the variations themselves must reflect either the start or ending of information / neg-entropy flows from the environment; it may ultimately be necessary to take account of information from the ‘environment’ of the material universe (eg of a ‘metaphysical reality’) and of the 'Word of God' (if God is viewed as the 'environment' of the natural environment) as a feasible source of creation (and of trans-natural phenomena). Moreover knowledge about that 'metaphysical reality' would be intrinsically inaccessible through reason or science (both of which are simply derivatives of a given set of causal relationships in the natural environment - and thus not a way of dealing with changes in those relationships); the assumption that genetic mutations are the raw material of evolution (eg Pomiankowski A., 'Evolution: 5 big questions (2); New Scientist, 14/6/03) may be an oversimplification of a far more complex reality; there is frequently a 'factor x' which renders invalid rational expectations or analytical predictions about human affairs; while genetic material is unstable, that instability does not seem likely to arise internally but rather from the breakdown of unstable equilibrium conditions that originated with information from its environment which could not be maintained without ongoing introduction of that information; at least some causal relationships in the material world can be intentionally changed by introducing information / neg-entropy – as seems to be the case. For example, the main way in which knowledge impacts on economic systems so as to achieve growth may involve changing the production function - by stimulating changes in the organization of economic systems (see Transforming the Tortoise which equates economic development with changes in causal relationships; and Amplification which relates this to economists' traditionally-unsuccessful efforts to develop theories of growth and development); one version of quantum mechanics suggests that (external) observers can have a role in determining the actual state of a system subject to a quantum wave function - based on what they choose to observe; the laws of physics (which are insufficient to predict or explain their own existence) might be the result of creative qualitative changes - perhaps by a (conscious or unconscious) ‘metaphysical reality’. Both the precise values which various universal constants required for the universe to have attained its presumed (say 15bn year) age, and reported indications of changes to those constants over cosmological timescales [1] have interesting implications Also as argued above the limitations on the value of empirical knowledge and 'truth' that uncritical post-modern and post-positivist philosophers have emphasized apparently reflects an over-reaction by students of the humanities to limitations in philosophical realism (ie the concept that ideas are judged by empirical tests) which has led to an over-emphasis on idealism (ie the concept that ideas are judged in terms of cultural or personal preferences). Moreover there are clear signs of new debates about values and metaphysics in Western societies - which at present has no clear outcome. And the tide of public opinion may already be turning against radical individualism. For example: some research implies that the (so called) 'Millennial' generation (those under 18 who can be seen as the 'victims' of dysfunctional social arrangements in the baby boomer generation) appear to be intent on 'rebelling' by rebuilding society [1]; youth have been described as leading a return to Christian values [1]; a previously unfashionable mood of seriousness and sincerity is being reflected in movies [1] The attacks by Islamist extremists may offer good prospects of accelerating the rediscovery of Western societies' put-others-first ethical foundations, and thus reduce the potential risks to the social and political acceptance of individual liberty that have been accumulating, and which would have been economically disastrous. Enhancing Communication Facilitating some depth of cross cultural communication about important issues would also be useful as concerns which one culture may have may prove too hard to express in terms of others' language and cultural icons - so that the points being made seem trivial, nonsensical or primitive though they may actually be very significant in others' world-views if properly expressed. Moreover, Islamist extremists appear to be as much revolutionaries against the mainstream of their own societies as they are against anyone else - and to be gathering support because they offer a glimmer of hope that no one else does. That support base could well evaporate if: reputable Islamic citizens and scholars seriously discussed the issues involved in advancing the status of Islamic societies with support from Western experts and scholars (see Discouraging Pointless Extremism ); efforts were made to remove the stumbling block represented by the role of religious issues in official discussions. The virtual complete absence of religious discourse amongst secularized Western institutions (who carry to extremes the limits to which it is possible to understand social and economic systems in terms of fundamental principles) inhibits real communication with Islamic societies (who are committed to 'submission to God' - and frequently ignore those limits altogether). The activities of Al-Jazeera (the independent Arab satellite TV channel) appears likely to be quite useful in promoting effective communication as (a) it appears to seek balanced news coverage (which has apparently given rise in parts of the Middle East to reports that it is secretly sponsored by Israel) and (b) it is seeking a global coverage. Reform of the Global Order Since their origin at the start of the 18th century, market economies and capitalism have spread because of their economic efficiency, and this has repeatedly forced changes in social and political arrangements - which has led to resistance because of their effect on earlier values and institutions. There is nothing new about anti-globalization protests [1]. Attempts to create a global order to reduce such stresses and the potential for conflict have been made for a century. The first truly global order (a unilateral system, the British Empire on which 'the sun never sets') had ceased to be effective by around 1900. The second, a multilateral system established following the world war of 1914-18, was the League of Nations which had failed by the 1930s. The post WWII global order involves the United Nations and the financial institutions emerging from the Bretton Woods agreement (ie the IMF, World bank and what is now the WTO). This global order has not been working well apparently for reasons suggested in The Second Failure of Globalization?. In particular: there is no agreement about what form of socio-political-economy should be the basis of a global order. Current multilateral institutions reflect the universalist individualist democratic capitalist values that the US (who orchestrated their creation) favoured; the United Nations, is too often of little practical value (being inadequately staffed, under-funded, pursuing ineffectual 'political' formalities, irresponsibly influenced by tin-pot despots and single-issue NGOs, and unable to enforce its security resolutions); global financial institutions have been heavily influenced by the US to pursue its preferred liberal democratic capitalist model, and have attracted as much criticism as the UN system. The security issues raised by the 9/11 attacks in America were seen by some as likely to force reform of the global order [1, 2, 3]. Other reasons for such reform include: the unresolved plight of (about) 20m refugees worldwide; environmental issues such as climate change. The latter potentially poses a significant global threat - which existing global mechanisms (eg Kyoto Protocol and the Intergovernmental Panel on Climate Change) appear seriously inadequate in generating solutions; the potential which global financial imbalances have to make economic growth unsustainable; the need to reduce global inequality - which requires both an effective trading regime (an unresolved goal of the Doha Round of world trade negotiations) and better means for economic development; the self-perpetuating mutual stupidity of the Arab-Israeli conflict - which seems irresolvable due to the unsatisfactory political and economic status of most countries in the Middle East. Their distorted development (apparently due to features of current global systems of political economy; and unrealistic assumptions in the broader world views that Arab intellectuals have constructed around the religion of Islam) may have to be redressed before there can be any real possibility of peace. Making constructive progress in the Middle East would appear to be particularly useful in reducing the potential for global terrorism [1] - as some Islamic communities appear to believe that this is a fundamental motivation [1]. Global institutions arguably need to be reformed to take account of (say): the diversity of understandings of the nature of a satisfactory global order; the adverse effect on local leadership which can be induced by foreign investment in resource rich regions, and by traditional foreign aid; the inability of a liberal economic order to ensure that the economic systems which are required for individuals and enterprises to compete successfully are actually developed; the practical consequences of cultural assumptions; and global financial imbalances which threaten to derail economic growth - and which appear to arise from un-evaluated differences in cultural assumptions. A method to progress such reform of global institutions, and simultaneous adjustment by individual societies, is suggested in A New 'Manhattan' Project for Global Peace, Prosperity and Security. Effective Development Practices Development of economic (and community) capabilities could be accelerated by: systematic study of the practical implications of different cultural assumptions - which appears to have been neglected because (a) cultural relativists prefer to assume that such differences should make no difference (b) cultural leaders prefer not to have the world-view under which they can dominate challenged (c) economists prefer to assume that an economy is a 'machine' which can be constructed to an ideal blueprint and (d) outside political and business leaders fear being accused of 'imperialism'. the use of methods like those suggested in Defects in Economic Tactics, Strategy and Outcomes and Developing a Regional Industry Cluster: A Possible Generic Process. The latter describe possible developmental processes in Australia which focus on information and the development of economic systems rather than on investment. These might be equally relevant as a new style of foreign aid. It is unlikely that massive aid payments would be of any real help as the key issue is the development of institutional capital, rather than merely building physical capital in an environment of established institutions (see also Towards a New Global Financial System ). The suggested presence in all societies which lack Western traditions and institutions of an economically dominant ethnic minority and an impoverished ethnic majority needs to be considered [1]. Reviewing the Role of Money A key future development issue may involve adjusting the role which money plays as a means of exchange, a store of value and a driver of economic change in democratic market-oriented economies, given: the effect that that measuring value in monetary terms has on forcing rapid technological change which arises because high economic productivity requires constantly seeking competitive advantages (as the latter are transient because competitors soon catch up and cause prices and profit margins to decline). Technological advance, in turn, allows economic output and human populations to expand and this can have negative environmental impacts; the cultural and other difficulties which some societies have in achieving success in monetary terms (ie in earning the income required to achieve an equitable share of consumption); and the self-reinforcing effect which money flows can have on an economy's performance - which can lead to bubbles and busts (ie a high level of investment - or withdrawal of investment - can be self-justifying because of its effect on overall demand) [ 1 ]. A related question involves appropriate means for governance of companies in a democratic market-oriented economy (ie should 'capitalists' have control) given: problems in corporate governance that arose in the 1990s (mainly in the US) when corporate managements were given incentives (by stock options) to give priority to shareholder value; uncertainty about whether those who provide finance should be considered to be the 'owners' of business - when the latter's major assets are the knowledge and skills of its staff [ 1 ] However changing the role which money plays could be difficult because: money provides a means for calculating appropriate economic actions which would defeat human rationality because of the complexity of economic systems; money can provide two 'grass roots' indicators of desired economic directions through empowering both consumers and a democratic electorate; economic change that was required by the productivity slowdown of Western societies in the 1970s was only achieved when emphasis shifted to shareholder value in the late 1980s; money would need to be replaced by some other means of arbitrating economic 'success' - and this could allow abuses by giving power to human elites with even more selfish and less 'grass roots oriented' agendas. Furthermore technological advance also has the potential to reduce environmental impacts if: a 'demand' for this, and information about what is required, can to be organized; and cheap and 'clean' energy were able to be deployed - as increased energy intensity appears to allow other environmental impacts to be reduced. In future attention might need to be given to (a) improving the economic productivity / incomes of the least developed economies - which is a 'learning / organizing' issue rather than an investment issue (b) arranging financial 'demand' for environmental values and grass-roots access to relevant information (c) seeking cheap and clean energy sources (d) promoting value systems that do not 'worship' money and (e) inhibiting the 'self-justifying' character of large money flows. While alternative traditions of political economy appear to have contributions to make, they do not appear to offer better universal solutions. For example: Traditional Islamic societies have much to teach others in terms of moving away from materialism and their ideal of submission to God. However a very high rate of creative processing of matter and energy (which there are no traditional Islamic models for achieving) is required for the survival of the majority of humanity (especially those in cities) and, to a greater or lesser extent, to maintain the living standards of all. Current human populations are now around 6bn, and pre-modern economic styles would probably sustain much smaller numbers (eg only (say) 50m hunter-gathers or (say) 500-1000m in agrarian economies - noting the historical global populations at which humanity found it necessary to shift to more energy-intensive economic styles). Also (if anyone thought seriously about the cultural issues involved) there is probably no reason why methods could not be developed for Islamic societies to be more successful under a democratic-capitalist model than they have been to date. For example: a new-found dynamism which appears to have affected Islamic banking ; there may be models to be discovered in the experience of countries such as Malaysia, which appears to have been economically successful with a majority Muslim population and a democratic capitalist framework (though to some extent results may have come through the networks and methods of Malaysia's 40% ethnic Chinese minority); and Comparative Development Theory: Indonesia and Australia suggests that discovering ways to achieve market-relevant changes to economic systems is likely to be of key importance. Challenging the assumption that fundamental and relatively-unchanging religious principles can allow more complex and rapidly-changing economic and political requirements to be analyzed or deduced could be one key to progress (see detailed note in Discouraging Pointless Extremism ) East Asian societies have much to teach others about social relationships and the process of social and economic change. However traditional East Asian models (to oversimplify hopelessly): tend to be based on particularist ethics (ie on obligations only to those with whom one has a relationship) - and thus do not lead to a concern for outsiders and can not be universal. Moreover particularist ethics allows deceptive 'Art of War' strategies (to erode an opponent's political and economic systems to advantage oneself) to be seen as an acceptable thing to do and result in a profound lack of trust between societies. For example, the Prime Minister of Japan is reportedly believed by his Asian neighbours to be 'a dangerous populist and nationalist leader using his charisma to steer Japan back towards imperialism and re-militarisation' (see also - Reverting to the Soul of a Samurai? ). And unfortunately (though this possibility can not easily be seen by Western eyes) such Asian suspicions are not impossible. Japan's history, culture and traditions probably doom its leaders to be seen in this way irrespective of their intentions; give power to social elites - who can be hard to remove peacefully even if they cause failures. Also it appears that (Confucian) political authoritarians may be (incorrectly) ascribing East Asian economic progress to themselves (ie to those who learn strategy from the study of history), rather than to the opposing Daoist traditions (which emphasize learning from others); and have difficulty dealing with finance as a problem in itself - because of concern for 'reality' rather than for abstracts. Whether the latter is a fundamental constraint is impossible as yet to say, though as noted above the use of money (if control of it is widely distributed amongst citizens) does avoid the need for elites to have to make impossible (or self-serving) judgments about what is in the 'community' interest; There may however be general gains to be made by ceasing the worship of false 'gods', such as: money - though it is a useful tool for coordinating economic activity through providing a means of exchange, a store of value and a means for signaling the need for economic change, many have made Mammon their god and pursue him ruthlessly; self - though a positive self image is healthy many now seek God in themselves, and their self-absorption leads society to failure - and others, having learned something of the process of creation and used this to gain power, see themselves as unique Sons of Heaven; law - though it is a useful tool for simplifying the reality individuals face, some have seen strict adherence to a law (as compared with acting in its spirit) as the path to God, or preached martyrdom whilst killing others in the name of such a legalism as the path to salvation; nations - though useful containers for the institutions which particular cultures require, they are not the basis for presuming superiority over others; democracy and other political styles - though they may be useful tools for managing aspects of human affairs, some expect far more of the institutions of democratic states than they can ever deliver. While it is very necessary for citizens to keep a close eye on leaders in democratic societies, such societies are not the main repository of megalomaniacs in the world - and are thus not the main source of any risk of a futile 'clash of civilizations' (see About Conspiracy Theories) Those who believe that an alternative world order would be better and wish to achieve it by revolution are the ones who mainly need to "pause, breathe deeply and reverse their megalomania". So while it is convenient for citizens to put well-informed pressure on leaders in democracies - there is much more to be gained by finding ways to pressure those who favour revolution into considering the evolutionary alternative. The best way to contain megalomaniacs who favour revolutionary solutions could be for: global elites to really listen to what the disadvantaged communities that the megalomaniacs purport to represent have been trying to say. One suggestion: War on terror needs to address social foundations of al-Qaida and remedy the unequal relationship that has kept Muslim societies on the receiving end, with no input into the agenda and values that govern an increasingly integrated world. Defeating terrorism by military means is a pure illusion. A multi-dimensional approach is needed that includes both Islamic political philosophy and international relations [1] subjecting the ideas of the 'spiritual leaders' of those who resort to terrorism to judgment by a jury of their peers after expert inputs - as suggested in Discouraging Pointless Extremism. However the most critical requirement for heading off a 'clash of civilizations' must be for social scientists to review the limitations of uncritical post-modern assumptions and get involved in seeking to develop practical solutions rather than seeking scapegoats.

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