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 under which societies 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'  .

This amalgam was significant because it 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;

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 analyzing / 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]

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.

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] ).

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;

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. Unfortunately the practical implications of this appears 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.

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

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 seeking to prevent others understanding one's true 'shape' (eg how economies actually work).  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 system.

Financial systems  are thus also a factor in the potential for a 'clash of civilizations'.

An Invisible Clash of Financial Systems?

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). 

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.

In Asia outside Japan, 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 instead of a cultural revolution, all that has happened is that Asian countries have adopted IMF principles for financial market liberalization and transparency in varying ways - while Japan has been joined by China in pursuing a strongly mercantilist economic strategy.

China has been particularly successful in attracting foreign investment and growing export-oriented manufacturing industries. 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.  

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 has 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 shown to have been founded partly on poor accounting practices if the losses in its financial institutions are shown to have been 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).

It is becoming 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 cannot continue - and that the global economic system itself is at risk. In this regard Structural Incompatibility Puts Global Growth at Risk suggests 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 be interpreted as an attempt to provoke '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
• an economic system could be used as a 'bomb' to destroy the global financial system;
• masterless samurai could view destruction of their 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' attempt to provoke a 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 2005 a 'Confucian Union', similar 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].  This seems to reflect Ministry of Finance views (publicly expressed by Sakakibara) of Japan as a 'non-capitalist' market economy.

Other regions including the Islamic world

Many other regions of the world (eg in Africa, South Asia, Latin America) have had great difficulties in competing successfully in the Western-style economic system which dominates the global economy - probably because of the the factors suggested above and the compounding effect of:

• cultures (in terms of social structures, leadership and rules dictating expected behaviour) that do 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);  
• 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.

The result is that a substantial fraction of the human population lives in relative or extreme poverty. 

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.

C. Eroding the West's 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 it is 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. For example:

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 Encyclopedia Britannica presented knowledge and progress to everyone. Now Al Qaeda has an encyclopedia 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

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.

Unfortunately in the absence of analysis and serious discussion of the practical implications of culture:

• 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 analyze 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).