East vs. West

The recent ascendency of China is making people wonder about the global economy will look like under eastern control. Yet before doing so, it’s important to ask, how it came under western domination in the first place? Western Europe represents less than 5% of the world’s population. Although continental in ambition, it is a sliver of the Eurasian landmass. Five hundred years ago, it was emerging from the brutality and ignorance of the Middle Ages. As early as 170 years ago, it represented less than a third of global GDP. Therefore, what explained its ability to conquer the rest of the planet? A few weeks ago, Harvard historian Niall Ferguson wrote a short piece attributing this phenomenon to “five-killer apps:” capitalism, the scientific method, a legal system based on private property rights, imperialism and the “Protestant work-ethic.” However, the explanations were from being sufficient and complete. Moreover, they were functional in nature. There has to be a more systemic justification.

I would reduce it to three defining characteristics. The first is a willingness to accept, adopt and assimilate. Except for language and genetic code, there is nothing endogenous to modern European culture. Most of it was purloined from everyone else, from religion to food to art to science, westerners cherry-picked the best the world had to offer and made it their very own. This was in sharp contrasts with other civilizations, who often perceived their cultural attributes to be the best. As business managers know, the survival of any institution or organization is its ability to adapt to changing conditions and incorporate new information and processes. This leads us to the second defining factor, an inherent sense of inferiority. The fact that western explorers were willing to risk life and limb to embark on suicidal odysseys signalled that domestic conditions were not good. In the words of philosopher Thomas Hobbes, in the midst of the English civil war, “life was solitary, poor, brutish and short.” This was quite different than conditions in Asia and the Americas, whose societies were technologically superior. Perhaps, this was the reason why they were not too interested in venturing on voyages of exploration and conquest. At the same time, their arrogance sowed the seeds of their own demise. This leads us to the third attribute, which was the primacy of the individual over society. This is probably the biggest difference between east and west, and one that still persists. Societies that put the group ahead of the individual can more easily attain Pareto optimal arrangements. In other words, they can produce a more equitable distribution of resources and wealth. However, their hieratical structure makes them more vulnerable to a coup de main, which can all of sudden lead to anarchy. This was a weakness that westerners exploited in the east against the Chinese and on the Indian Subcontinent, as well as in the Americas against the Aztecs and the Incas, thus allowing them to overwhelm much larger and superior forces. In other words, the reason why the west conquered the planet was because it was not the east. Inferiority, a desire for a better life and the supremacy of self over others allowed it to conquer the world.

So what does that mean for markets and what lies ahead? With the so-called BRICs coming into their own, people ask whether they have the characteristics to lead the globe? My answer is probably not. Even though China and the other BRICs were anxious to assimilate western capital and technology, their focus is insular in nature. Churchill’s description of Russia being a riddle wrapped in a mystery inside an enigma is fully appropriate. China and India are interested of returning to their former glory, but with little interest in venturing beyond their domain—other than to obtain access to natural resources. Even though Brazil is the dominant country in Latin America, its regional leadership capacity and capabilities are extremely limited. Moreover, all of these countries tend to be hierarchical in nature and dominated by a small group of elites. In conclusion, globalization is purely a western concept. Perhaps, this is what Professor Ferguson was really trying to say. Hence, to think that the mantle of leadership will easily gravitate away from the west borders on ludicrous.