Gerrit W. Gong
ICAS Fall Symposium
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Gerrit W. Gong, Ph.D.
This paper explores an aspect of Asia's challenges ahead, including economy, international relations, and security issues by asking a basic question.
One first glance, this may appear to be simply a historical question, or one that considers the international system only from a philosophical instead of any practical or policy perspective. Yet, this question seems to underpin a key intersection of culture and strategy as we consider the way forward at a time when Asia's financial crises threatens to become Asian social and political crises.
The question is whether and how standards of civilization, which first emerged with practical validity during the nineteenth century globalization of the states system with its origins in Europe, have meaning and merit as international normative or organizing principles today.
This paper proceeds in three sections. First, it defines and outlines how an international standard of civilization emerged to characterize the international system of the nineteenth and early twentieth century. Second, it considers an emergent standard of financial modernity, itself being challenged as Asian countries and others adopt what they call self-protective measures, such as capital controls, in light of current international challenges. Last, it offers some concluding observations.
The 19th Century Standard of "Civilization"
The confrontation which occurred as Europe expanded into the non-European world during the nineteenth and early twentieth centuries was not merely political or economic, certainly not only military. It was fundamentally a confrontation of civilizations and their respective culture
Generally speaking, a system of states (or international system) is formed "when two or more states have sufficient contact between them, and have sufficient impact on one another's decisions, to cause them to behave -- at least in some measure -- as parts of a
At the heart of this 19th century clash were the standards of civilization by which these different civilizations identified themselves and regulated their international relations. In the 19th century, practices generally accepted as "civilized" by the European countries, and therefore by the international system centered in Europe, took an increasingly global and explicitly juridical character as that international system expanded.
A standard of civilization is thus an expression of the assumptions, tacit and explicit, used to distinguish those that belong to a particular society from those that do not.
These interactions among states or among systems of states occur at both the transactional and normative levels. It is partly the aggregation of these normative values regarding international behavior which reflect and shape, by whatever name, international standards of civilization today.
In pre-1914 customary international law, a standard of "civilization" emerged as Europe's response to two problems -- one practical, one philosophical -- which had arisen with Europe's expansion into the non-European world.
First, in response to the practical problems of protecting European life, liberty, and property in sometimes hostile non-European countries by what Europeans assumed were mutually beneficial, reciprocal familiar international institutions of trade, diplomacy, law, the 19th century standard of "civilization" sought to guarantee certain basic rights the "observance of which, at least in relation to foreign nations, could be expected from civilized states."
Second, in response to the philosophical problem of determining which countries deserved legal recognition and legal personality under international law, the standard of "civilization" provided a doctrinal rationale for limiting recognition in international law to those candidate countries which "recognizing states, rightly or wrongly, regarded as being civilized."
By 1905, at the latest, a standard of "civilization" had emerged as an explicit legal principle and integral part of the generally accepted doctrines of prevailing international law. This standard of "civilization" included the following five requirements:
But, while challenged by the ongoing consequences of the Asian crisis, a new international standard seems to be emerging. It is a standard of financial modernity.
Like its predecessor, today's standard of financial modernity characterizes the contemporary international financial system's need to protect foreign investments abroad, including by guaranteeing ownership against expropriation, by protecting local operations from arbitrary interference, and by providing transparency and the free flow of information crucial to commercial operations.
Like its predecessor, today's standard of "financial modernity" seems to divide today's international system into "developed economies," "emerging economies," or "non-market economies." It would allocate access to global financial capital and shape the intersection of that global financial capital with more culture- and country-specific manifestations of social capital and organizational capital.
However, unlike its predecessor, with the advantage of historical hindsight, today's standard of financial modernity can be questioned more carefully regarding its definitions of tradition and modernity, European and non-European, Anglo-Saxon, Western, and other its other roots.
Today, when capital flows more according to market logic than to political decisions, the global financial regime comes with its own evolving institutions and rules, and its own evolving standards.
The transactional features of this global financial system have evolved a set of expectations that may be said to constitute a contemporary standard of financial modernity. Countries wishing to be attract trade and investment, to maintain credit, to function as full members within the modern financial system must adapt and adhere to a new standard increasingly ensconced in the international system.
Indeed, today's international system reflects a standard of contemporary civilization. It is based on five criteria of "financially modern" countries, namely:
These actors include international rating agencies and accounting firms, international financial institutions (such as the International Monetary Fund), global insurance companies, hedge funds, and transnational corporations.
Inherent in each are the identities and values ensconced in their principles of governance, expressed in their human resource/human capital management, and broadcast in their global advertising. Being global, these institutions and agents may be only vaguely aware of how multi-local their values and principles may be with respect to how current issues such as capital controls are approached through two enduring features of the international system.
A first enduring feature is the right of the smaller and weaker to seek protection within the international system by appealing both to the principle of equal sovereign right and to the self-interest of larger or stronger powers in systemic stability.
Given unprecedented sizes, volumes, speeds, and scope of impacts by contemporary financial transactions, Malaysia, Singapore, and others have justified their efforts to slow capital flows in part as a self-protective measure on the part of smaller or mid-sized economies in need of some break-water harbors from the waves of international financial storms.
A second enduring feature recognizes that general principles of international relations may be modified by local values, traditions, and customs as necessary to maintain local sovereignty and social stability.
In this juxtaposition lies a major modern interface of interacting civilizations -- the history, self-identity, socio-organizational patterns of different people in different regional and cultural contexts. Inherent in a standard of financial modernity is the question of whether global capital can and should function in a completely a-culturally way.
Increasingly the realization is that a fuller measure of capital in its various forms is required to allow principles of global capitalism to operate without undermining the interests of the smaller and weaker, and the interests of those who may order their social-cultural systems according to different values (including different measures to measure financial capital return).
In this view, capital within the international system must be considered in broader terms to encompass in various forms:
In this view, the potential clash of civilizations is more fundamental than the juxtaposition of cultural values and approaches. At its heart are two interacting elements.
First there is the hierarchical and judgmental element of "more civilized" and "more modern" versus "less civilized" and "less modern." The notion of "civilization" has always contained, at least tacitly, an assertion that those who adhere most closely to the standard are somehow more modern, more progressive, more "civilized."
And there is another element as well. It is that methods of evaluation, in this case using capital return, risk hedging, and associated values such as the free flow of information and transparency, come implicitly and explicitly with the new criteria established for international financial values and institutions, some of which are purveyed in private sector manifestations by the largest, most dynamic trans-national companies.
Indeed, some far-sighted accounting firms posit that conventional profit and loss models of tangible company assets miss far more important assets, including collective training and judgmental abilities of company employees; organizational culture, values, traditions, and broader professional networks; and whatever advantages may accrue by socio-cultural operating context to the company's functions and functioning.
By this logic, familiar accounting principles applied in conventional ways may miss the important asset values in a company or country. In turn, the interaction of multiple companies within the institutional and social framework of a particular country may convey advantages and disadvantages which entail costs and benefits. Questions also remain regarding how financial capital may manifest itself differently as it interfaces with different human, organizational, and social patterns in new ways.
To use the financial metaphor, the interaction of financial capital with different political-cultural systems (dare we say different forms of culture and civilization) in their distinctive human, organizational, and social characters gives rise to new issues regarding whether or not the standards established by those responsible for the returns on globalized financial capital are necessarily congruent with the values, objectives, or institutions in various alternative regions or civilizations.
Recognizing broadened definitions of economic and financial activities only makes sense for economies which are increasingly knowledge, technology, and capital intensive. Still the debate deepens, to take one example, about the social benefits of Japan's approach to capital use (traditional full employment) versus the seeming financial inefficiencies of its return on capital or return on equity approach (when judged by Anglo-Saxon return on equity (ROE) models).
All this has enormous consequences if international ratings, exchange rates, and other transactions dance to a new standard of financial civilization which is truly universal or more culture-bound in its expression.
Many related issues remain to be resolved:
Three main conclusions can be drawn.
One is that, as this paper's initial, historical section discusses, a self-conscious definition of international norms is a natural consequence of interaction among different civilizations especially as those disparate countries and their multiple civilizations are increasingly brought within the framework of a single, emergent international society. In the 19th and early 20th centuries, the organizing principle and philosophy of the international system characterized itself, and was characterized by a standard of "civilization.
A second is that, as the paper's analysis of the standard of "financial modernity" which characterizes today's international system argues, today's international system features a global borderless economy interacting with sovereign governments and increasingly influential non-governmental actors. All these shape and are shaped by complex intersections and interactions of financial, social, organizational and other forms of capital.
Some explained the Asian economic rise as a "miracle." Others, such as Senior Minister Lee Kuan Yew said it was not a miracle, but the consequence of economic principles and practices which combined the best of global capitalism with Asian values and social practices.
The tendency to attribute cultural explanations to Asia's economic success has now led some to discount entirely that such culture- or country-specific values and social practices could contribute positively to Asia's earlier economic successes. Instead, these cultural phenomenon are blamed for Asia's ills, such as crony capitalism.
The tendency to exaggerate cultural factors, positive or negative, also threatens to bring the pendulum too far in reaction -- to again posit that culture- or country-specific development paths (such as current efforts to devise and implement working capital controls) are the result of cultural over-reaction and therefore, ipso facto, invalid.
But a closer examination of the role of standards of civilization in international systems may shed light on a different strategy. In this view, fundamental differences in the standards by which socio-cultural entities seek to control the intersection of global economic and financial influences reflect the standard of financial capital currently inherent within the international system, even as individual countries wrestle with distinguishing global capital and local socio-cultural values and means of production.
Today, as in the 19th and early 20th centuries, there is a need to distinguish the universal elements and the elements which reflect local socio-cultural roots in any contemporary standard of financial modernity. Indeed, today's continuing structuring of the contemporary international system may benefit from demarcating the strengths and limitations of today's standard of economic and financial civilization from both its universalist and local aspirations and roots.
But, just as international human rights standards cannot be articulated in simply relativistic, lowest common denominator rhetorical expressions, so global capitalism must seek carefully and clearly where it makes adjustments for developing versus developed, small and mid-sized versus larger economies, and where fundamental operational principles are at stake necessary for the system to function consistent with agreed upon values (be they market efficiency or others).
For this reason, a third conclusion is this: that the concept of a standard civilization (by whatever name) is not new, nor will it ever become old.
Some standard of civilization will remain a feature of any international society wherein cultural diversity and pluralism co-exist with hierarchy and anarchy, regardless of how strong the ties of international society become.
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