The previous economic ascendancy of the West was owed to three unconnected matters that occurred during the 15th century.

The first was the development by the Portugese of the caravel with its lateen sails which enabled merchant boats, for the first time in the west, to sail against the prevailing wind and thus to navigate across oceans. This enabled European merchants to short-circuit the Mediterranean by rounding Africa and to start trading with the far East. A little later, west European merchants were also able to penetrate the Mediterranean from which they'd been excluded by Islamic merchants and navies.

The second was a subtle, but all-important, difference between the theological inheritance rules of Islam and Christianity. By the time of the 15th century, Islamic merchants dominated all of the Mediterranean trade and also, via the Persian Gulf, with India and some of the nearer shores of Eastern Asia. Gradually, in competition with west European merchants, the Islamic merchants lost out because, if they died during trading transactions, their wealth had to be shared among many members of their family and the contract might have failed and trading never resumed. On the other hand, most western countries had rules of primogeniture and merchants could pass on their wealth to a single eldest son who was more likely to use a large inheritance to continue his father's trade. This apparently trivial difference between the Sharia law of Islam and the Feudal traditions of the West made all the difference in their openness to new ideas, and the gradual economic decline of Islamic countries.

The third was the sudden edict in 1421 of the Chinese Emperor, Zhu Gaozhi, to stop all the merchant ships of China trading with the rest of Asia. The great 'treasure ships' of China, far larger, and far more technologically advanced than the caravels of Europe were suddenly removed from the whole of Eastern Asia and the Indian Ocean. The same ships were, indeed, on the point of rounding Africa and coming up the west coast to Europe. Had the edict not been issued then, undoubtedly, Chinese merchants would have dominated European trade as well as Asian from then onwards. However, because the edict was repeated by succeeding Emperors, China began a long economic decline from which it did not recover until recent decades. During the 15th century, however, it opened up all of Asia (except China itself) to European merchants.

In the cases of the decline of the Islamic countries and China from being vibrant, inventive and economically successful cultures in the 15th century to a moribund condition was due to ideology over-ruling pragmatism. It should now be seriously asked whether Western Europe is now beginning a similar economic slide due to the ideology of the nation-state, of welfarism and over-regulation (as well as tariff barriers) overcoming the enterprise of business and trade. As the account below summarises, some eminent commentators believe that the West cannot now afford what it is politically committed to, and certainly not so within a decade or two as regards health care and pensions for the elderly.

The fate of America, the primary economic force in the world at present, remains to be decided. Will it go further in the direction of European welfarism and similarly go into economic decline? Or will it increasingly associate with China which, with public spending at less than 20% of GDP and a revived encouragement of private enterprise, appears to become at least the economic equal of America within a couple of decades at the most.

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WEST FORECAST TO DECLINE AND FALL AMONG BAD NEIGHBOURS

Michael Jones

It is the year 2015. The industrialised West has struggled for a decade to maintain its position in the world and failed. A new balance of power has emerged, with "rough neighbours" such as China dominating a repressive bloc in the east and a new Islamic power posing a threat to Africa.

The West's economic malfunction has sent welfare claims, taxes and state borrowing rocketing. Savings have fallen. Budgets are pared to the bone and retirement ages are rising. Domestic politics are overwhelmed by events.

This is the troubling scenario described in a 100,000-word report released by the Royal Institute of International Affairs, the world-renowned think-tank based at Chatham House, London.

Called "Unsettled Times", it does not predict the future, but presents its worst-case forecast in an experts' review of current trends. This makes it clear that whatever happens, society as we know it will never be the same again.

The West is already feeling the impact of dramatic change, says the report, written by a Chatham House forum of business and government representatives. They highlight the explosion of technical capability, an ageing population, institutions buckling under the pressure of change and "the increasingly untenable system of state welfare".

The report reinforces last week's warning by the House of Commons social security committee about the danger Britain faces inside a single European currency as continental governments are forced to rescue unfunded state pension schemes from bankruptcy.

"The grounds are set for a collision between expectation and economic reality," says the report. "Promises have been made, particularly in respect of pensions, which will not be met as populations in the industrialiscd world grow older."

The social framework is already under stress, it notes. Society divides between those who have "a map of the territory" and can navigate for themselves, and those who do not and look to others for help.

In a world in which change is ever faster, says the report, employable people will be divided into three groups those considered essential to the firm they work for; a larger group who work indirectly for it but are not part of it; and a substantial group who work only occasionally or not at all.

In this scenario, the experts reckon that social cohesion will survive. But those with the lowest skills will bc penalised and as low-wage economies grow in the global marketplace the West will face a situation that "perpetually threatens to spin out of control".

If that happens, warns the report, we enter decade of "general difficulty" -- chaos -- from which we emerge "to find that rough neighbours have arrivcd on the scene".

Its description of a "rough neighbours" world falls far short of a doomsday projection. But the scenario contains the seeds of further problems for the West which the report only touchies on.

China's predominance in the East and the spread of Islamic fundamentalism to Europe's south would turn the rest of the Third World into an ideological battlefield. Some of these ideologies, the report says, could find support among under-achievers in the West, who would link up through information technology.

They would have fertile ground. As western governments failed to cope with unmanageable social and economic change, unemployment would drift towards 15% across the West (more than double Britain's current rate), with up to four successive generations in some families never having worked.

Failing industries would call for protection and populist politicians would seek dramatic remedies. In such a panic, says the report, public demands for immediate action could lead to capable politicians being dumped, irrelevant policies being adopted and the West's social fabric being further damaged.

All this will be happening, if answers are not found to avoid a doomsday millenium, at a time when the West's welfare states are collapsing under the weight of their obligations. The report sees the coming clash of expectations and non-fulfilment as the pivotal problem facing the West.

The scale of the coming crisis rises with the approaching "sudden peak" in post-war baby-boomers' retirement, says the report. Not only will they expect pensions, but they will also want access to the latest medical technology. As governments can only tax so much, the report foresees them coming "at the very least" under "acute pressure".

We may, however, be lucky it may never happen.

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Sunday Times 3 November 1996