The terrorist attack on the World Trade Centre on September 11 has brought renewed attention to a thesis by the political analyst Samuel P. Huntington, which first appeared in an article in Foreign Affairs in the summer of 1993 entitled The Clash of Civilisations and was then expanded into book form under the same title (Simon and Schuster 1997).

His message was that Western leaders were deluding themselves if they thought that they had won the battle of ideas with the collapse of the Soviet Union and that the world was now safe for liberal democracy, free market capitalism and the rule of law. It was a direct answer to Francis Fukuyuma who had appeared to assert just that in his thesis, The End of History which originally appeared in 1989.

Instead Huntington predicted that we would be back in a world resembling that which existed before 1800, or even before 1600, when the West was only one of several contending civilisations. It would have been preferable to use the word culture, which surely evokes much better the differences, say, between the Orthodox and the Western Christian traditions than civilisations which suggest utterly different technologies, and populations which have little contact with each other.

The weakest part of his book is the attempt to enumerate the civilisations now in existence, as Arnold Toynbee tried to do for earlier periods in his Study of History. This leads to endless semantic arguments about whether Latin America belongs to Western culture or is a separate world of its own; or whether to regard Japan as a separate civilisation or part of an East Asian orbit. In fact a better title would have been The Decline of the West had not Oswald Spengler pre-empted it in a book published early in the 20th century.

Huntington is at his least convincing when dealing with Japan and the tiger economies of south east Asia, which, in line with President Clinton in his early years, he treats as a serious economic and political threat. This does not read so well after Japan's decade of economic stagnation or after the Asian crisis of 1997-98 when the West had to come to the rescue of many of the tigers - still less during the present recession when the East Asian economies are more vulnerable than most others to any ill-winds emerging from the USA.

The strongest part of Huntington’s thesis is that, even though the US has emerged for the time being as the only world superpower, the West - defined as North America, Europe and closely related areas such as Australasia - has passed its zenith. The tables at the beginning of his book show convincingly that the West has constituted for some time a declining proportion of the world, whether viewed in terms of population under its political control or GDP, or proportion of European language speakers. It can only be a matter of time before the West’s military supremacy is also threatened; and the author is fatalistic about nuclear weapons proliferation to the main power centres.

The real thesis of The Clash of Civilisations is the West against the rest. Huntington was spot-on in his assertion that the main challenge to the West would come from a Moslem revival. As he remarks, it is not just a matter of Moslem fundamentalism but of one world outlook against another.

Of course the majority of Moslems, especially those settled in the US and Europe, did not support bin Laden's raids. But a good many of the more passive majority did experience satisfaction with the embarrassment of the USA and expressed strong hostility to the Afghan campaign.

Huntington is on less firm ground when he identifies the West with a culture of democracy, toleration, reason and personal freedom and Islam with more or less its opposite. People can find whatever they are looking for in canonical religious texts like the Bible or the Koran (or for that matter the writings of Karl Marx) which contain many passages ranging from the most bloodthirsty to the most humane.

There have been periods when the Moslem world has been not only more scientifically advanced, but much more tolerant of dissent than the Christian West and indeed provided a home for Jews who had been driven out of Spain by the Christian reconquest. At the time of the Crusades it was the Western European Christians who were aggressive and bloodthirsty - not merely against Islam but against the Byzantine Christians, whose capital, Constantinople, was pillaged more than once by Western thugs on their way to liberate Jerusalem. The values which Huntington celebrates as Western are really those of the Enlightenment which began in Europe in the 18th century and whose triumph has never been complete.

The new terrorism is indeed a challenge to the Enlightenment; or indeed to any kind of tolerable living. The Afghan war is likely to be a beginning rather than an end. The world will not be safe while rulers such as Sadam Hussein are free to develop nuclear and biological weapons of mass destruction; and President Bush would be well advised to ignore the advice of German intellectuals - or Arabists in the British French Foreign Office or the French Quay d'Orsay, who shrink from the necessary confrontation.

Iraq apart, there is now a network of militant Moslem organisations which will not disappear with the publication by the US authorities of the names of a few of the most prominent. It is indeed interesting that someone like David Roche, a London market strategist writing in the Wall St. Journal (November 28) to dispute Huntington, has a remarkably similar analysis to his of the planners of the September 11 atrocities. They were maladjusted, privileged middle class youths who got sucked into a fanatical ideology - a more lethal version of the middle class Maoist students of 20 or 30 years ago. Their identity kit looks like those who belonged to Baader Meinhof or the Red Brigade: spoilt middle class kids, suicidal and brainwashed.

Mr Roche would like to follow up the anti-Taleban success with a free market drive to lower trade barriers and immigration requirements so that talented people would be free to move to where economic opportunities are waiting for them. This would he believes move us a step closer to a truly multi-cultural world. Maybe. But despite the face saving agreement at Doha to start another round of world trade negotiations, it is unlikely that dominant interest groups will allow their governments to tear down barriers where they hurt the emerging world most - mainly agriculture and in the movement of people.

Huntington’s advice that the west should above all stop interfering in other cultures and look to its own defences seems more realistic. This means above all else, in my view, that we need to abandon the pernicious doctrine that my enemy’s enemy is my friend. This has involved Western leaders in a dizzying successive embrace of rival dictatorships ranging from China to Iraq, Pakistan and Saudi Arabia and in the process selling arms to regimes which are eventually used against the West as well as their own people.

But he is too inclined - perhaps in reaction to the Clinton Administration - to see Western intervention as a campaign for human rights, which alas, it is not except at the margins. The huge investment of the US and the UK in the royal despotism of Saudi Arabia has nothing to do with human rights and everything to do with the misplaced belief that the West will always need Saudi Arabian oil.

If there is one policy which makes political and economic sense it is for the west to reduce its dependence on Gulf oil in general and Saudi Arabian oil in particular. This would be the first step towards the disengagement advocated by Huntington, although not perhaps in the way he envisages.

The Middle East and the struggle against terrorism are also the key to economic developments in the first decade of the new century. While in the past economics and international politics moved in separate spheres and practitioners simply made cross references to show off, today the connection is very real.

The possible international environments affecting the world economy can conveniently be grouped into three. The most optimistic is a sustained period of quiet, following the termination of the Afghan War. In that case there could be a normal cyclical recovery boosted by a revival of business and consumer confidence, even though not as early or as pronounced as official forecasters hope.

At the other extreme some of the initial pronouncements of the US military about a long and expensive war against terrorism, lasting years if not decades, could be vindicated. In that case the extra 100m, which the British Government, as the principal US ally, has allocated for 2002 for the war against terrorism would turn out to be a mere flea bite. Major wars are normally inflationary rather than deflationary; and we will be back with the problem of taxing or borrowing enough to pay for the military effort which was discussed by Lord Keynes in 1940 in his classic book How to Pay for the War.

Immediately after September 11, I thought this was most likely; and it could still happen. But I would now put my money on a third possibility. This is that there are enough further terrorist alarms to prevent a lasting revival of confidence; but the military effort will not amount to that of a full scale world war and will not put excessive pressure on resources. In that case low growth, stagnation or recession could characterise much of the first decade of the 21st century.

The second possibility -- mobilisation for all out war -- would be the worst for human welfare; but the second -- intermittent terrorist shocks and marginal mobilisation -- would be the worst for business activity.

Even then we should be careful about predicting an era of deflation. Deflation means a sustained general fall in the price level: the mirror image of inflation. Of course in a world of low inflation there are bound to be sectors, such as commodities or even industrial product prices, which fall occasionally. Not all prices can march in step. Deflation should not be diagnosed unless and until comprehensive price indices such as the GDP deflator have been falling for an extended period. Generalised deflation has been extremely rare since World War II. Even now the only major industrial economy reporting falling prices is Japan. It is quite possible to have depressed economic activity without a plunging price level; and it is better to reserve the word deflation for its original meaning.

In fact one cannot even rule out the return of the 1970s phenomenon of stagflation - that is depressed growth and employment, combined with high inflation. Such periods have usually been triggered off by large increases in world oil prices, aggravated by mistaken monetary and fiscal policies, which accommodated pay increases granted in a vain effort to compensate for these energy developments.

In fact the most politically sensible course for the West to adopt would be to impose a large increase in taxes on fossil fuels, but be careful not to accommodate catch-up wage increases by over lax monetary policies. Apart from the much canvassed environmental benefits, on which there is still scientific argument, there could be a clear geopolitical benefit in reducing the dependence of the US, Europe and Japan on oil imports from the unstable Persian Gulf area.

It is actually easier to discuss these medium term issues than to make a conventional economic assessment for the coming year or two. Events in the year 2001 have demonstrated once again the uselessness of official economic forecasts as a guide to the future. The year started off with predictions of nothing more than a gradual and modest world slowdown after the growth spurt in the millennium year 2000. As the year progressed the predicted slowdown turned into a predicted crawl, but full recession was never foreseen. Even at the end of 2001 with a major setback in all the worlds large economies, the OECD still did not forecast for 2002 more than a slowdown to 1 per cent growth, followed by a return in subsequent years to a more normal 3 per cent.

Looking at more detailed movements, the OECD does concede a modest fall in output in the second half of 2001; but like most other forecasters it predicts a recovery beginning in 2002. The best one can say about this kind of exercise is that it is a way of summarising existing data. In other words it tells one what is happening now rather than what is going to happen.

The poor record in forecasting turning points is not due to the deficiencies of individual forecasters. It reflects the inherent difficulties of crystal gazing. But it also reflects a dislike on the part of the official world for predicting gloom and doom, in case this should prove self fulfilling - or at least incur the displeasure at governments that pay for the exercise. The OECD for instance - which is among the best of the official bodies - explains with some elaboration that the risks are nearly all on the downside of its central projection. Which makes one wonder if it should really be called a central projection at all.

It has to be added that the stock market is not much better than the official forecasters. The gibe of the Nobel Prize winner Paul Samuelson that the stock market has predicted five out of the last three recessions still holds good; and it is not much better at recoveries.

The widespread predictions of a gradual recovery in 2002 and the return to normal growth by 2003 look dubious. As Prof Robert Shiller, who diagnosed the Wall Street bubble at an early stage has remarked, the present recession differs in two ways from its predecessors. First, it has marked the end of irrational exuberance in high tech stocks. Even now that the ICT bubble has burst, normal equities still look expensive in relation to realistic earnings expectations. But on top of this shock has come the extra blow to confidence following September 11.

Without putting my own head on the chopping block with a rival set of dubious predictions, I still think there are some clearly visible features of the economic landscape. The most obvious is that the Western world has come to the end of a silver age. (The golden economic age was in the period before the first oil shock of 1973.)

The 1990s could be called a silver age. During this decade real growth in the Group of Seven main economies, whose leaders meet at summits, never fell year on year. Even the USA, where Bill Clinton was elected president on the stupid slogan It’s the economy, stupid, saw only a half per cent drop in GDP in 1991. After that the growth rate never fell below 2.7 per cent in all of the last four years of the decade exceeded 4 per cent. The UK began with a genuine recession in 1990-92, associated with the ill-fated attempt to join the European Monetary System. But after that it grew steadily under both Conservative and Labour governments. Yet this real expansion in economic activity was accompanied by low inflation, which never exceeded 3 per cent in the G7 as a whole.

The silver age has almost certainly come to an end; and political and business leaders will have their work cut out to prevent the next phase from being an age of lead.

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