Lessons to be learned from visions of order, disorder and political decay

Joseph Yam Chi-kwong's paper on the future of Hong Kong's monetary system caused quite a stir. Irrespective of what happens to the dollar peg, the fundamental thrust of the former Monetary Authority chief's argument is irrefutable - that no fixed exchange rate system is consistent with sustainable budgetary deficits.

This is the major lesson learned from the European crisis and one learned bitterly in the last Asian financial crisis. Hence, I see Yam's remarkable essay as a reminder that any deviation from the convention of positive non-interventionism in Hong Kong's budgetary stance must factor in the exchange rate policy.

There is no doubt that, with strong fiscal surpluses in Hong Kong, and good growth and a strong macroeconomic situation on the mainland, the status quo is not a bad place to be. But as Europeans have found to their cost, good times are probably the best times to think about rainy days, as it is never easy to change course in stormy weather.

The trouble with money is that it lies in the intersection between the state and market. Over time, money tends to fall in value because all states tend to overspend. We are living in a time of financial crises precisely because government debt in advanced countries is at unprecedentedly high levels. There is no global order to manage global money, with private shadow banking credit still being underwritten by public guarantees.

In the prescient words of the late management guru Peter Drucker, in 1993, 'we are not in fact facing the 'new world order' today's politicians so constantly invoke. Rather, we are facing a new world disorder - no one can know for how long'.

Just as we are trying to seek order out of disorder, it is worth taking a look at philosopher Francis Fukuyama's latest book, The Origins of Political Order, that examines history to see whether liberal democracy will survive the challenges of different models of statism, particularly the rise of the modern Chinese state.

Even though liberal democracy spread rapidly throughout the emerging world, its failings in tackling corruption, crime, terrorism, the emergence of predatory states and the creation of a stable international order, led Fukuyama to examine trust as the foundation of social prosperity, and the importance of state-building, drawing on lessons from Iraq, Afghanistan and other failed states.