Western economic theory has long held that money and economies are inextricably linked -- if the money supply is ample, employment should grow and vice versa. But the lesson of the late 20th century confounds this view: only Japan of the world's major industrial powers knows how to keep an economy going with full employment. And the key to its success has less to do with money than with culture. PNS editor Franz Schurmann, a long-time scholar of East Asia, is professor emeritus of history and sociology at the University of California, Berkeley, and author of a forthcoming book on social capital. This is the first of two articles on healthy economies.

In the U.S. employment jumps and the stock markets plunge. In Europe unemployment soars and stocks go up. The message seems to be: if we ever get back to full employment it could mean disaster for the stock markets.

According to economic doctrine this is not supposed to happen. For economists full employment means general well-being and the way to get there is booming stock markets which provide capital to enterprises. But if stock markets instead fuel unemployment then something is seriously wrong with Western free-market economies which are now being touted as models for the rest of the world to follow.

Observers are already beginning to have doubts about these glittering economies. The advanced industrial nations of Europe and North America are becoming afflicted with skewed economies in which an ever narrowing elite workforce produces the wealth that makes stock markets thrive. At the same time a rapidly growing population of "remainders" who don't fit into the elite sector find themselves unemployed, redundant or, if employed, producing less and less measurable economic value.

Europe is a good example of these new skewed economies. The unemployment rate for the twelve nation European Union stands at 11 percent and is virtually certain to keep rising. Yet European financial markets have been booming, especially since the beginning of the year.

Just a decade ago Western Europe boasted full employment. Now in France alone some 600,000 good jobs are lost each year. Germany, Europe's economic Rock of Gibraltar, has experienced an even steeper rise in unemployment, especially among white male workers. As redundancy more and more afflicts the old-stock blue- and white-collar classes in both countries, immigrants, feared and hated by the former, do the menial jobs at rock-bottom wages.

So worried are the leaders of the world's seven leading industrial nations (G-7) about what's happening to their supposedly model economies that, two years ago, they held a special conference on unemployment in Detroit, America's unemployment capital. Recently, they held a second one in Paris. In Detroit they came up with remedies. In Paris they were so divided they had nothing to propose.

The Europeans kept pushing job sharing and re-training. The Americans rejected this approach as too dependent on budget-pinched governments. Instead, pointing to the U.S.'s 5.5 unemployment rate, they argued that reliance on market forces has made America "the biggest job-creating machine in the world." What they did not explain was how low unemployment in America is increasingly paired with low wages -- meaning that employment for many no longer guarantees well-being or even survival.

The Western members of G-7 would have done well to take a long, hard look at the experience of their one non-Western member Japan which has just come through the worst depression in 70 years with a minuscule 3.5 percent unemployment rate. While several million workers were downsized, many were quickly re-absorbed by Japan's massive network of micro and small-enterprises which are held together less by money than by bonds of family and friendship.

Japanese economists call this the "village principle" and credit it with their economic well-being. What they have known, in contradiction to Western economic doctrine, is that while money measures an economy's wealth, it does not necessarily measure an economy's health. Far more crucial is culture -- how people live and work, what people believe -- and its capacity to create enduring social ties and structures. Even Japan's big corporations function more as networks of social obligations than as financial hierarchies. Like the country's millions of tiny enterprises, they can generate products even in the temporary absence of money.

Adam Smith, the founding father of Western economics, argued that money expresses the value work creates in a product. So work and money are inextricably linked. Smith's doctrine led to the formation of great stock markets in Britain and the U.S. Stocks, as shares of ownership in an enterprise, provided capital for business, industry and even farms. And capital raised through stocks created the giant American industrial economy.

However, ever since their modernization began in 1868 the Japanese have raised their capital from banks, not stock markets. The collapse of their "bubble" economy which led to their recent depression came about because bank debt had ballooned into astronomic proportions. Now as they emerge from their recession their banks rank as the most powerful in the world and their unemployment rate that will probably soon fall back to the two percent range -- where it has been for most of the post-World War II period.

A lot of Westerners deride the vast maze of social ties and obligations that hold Japan's economy together as feudalistic. In fact, it is that social infrastructure that may offer the West a way out of its economic conundrum. Japan's village principle confounds Adam Smith's economic doctrine but it also goes far to explain why Japan -- and much of East Asia -- not only enjoy the lowest unemployment rates but also the most equal distribution of income and wealth in the industrial world.