SOC 3207

Economic Sociology

Term Paper

By Leung Ching Yau Alex

Topic: The assessment of World System Theory

Introduction

World System Theory is constructed by Immanuel Wallerstein. He constructs this theory to describe and explain the development of the world. Wallerstein is a Marxist; and he uses historical approach to construct the theory and so as to study the world-system—the core of his World System Theory.

The World System Theory is related to the process of globalization. In the World System Theory of Wallerstein, he analyses world-systems. A world-system is consisted of states that are bound by forces (that means it is not bound by consensus, and one of the forces is capitalist mode of economy), which is largely self-contained social system (G. Ritzer 1996:169).

In the concept of globalization, on the other hand, various states are included in an (capitalist) economic system. Enterprises become transnational, capital flow is free and unconstrained, and production, marketing of goods would take place among the states. We can see that, the World System Theory can be seen as a concept complement to the concept of globalization.

In this theory, there is division of labour between the component states. Their relationship is economical, and the better-off groups of states are exploiting the others. We can see that, when we talk about globalization, we sometimes hear the opinions that the wealthier countries gain economically in the expense of the less wealthy countries. These discourses are similar to the one stated in the World System Theory. In fact, Wallerstein is concerned with the geographical division of labour in the modern world system, which means, the different roles of the states in a system.

In this essay, I would like to assess the World System Theory by referring to the situation in reality, that means how relevant is this concept to the nowadays globalization process. But before doing so, we should understand the World System Theory in details.

The World System Theory by Immanuel Wallerstein

As mentioned, in this theory, the unit of analysis is world-system, which is a unit that has a capacity to develop social processes and relationships of its component states independently The dynamics and development of a world-system are internal, and are not determined by outside events (M.Water1996: 22) There are three possible types of world-systems, each of them represents different forces to bind their component states.

The first type is world-empires, and the force of binding is political/military force. In the past, political/ military domination was the main force of binding states in a world-system. For instances, the ancient Rome, China, India, all of them were the strongest states in their continents politically/ militarily. Therefore they were once the single dominating power in their continents.

in history.

The second type is world-economies, the force of binding its component states is economic power. In a world-economy, states are integrated by a single economic system. We can see that, if we apply the World System Theory into the modern world, the modern world system would be a system binding by capitalist mode of production. As the world-economy bound by capitalism expand, it thus refers to the globalization of capitalism. We can see that, globalization in economic sense is the expansion and penetration of capitalism to the rest of the world. I will concentrate more on this type of world-system in the following parts of this essay.

The third type of world-system is world-socialism. It is a system that is possible to emerge and still remains a utopia. There would be no more different nation-states and capitalism, and it would be only a single system that integrates both the political and economic sectors.

In his works, Wallerstein says that originally political domination was the most common form to set up a world-system, but later economic domination started to override the former one. It is because economics is far more efficient and less primitive as a means of domination. In the modern era, capitalism provides a basis for the growth and development of a world-economy without the aid of a unified political structure. Capitalism can be seen as an economic alternative to political domination (G. Ritzer 1996:170).

As mentioned above, Wallerstein is concerned with the modern world system, which means the world-economy. The modern world system is bound by the capitalist mode of economy, and in this system, the component states are divided into three types: core states, the peripheral states and the semi-peripheral states.

The core states are the states that can dominate the world-economy. They are the wealthiest states, with strong governmental structure and economic power, therefore, they can be the leaders in the modern capitalist world system. The core states have abundant capital and invest it to the other countries. For examples, the United States, the European Countries and Japan can be regarded as core states. In Wallerstein’s view, they core states are exploiting the rest of the system.

The peripheral areas are consisted of weak states, their governmental systems are weak, and their economic power are low. We can expect that, those peripheral states are subject to exploitation of the core states and economically depend on them. The peripheral states usually provide raw materials and labour force to the core states. For examples, many countries in Asia, Latin America and Africa are being considered as peripheral states.

The third type of states is the semi-peripheral states. Those countries have moderately strong government structure and economic power. These countries are between the exploiting and exploited. They are the former core states, or the emerging from the periphery. The modern examples are those newly industrialized countries (NIC).

(G. Ritzer 1996:170; M.Water1996: 24)

The world-economy is the result of expansion of capitalism. Wallerstein use a method of historical analysis to outline his arguments. He uses this theory to describe and explain the development of world systems. Let’s apply his theory into human history so as to assess its usefulness.

World System Theory and historical development of World Economy

As mentioned in the beginning of this essay, Immanuel Wallerstein is a Marxist who uses an approach as historical analysis to construct this theory. Therefore, I would try to apply his theory in the historical development of world economy.

Geographical Expansion of Capitalism before Twenty-one Century

In History, Portugal started her geographical expansion first, and then other European countries follow. It is the beginning of geographical expansion of the European countries.

Later after the success of industrial revolution in the eighteen-century, it was the peak of geographical expansion of European countries. The Industrial Revolution started in Britain, and it spread to France, Belgium, Germany, and later Russia and other countries. These countries started to manufacture goods with machinery, cities were set up, and productivity of goods increased drastically.

We can see that, the Industrial Revolution was the turning point of the expansion of capitalism. As early as the fifteenth and sixteenth century, there was already a world-economy in

Europe. It was a world-economy not because it encompassed the whole world, but the basic linkage between the parts of the system is economic (M.Water1996: 23). The Industrial Revolution, however, equipped those European countries with much higher productivity and more advanced technology, which were the basic criteria of the expansion of capitalism.

The modern ways of mass production began after the Industrial Revolution, it led to the great demand of raw materials and further markets in order to sustain the mass production. The European countries, therefore, tried to open new markets and exploit new sources of raw materials outside Europe. These countries were the early colonial powers, they colonize many places in Africa, Asia and Latin America, and started the influx of manufactured goods to these places and exploited the people there as cheap labour force. It was the start of the geographical expansion of the European world-economy. Let’s illustrate this by the example of the rise of British Empire.

Britain was not the first one to start geographical expansion (the first one were Spain, Portugal and the Netherlands), but she was the first one to start the Industrial Revolution in 1764. After the revolution, her economic power increased rapidly and surpassed the earliest explorers. Later she expanded her power to India, Africa, China and Southeast Asia.

Britain would first asked for free trade, but if the countries refused (for example, China), then violence would be used to open the door. The two Anglo-Chinese Wars (1842 and 1960) were examples to illustrate that up to this moment, in the nineteenth century political/ military forces were still important to create a world system.

After using military force to conquer/control a place, British would force the governments of the places to sign unequal treaty/ least trade ports to her. The Treaty of Nanjing was very beneficial to Britain in term of trade, and Hong Kong was one of the examples of the trade ports Britain gained. After that, Britain would export her manufactured goods in bulk quantity in order to monopolize the economy of the colonies, and at the same time, import the goods/ resources of the colonies with low prices, India was one of the examples.

We can look at the characteristics of world system in this period. Before the Industrial Revolution, political force is the principal force to bind a world system, but in this stage the states started to use economic force plus political force. The primary motive of colonizing was economic reasons, such as raw materials, labour force and overseas markets. The above factors are crucial to the sustaining of capitalist mode of production. The productivity of mass production method is much higher than the traditional handicraft and household industry, the local demand of manufacturing goods would be quickly fulfilled. Open up new markets was the only way to keep the capitalist mode of production.

The economic expansion, however, needed political/ military support at that time. China was a self-contained country in the mid-nineteenth century, and she need not the goods from foreign countries. Therefore, she adopted close-door policy and only opened Guangzhou for foreign traders. At first, China had little interests in trading with Britain and import manufactured goods from her, it led to serious trading deficit to Britain. Because of the above reasons, Britain determined to use military force to open the gate of trade of China. Besides Britain, the other European countries also follow her to gain economically by colonization. Of course, this method to open up markets (colonization) is not used nowadays by the core states.

The Geographical Expansion of Capitalism from Early Twentieth Century to World War Two

The scramble of colonization retreated in the beginning of the twentieth century. There were two reasons. First, some countries had repeated the modernization process and able to resist the invasion of Western countries, such as Japan. Japan could even surpass some European countries and become one of the core states. Second, some places such as India and China actively resisted against alien political domination.

The retreat of colonization, however, could not stop the expansion of capitalism. First, Japan herself could emerge to one of the core states in the world-economy and act as the other European core states, that means economically dominated the other countries for her own interests. Second, although the former colonies may successfully resist the political domination of the core states, their economic domination was still there. It was because the periphery states, the colonies/ former colonies, were dependent economically to the core states. When the peripheral states wants to be stronger politically or economically, they often needed the help of the core states, in order to get capital and technology for industrialization. Moreover, when the core states influx their cheap manufactured goods to the peripheral states, it would greatly damage the original economy of the colonies since the local produced goods were of no match before the foreign imported goods, therefore the jobless local people needed foreign investors to provide job opportunities.

At this stage, political domination was less used by core states but economic domination was used more, it is because only set up factories and imported raw materials from the peripheral could be beneficial to them. We can see that, from 1913 to 1929, export volume of most of the cores states increased.

The Geographical Expansion of Capitalism After World War Two

After the World War Two, a global wave of anti-colonization movement emerged. Many former colonies in Asia, Africa and Latin America gained independent from alien political domination. India, Pakistan, Malaysia, Korea…all of them could gain back sovereignty.

The newly independent states wanted to industrialize and become economically strong, however, they lacked capital and technology to modernize, therefore, some organization such as International Monetary Fund and World Bank would aim at lending money for the periphery countries to develop their economy.

In the post-war era, besides some countries such as the Arabian and socialist countries, most of the states in the globe are involved in the capitalist system of production. Originally some countries such as China have a self-sustained economy, now they try to enter the global economic system. Some of them change from import-substitute strategy of developing economy to export-led strategy (such as South Korea), therefore, they become component states of world system.

There are some successful cases that the states can successfully industrialize and modernize, such as South Korea, Singapore, Taiwan and Hong Kong (The Four Little Dragons). They can all emerge from periphery states to semi-peripheral ones. South Korea and Taiwan are especially successful in electronic industry and their statuses are more and more important in the world economy.

Some states in Latin America and other places, however, are unlucky and have poor performance in economy, such as Philippine, Argentina and Brazil. They fall into bankruptcy and have great indebtedness.

We can see that, in the post-war era, nearly no country would choose to dominate politically but choose to dominate economically. There is nearly no country in the globe has overseas colony, in fact, they choose to gain economically by promoting free trade. The below two tables can reflect the more free trade take part among the various states of the globe. It can also justify the discourse of political domination is replaced by economic domination by Wallerstein.

From the above table, we can see that in most core states, the total amount of export increase from 1938 to 1984 (with the base year of 1913).

Trade openness since the Second World War (percentage of GDP):

Openness is defined as nominal merchandise exports plus imports as a percentage of nominal output. Aggregates are calculated on the basis of purchasing power parity (PPP) weights.

(Extracted from table 2.6 of (Hirst and tompson 1996:28)

The above table tries to show the trade openness of various places after the Second World War. We can see that, both the industrialized and developing countries become more apparent economically, especially in the East Asia (Hong Kong, Indonesia, Korea, Malaysia, Singapore, Taiwan and Thailand).

The assessment of World System Theory by history

If we apply the World System Theory as a tool to understand the development of world system, we can see that the theory is useful. In history, the Industrial Revolution equipped the European countries with unchallenged economic power and the great demand on raw resources, markets and labour. This leads to the subsequent scramble of colonization (most European countries struggled to be a colonial power). After the Second World War, many colonies gained independent, therefore, the core states turned to economic domination and gave up political one. The International Monetary Fund and World Bank are in fact organization helping the core states to open new markets and labour pools in the third world, and allow capitalism to penetrate to nearly the whole world. Wallerstein can successfully construct a theory to conclude its history.

After talking about the World System Theory with development of geographical expansion of capitalism, let’s assess his another discourse: the core states exploit the rest in the world economy.

The Inequality between Various States

Once the world had undergone geographical expansion of capitalism, the development of a world wide division of labour can take place. Capitalism, however, did not develop uniformly around the world. In fact, Wallerstein argues that the solidarity of the capitalist system was ultimately based on its unequal development. Given his Marian orientation, Wallerstein does not think of this as a consensual equilibrium but rather as one that was laden with conflict from the beginning (G. Ritzer 1996:172).

In Wallerstein’s view, different parts of the modern world system would specialize in different functions, and it would be the worldwide division of labour. Some countries would breed labour power, some would provide raw materials, and some would organize industry (G. Ritzer 1996:172).

We can see the above division of labour in this way, the core dominating states would specialize in organizing industries, providing capital and concentrate on financial market, while the peripheral would specialize in labour-intensive tasks and provide raw materials of manufacturing. But what is the result of this division of labour?

Jeff Faux and Larry Mishel have write about an article called “Inequality and the Global Economy”, they quote the words of World Bank President James Wolfensohn. Wolfensohn says that the global financial market is not providing most of the world’s citizens a better material life. In fact, the current capitalist economic system has enriched a world class of investors, entrepreneurs and professionals. In 1996 the United Nations Development Programme reported that the world’s 358 billionaires exceeds the combined incomes of 45 percent of the world’s population (W. Hutton and A. Giddens 2000:93).

The above view can match the view of Frank, he says that monopolistic firms only appear as capital exporters but in fact they are capital importers. Capital exports to economic colonies is only seed money investments, the main aims are exploiting the labour and raw materials there. (M. Water 1996:21). Let’s investigate the above phenomenon in more details.

Per Capita Income Growth by Level of Human Development. 1965-95

(W. Hutton and A. Giddens 2000:96)

The above table shows the uneven per capita income growth among various countries. We can see that, besides China and India, people in the other developing and least developed countries are not much better off than before, since the rate of income increase is so low (0.6 and 0.1). If we compare the per capita income growth of all developing countries and least developed countries with the situation of the world, we can say that people in the former two types of countries are comparatively worse off (2.1, 0.4 vs. 0.9).

Per Capita Income Growth in Advanced Countries, 1960-96

(W. Hutton and A. Giddens 2000:96)

The above table shows the annual growth rate of per capita income in advanced countries. We can see that, besides Canada, all the people of other developed states (core states) are better off than the people in developing and least developed states, in terms of annual per capita income growth.

Regional Summary of Changes in the Distribution of Income or Consumption

(W. Hutton and A. Giddens 2000:96)

After 1980, there is evidence suggests that the distribution of income in the global economy has generally worsened. The most comprehensive effort is the study of Ravallion and Chen of Gini coefficients around the world and sorted them into ‘spells’ or time periods in which the coefficients rose or fell. They found that there were more period that rose (37) than fell (27). About half of the periods where inequality rose occurred in Eastern European and Central Asian economies in transition from socialist to capitalist economies (W. Hutton and A. Giddens 2000:96).

Up to this moment, we can see that, economies of most countries are more and more open, and more countries are involved in the world economy, and the trading volume among various states increases as time goes by, but at the same time, inequality among states in terms of economy is more and more intense, reflected in the Gini Index.

We can ask a series of questions after the identification of this phenomenon: Trading is considered as mutually profitable, and both sides should benefit from it. The reality, however, does not justify this discourse. We can see that, during the trading process among the core and peripheral states, the former one would gain much more than the latter one (reflected in the increase rate of income), but why the latter ones are willing to continue their trading activities? We have discussed the historical development of geographical expansion of capitalism and see that no core states would choose to dominate the others politically, then is there a new coercive power to force the latter one to trade with the core states, although the benefit from trade is largely captured by the former?

If we turn to the World System Theory, Wallerstein states that there is a global class relationship between various states. In his words, as mentioned before, the core states are exploiting the rest for their own interests. His key point is core-periphery relations are important not only as exchange relations, but power-dependent relations, that means class relations (G. Ritzer 1996:174). This is similar to the class relations between bourgeoisie and proletariat in Marx’s theory.

The core states promote free trade and claim that globalization is a good thing. They set up many international organizations such as the World Bank and International Monetary Fund to ‘help’ the peripheral states. The World Trade Organization is set up to promote trade among member states by eliminating trade barriers such as tariff, quota and opening market for foreign goods.

The work of above organizations, however, can directly and instantly damage the economies of the peripheral states, such as serious unemployment problems due to the loss of market of local goods to imported goods. Therefore, the people in those states depends on the job opportunities provided by the foreign investors. The wages rate and welfare provided by the multi-national enterprises, however, are very low, but those enterprises sell the manufacturing products in a much higher prices, the cost of employing workers in the peripheral states is only of a insignificant ratio to the selling prices of the goods. This is why the income level of people in the peripheral states does not raise significantly.

Can the peripheral states not depend on the core states? It is very difficult because those newly independent former colonies do not have capital and technology to industrialize and modernize, they must invite the foreign investors to develop their economies, therefore, we can say that they are inevitably exploited by the developed core states.

Conclusion---The Genius of World System Theory

We can see that Wallerstein’s historically oriented theory is very useful in the sense that helping us to understand the situation under the process of globalization. The globalizers claim that this process is undoubtedly beneficial to all countries, and every country should embrace it. The statistical information stated above, however, lead us to suspect the validity of this saying, since inequality among countries is more and more severe.

The use of core-peripheral relations to interpret this phenomenon is useful, since it lead us to think that is there really a exploitative relation among various countries. In fact, Wallerstein’s theory receives instant success after it is publicized.

In my opinion, when we show our suspect and opposition to the promotion of globalization, the World System Theory can provide us a strong and concrete theoretical foundation.

Bibliography

1. G. Ritzer, Modern Sociological Theory, 1996, McGraw-Hill

2. W. Hutton and A. Giddens, Living in Global Capitalism, 2000, Jonathan Cape

3. P. Hirst and G. Thompson, Globalization in Question, 1996, Polity Press

4. M. Waters, Globalization, 1996, Routledge