The Changing Global Economic Map: Understanding Globalization Through World Systems Theory

The Changing Global Economic Map
An important model for trying to understand the development of the world production
system was developed by Immanuel Wallerstein with his World System Theory, set
out in diagrammatic form below. In modern terms it is often referred to as the CorePeriphery model.
Wallerstein viewed the capitalist world economy as a single world system committed to
production for sale or exchange, with the object of maximizing profits rather than
supplying domestic needs
First established at the beginning of exploration in the late 15 th century and maintained
through increased economic access up until the present.

World System Theory must be viewed as part of a body of theories.
1. Modernization theory
2. World Systems Theory
3. Classical Economic Theory

1.
Modernization Theory
An evolutionary theory predicting how societies develop
All societies naturally pass through certain stages of development
All societies start out as traditional hunter-gatherers
Then, they develop agriculture; towns & cities grow
Eventually, they become modern industrial societies
Movement from one stage to the next is driven by things like population growth & new
technologies
Society becomes more complex; greater division of labor.

Modernization theory was based on analyses of European societies
It was assumed that non-European societies would have the same experience or
modernize faster with aid & technology from the West
Problem: Non-western countries werent modernizing as predicted
Example: Argentina was as rich as many European countries in 1890 but hardly
improved by 1960
Example: Many former colonies in Africa were stagnant, or becoming more impoverished
over time.

2. World-System Theory
Tries to explain the failure of many countries to develop
Claim: Underdeveloped/peripheral countries are not just like Europe, but at an earlier
stage of development
They have a very different history: colonization
And, they must compete with highly developed countries
Europe was undeveloped and became developed
Other countries were undeveloped, and now trapped in a state of underdevelopment.
Argument: Europe was able to prosper by exploiting resources from other places
The great success of Europe and the failures in the non-West werent just a
coincidence
Europe became wealthy by maintaining economic & military dominance over other
nations
Exploited nations will never modernize as long as they are oppressed by Western
nations
Example: Latin America traded a lot with Europe and remained underdeveloped
whereas Japan avoided contact with Europe; did better
World-System Theory Continued:

We need to study the entire global economy as a world system
We cant understand the fate of a single country, without understanding how it
fits into the overall system
Countries arent poor because of their own specific history or internal
characteristics
Rather, they are poor because of their position relative to others in the global
capitalist system.

World System Theory Key Concepts:
Core: the rich, developed countries Strongest and most powerful nations
Technologically advanced, capital intensive products produced and exported to the
semi-periphery and the periphery
Often former colonial powers, centres of trade
Periphery: poor, dependent nations

Also: underdeveloped countries; satellites; dependencies
Primarily concerned with exporting raw materials and agricultural goods to core
and semiperiphery nations
Semi-periphery: semi-industrialized countries (Brazil, Mexico, S.A.)

Lack power and economic dominance of core nations
Mixed processes
Both importer and exporter
Dependency: The vulnerable state of being exploited by core countries

They depend on the core for trade, investment, loans, technology, etc. (related
term: underdevelopment).

3. Classical economic theory (Ricardo)
Predicts that specialization & trade is beneficial for all
Countries that can produce high-tech goods most efficiently should concentrate on that
Countries that can produce bananas or coffee efficiently should concentrate on that
Specialization leads to a win/win situation everyone is more efficient; countries
become more wealthy
World-System theorists criticize this view
Criticism #1: Specialization in low-tech production (e.g., bananas) may produce
profits in the short term
But, there is a cost: countries fail to develop industry and sophisticated
technology that could lead to greater profits in the future
Argument: In the long run, countries would be better off developing high-tech
industry, rather than just producing coffee
Criticism #2: trade is asymmetrical

Rich countries dont need coffee/bananas badly
And, they can buy them from many sources
But, poor countries critically depend on trade to get technology, machinery to
develop their economies
Thus: Poor countries are dependent on rich ones
They need manufactured goods and are forced to pay high prices
And, they must sell their raw materials and agricultural products very cheaply.
Issue: Why dont all the peripheral countries band together and overthrow the core?
Example: In 1970s, Oil-producing countries created OPEC, and restricted the
flow of oil to the core
Result: High gas prices; OPEC countries got rich
Though eventually the West made friends with Saudi Arabia and others
who lowered prices.
Why doesnt this happen all the time?
Wallersteins explanation:
for stability of the world system
1. Military dominance of the West
Ex: US overthrew any Latin American governments that tried to oppose the US
2. Ideological commitment to the system
People believe capitalism is fair, just
3. The existence of the semi-periphery
Most important, according to Wallerstein
Semi-periphery is doing OK, so they support the core
Prevents everyone from ganging up on the core
Question: How does WST differ from other analysis of economic globalization?
Both agree that economics = important
But, economists often view the world economy positively (or neutrally)
Ex: Ricardo thought trade was overall beneficial
Ex: Many economists think globalization reduces poverty compared to a world
without trade
WST argues that globalization perpetuates inequality. The world economic system
is inherently unfair.
Economic power of core countries and MNCs is so great that the periphery will
always be exploited
The idea that governments and international institutions can make the system
fair is an illusion
Governments and international institutions (e.g., the WTO) will always reflect interests
of capitalists
Therefore, WST scholars are pessimistic about the role of global governance in solving
social problems

How has the current transfiguration of Core-Periphery come about?
Basically it is result of historical forces. The map below shows the core-periphery of
1800

This pattern had developed out of a number of different forces
1. 15th century: exploration
2. 16th century: new technology of shipbuilding and navigation
More and more people became exposed to one anothers technologies and ideas
Depending upon resources, societal structure, culture, places & regions became
core or peripheral
3. Industrial Revolutions where:

Capitalism became the world system
New technologies expanded the search for resources and markets
Colonialism and imperialism accompanied expansion of world system
Core-Periphery by 1900
Mid-1800s
Diffusion to Germany, France, Belgium
Steel, railroads, steamships, telegraph
Late-1800s/ early-1900s
Spread to much of Europe, US, Japan

Does this all this matter? Well yes.
GLOBAL DEVELOPMENT INDEX: Life expectancy, education and income

What does the distribution of economic activity in the world look like then?

The cartogram below gives a snapshot of 2005 .
The US, EU-15, and Japan cover much of the economic globe
18

Below we see how global GDP shifted from 1700-1950

What about more recent times? Table below gives some indication in terms of manufacturing
industry
Country
Average Annual Growth In Manufacturing

1960/70
1970/80
1980/9
0
1990/99
Manufacturing as
share of GDP
Share world
manufacturing output
Value added per worker 199597 ($)
1965
1998/99
1998/99
1980-84
1995-99
USA
2.6
3.1
4.1
29
16
25.4
47,276
81,353
Japan
3.9
4.8
1.2
32
24
15.9
34,456
92,582
Germany
2.4
1.8
-0.1
22
8.2
34,945
79,616
China
7.9
10.7
13.9
37
6.5
3,061
2885
France
3.5
0.8
20
5.0
26.751
61,019
U.K.
0.4
1.8
1.2
30
18
4.8
24,716
55,060
South Korea
17.6
16.9
12.1
7.1
18
32
2.3
Taiwan
15.5
12.2
8.4
5.0
27
1.4
12,829
74,202
Netherlands
3.4
2.3
2.2
16
1.1
27,491
56,801
Brazil
9.0
1.6
2.1
26
23
2.7
43,232
61,595
Mexico
9.4
7.0
1.5
4.0
21
20
1.7
17,448
25,931
India
4.7
4.6
7.4
7.5
15
1.1
2,108
3,118
Argentina
5.6
1.3
-0.8
3.5
33
17
0.9
33,694
37,480

What does this table actually tell us then about manufacturing industry?
The U.S.A is by far the most important source of manufactured goods.
Just five countries, USA, Japan, Germany, China and France produced 61% of the world total.
Of the twenty biggest manufacturing countries, seven are LDCs: China, Brazil, South Korea,
Mexico, Taiwan, India and Argentina
Highly capitalised manufacturing industries in the developed world have been able to maintain
high shares of world manufacturing even though the size of their manufacturing labour force has
shrunk, and the importance of manufacturing industry internally has shrunk.
Reason for this is growth of productivity, that is output per worker.
Although USA maintained dominance its importance has been reduced
Let us now look at how this relates to trade.

Growth in World Merchandise Trade and
Production, 1950 - 2006
Dicken likens this performance to a roller

coaster, with the ride being sometimes gentle with
minor ups and downs, but at other times being
much more violent.
Generally what we see is the growth in world
exports exceeding the growth in world output.
Economists often talk of a Golden Age of
economic prosperity between the early 1950s and
the early 1970s. This period saw unprecedented
growth of world trade which far outstripped the
growth of world production.
Number of reasons behind this golden age.
1. Freer trade reflecting the desire to reduce the high
protective tariffs introduced during the interwar
period as means of increasing post-war prosperity
for all countries
2. Introduction of effective organisations such as
G.A.T.T. And the I.M.F.
Now talk in terms of a triad when referring to trade in manufacturing.

Three focal points: U.S.A., East & South East Asia and Europe.
But little more complicated than this.
Note the origins of manufactured exports are less concentrated than those of production:
The top three producers of manufactures (USA;Germany;Japan) account for about 50%
of world output they only account for about 28% of world exports.
Western Europe is worlds major trading region. Most of this trade is intra-regional.
Asia is second most significant trade region, with half of trade being intra-regional
North America conducts about 40 % of its trade internally.

We now turn to look at services in the world economy.
Many services not tradable, provided to

customers on face to face basis
However have seen growth in
internationally traded commercial
services.
These would be telecommunications,
financial services, advertising etc.

Now look at Foreign Direct Investment
By this we mean direct investment in a company or companies in one or a number of
foreign countries e.g. takeovers, new subsidiaries etc. in order to achieve managerial
control

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