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 “Core-Periphery” 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 15th century and maintained through increased economic access up until the present.

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World System Theory must be viewed as part of a body of theories.

• 1. Modernization theory

• 2. World Systems Theory

• 3. Classical Economic Theory

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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 weren’t modernizing as predictedExample: Argentina was as rich as many European countries in 1890… but hardly

improved by 1960Example: Many former colonies in Africa were stagnant, or becoming more impoverished

over time.

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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 weren’t 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 can’t understand the fate of a single country, without understanding how it fits into the overall system

• Countries aren’t 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.

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• 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).

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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…

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• Criticism #2: trade is asymmetrical

• Rich countries don’t 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.

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• Issue: Why don’t 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 doesn’t this happen all the time?

• Wallerstein’s 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…

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• 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 capitalistsTherefore, WST scholars are pessimistic about the role of global governance in solving social problems…

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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

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This pattern had developed out of a number of different forces1. 15th century: exploration2. 16th century: new technology of shipbuilding and navigationMore and more people became exposed to one another’s technologies and ideasDepending 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

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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– Electricity, oil, engines, roads, radio

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Does this all this matter? Well yes.

GLOBAL DEVELOPMENT INDEX: Life expectancy, education and income

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

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18

• The cartogram below gives a snapshot of 2005 .

• The US, EU-15, and Japan cover much of the economic globe

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Below we see how global GDP shifted from 1700-1950

The Changing Global Economic MapWhat about more recent times? Table below gives some indication in terms of manufacturing industry

Country Average Annual Growth In Manufacturing Manufacturing as share of GDP

Share world manufacturing output

Value added per worker 1995-97 ($)

1960/70 1970/80 1980/90

1990/99 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

The Changing Global Economic Map 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.

The Changing Global Economic MapGrowth 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 1950’s and the early 1970’s. 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.

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• 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.

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• 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 world’s 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.

The Changing Global Economic MapWe 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.

The Changing Global Economic Map• 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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