World Systems theory; Wallerstein

• Dependency theory and World-System theory tried to explain the failure of many countries to develop

• Scholars: Andre Gunder Frank; Immanuel Wallerstein

• Claim: Underdeveloped/peripheral countries are not just like Europe, but at an earlier stage of development

• They have a very different history: colonisation• 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 “modernise” 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 (WST)• WST: 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.

World-System Theory (WST)• Key concepts (some of these are similar

to dependency theory)

• Core: the rich, developed countries

• Periphery: poor, dependent nations

• Semi-periphery: semi-industrialised countries

• See Figure 2.3 of photocopy from Moore textbook

World-System Theory (WST)• Classical economic theory predicts that

specialisation & 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

• Specialisation leads to a “win/win” situation• everyone is more efficient; countries become

more wealthy

• WST criticize this view…

World-System Theory (WST)

Criticism #1: Specialisation 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

World-System Theory (WST)

Criticism #2: trade is asymmetricalRich countries don’t need coffee/bananas badlyAnd, 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 onesThey need manufactured goods… and are forced to pay high prices

And, they must sell their raw materials and agricultural products very cheaply.

World-System Theory (WST)• Economists argue that foreign investment

is good for peripheral countries• World system theorists criticize this, too:

• 1. “Core” capitalist countries tend to extract profits from the periphery

• This outweighs benefits of foreign investment

• 2. Foreign investment doesn’t really help a society industrialize

– Foreigners build plantations and mines to extract resources

– They build roads & ports to extract; not to benefit the country

• In sum: They don’t build useful industrial infrastructure.

World-System Theory (WST)• More key concepts:• Trade concentration: When a peripheral

country trades with just a few core countries (or only one)

• Investment concentration: When investment comes from just a few core countries (or one)

• High concentration may make peripheral countries vulnerable

• If the core country decides to halt trade or investment, economic disaster would follow• Peripheral countries must please core trading

partners• They lose political autonomy to do what is best for

its people.

• Dependency theorists such as A. G. Frank found evidence in studies of Latin America

• Key observation: Latin American economies and trade was unusual:

• They mainly produced “cash crops” and raw materials• Trade was almost entirely with the U.S.

– High “Trade Concentration”

• Foreign investment resulted in foreign-owned plantations, not expanded industry & “development”.

Frank’s interpretation:

Global capitalism forced countries into a state of under-development1. They can’t to compete with industries from high-tech economiesThey do not develop high-profit industries: cars, etc.

2. Instead, they trade commodities (coffee)They must compete with other poor countries for sales… so they don’t make much profit

So, they remain underdeveloped…

Investment Concentration

Country Concentration (%)

Partner

Honduras 97.7 U.S.

Swaziland 96.6 Britain

Niger 95.7 France

Chile 91.3 U.S.

Saudi Arabia

90.4 U.S.

Tanzania 48.1 Britain

Iraq 37.5 Britain

Brazil 35.6 U.S.Source: Kentor and Boswell 2003

World-System Theory (WST)• Research literature on WST

Examines:

• Do countries with more trade, investment, and concentration fare worse in terms of:

• Economic growth• Poverty• Health and environmental well being

• Democracy

• Results: Mixed… More on this later.

World-System Theory (WST)• 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?

World-System Theory (WST)• 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

• Similar to Marx: false consciousness

• 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

World-System Theory (WST)• Question: How does WST differ from

other analysis of economic globalisation?

• Both agree that economics is important– But, economists often view the world

economy positively (or neutrally)• Eg: Many economists think trade was overall

beneficial and that globalisation reduces poverty compared to a world without trade• WST argues that globalisation perpetuates

inequality.

World-System Theory (WST)

In contrast, WST argues that the global economic system is inherently unfairEconomic power of core countries and multi-national corporations is so great that the periphery will always be exploited

The idea that governments and international institutions can make the system “fair” is an illusionGovernments 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…

– Consequently, the system must be substantially reorganised… or overthrown.

World-System Theory (WST)• What should peripheral nations do?

– According to WST scholars?

• 1. Peripheral countries must avoid exploitive economic relations with the core

• Beware of trade and foreign investment, which can lead to exploitation and foreign control

• 2. Try to nurture domestic industries• Don’t sell coffee and rely on core for high-tech

• Try to develop advanced industries locally

• Concept: “Import substitution” – developing local industries to avoid importing products.

World-System Theory (WST)

What should peripheral nations do?According to WST scholars?

1. Peripheral countries must avoid exploitative economic relations with the coreBeware of trade and foreign investment, which can lead to exploitation and foreign control

2. Try to nurture domestic industriesDon’t sell coffee and rely on core for high-tech

Try to develop advanced industries locally

Concept: “Import substitution” – developing local industries to avoid importing products.

World-System Theory (WST)• What should peripheral nations do?

– According to WST scholars?

• 3. Band together with other poor nations to fight against the power of the Core…

• Trade with each other– Perhaps create cartels to bargain with the Core

• And some argue: start a global anti-capitalist revolution.

World-System Theory (WST)• How does WST view international

organisations?

• Answer: They do not affect the fundamental economic positions of core and periphery

• Claim: Most International Governmental Organisations (IGOs) and International Non-Governmental Organizations (INGOs) are created by core countries, and will never fundamentally undermine the dominance of the core– IGOs and INGOs tend to perpetuate core dominance– Example: WTO has not given big concessions to

periphery

• The only thing that could help would be organisations representing the peripheral countries against the core!

World-System Theory (WST)• Question: Is world-system theory

“right”?• WST makes many claims. There is no simple

answer

• 1. Analysis of Latin America is generally thought to be compelling

• 2. Rapid industrialisation of South Korea, Taiwan, etc = major exceptions to WST

• 3. Evidence on foreign/trade investment is mixed, but often contradict WST

• Some studies find effects consistent with WST, but many do not.

World-System Theory (WST)

Criticisms of WST:

1. Research findings are mixed at bestThe specific WST predictions about sources of global inequality/poverty have often been wrong

It is true that there is horrible poverty in the world…But: Are people worse off than if there was no global economy? That is less clear.

World-System Theory (WST)

2. WST doesn’t make clear predictionsAfter the fact, almost any action can be interpreted as “serving the interests of global capitalists”

Example: The Montreal Protocol on CFC emissionsFirst, the core didn’t sign it… WST scholars said: “See, the core is using its power to avoid the treaty!”

Later, when the core signed it, WST scholars said: “See, the core has ensnared the peripheral countries in a treaty that will keep them in poverty”A theory that can fit any evidence is not so useful.

World-System Theory (WST)

3. Reverse causalityWST argues: Countries that are dependent on the core of the world capitalist system will be trapped into a state of underdevelopment

BUT, maybe it works the other way aroundPoverty produced “dependent” relations in the first place

Poor countries can’t produce high-tech goods, so they trade commodities (e.g., bananas)

But, this doesn’t necessarily mean that trading bananas made those countries poorer or “trapped” them into poverty.

World-System Theory (WST)• WST is a useful theory that has some

predictive power

• BUT:– Don’t assume that the entire global economy

is conspiring to “keep the little guy down”– The real answer, as always, is that the world

is complex…• Some aspects of the global economy have been

beneficial, others not

• Don’t judge without evidence.