Sociology 2: Class 14: World-System Theory Copyright © 2008 by Evan Schofer Do not copy or distribute without permission

Announcements Office Hours limited: Topic: Theories of globalization Today May 29 Contact me about appointments… Topic: Theories of globalization Plus, continuing discussion of governance…

Review: What is a Theory? Definition #1: A specific claim or argument that leads to empirical predictions Example: Economic law of “supply and demand” Definition #2: General imageries about how the world works Example: Marxist theory: not just a single prediction This broader kind of “theory” is useful because it generates a rich description of the world Offers directives to guide research And produces many specific claims to be tested But, it isn’t easy to prove “right” or “wrong”.

Theories of Globalization Some major views on the international system: 1. Modernization theory 2. World Systems Theory And “dependency theory”, a common variant 3. “World Polity Theory” Also called “neo-institutional theory” 4. Realism 5. Various responses to Realism “Complex Interdependence”, others…

World-System Theory (WST) Background: Modernization theory An evolutionary theory predicting how societies develop See Chirot and Hall article on WST… Argument: 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.

World-System Theory (WST) 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 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.

World-System Theory (WST) 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: 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”.

World-System Theory (WST) 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 (WST) World-System Theory: 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: Core: the rich, developed countries Also: west; metropolitan countries; developed world Periphery: poor, dependent nations Also: underdeveloped countries; satellites; dependencies Semi-periphery: semi-industrialized countries Dependency: The vulnerable state of being exploited by core countries They depend on the core for trade, investment, loans, technology, etc. (related term: underdevelopment).

World-System Theory (WST) 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…

World-System Theory (WST) 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…

World-System Theory (WST) 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.

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.

World-System Theory (WST) Scholars 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”.

World-System Theory (WST) Interpretation of Latin American situation: Global capitalism forced countries into a state of under-development 1. They can’t to compete with industries from high-tech economies They 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 Saudi Arabia 90.4 Tanzania 48.1 Iraq 37.5 Brazil 35.6 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 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.

World-System Theory (WST) In contrast, WST argues that the global 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… Consequently, the system must be substantially reorganized… 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? 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 organizations? Answer: They do not affect the fundamental economic positions of core and periphery Claim: Most IGOs and 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 organizations 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 industrialization of South Korea, Taiwan, etc = major exceptions to WST 3. Evidence on foreign/trade investment = 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 best The 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 predictions After the fact, almost any action can be interpreted as “serving the interests of global capitalists” Example: The Montreal Protocol on CFC emissions First, 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 causality WST 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 around Poverty 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) My advice: WST is a useful theory that has some predictive power BUT: don’t become a conspiracy theorist 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.