World Systems Theory
Immanuel Wallerstein (Hopkins & Wallerstein, 1982; 2004) introduced world systems theory in the 1970’s. The current world system emerged in the sixteenth century, as Europe began to colonize and exploit resources in other parts of the world. Capitalism became the dominant paradigm and basis for a world-economy. The key aspects of a capitalist system are focus on “the endless accumulation of capital,” flows of labor and capital between entities around the world, and exchange of goods and services for profits (Wallerstein, 2004, p. 24). Capitalism requires a wide-spread market across many state entities, but is independent of culture, religion, and language.
Wallerstein (2004) defines a market as “both a concrete local structure in which individuals or firms sell and buy goods, and a virtual institution across space where the same kind of exchange occurs” (p. 25). Sellers prefer imperfect markets that allow them to maximize their profits. Though monopolies are rare in a regulated state, quasi-monopolies are allowed by states through the use of patents, taxes, subsidies and export or import restrictions. Wallerstein claims that “quasi-monopolies are . . . self-liquidating” because eventually new sellers enter the market by exerting political pressure to open markets to competition (p. 27). He further claims that “large accumulators of capital simply move their capital to new leading products or whole new leading industries” (p. 27). Understanding that such choices have a disruptive impact on the economies of countries that companies leave behind, I wonder if this a bad thing, since consumers benefit from the innovation that makes new and better products available to them at often lower costs.
Other key aspects of capitalism are business failures, bankruptcy, mergers and acquisitions. Stronger companies buy up weaker companies in a “constant process of the concentration of capital” which may or may not reduce costs. Capitalists claim that they get economies of scale through industry consolidation, but Wallerstein points out that as the size of the institution grows, risk increases and administrative costs also grow. Mergers are often followed by down-sizing, followed by another merger. I have witnessed this first-hand in the financial services industry as an employee and consultant at several financial institutions that have gone through mergers over the past twenty years. For example, I consider Bank of America to be a “merger machine,” meaning the company has sophisticated processes in place to quickly assess potential acquisitions and bring them into the bank’s portfolio of businesses. However, from my observations as a consultant to the company, it does not have the management systems and processes in place to sustain internal innovation and growth that is not dependent on acquiring companies. If the company were to slow down or stop its acquisition strategy, it might encounter issues of stagnation and possibly experience a cultural identity crisis.
Another key concept of world systems theory is the idea of state entities belonging either to the core, semi-peripheryperiphery of the world economic system (Wallerstein, 2004). The core states include the advanced industrialized countries such as the United States, Canada, Western Europe and Japan. The core exploits labor and plunders the resources of the periphery states. The periphery states contain raw materials and inexpensive unskilled labor, for example, Africa, Eastern Europe and South America. The semi-periphery states are those countries that aspire to become part of the core and to avoid falling back into the periphery, such as China, India, Southeast Asia and Brazil. These countries exploit the periphery and are exploited by the core states.
For example, software development (and technology in general) used to be the competency and output of the core states in the twentieth century. Since the 1990’s, the states in the semi-periphery have become the key providers of software development and technology to the core countries. India was one of the first countries to provide their labor pool. As the cost of Indian labor increased, Indian companies began outsourcing to China and Southeast Asia. The core states caught on and began directly contracting with Chinese technology companies. As labor costs in China have risen, Brazil entered into the semi-periphery. Mexico and Central America are now following Brazil’s path (Steier & Ho, 2007).
The world economic system follows a boom-bust or Kondratieff (Kondratieff & Stolper, 1935) cycle every fifty to sixty years. The cycle goes through an expansion phase (A-phase) and subsequently through a stagnation or recession phase (B-phase). Wallerstein (2004) theorizes that “as we solve the middle-run problems by moving up on the curve, we will eventually run into the long-run problem of approaching the asymptote” or point where expansion within the current system structure is no longer possible (p. 31). He defines a true world system crisis as one that “cannot be resolved within the framework” of the current system (p. 76). Systems that are in crisis are unstable, they “oscillate wildly” and are defined as chaotic because small changes within the system can have huge impacts (p. 77).
Wallerstein (2004) asserts that we are currently experiencing a crisis in our capitalist world-economy. Given all of the published data concerning our current state of world economics, I don’t think anyone disagrees with this contention, unless they’re in complete denial. Wallerstein argues that a “clash of fundamental values, even of ‘civilizations’” requires that we choose between a libertarian-democracy and a non-libertarian system (p. 88). He warns that we can expect a painful, chaotic, unstable environment as we go through the transition to a new world system. Wallerstein also admonishes us to be willing to all take responsibility to change our values, perspectives and modes of behavior. We will need to have open dialogue and debate to address political, intellectual and moral challenges as we the new system emerges.
Hopkins, T. K., & Wallerstein, I. M. (1982). World-systems analysis : theory and methodology. Beverly Hills, Calif.: Sage Publications.
Kondratieff, N. D., & Stolper, W. F. (1935). The Long Waves in Economic Life. The Review of Economics and Statistics, 17(6), 11.
Wallerstein, I. M. (2004). World-systems analysis: an introduction. Durham: Duke University Press.