World system analysis was first developed in the early 1970s as an alternative to the traditional nation-state-oriented analysis of the global economy. In its initial form (which has since been expanded – even, significantly, to ancient Mesopotamia) the focus was put on the modern world system, as evidenced by the title of the pioneering work of the genre, by Immanuel Wallerstein: The Modern World-System. According to this version of events, the world system developed in the transition from medieval to modern times, with the key period being the 16th century.
What characterizes a world system is what is called a center-periphery relation. The center determines the flows and the rationale, while the periphery provides the means and materials. The center is the “why,” the periphery is the “how.” The whole thing exists for the benefit of the center; the periphery may derive some advantages from the relationship, but these are adventitious.
Wallerstein argues that such a system was set up by the Western colonial powers. Prior to this, the structure for economically connecting various regions was empire – a political method, not an economic one. In the imperial model, there is likewise a center-periphery relation, but it functions differently. Such empires “guaranteed economic flows from the periphery to the center by force (tribute and taxation) and by monopolistic advantages in trade.” That was the good news; the bad news was that these forced contributions required massive outlays in coercive apparatus in order to be sustained. “The bureaucracy made necessary by the political structure tended to absorb too much of the profit, especially as repression and exploitation bred revolt which increased military expenditures;” the upshot is that empire was only “a primitive means of economic domination.”
As such, the new method of world system was a great improvement exploitation-wise. “It is the social achievement of the modern world, if you will, to have invented the technology that makes it possible to increase the flow of the surplus from the lower strata to the upper strata, from the periphery to the center, from the majority to the minority, by eliminating the ‘waste’ of too cumbersome a political superstructure.”
It was capitalism that enabled this great leap forward. Capitalism does not require political hegemony to realize these economic flows between the center and the periphery; rather, it makes use of political power to attain favorable terms of trade. “The state becomes less the central economic enterprise than the means of assuring certain terms of trade in other economic transactions.” It stacks the deck in favor of the center, to ensure the center’s superiority. Trade is the medium for accomplishing this. Not free trade, to be sure, but managed trade. “The operation of the market (not the free operation but nonetheless its operation) creates incentives to increased productivity and all the consequent accompaniment of modern economic development.”
“The world-economy is the arena within which these processes occur.” And so globalism came into being.
There have been many critiques of this framework. For one thing, was this really the first time such a world system has come about? There is good reason to believe that such a world system was already established in ancient Mesopotamia (at least, a far-reaching center-periphery arrangement based in capitalism and trade rather than conquest).
For another, does capitalism necessarily form such a world system? It can be argued that there are different forms of capitalism. Was it not a form of capitalism that participated in Wallerstein’s empire? It would seem that capitalism of some form was alive and well in, e.g., the Roman Empire. And cannot capitalism function just as well within a domestic economy, under the thumb of sovereignty?
Indeed, if there is a term subject to equivocal use, it is capitalism. Schumpeter referred to capitalism as “that word which good economists always try to avoid,” precisely because of the range of meanings attributed to it. For his part, Schumpeter defined it as “that form of private property economy in which innovations are carried out by means of borrowed money, which in general, though not by logical necessity, implies credit creation.” Those familiar with Schumpeter’s theory of economic development will recognize the emphasis he puts on this function; those who aren’t, might profit from the course in economics available elsewhere on this website, which highlights this functionality. For his part, Schumpeter defends the importance he attaches to it. “It undoubtedly appears strange at a first reading, but a little reflection will satisfy the reader that most of the features which are commonly associated with the concept of capitalism would be absent from the economic and from the cultural process of a society without credit creation.”
Be that as it may, world system analysis is important, not as just another critique of capitalism, but as a critique of the form capitalism can take and the way in which trade, banking, etc., can be used to establish hegemonic exploitative regimes on a transnational basis.
One of the important aspects of world system analysis is the perspective it opens to the way sovereignty can be manipulated, even hijacked. For the center of the system is less a political power center than an amorphous, protean nerve center. Fernand Braudel, not quite a world-system analyst but a kindred spirit nevertheless, depicted this kind of capitalism quite starkly. From early on, he wrote, the great capitalists have seated themselves astride the currents of domestic and international trade; they have been able to make things happen for themselves in a major way. “This commanding position at the pinnacle of the trading community was probably the major feature of capitalism in view of the benefits it conferred: legal or actual monopoly and the possibility of price manipulation.”
Thus, “active social hierarchies” were constructed atop the market economy, and those at the pinnacles could call the tune in the great national and international markets. The esoteric privileged area of large-scale and international trade represented a “shadowy zone” atop the market economy. “Certain groups of privileged actors were engaged in circuits and calculations that ordinary people knew nothing of. Foreign exchange for example, which was tied to distant trade movements and to the complicated arrangements for credit, was a sophisticated art, open only to a few initiates at most.” For Braudel, this transnational perch is the linchpin of the arrangement. “To me, this second shadowy zone, hovering above the sunlit world of the market economy and constituting its upper limit so to speak, represents the favoured domain of capitalism.”
This understanding opens the door to a critique of this world-system analysis. The core-periphery framework with which it works, demands strong states at the core and weak states at the periphery. “The world-economy develops a pattern where state structures are relatively strong in the core areas and relatively weak in the periphery. Which areas play which roles is in many ways accidental. What is necessary is that in some areas the state machinery be far stronger than in others.”
In the early-modern period, according to Wallerstein, it was absolute monarchy which provided the strong state, benefiting the two main power groups, the so-called capitalist bourgeoisie and the feudal aristocracy. “For the former, the strong state in the form of the ‘absolute monarchies’ was a prime customer, a guardian against local and international brigandage, a mode of social legitimation, a preemptive protection against the creation of strong state barriers elsewhere. For the latter, the strong state represented a brake on these same capitalist strata, an upholder of status conventions, a maintainer of order, a promoter of luxury.”
But as I have written elsewhere, it was not any of the absolute monarchies but the Great Exception, the Dutch Republic, that functioned as the core of the budding world system. This was not an absolute monarchy but a country in which the very concept of sovereignty and its location was unclear. It was a country the political power of which was divided between a stadhouder (a viceroy without a king) and a city-oriented gentry which might serve as the poster children of Wallerstein’s capitalist bourgeoisie.
As I explained in a previous post, the Dutch Republic was able to establish its trading network basically by poaching the silver circulation of its neighboring “absolute monarchies,” which is one reason France invaded the country in 1672. In other words, it worked to undermine the sovereign attributes of its neighbors to establish this network. It also e.g. circumvented trade restrictions established by its more powerful neighbors. In other words, the world system functioned by weakening, not strengthening, national sovereignty.
This characteristic is overlooked by Wallerstein’s analysis. It recurs on a regular basis. The entire commodity-money framework which the Dutch Republic and then England worked to establish on a world-wide basis, the monetary framework that fostered the world system such as it was, takes money entirely out of the hands of the state and puts in in the hands of a private capitalist elite.
Del Mar’s scathing denunciation serves to highlight just how opposite to the notion of a “strong core state” this new monetary regime actually was:
From the remotest time to the seventeenth century of our æra, the right to coin money and to regulate its value (by giving it denominations) and by limiting or increasing the quantity of it in circulation was the exclusive prerogative of the State. In 1604, in the celebrated case of the Mixed Moneys, this prerogative was affirmed under such extraordinary circumstances and with such an overwhelming array of judicial and forensic authority as to occasion alarm to the moneyed classes of England, who at once sought the means to overthrow it. These they found in the demands of the East India Company, the corruption of Parliament[,] the profligacy of Charles II., and the influence of Barbara Villiers. The result was the surreptitious mint legislation of 1666-7: and thus a prerogative, which, next to the right of peace or war, is the most powerful instrument by which a State can influence the happiness of its subjects, was surrendered or sold for a song to a class of usurers, in whose hands it has remained ever since.
In a similar vein, the core of John Hobson’s critique of British colonialism (taken over by Lenin in his Imperialism: the Highest Stage of Capitalism) is that colonialism serves the interests neither of the mother country nor of the colonies, but only the interests of certain specific parties who profit from the arrangement. It follows that such a world system is not necessarily benefiting the core countries at all – it might even be a serious drain on them. Qui bono? The answer is not so simple as the world system analysis might lead us to believe.
Fast forward to the contemporary situation. The arrangement in which we find ourselves, which has been gestating since the end of World War II and has settled into a familiar pattern since the 1980s, cannot be described in terms of this center-periphery arrangement. In fact, the argument can be made (and forcefully) that it has been the periphery which has taken advantage of the core. This has been accomplished mainly by pegging exchange rates at levels advantageous to exports from the periphery (production) paid for by the core (consumption). In this arrangement, the United States is referred to as the “consumer of last resort,” the place where excess production can be most efficaciously offloaded.
This hollows out the production capacity of the consumption-oriented countries running the trade deficit. Obviously, this is not good for workers in those countries. Nor is it beneficial to the workers in the producing and exporting economies. As Michael Pettis makes clear in his extremely important book The Great Rebalancing, it is by a form of forced “savings” (i.e., expropriation) imposed on households and thus workers that this trade advantage is maintained. Qui bono? Not the workers, neither in the exporting nor in the consuming countries. Rather, it is our familiar friend, Braudel’s “shadowy zone” of behind-the-scenes capitalist power brokers, which benefits from its “commanding position at the pinnacle of the trading community” to steer the profits in its direction and the losses to both ends of the trading network. In this arrangement, there is no core and no periphery – there are only regions of exploitation. The difference is in the form the exploitation takes.
Having covered these arrangements more extensively in the accompanying course, I direct the reader there for further background. In the meantime, it is enough to confirm that the seismic rumblings now being felt among the various electorates in the West have a solid basis in reality. It is only to be hoped that the powers that be take heed of these rumblings and make the appropriate adjustments, before they turn into actual political earthquakes.
 For example: Barry Gills, Andre Gunder Frank (eds.), The World System: Five Hundred Years Or Five Thousand? (London and New York: Routledge, 2014).
 Immanuel Wallerstein, The Modern World-System I: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century, with a New Prologue, vol. 1 (Berkeley, CA: University of California Press, 2011 ), p. 15.
 Ibid., pp. 15-16.
 Ibid., p. 16.
 Joseph Schumpeter, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process (New York: McGraw-Hill Book Company, Inc., 1939), vol. 1, pp. 223-224.
 Civilization & Capitalism, 15th-18th Century: Vol. II, The Wheels of Commerce (New York: Harper & Row, 1984 ), p. 374.
 Civilization & Capitalism, 15th-18th Century: Vol. I, The Structures of Everyday Life (New York: Harper & Row, 1981 ), p. 24.
 Wallerstein, The Modern World-System, p. 355.
 See my Follow the Money: The Money Trail Through History (Aalten: WordBridge, 2013), pp. 84ff.
 Alexander Del Mar, Barbara Villiers: or, a History of Monetary Crimes (New York: Cambridge Encyclopedia Co, 1899), p. 7.