Contemp World

• Modern World System


  • Researched by Immanuel Wallerstein
  • Largely self-contained system with a set of boundaries and a definable life span
  • Composed internally of a variety of social structures and member groups
  • Also known as the modern capitalist world-economy
  • Relies on economic domination
  • Encompasses many state and a built-in process of economic stabilization
• Three Necessary Factors For the Rise of Capitalist World Economy

  • Geographical expansion - era of exploration and colonization in Europe created wider networks of people and markets
  • Worldwide Division of Labor - different parts of the world started to specialize in different economic functions
  • Core State Development - involvement of the political sector and the use of state structures
• Three Levels of the Worldwide Division of Labor

  • Core- most dominant over the world-economy and exploit the rest of the system
  • Semi-periphery- areas of that are both exploiting and exploited
  • Periphery- suppliers of raw materials and are extremely
• Pressure of Incorporation


  • Why are countries drawn into the modern world-system?
  • Can nations resist integration into this global economic framework?
• Ritzer(2010:310) explained: "The pressure for incorporation into the world-economy comes not from the nations being incorporated but rather from the need of the world-economy to expand its boundaries, a need which was itself the outcome of pressures internal to the world economy" (Wallerstein 1989:129).
• Race to the Bottom


  Less developed countries compete globally by undercutting each other with lower wages, poor working conditions, and other concessions. It is often the case that one nation is willing to go further than the others to attract the interest of Multinational Corporations (MNCs). Winning nations often experience a decline in living standards for workers due to intense competition.
• Our Current Global Economic System is built on the exploitation of less developed countries by more developed ones.
• However, according to Bair and Gereffi (2003:143-69), some evidence of upgrading in less developed countries and industries over time.
• At least some of them enter the global economic market at or near the bottom, but over time, they begin to move up. China and Mexico transitioned from low-value to high-value products and improved working conditions.
• Chinese are now moving away from that and to the production of higher-value products, with higher pay and better working conditions for at least some Chinese workers.
• Maquiladoras in Mexico evolve from labor-intensive assembly to research, design, and development, using skilled labor (Gereffi 2005:163).
• Rivoli's Perspective


  • Winning the race to the bottom is seen as an essential step for economic success according to Rivoli in her study Global Market for T-shirts. In textiles, the race to the bottom was won first by England (especially Manchester), then the US (New Hampshire and later Charlotte, North Carolina), then Japan (Osaka), and Hong Kong. Most recently, it was the Chinese and their textile industry.
  • Victory in this race is, in her view, the "ignition switch" that turns the economy on and gets it rolling.
• However, this perspective is contested due to its association with neoliberalism. Critics argue that while winning the race may not guarantee adaptive upgrading, it does ensure prolonged periods of low wages and poverty. Rivoli acknowledges that activists have raised the bottom through their efforts, suggesting that the "bottom is rising."
• Contestation over whether the race to the bottom is a necessary component of economic development.
• Myth of Globalization


  Despite the prevailing view of economic globalization's dominance, there are dissenting perspectives. Scholars like Hirst and Thompson argue against the widely accepted notion.
• Arguments by Hirst and Thompson


  • Foreign direct investment (FDI) primarily in advanced industrial economies
  • Hirst and Thompson argue that the current world economy may not be as open as believed
  • Multinational businesses are often based in specific nations regarding assets, production, and sales
  • Lack of massive shifts in investment and employment from advanced to developing countries
• Dieter Duhm: 'We live in a time of global transformation. The power on Earth no longer lies with the forces of imperialistic globalization, but with those groups who are now connecting with the forces of transformation. It is not terror and violence, but trust and solidarity which will lead the new world. This is not just a wishful dream, but the objective reality of the coming epoch.'
• "When the American sneezes, the whole world catches a cold."

  The more powerful the economy, the greater the effect of its crises on the rest of the world.
• A struggling economy may reduce its consumption of commodities like oil, metals, and agricultural products

  This can impact commodity-exporting nations
• Financial markets are interconnected globally

  A crisis in one country's financial system can trigger panic and instability elsewhere. Investors may withdraw funds from emerging markets, causing currency depreciation and stock market declines.
• Argentina's serious financial crisis in the late 1990s and early 2000s had a comparatively small impact on the global Economy.
• Crises on weaker economies have less effect on other countries
• The Economic Depression, and WWI negatively affected almost all major economies (the US economy was a major exception, at least in terms of the effects of the two world wars).
• Autarky


  Self-sufficiency, Inward-looking
• Globalization


  Connections, Outward-looking
• Of particular importance in the 1930s was the movement of many countries, including Italy and Germany, in the direction of autarky, or the turn inward of a nation to create as much economic self-sufficiency as possible.
• However, even amid WWII, the Western world, especially the US and Great Britain, began planning for a more open international economy.
• Bretton Woods System


  Shaping Global Economic Landscape
• Three-week meeting in July 1944 at Mount Washington Hotel, New Hampshire
• Key components of Bretton Woods System


  • Establishment of Par Value
  • Exchange Rates Agreement
  • Formation of the International Monetary Fund (IMF)
  • Elimination of Currency Restrictions
  • USD as Global Currency
• Establishment of Par Value

  Currency linked to gold or the gold value of the US dollar (July 1944)
• Exchange Rates Agreement


  Central banks agreeing to exchange their currencies within a 1% margin
• Formation of the International Monetary Fund (IMF)


  • Created to establish, stabilize, and oversee exchange rates
  • Member states required to deposit gold reserves with the IMF
• Elimination of Currency Restrictions

  Agreement to eventually remove restrictions on the use of currency in international trade
• USD as Global Currency

  • The US dollar, backed by three-fourths of the world's gold supply, became a global currency
  • Convertibility into other currencies or gold at a fixed par value
• The Bretton Woods System: Shaping Global Economic Landscape
• In terms of global trade, the most-favored-nation principle encouraged equal trade concessions to all nations. The General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO) played roles in reducing trade barriers.
• Regarding the monetary order, the IMF played a central role, providing security and flexibility. From 1958 to 1971, the US committed to not changing the value of the dollar, emphasizing stability.
• In the realm of global investment, while the World Bank was envisioned to play a key role, the Marshall Plan and rapid European post-war recovery, largely aided by the US, took precedence.
• Multinational corporations (MNCs), particularly American-based firms, expanded their influence in industries such as automobiles and computers. The openness promoted by Bretton Woods also contributed to the emergence or expansion of social welfare programs in various countries.