Summary of Wallerstein on World System Theory

THE DEVELOPMENT OF A WORLD ECONOMIC SYSTEM

A Summary of Immanuel Wallerstein, The Modern World System: Capitalist

Agriculture and the Origins of the European World Economy in the
Sixteenth Century (New York: Academic Press, 1974)

In his book, The Modern World System: Capitalist Agriculture and the
Origins of the European World Economy in the Sixteenth Century ,
Immanual Wallerstein develops a theoretical framework to understand the
historical changes involved in the rise of the modern world. The modern
world system, essentially capitalist in nature, followed the crisis of the
feudal system and helps explain the rise of Western Europe to world
supremacy between 1450 and 1670. According to Wallerstein, his theory
makes possible a comprehensive understanding of the external and internal
manifestations of the modernization process during this period and makes
possible analytically sound comparisons between different parts of the
world.

MEDIEVAL PRELUDE

Before the sixteenth century, when Western Europe embarked on a path of

capitalist development, "feudalism" dominated West European society.
Between 1150-1300, both population as well as commerce expanded
within the confines of the feudal system. However, from 1300-1450, this
expansion ceased, creating a severe economic crisis. According to
Wallerstein, the feudal crisis was probably precipitated by the interaction of
the following factors:

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 1. Agricultural production fell or remained stagnant. This meant that the
burden of peasant producers increased as the ruling class expanded.
2. The economic cycle of the feudal economy had reached its optimum
level; afterwards the economy began to shrink.

3. A shift of climatologically conditions decreased agricultural

productivity and contributed to an increase in epidemics within the
population.

THE NEW EUROPEAN DIVISION OF LABOUR

Wallerstein argues that Europe moved towards the establishment of a

capitalist world economy in order to ensure continued economic growth.
However, this entailed the expansion of the geographical size of the world
in question, the development of different modes of labour control and the
creation of relatively strong state machineries in the states of Western
Europe. In response to the feudal crisis, by the late fifteenth and early
sixteenth centuries, the world economic system emerged. This was the first
time that an economic system encompassed much of the world with links
that superseded national or other political boundaries. The new world
economy differed from earlier empire systems because it was not a single
political unit. Empires depended upon a system of government which,
through commercial monopolies combined with the use of force, directed
the flow of economic goods from the periphery to the centre. Empires
maintained specific political boundaries, within which they maintained
control through an extensive bureaucracy and a standing army. Only the

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techniques of modern capitalism enabled the modern world economy,
unlike earlier attempts, to extend beyond the political boundaries of any one
empire.

The new capitalist world system was based on an international division of

labour that determined relationships between different regions as well as
the types of labour conditions within each region. In this model, the type of
political system was also directly related to each region's placement within
the world economy. As a basis for comparison, Wallerstein proposes four
different categories, core, semi-periphery, periphery, and external, into
which all regions of the world can be placed. The categories describe each
region's relative position within the world economy as well as certain
internal political and economic characteristics.

The Core

The core regions benefited the most from the capitalist world economy. For
the period under discussion, much of north-western Europe (England,
France, Holland) developed as the first core region. Politically, the states
within this part of Europe developed strong central governments, extensive
bureaucracies, and large mercenary armies. This permitted the local
bourgeoisie to obtain control over international commerce and extract
capital surpluses from this trade for their own benefit. As the rural
population expanded, the small but increasing number of landless wage
earners provided labour for farms and manufacturing activities. The switch
from feudal obligations to money rents in the aftermath of the feudal crisis
encouraged the rise of independent or yeoman farmers but squeezed out
many other peasants off the land. These impoverished peasants often moved
to the cities, providing cheap labour essential for the growth in urban

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manufacturing. Agricultural productivity increased with the growing
predominance of the commercially-oriented independent farmer, the rise of
pastoralism, and improved farm technology.

The Periphery

On the other end of the scale lay the peripheral zones. These areas lacked
strong central governments or were controlled by other states, exported raw
materials to the core, and relied on coercive labour practices. The core
expropriated much of the capital surplus generated by the periphery
through unequal trade relations. Two areas, Eastern Europe (especially
Poland) and Latin America, exhibited characteristics of peripheral regions.
In Poland, kings lost power to the nobility as the region became a prime
exporter of wheat to the rest of Europe. To gain sufficient cheap and easily
controlled labour, landlords forced rural workers into a "second serfdom" on
their commercial estates. In Latin America, the Spanish and Portuguese
conquests destroyed indigenous authority structures and replaced them
with weak bureaucracies under the control of these European states.
Powerful local landlords of Hispanic origin became aristocratic capitalist
farmers. Enslavement of the native populations, the importation of African
slaves, and the coercive labour practices such as the encomienda and forced
mine labour made possible the export of cheap raw materials to Europe.
Labour systems in both peripheral areas differed from earlier forms in
medieval Europe in that they were established to produce goods for a
capitalist world economy and not merely for internal consumption.
Furthermore, the aristocracy both in Eastern Europe and Latin America
grew wealthy from their relationship with the world economy and could
draw on the strength of a central core region to maintain control.

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The Semi-Periphery

Between the two extremes lie the semi-peripheries. These areas represented
either core regions in decline or peripheries attempting to improve their
relative position in the world economic system. They often also served as
buffers between the core and the peripheries. As such, semi-peripheries
exhibited tensions between the central government and a strong local
landed class. Good examples of declining cores that became semi-
peripheries during the period under study are Portugal and Spain. Other
semi-peripheries at this time were Italy, southern Germany, and southern
France. Economically, these regions retained limited but declining access to
international banking and the production of high-cost high-quality
manufactured goods. Unlike the core, however, they failed to predominate
in international trade and thus did not benefit to the same extent as the core.
With a weak capitalist rural economy, landlords in semi-peripheries
resorted to sharecropping. This lessened the risk of crop failure for
landowners, and made it possible at the same time to enjoy profits from the
land as well as the prestige that went with landownership.

According to Wallerstein, the semi-peripheries were exploited by the core

but, as in the case of the American empires of Spain and Portugal, often
were exploiters of peripheries themselves. Spain, for example, imported
silver and gold from its American colonies, obtained largely through
coercive labour practices, but most of this specie went to paying for
manufactured goods from core countries such as England and France rather
than encouraging the formation of a domestic manufacturing sector.

External Areas

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These areas maintained their own economic systems and, for the most part,
managed to remain outside the modern world economy. Russia fits this case
well. Unlike Poland, Russia's wheat served primarily to supply its internal
market. It traded with Asia as well as Europe; internal commerce remained
more important than trade with outside regions. Also, the considerable
power of the Russian state helped regulate the economy and limited foreign
commercial influence.

STAGES OF GROWTH

The development of the modern world economy lasted centuries, during

which time different regions changed their relative position within this
system. Wallerstein divides the history of the capitalist world system into
four stages, which for our purposes can be simplified and divided into two
basic phases:

Stages 1 and 2:
This period follows the rise of the modern world system between 1450-
1670. When the Hapsburg Empire failed to convert the emerging world
economy to a world empire, all the existing western European states
attempted to strengthen their respective positions within the new world
system. In order to accomplish this move, most of the states consolidated
their internal political economic and social resources by:

a) Bureaucratization.

This process aided the limited but growing power of the king. By
increasing the state power to collect taxes, the kings eventually

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 increased state power to borrow money and thereby further expand
the state bureaucracy. At the end of this stage, the monarch had
become the supreme power and instituted what has been called
"absolute monarchy."

b) Homogenization of the local population.

To underline state involvement in the new capitalist system and

encourage the rise of indigenous capitalist groups, many core states
expelled minorities. These independent capitalist groups, without deep
rooted local ties, were perceived as threats to the development of
strong core states. The Jews in England, Spain, and France were all
expelled with the rise of absolute monarchy. Similarly, Protestants,
who were often the merchants in Catholic countries, found they were
targets of the Catholic Church. The Catholic Church, a trans-national
institution, found the development of capitalism and the
strengthening of the state threatening.

c) Expansion of the militia to support the centralized monarchy and to

protect the new state from invasions.

d) The concept of absolutism introduced at this time related to the relative

independence of the monarch from previously established laws. This
distinction freed the king from prior feudal laws.

e) Diversification of economic activities to maximize profits and strengthen

the position of the local bourgeoisie.

By 1640, north western European states secured their position as core states
in the emerging economy. Spain and northern Italy declined to semi-

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peripheral status, while north eastern Europe and Iberian America became
peripheral zones. England gained ground steadily toward core status.

During this period, workers in Europe experienced a dramatic fall in wages.

This wage fall characterized most European centres of capitalism with the
exception of cities in north and central Italy and Flanders. The reason for
this exception was that these cities were relatively older centres of trade,
and the workers formed strong politico-economic groups. The resistance of
workers broke down the ability of employers to accumulate the large
surplus necessary for the advancement of capitalism. Meanwhile, employers
in other parts of Europe profited from the wage lag by accumulating large
surpluses for investment.

Long-distance trade with the Americas and the East provided enormous
profits, in excess of 200%-300%, for a small merchant elite. Smaller
merchants could not hope to enter this profiteering without substantial
capital and some state help. Eventually, the profits of the trans-Atlantic
trade filtered down and strengthened the merchants' hold over European
agriculture and industries. Merchants with sufficient power accumulated
profits through the purchase of goods prior to their production. By
controlling the costs of finished products, merchants could extend their
profit margin and control the internal markets. This powerful merchant
class provided the capital necessary for the industrialization of European
core states.

Stages 3 and 4 (18th century and beyond):

Industrial rather than agricultural capitalism represented this era. With the

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shifting emphasis on industrial production, the following reactions
characterized this period.

a) European states participated in active exploration for the exploitation of

new markets.

b) Competitive world systems such as the Indian Ocean system were

absorbed into the expanding European world system. With the
independence of the Latin American countries, these areas as well as
previously isolated zones in the interior of the American continent entered
as peripheral zones in the world economy. Asia and Africa entered the
system in the nineteenth century as peripheral zones.

c) The inclusion of Africa and the Asian continents as peripheral zones

increased the available surplus, allowing other areas such as the U.S. and
Germany to enhance their core status.

d) During this phase, the core regions shifted from a combination of

agricultural and industrial interests to purely industrial concerns. Between
1700, England was Europe's leading industrial producer as well as the
leader in agricultural production. By 1900, only 10% of England's
population was engaged in agriculture.

e) By the 1900s, with the shift toward manufacturing, core areas

encouraged the rise of industries in peripheral and semi-peripheral zones
so that they could sell machines to these regions.

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THEORETICAL REPRISE

The capitalist world economy, as envisioned by Wallerstein, is a dynamic

system which changes over time. However, certain basic features remain in
place. Perhaps most important is that when one examines the dynamics of
this system, the core regions of north-western Europe clearly benefited the
most from this arrangement. Through extremely high profits gained from
international trade and from an exchange of manufactured goods for raw
materials from the periphery (and, to a lesser extent, from the semi-
peripheries), the core enriched itself at the expense of the peripheral
economies. This, of course, did not mean either that everybody in the
periphery became poorer or that all citizens of the core regions became
wealthier as a result. In the periphery, landlords for example often gained
great wealth at the expense of their underpaid coerced labourers, since
landowners were able to expropriate most of the surplus of their workers
for themselves. In turn in the core regions, many of the rural inhabitants,
increasingly landless and forced to work as wage labourers, at least initially
saw a relative decline in their standard of living and in the security of their
income. Overall, certainly, Wallerstein sees the development of the capitalist
world economy as detrimental to a large proportion of the world's
population.

Through this theory, Wallerstein attempts to explain why modernization

had such wide-ranging and different effects on the world. He shows how

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political and economic conditions after the breakdown of feudalism
transformed north-western Europe into the predominant commercial and
political power. The geographic expansion of the capitalist world economy
altered political systems and labour conditions wherever it was able to
penetrate. Although the functioning of the world economy appears to create
increasingly larger disparities between the various types of economies, the
relationship between the core and its periphery and semi-periphery
remains relative, not constant. Technological advantages, for example, could
result in an expansion of the world economy overall, and precipitate
changes in some peripheral or semi-peripheral areas. However, Wallerstein
asserts that an analysis of the history of the capitalist world system shows
that it has brought about a skewed development in which economic and
social disparities between sections of the world economy have increased
rather than provided prosperity for all.

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