Sociology 2 Class 13: Modernization and World-System Theory Copyright © 2014 by Evan Schofer Do not copy or distribute without permission Announcements • Exam grading going along smoothly • … a few more days… • Today’s class • Brief discussion of inequality • Theories of globalization – New topic… which we will sue to revisit issues of global governance & global inequality... Readings on inequality • Cammack, Paul. 2014. ”Why are some people better off than others?” [brief excerpt: Pp. 405-415 only] in Edkins and Zehfuss (eds) Global Politics: A new introduction. • Rodrik, Dani. 2011. The Globalization Paradox: Democracy and the Future of the World Economy. New York, NY: W. W. Norton and Co. – Chapter 7, “Poor Countries in a Rich World.” Pp. 135-158. • Serneau, Scott. 2006. “Class: A World of Rich and Poor.” Pp. 7-32 (Chapter 1) in Global Problems: The Search for Equity, Peace, and Sustainability. Boston, MA: Pearson. • * Furceri, Davide and Prakash Loungani. 2013. ”Who Let the Gini Out?” Finance and Development, Dec 2013, pp. 25-27. (3 pages) US Income inequality • US Inequality: change since 1979 • Is inequality good or bad? • Benefits of inequality: – In market economies, inequality is an incentive • Why go through 6 years of medical school if you aren’t rewarded financially? • Why invent new things if you aren’t rewarded? • Problems with inequality – Extreme inequality can undermine democracy • Super-rich often have disproportionate political power – Many see extreme inequality as morally bad • Lots of poverty, even in wealthy societies • Children of poor can’t compete with rich – No more “equality of opportunity”. Why has US inequality gone up? • Many explanations: • Technology, globalization, etc. – Saez & Piketty study: Changes in taxes • Tax rates on the rich have been lowered since 1980 • Result: Rich have gotten much richer • Other findings in the literature: • Welfare states have less inequality • Countries that expand education have less inequality. US Inequality • Global inequality • We live in a VERY unequal world • http://www.youtube.com/watch?v=uWSxzjyMNpU Inequality: Concluding points • 1. We live in a very unequal world • 2. The shift toward “free market” policies is a major source of growing inequality • Saez & Piketty • Also, optional reading from week 6: Capital flows and austerity increase inequality • 3. Inequality is so important, that many social science theories of globalization seek to understand it… • So, we transition to a new topic What is theory? • Two meanings of “theory” 1. Little “t” theory: A testable prediction about the world • Testable through observation or experiments – Ex: Increased CO2 from fossil fuels causes an increase in global temperature – Ex: Economic law of “supply and demand” – Claim: prices reflect equilibrium of supply and demand – “Laws” are just theories that work pretty well – Ex: The globalization of capital flows increases the frequency of currency volatility and crises What is theory? • 2. Big “T” Theory: Big ideas or imageries about the social world • More like “guiding ideas” than specific predictions • Example: Rational Choice Theory – The view that behavior can be understood as the result of everyone making cost/benefit decisions (given preferences) • Example: Marxism – Marx’s “Historical materialism”: the evolution of societies can be understood as driven by changes in economic production – Also, creation of new concepts: exploitation, alienation, etc. – Not easily proven right or wrong… – Useful for generating lots of predictions – If predictions are consistently wrong, we’d eventually decide that a “big-T” Theory is not useful. Main Theories: The Economy • General perspectives on the economy: • Readings by Brawley, Sernau • 1. Adam Smith: Markets as progress • “Liberalism”, “Neo-liberalism” • Similar to Hayek (from first half of class) • 2. Karl Marx: Markets as a destructive force • Cause of inequality and misery • 3. Keynes: Markets - beneficial but unstable • Markets need to be regulated to be stable • Workers and vulnerable groups need protection • In Serneau reading, discussed under the heading “Optimal hybrid?” Main Theories: Sociology • 1. Modernization theory • An optimistic view that societies will “develop” and become more prosperous • 2. World System Theory (W-Sys) – Related view: “Dependency Theory”. I will lump them together, despite some differences – Building on Marx: economic exploitation will perpetuate global inequality • 3. World Society Theory (W-Soc) • Also called “world polity theory”, “Institutional” or “neo-institutional” theory; related: “constructivism” • Argues that international institutions and “global culture” are reshaping the world. Main Theories: Political Science • Covered by Brawley (and next week) • 1. Realism – Also called: Neo-realism, the “realist” view • A theory emphasizing the importance of military (not economic) power… • 2. Institutionalism / interdependence • WARNING: World Society Theory also sometimes called “institutionalism”… but not the same thing • Interdependence has lead to the creation of global institutions. Power isn’t the only thing that matters. Economic Development / Inequality • Two issues to focus on – Provide some help in evaluating theories… – 1. Does capitalism produce prosperity? – 2. Does capitalism perpetuate inequality? • Will it cure poverty for all… or just make the rich even wealthier? • Some historical trends • NOTE: the narrator is fairly optimistic. Look closely at the data and decide if you agree… • Video\Hans_Rosling_s_200_Countries_200_Years_4 _Minutes_-_The_Joy_of_Stats_-_BBC_Four.flv Modernization Theory • Modernization theory • An evolutionary theory about how societies develop Modernization Theory • Argument: All societies naturally pass through certain stages of development • All societies start out as “traditional” economies – Based on subsistence farming, hunting/gathering, etc • Then, they have an “industrial revolution” • Eventually, they become “modern” high-tech societies. • Example: Rostow’s 5 stages: – – – – – – 1. Traditional 2. Transition (adoption of science/technology) 3. Early industrialization 4. Industrialization 5. Age of mass consumption A 6th stage? Post-industrial society? Modernization Theory • Modernization involved multiple shifts: – Economy: Greater levels of industrialization – People: emergence of “modern” persons • Shift away from “traditional values”: belief in traditional religion, local culture • Shift toward: belief in rationality/science, focus on achievement/competition, etc – Institutions: Greater complexity • Rise of modern government, legal systems, education systems, etc. Modernization Theory • Scholars believed that the process of modernization could be accelerated – Economy: Transfer of new technology and economic aid to poor countries. – People: Efforts to make people “modern” • Ex: Foreign aid to expand education • Inculcate “modern” values, instead of local culture – Institutions: Efforts to encourage poor countries to establish “modern” government institutions • Ex: Foreign aid to expand legal system or education Modernization theory & inequality • What does modernization theory have to say about global inequality? – Answer: Global inequality will ultimately decline • All countries will become “developed”/modern • Prediction: Convergence… countries will become more similar, economically. Modernization Theory • Modernization theory was based on study 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. Modernization Theory • Criticisms: – 1. Modernization theory ignores globalization • Focuses on individual countries – Assumes that success/failure is due to internal factors • Overlooks competition & conflict between countries – 2. It is very “Eurocentric” / Western-centric • Assumes that the West represents the ideal – The “peak” of an evolutionary process • De-values other societies, cultural traditions – 3. Can’t easily explain the persistent poverty found in many developing countries. Interlude: Global Consumer Culture • Issue: There are many critiques of global capitalism… here is one: • Not the main focus of the course, but amusing… • http://www.colbertnation.com/the-colbertreport-videos/84033/march-212007/benjamin-barber World-System Theory • World-System theory explains the failure of many countries to develop • Today’s poor countries face huge disadvantages compared to Europe – 1. They have a very different history: colonization • Conquered by Europe • Not allowed to develop governments, schools, industry • Colonial rulers stripped local resources – 2. Now, they must compete with rich countries in global markets • Former colonies remain at a big disadvantage – Don’t have industry to compete in global trade. World-System Theory • 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 • World-System Theory: We need to study the entire global economy as a world system • Success or failure isn’t the result of a country’s internal factors • Rather, we need to understand how it fits into the overall global system • Countries are rich or poor because of their position relative to others in the global capitalist system. World-System Theory • Key terms: • Core: the rich, developed countries • Also: west; metropolitan countries; developed world • Periphery: poor, dependent nations • Also: underdeveloped countries; dependencies • Semi-periphery: semi-industrialized nations • 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 World-System Theory • World-System theorists criticize the idea that poor countries benefit from trade • Classical economic theory (Ricardo) predicts win/win – If you grown coffee efficiently, focus on that… – Criticism #1: Specialization in low-tech production short-term profit but long-run costs • Low tech specialization means that countries fail to develop industry and technology – … that could lead to greater profits in the future • See Rodrik: “Poor Countries in a Rich World” – Argument: In the long run, countries would be better off developing high-tech industry, rather than growing coffee… World-System Theory • Criticism #2: trade relations are asymmetric • Rich countries don’t need coffee badly – And, they can buy coffee from many sources • But, poor countries need high-tech goods to develop – And, they can only get them from rich countries • So, poor countries are dependent on rich • The rich countries have all the leverage • Poor countries end up selling raw materials and agricultural products very cheaply – And pay high prices for manufactured goods. World-System Theory • World-system theorists also criticize foreign direct investment & capital flows • Free-market economists see them as source of growth – 1. Core countries extract profits from periphery – Profits don’t stay in poor countries – 2. Foreign investment don’t benefit locals – Foreigners build plantations and mines to extract resources – Ex: roads & rail lines just connect mines & ports » Not useful to the people who actually live there! – 3. Risk of currency/debt crises. World-System Theory • More concepts: • Trade concentration: When a peripheral country trades with few (or one) country • Investment concentration: When foreign investment comes from a few (or one) country • High concentration may make peripheral countries “dependent” • If the core country decides to halt trade or investment, economic disaster would follow – Peripheral countries must please core trading partners – They lose autonomy to do what is best for their people Investment Concentration Country Concentration (%) Partner Honduras 97.7 U.S. Swaziland 96.6 Britain Niger 95.7 France Chile 91.3 U.S. Saudi Arabia 90.4 U.S. Tanzania 48.1 Britain Iraq 37.5 Britain Brazil 35.6 U.S. Source: Kentor and Boswell 2003 World-System Theory • 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 • Research literature: • Do poor countries with more trade, investment, and concentration fare worse? • • • • • In terms of: Economic growth Poverty Health and environmental well being Democracy • Results: Mixed • No consistent evidence that trade harms countries • Mixed evidence on effects of FDI. World-System Theory • 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 • 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 • Semi-periphery is doing OK, so they support the core • Prevents everyone from ganging up on the core… World-System Theory • How does World System Theory differ from Adam Smith & Keynes? – They all agree that the economy is important – But, economists often view the world economy positively (or neutrally) • Ex: Ricardo thought trade was overall beneficial • World System Theory 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 • Consequently, the system must be substantially reorganized… or overthrown. World-System Theory • What should peripheral nations do? – According to world-system 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 others for high-tech • Try to develop advanced industries locally • Concept: “Import substitution” – developing local industries to avoid importing products. World-System Theory • What should peripheral nations do? – According to world-system 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 • How does World System Theory view international organizations? • Answer: They do not affect the fundamental economic positions of core and periphery • The idea that governments and international institutions can make capitalism “fair” is an illusion – Governments and international institutions (e.g., the WTO) will always reflect interests of capitalists • Most IGOs and INGOs are created/controlled by core – Example: WTO has not given big concessions to periphery – Some go as far as to claim that IGOs are “puppets” • The only thing that might help would be organizations made by peripheral countries to oppose the core! World-System Theory • Question: Is world-system theory “right”? • W-sys is a big-T theory. There is no simple answer • 1. Analysis of Latin America is generally thought to be compelling • 2. Rapid industrialization in Asia (S. Korea, Taiwan, etc) is a major exception to w-sys • 3. Evidence on foreign/trade investment = mixed, often contradicts world-system theory • Some studies find effects consistent with w-sys – See examples in Rodrik (“Poor Countries in a Rich World”) • But, overall, many do not (See Chirot optional reading) World-System Theory • Criticisms of World System Theory • 1. Research findings are mixed at best • The specific w-sys 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 • 2. Reverse causality (See Chirot reading) – World System Theory 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 • My advice: World-system theory is a useful theory that has some predictive power • Rodrik highlights some key predictions… • BUT: don’t become a conspiracy theorist • It is easy to spin a story of “core country power” to explain any set of events • Better to make specific predictions that can be tested with evidence… Income Growth (alternate version)