Decline of the US, Dusk of World System 3.0 and New Possibilities for World System 4.0 *
The globalization has experienced three rounds ofpushing, or three editions of world system - respectively the globalization of production and trade, governments business mechanism and capital operation. The end of the Cold War and China reforms led to th
Keywords: globalization, government-business mechanism, capital operation JEL classification: F02
DOl: 10.19602/j .chinaeconomist.20 17.04.04
1. 1st_Round Globalization: from Primitive State to the Formation of Re~ional Trade System (Prehistoric1St Century)
Globalization in general refers to the globalization of market economies. In the prehistoric period, i. e. most of the past one to three million years of human history, the process of human migration from the birthplace to the peripheral and newly found lands can be described as globalization in the sense of survival. After prehistoric human groups changed their habitats from trees to the ground, they started to expand their living territories. As indicated by an increasing number of prehistoric studies in recent years, prehistoric humans were much more capable to seek survival through migration than scholars previously expected; the seeds of human civilization began to sprout and spread in various continents much earlier than previously thought.
Without written record, such an extended early human history suggests that for a rather long period of time, we in the contemporary world have no idea about the economy and life of our ancestors. Judging by the observations of anthropologists on non- literate marginal societies, having no written language does not mean that a society has no production and trade. In fact, from Africa to North America and Oceania, research on aboriginal communities found not only primitive state of production and trade but much more complex transactions such as warehousing, transport, quasi -currency, pledge, guarantee and even arbitration. For instance, fur trade among aboriginals in North America and slave trade among aboriginals in sub-Saharan Africa emerged much earlier than Europeans entered into their traditional society.
Like the primitive state of life and human society, market economy is likely to emerge in diverse forms and spontaneously spread and expand. Imaginably, in the primitive state of market economy, those tribes or societies that first developed a written language had the opportunity to achieve more complex economic life and, through a positive feedback loop, create a much broader community that characterizes the early form of society. Hence, we may arrive at the inference that early human civilizations including the "four cradles of civilizations, i.e. ancient Mesopotamia, ancient Egypt, ancient India and ancient China" may came into existence in the above manner.
In the long course of early human history, apart from the emergence of written language and progress in the means of communication, other forms of market economy progress, including progress in transport tools, growth of market mechanisms and renewal of market knowledge, had been incremental and yet to achieve explosive breakthroughs across regions. Until the fifteenth century, a complete world economic and trade system was yet to appear. But if we take a closer look at intraregional economy at that time, established trade networks become clearly visible; they were rather sophisticated in some coastal areas of East Asia, South Europe and the lowlands of Western Europe. For instance, they include Venice, Genoa and Constantinople in South Europe-Asia Minor region, as well as Quanzhou and Guangzhou in China. In fact, cross-regional trade routes had already been connected but their operation was unstable due to volatile regional geopolitics and local political and economic situations. These trade routes include:
Europe - West Africa route: trade route from European peninsula to West African coast through Sahara Desert for the transport of slaves, gold, spice and ivory from south to north and horses, textiles, food and handicrafts the other way around.
Middle East - South Asia - East Africa route: trade route from India- Pakistan subcontinent/ Persian Gulf to East Africa, for import of the latter's ivory, rhino hom, leopard skin, gold and slaves and export of China's porcelain and India's textiles and other finished products.
The Atlantic Ocean - South China Sea route: trade route from Arab Peninsula, the Persian Gulf and India to China's southeast coast, for export of spice, luxury goods, medicinal materials, precious metals and rare timber and import of tea, porcelain, silk and other superior goods of China.
New continent region: trade nodes of the Caribbean and Andean regions, dominated by the trade of precious metals, red brass, ceramics, ornaments, coca and agricultural produce (sweet potatoes and peanut).
The Silk Road: Central Asia - Inner Asia connecting Jiayu Pass and today's Xi'an to the east, with access to China's mainland, and bordering today's Iran and Turkey to the west, with access to the European continent. China exported the above-mentioned traditional goods and imported precious metals, rare and exotic items, medicinal materials and spice. This mountainous trade route only prospered during Han, Tang and Yuan dynasties and had been blocked by complex geographical barriers and geopolitical conflicts in Central Asia. Since the seventh century, the Muslim world that geographically connected Asia with Europe served as a bridge of the Silk Road and also controlled the market, preventing the Europeans from profiteering from trade, as evidenced in the exorbitant prices of Chinese goods that became the privileges of the nobles. However, this also kindled the latter's desire and imagination. In fact, the great geographical discovery was originally intended to explore an alternative route to bypass the Muslim world and directly trade with China in the Far East.
Many relevant new studies also suggest that the Europeans who were more devoted to maritime navigation for geographical reasons were the earliest to accept the notion that "the Earth is round" and made repeated attempts to approach the East across the oceans in the westward direction. According to historic records, many Europeans successfully sailed across the Atlantic Ocean before Columbus landed on the Bahamas in 1492. The difference
is that Columbus had an economic mandate of the Spanish royal family: his expedition was actually a venture business exploration of a royal company.
In this sense, the failure of talks between Emperor Qianlong and Lord Macartney was inevitable - not simply due to misunderstanding. The reason is that in the two centuries before their meeting, Europe already developed its business model of foreign trade: Spain, Portugal, the Netherlands, the UK and France all established corporate mechanisms with shared risks and profits between royal families/ governments and private investors. This is rather different from Zheng He's voyages sponsored solely by the Chinese Emperor without very specific objectives and business model, although Zheng He also completed extraordinary expeditions of geographical discoveries with better ships and stronger teams in the early fifteenth century.
State sponsorship, private venture investors, imagination and daring adventurers - these factors led to the "great geographical discovery" that fueled the first round of globalization of market economies.
2. 2nd - Round Globalization: the Rise of Industrial Revolution under the Government-Business Mechanism and Global Trade System (15th -20th Century)
Driven by the business model of royal sponsorship and private investment, numerous waves of European adventures completed the first interconnection of global trade routes in human history through the Great Geographical Discovery in the fifteenth century. Colonists defeated the less well-equipped and less wellorganized native Americans, who also died of European diseases. This gave European companies unprecedented opportunities to expand and profiteer in the New World. Massive wealth flowed across the ocean and goods from the new continent, ranging from peppers to potatoes and tobaccos, found their way into Europe. Africa's slave trade supported the business of plantations in the new continent, entering into the global trade system following the above-mentioned channel.
In this backdrop, there appeared what the anecdotes described as "the British borrowed money from the Dutch, bought tea from the Spanish, sold textiles to Spain and used the latter's Mexico coins or Ghana's gold to pay debts to the Netherlands". Thereafter, European powers fought for supremacy and Britain as an emerging power attempted to control tea business and directly export commodities to China.
Meanwhile, corporate system as a basic element of Western market economy developed by leaps and bounds and the Netherlands was the first to demonstrate its institutional superiority. After over a century, European wealth flowed into the Netherlands, a lowland kingdom that emerged into a maritime hegemon for its sophisticated shipbuilding and transport. A typical example is the rise of the Dutch East India Company. During this period of time, private capital was weaned from state sponsorship and gained more and more independence, an example of which is British East India Company.
The wave of unprecedented opportunities prompted European countries to embark upon social transition. Yet instead of replacing dictatorship with democracy as advocated by the mainstream society of Britain and the US, the royal families, nobles and religious leaders in European countries reached a compromise with emerging capitalists, either proactively or passively, to recognize their private property and political rights justified by tax payment, reform social institutions that impede corporate establishment, reduce protection of the underprivileged and step in to support national companies in international competition when necessary.
As explained by historians, such a transition led by the great powers was contagious in Europe: if you do not change, you will fall behind. As a result, many European countries introduced similar reforms that led to a vibrant social atmosphere in coastal countries. Due
to different local conditions, what appears to be a compromise was achieved with more or less bloodshed. In France, such conflict caused repeated seesawing between the kingdom and the republic, which culminated in the severe French Revolution. In comparison, Britain was on the peaceful side of the spectrum: the interests of both the monarchy and emerging bourgeoisie class were protected under the constitutional monarchy system. However, British farmers faced a grim fate as they were forced to toil in factories and coalmines. The conflict spread to the young nation of the US, plunging it into a civil war. After the war, the victorious bourgeoisie class created a brandnew set of social institutions and in particular, "freed" plantation slaves into industrial workers. At the same time, modem industries comprising companies and sectors took shape.
In the context of such extensive social transformations, the Industrial Revolution of the 18th to 19th centuries spawned another great social transformation as industrial capital replaced commercial capital as the engine of economy. While steam engines, electric motors and machines unleashed immense potentials of production, they also sparked a tremendous demand to explore new resources and new markets. Industrial and commercial groups that used to rely on state sponsorship started a fierce competition for raw materials, labor and markets, which led to a wave of colonization sweeping across the globe. Trade globalization that started in the previous historic stage became a reality in this stage. Sea routes and railroads across the continents paved the way for the mercantile expansion of capitalism, overshadowing the Silk Road trade.
Meanwhile, another related social transformation in Europe exerted much more complex but equally important influence on globalization, i.e. the rise and spread of modem nation- states. In the interest of length, this transformation can be briefly described as the fierce conflicts of capitalist groups in various industrial sectors supported by the states ( kingdoms or republics) amid the Industrial Revolution and trade globalization, which led to military confrontations and wars on a broader scale. With clearly defined rights and obligations of citizens, nation- states proved much more powerful than traditional countries in mobilizing the society. As the first nation-state, the French Republic emerged as a major power by uniting the strength of its nationals.
This is another social transformation with a similar contagious effect - countries that refused to change were more likely to be defeated in a war ( for instance, the Qing Dynasties lost the Opium War against Britain due to the lack of a sense of involvement among its people. According to historic records, there were more Chinese spectators than Chinese soldiers on some occasions during the war). As a result, nation- states swiftly spread across Europe and those countries that had retained the name of kingdom also changed the nature of their original institutions to different degrees.
Under the nation-state system, the monarch has limited assets and power and the royal family is just a reputable member of the rentier class with a considerable stipend. Democratic election became revitalized during the formation of nation- states. With the right to vote as a basic right for every adult citizen comes the responsibility to defend his nation. For the ruling elites of a state, this is a perfect system for mobilizing the society. Rather than a traditional theory of the Western culture, democracy has been demonstrated by some scholars to be merely an ideological achievement with practical relevance.
The ability to mobilize the society will not only unleash tremendous social vitality, including productivity and creativity, but spawn greater risks and disasters, as evidenced in the two world wars that erupted in Europe. As will be discussed in later sections, this nation-state system embedded with democracy constitutes the single greatest barrier to the globalization of market economies.
3. 3rd -Round Globalization: Reality and Dilemmas of Global Capital Flows (21st century)
The end of the World War II ushered in a climax in the globalization of nationstate system. Ironically, while this war, which wrought unprecedented havoc to human society, was launched by European nation- states, it spurred the globalization of nation-state system. Anti- colonialism, national independence and liberation became the trends of the world in the 1940s to 1960s, marked by the milestone of the establishment of the United Nations. As its name suggests, the United Nations is an organization of "nations" coming together in unity. At a deeper level, the United Nations served as an administrative framework for the victorious powers of the World War II (mainly USA and USSR) to reshape the world order.
The Cold War that developed soon after the World War II blocked the path of countries to pursue independent economic development under the UN system. The rivalry between USA and USSR persisted for many years until the collapse of Eastern Europe's highly centralized system, which led to the dissolution of the Council for Mutual Economic Assistance ( Comecon) together with the USSR and the Warsaw Pact. In the subsequent wave of freemarket economy that swept across the globe, the General Agreement on Tariffs and Trade (GATT, predecessor of the WTO) led by the US, together with the World Bank and International Monetary Fund ( IMF) created under the UN are the most important international institutions that shaped today's world economic and trade order and financial order. The OECD, G7 and more recent G20 serve as auxiliary coordination mechanisms.
The World Bank and IMF linked developed countries with developing countries through the leverage of capital and intervened in the latter's development planning and operation to different degrees following given concepts and procedures. Nominally, the former issues loans to important commercial projects with cultural significance in developing countries, while the latter is responsible to supervise the financial status of developing countries, provide technical guidance and assist in the training of professionals, as well as offer emergency rescue funds to counteract economic imbalance when necessary.
At a deeper level, the World Bank, IMF and the Bank for International Settlements (BIS) as the Bretton Woods institutions created and maintained the post- war international financial order, i.e. a dollar- centric economic system with US dollar as the primary settlement currency. After the dollar officially went off from gold, the US was still able to maintain the dollar's status as quasi-global currency through these institutions, helped by its advantages of petrodollar, dominance of stock, bond, futures and forex markets, as well as economic and military supremacy, and used these institutions to serve its own interests and accommodate or balance the interests of other countries. In practice, these institutions would raise prerequisites to recipient countries based on Western concepts and values. In most cases, this will affect the political and economic development of recipient countries. For almost all market economies, their financial policies are more or less influenced by these three institutions. History shows that many countries had been disrupted by the World Bank and IMP's guidelines irrespective of their national conditions, which often made their situation even worse, not to mention to achieve expected results. China, however, is a rare exception.
Under the pressures of the Cold War, the US implemented the Marshall Plan to aid Europe and adopted a supportive policy towards Japan and the Four Asian Tigers, which spurred remarkable regional economic development. While countries learned lessons from the two world wars, multinational firms became increasingly interlocked through joint investment and cross ownership. This is indeed a progress compared with the first half of the century when major corporations refused to cooperate with other countries. Capitalist consortiums from developed countries further discovered that establishing labor- intensive industries in or outsourcing these industries to developing countries would significantly reduce operating costs, increase profits, bypass domestic environmental regulations and trade
unions and effectively mitigate tax burden. Thus, institutions such as the GATT ( which later evolved into the WTO) and the OECD, as well as market rules and supporting measures underpinning international economic activities proved to be a win-win solution.
With these institutions in place, Western developed countries led by the US made their first foray into industrial relocation. By investing in developing countries, capitalists would reap unprecedented profit growth as long as they maintain effective management, protect shareholders' interests and ensure unimpeded flow of international capital. International investment marks the third phase in the globalization of market economies, i.e. globalization of capital flows. After USSR's dissolution and the end of the Cold War in the late 1980s, the proponents of democracy and free market economic system scored a complete victory in theory and practice. As the world embraced the ideal of a global village with the free flow of capital across the globe as the ultimate state and world economic integration sped up, China acceded to the WTO.
In the discussions and decisions of the WTO entry, China was not only influenced by Western mainstream economic theories and public opinion but convinced of its late-mover advantage as well. China's efforts to join the WTO also aimed to overcome the diplomatic dilemma after 1989. After 15 years of difficult negotiations, China finally secured a conditional accession into the WTO in 2001. China's WTO entry not only accelerated the globalization of market economies and particularly vastly increased the weight of global capital but fundamentally transformed global industrial layout and market landscape as well - the result of these factors in combination was unexpected by Western economists and politicians. An obvious problem is that nation- state political system that used to fuel economic development clashed from within.
In the Western world, industrial relocation and free capital flow caused serious domestic industrial hollowing- up in some countries, which directly and persistently affected the employment and welfare of middle and lower class in these countries. Meanwhile, big corporations and "high- net- worth individuals" evaded tax through cross- border capital flow, compromising national fiscal health. A side effect is declining social mobility and the formation of a permanent underclass. While the elites in Western countries - beneficiaries from the third wave of globalization - paid no regard to the concerns of the middle and lower classes in their home countries, social disparities became so significant as to influence the votes and change politics. Before an antidote is found, politicians in the US and some European countries resorted to reversing globalization and populist claims.
On the other hand, for many developing countries, while the free flow of capital brought them the opportunity to allocate resources in the international market, the high liquidity of capital and particularly hot money became a potential trigger of great economic volatility. In a few rounds of global financial market volatility in this phase, Asia Pacific and Latin America suffered major blows but China remained an exception. After 15 years of China's WTO entry, most experts, scholars and mainstream media found to their surprise that China's rapid emergence is in stark contrast to the stagnation of Western countries. Most economists did not expect such an outcome.
Without doubt, China is a beneficiary from the globalization of market economies. However, China did not become successful solely by taking a free ride. From 1949 to 2001, it took two generations and numerous trials and errors before China established a wellfunctioning administrative system after a century of decline and humiliation, safeguarded its sovereign integrity, preserved its vast territories and the world's largest population ( largest source of wisdom, workforce and consumer market) and laid the foundation for national education and infrastructure construction necessary for industrial development. Moreover, China smartly protected its national industry and financial security in its WTO negotiations. China not only successfully introduced foreign
capital and learned corporate management experiences and market strategies but swiftly established the only complete industrial system in the world, resisted the shocks of the Asian Financial Crisis in 1997 and the US sub-prime mortgage crisis in 2008, and even assisted other developed and developing countries in seeking common development. Now that 15 years have passed since China's WTO entry, China has indisputably become the second largest economy in the world and is poised to bring new hope to the development of human society with its important fine qualities.
4. World Nation-State System and Globalization Process
The basic framework oftoday's international political order remains to be the United Nations Security Council consisted of five permanent members with veto rights. This international administrative system is deeply mismatched with world economic and financial order. As a result, world economic order is still dependent on geopolitical order. The globalization of market economies in the theoretical sense has never been unimpeded globally. This brings question to a highly doubtful social structure, i.e. the so-called nation-state system that emerged in Europe.
The basic belief of nation- state that sovereignty belongs to the people shook the legitimacy of traditional monarchy or theocracy to its foundation. As such, it received tremendous support from people. In modern nation states, no matter kingdoms, republics or democratic federations, the head of state (no matter kings or presidents) must act according to people's will irrespective of their symbolic or real power and irrespective of their length of tenure or intention to inherit power to their family members. In modern nation states, no one, including heads of states and their relations, may occupy all assets within national territories without limitation. Of course, such change was propelled by the rise of capitalist class.
Nation- state system clearly defines the responsibilities, powers, obligations and interests of each and every adult citizen in written or unwritten forms - something no previous social system ever achieved. Therefore, it is also believed to be a highly modernistic social system. In particular, democratic nation states based on market economy boast tremendous social initiative. During special times such as war and natural disaster, this social initiative has irreplaceable value, which is embodied in the creativity and cohesion of people.
However, the core concept of nation states is an exclusive one - nation state is an ideological and social mechanism that links a person's social rights and responsibilities with his birthplace. This is a highly questionable ideological concept and also has great risks in reality. The concept of nation divides people by the countries in which they were born, endowing them with different physical, physiological, ethical, social psychological, economic and legal definitions and plans. This is a rather ridiculous approach of social design, a mistake that ought to be abandoned in a peaceful environment. The two world wars that erupted in Europe and swept across the world and extremist ideology that gave rise to militarism, fascism and racism almost share the same ideological origin and structure although by different degrees.
In history, we have seen ravaging wars and conflicts between Britain and France, Britain and Germany, and France and Germany during the inception of nation states, as well as between other nation states on the European continent in more recent times such as UkrainePoland- Russia and the Balkan conflicts after the dissolution of the Federal Republic of Yugoslavia. These setbacks and bloodshed caused deep reflections among people in the European continent after the war, despite the existence of various schools of thought with ulterior motives and particularly vested interests that capitalized on welfare system. Drawing lessons from the two world wars, the Europeans led by some elites attempted to reverse nationalism in order to promote integration among nations and ultimately eliminate national borders for peaceful coexistence. This is the background for the emergence of the European