Chapter 10

Although recorded world history is about 5000 years old, the world economy has only existed for about 500 years. The three mainstream perspectives explain the development of the world economy – and Europe’s role in that development – in different ways: the identity perspective emphasizes the ideas produced by the European Reformation, Renaissance, and Enlightenment; the realist perspective focuses on Europe’s demography, geography, and decentralized distribution of power; the liberal perspective examines the role of technology, specialization, and institutional innovation.

The critical theory perspective, however, sees these mainstream arguments as problematic and argues that Europe’s development does not follow a pattern that other states can or should follow. The critical theory perspective argues that western development is a consequence of Europe’s exploitation of other cultures and states, which involves military imperialism and colonization, as well as cultural marginalization and the spread of the oppressive institutions of capitalism. This development was a result of deep historical and systemic processes that weren’t limited to specific states or isolated factors.

European states were led in colonialism by Portugal and Spain, but they were soon joined by England, the Netherlands, and France. Colonialism rested on the transport of goods to colonies, the extraction of natural resources (including gold and silver) from colonies, and the enslavement of native and non-European populations. Three main institutions developed to carry out this exploitation – commercial companies that led colonization, plantations that extracted resources, and the slave trade. Colonialism was a form of exploitation – Europe’s growth came at the expense of non-European cultures and states, who were stripped of their own ability to develop. Almost the entire world was tied into the European colonial system.

The dynamics set in motion by European colonialism continue today. Dependency theory explains that colonialism distorted the economies of colonized cultures and states, and that those distortions persist even after those colonies became independent, keeping them from developing fully. A fundamental inequality between developed and exploitative metropoles and underdeveloped dependencie or satellites exists, and the terms of trade are set against the former colonies.

World systems theory similarly sees global inequality as a consequence of a global capitalist system. Capitalism creates a division of labor, wherein developed core states hold a monopoly on leading products, while peripheral states and semi-peripheral states produce low-profit or lagging products. Core states jealously guard their monopoly, leaving peripheral states at a permanent economic disadvantage.

Exploitation also manifests in the institution of the multinational corporation. Multinational corporations internalize the global division of labor and perpetuate the advantages of core states. They operate outside the control of the states in which they conduct business, and they exploit labor and distort states’ fiscal and monetary policy.

Colonialism has resulted in the marginalization of many groups, including indigenous populations and women. Indigenous peoples lose control of their resources and land. Women gain low wages for work in export zones and are not paid for household services; the informal economy in which they work is neglected; and the environment in which they live is destroyed.

Learning Objectives

After reading this chapter students should be able to understand:

• The key historical events that led to the development of a European-led global economy.
• The arguments for the emergence of a Europe-led global economy offered by the mainstream perspectives, and the reasons why the critical theory perspective rejects those arguments.
• How exploitation, colonialism, imperialism, and marginalization are interconnected.
• What the major institutions of exploitation are, both in a historical sense and today.
• How the critical theory perspective – and specifically dependency theory and world systems theory – explain persistent global inequality.