Table of Contents

Foreword

Abstract

Introduction

An intuitive first analysis of the data

The Geography of Unequal Development

The five pillars of international inequality - Giovanni Arrighi’s and Samir Amin’s view of world development in the framework of development theory

Capitalism and cycles

Even in times of globalized capitalism, the social factor is important for long-run development: Casino capitalism, 1980-93

On the way to Sparta and back: the marathon, 1960 - 95

Navigating between Scylla and Charybdis. Tentative generalizations on the global scale and a case-study for the Polish case

The geography of unequal development in Poland, 1992 - 95

Towards a sustainable EU-accession policy

Once again - the issue of pension reform and transformation

Eastern Europe in the World Economy

The EU accession of Poland

Samples and data on a world level

Kondratieff cycle data

The geography of the development marathon

Inequality and economic growth

The author would like to thank here Christopher Chase-Dunn from Johns Hopkins University for his assistance and comments for this publication at the World Systems Archive of Colorado University.

Internet publishing greatly contributes to the democratization and accessibility of social sciences around the globe. Social science should be at the service of human kind. It is especially to the students and academics in these submerging countries in the ‘former Second’ and ‘Third World’, that this text is made available free of charge on the Internet. Thus, this publication is also understood as an invitation to develop critically the hypotheses presented in this study.

In the course of the preparation of this publication, Bartosz Wilczek in Warsaw performed the task of preparing the html. files for this Internet publication. The text was prepared in the context of the intensive debate about the future of the accession process of the East Central European countries to the European Union. The opinions expressed in this electronic publication are those of the author and not those of the Austrian government, whose Counselor for labor and migration affairs the author was from 1992-99 here in Warsaw.

Warsaw, Spring 1999

Abstract: This electronic publication starts from the assumption of the reality of the process of unfettered globalization as the basic characterizing feature of the world economy at the end of the millennium. ‘Emerging markets’ under such circumstances become an almost Orwellian misnomer; instead, we should speak of ‘submerging markets’, allowing for the fact, that more than five hundred million people in such ‘emerging markets’ around the globe suffer from the severest recession since the Great Depression in the 1930s. Various key elements of development strategies from 1960 onwards are analyzed in this context to determine, why the unfortunate ones are so unfortunate, and the less unfortunate ones less unfortunate. Thus, the present publication takes up an issue, that was touched upon by Jeffrey Kentor from Johns Hopkins University in a recent publication (1998): the very long-run effects of MNC/TNC penetration. Transnational capital penetration has at best only a mixed result for the host countries concerned during the development marathon, with inequalities and social imbalances rising in the long run. The article shows the relevance of social-justice-based human capital centered development strategies and compares the relevance of these strategies for world development 1960-95 with strategies, based on mass migration.

This is one of the first systematic studies of TNC penetration and long-run economic growth in the world economy over the entire period of the 1960s, 1970s, 1980s and 1990s. It is also one of the first cross-national studies of world development that already integrates the newly integrated countries of East and Central Europe into the sample of analysis. We are thus definitely leaving behind in macro-quantitative research the old divisions of the world that existed before the Fall of the Berlin Wall in 1989. To understand the dynamics of globalization, not only the short-run analysis is necessary. As we have tried to show elsewhere (Tausch, 1988, for a survey of the major theories and methodological concepts, of importance also in this empirical follow-up study), the period of the 1960s, 1970s, 1980s, and 1980s, for many states of the world their entire history as independent nations, can be distinguished analytically into three different phases of world capitalism: first, the full swing of the A phase of the ‘fordist’ Kondratieff cycle of world capitalism (1932 - 1982), based on mass demand and mass production, social partnership and Keynesianism, that ended around 1967/68 and gave way to the B phase of ‘Fordism’ with its two major recessions, 1973/75 and 1981/82. This second phase of our ‘long duré’ - study of the entire capitalist world system, the lost decades especially in the non-oil-exporting developing countries, gave way, according to our reasoning, to a third phase, which is a new Kondratieff cycle, characterized by

• electronics and bio-technology
• neo-liberalism
• the opening up of global financial markets
• the renewed attempt by the United States to provide global leadership, this time as the last remaining superpower, and the drastic re-organization of the international system, with the end of the Soviet Union and the final and full re-integration of China into world capitalism
• the re-integration of the East European semi-periphery into world capitalism
• instability, war-lordism, in many parts of Africa and Central Asia and the increasing power of transnational crime in such countries as Colombia or Nigeria
• the rise and at least temporary, severe fall of the Southeast-Asian newly industrializing countries

We have maintained elsewhere, that the choice of the time period greatly determines the outcome of cross-national development research, because each Kondratieff cycle A and B phase has its own particular logic of rise and decline (Tausch and Prager, 1993; Tausch, 1997, 1998). There is a strong reason to believe that the very last phase in the history of world capitalism, roughly lasting from 1980 to the present, characterized by the dominance of neoliberalism, open financial markets, and renewed US hegemony, largely determines the outcome of the entire long duré of the period 1960 - 1995 (for which UN data are now available). For one, never before in history, globalization (the increasing cross-border trade of goods, services, capital, and labor) characterized so intensively the world economy (Boxberger and Klimenta, 1998). As the Asian and Russian crisis, and before that the agony of much of Latin America, the Arab world, Eastern Europe and Africa during the 1980s and the early 1990s clearly showed, the development progress of entire generations was practically wiped out in a few months of financial instability, followed by the familiar packages of ‘adjustment’ and stabilization, dictated by the IMF. And secondly, never after 1917, the year of the Russian Revolution, we have had such a clear integration of the entire globe, including even the former socialist countries, into the mechanisms of the world economy.

Our analysis is a focus on the problem of the ‘emerging markets’. The term ‘emerging markets’ was coined to lump together these countries with much of Asia and Latin America. And economic growth in most of these ‘emerging markets’ is in a deep crisis (much of Africa submerged long ago, but that is another matter). A look at the Economist GDP growth predictions for 1999 (unweighted by population growth) for the main ‘emerging’ markets of the world makes this clear at one glance, and suggests, that half a thousand million people in such ‘emerging’ markets will be faced - in reality - with the submerging of their societies in the turbulent seas of world capitalism.

Although capitalism in general will dive out also from these turbulences, the human toll - in terms of instability, raped religious or social minorities, will be enormous, marking perhaps the beginning of the phase of de-legitimatization of the global order (Goldstein, 1988; Tausch, 1998).

Perhaps the situation of the social scientist is like that of a doctor: the illness is more desperate than ever before, but much better data now exist for cancer research. Indeed, economic and social data about long-run performance of societies in the world economy now exist for more than one hundred countries since the early 1960s. More and more data also emerge about the re-capitalized countries of Eastern Europe and the former USSR (a term which the current author now prefers over the term ‘transformation countries’), which makes the cross-national analysis of the preconditions of success and failure in the world economy a truly breathtaking enterprise.

Is economic growth and social cohesion and development in the time of globalization a question of endurance, of strategy, or of power? Does collapse and death await the successful runner, or enlightenment on the way back, after a futile first distance of 140 kilometers, as in the story above? What are the predictions of success to be encountered on the long run? Is migration any help? What is the effect of the human capital effort on long-run development? And what about social justice and the social security effort of a nation? Many of the strategies of the day might turn out to be monsters in the end.

As Immanuel Wallerstein so correctly remarked in his recent website - Commentary 3 on Japan, the advantages in contemporary capitalism are rather passing, and it is the long run, and not the short run, which is decisive (Wallerstein, 1998). Years ago - when Asia was ‘in’ - we all heard what we have to learn from the Pacific Age of capitalism. Now we hear that crony capitalism is no good, and that we should have known it all before. Sorry - where were the analysts of ‘crony capitalism’, when Latin America was told to follow the path of the Pacific Age of capitalism? Following the radical political economy tradition of social scientists like Ted Wheelwright, some Pacific Gods turned out to be monsters long ago, and as some of the re-converted capitalist countries set out on their way on the marathon race to Brussels, a God Pan, an updated - human capital centered social ‘Keynesianism’, that looked after flocks and shepherds, might be helpful to them in the end, although his first appearance is characterized by horns and legs of a goat, just as in the ancient Greek story (Longman, op. cit.). Such a God Pan, that gently leads the way for the exhausted marathon runner, in the end might be - the horrible horns and legs notwithstanding - the human capital effort and a policy of social justice. It might be that the following words are those of a malicious European, taking a critical look at the ‘market economy superstar America’ literature, that is poured on us daily after the passing of the Pacific Age of capitalism exhortations, now substituted by the crony capitalism tradition. But it is entirely possible, that in a few years, if not months, after a thorough crash at Wall Street, we all of a sudden will hear the flutes of Pan, inviting America to change course, or - more realistically - preceded by an isolationist, right-wing, liberal Republican backlash against 8 years of Clinton in power.

The long duré investigation for example tells us, that ‘superstar’ America was only 61^st in the list of economic growth in the world from 1960 to 1995, and that there are powerful forces that this is not going to change. The long dure also tells us that this is the time of the European semi-periphery, South and East, that will find excellent chances in the medium term. Our long-run investigation started with such simple analyses: who has been developing most efficiently over the last decade and over the last three decades, and why? For the EU-accession countries, the macro-quantitative analysis of the question which society in the world was more successful than the others in terms of growth, social development and stability, is of vital importance for the future debate about their accession strategy. Broadly speaking, we arrive at a distinction between a ‘Greek’ or ‘Philippine’, aid and migration-driven model, and a knowledge-based, human-capital oriented model that even at times of world economic turbulence and globalization seems to offer a decisive ‘comparative edge’ over other strategies.

Theoretically, we arrive here at a vision of world development, which was structured mainly by the French debate on world capitalism, developed by authors like Samir Amin. Development stability, above all, is a function of power; and in the long run, those prevail that wield power or are allied with power. For that reason alone, the extension of the European Union (and, as we shall develop, a European-centered security concept in the longer run) is an absolute necessity for the East of the European continent. Our results partially re-vindicate the Amin hypotheses, and also point into the direction of the re-birth of the European periphery. But this re-birth has conditions, and it is up to the transition countries to seize the chance. This is the more hopeful aspect of our study; provided that the countries of East-Central Europe follow up their accession strategy with massive investments in education.

The UNDP data series, 1998, about long-run growth and the data series about early death, 1997, yield many surprises for the scholarly and the policy-making community alike. First of all, the data about economic growth marathon 1960-95 are (yearly growth rates of the GDP, 1960-95):

Countries, whose names are written in indented letters, were most severely affected by the recent global financial disturbances.

The countries, usually termed industrial nations with high human development, have the following growth rank-order:

This comparison makes the growth experience of the European ‘mezzogiorno’, including the Eastern Mediterranean, all the more relevant for Eastern Europe. The former socialist nations are ranked in the following way:

The so-called ‘developing countries’ are ranked in the following way:

The second main dependent variable in our study is early death. The rank scale of the avoidance of early death in the world system is the following:

Legend: a further assumption must be mentioned here: The values for economic growth in Germany and in Rwanda, 1960-95 had to be estimated from UNDP data about their performance during the late 1980s and the 1990s, since data for the entire period are not contained in the UNDP HDR data set. For 132 countries, the estimation relationship between short-term per capita economic growth 1980-94 (for which we have complete UNDP-data for our 134 nation sample (UNDP, HDR, 1997) and long-term GDP economic growth 1960-95 (for which the data from Germany and Rwanda are lacking) is the following:

(1) y (long-term growth) = 0.7455 + 0.7242 * short-term growth

Long-term growth for Germany is thus estimated to be 2.3% p.a.; while the value for Rwanda is -0.1% p.a.

One of the most persistent and robust findings of a serious analysis of world development 1960 - 96 is the fact, that the zones of development instability in the world economy have shifted and extended. In terms of a marathon race, there are those, who had a very poor start or were relegated back to the starting line all along the race, and there are those, who stumbled while approaching the finish, and finally, there are those unfortunate ones who even - during the race - missed the direction and raced back to the starting line, instead of running towards the finish. Their encounter with God Pan might, we hope, still come, but their experience rather recalls the experience of

The danger of the present-day world constellation is, that global capitalism is about to smash its own most spectacular success stories over recent years. Two of the most dynamic zones in recent years, East Asia and Latin America, are further threatened by financial instability, while growth in the centers was sluggish. At the time of preparing this essay, the Economist newsmagazines pictured a small vessel, with a Chinese flag, at the margin of a huge abyss. And Russia’s treadmill of unsuccessful capitalism continues. In Western Europe, the center of dynamic shifted from the European Center to the former European Periphery. Norway, Ireland, Poland and Slovenia are the only high-growth zones of the first half of the 1990s, while wide regions of the former USSR and Africa have become zones of almost inescapable stagnation:

Map 1.1a: growth in the world system, 1990-96

Legend: economic growth (real GNP per capita per year). Source: Fischer Weltalmanach, 1999. The darker, the higher the growth rate.

Map 1.1b: unemployment in Europe

Legend: our own compilations from Business Central Europe, March 1999, and Fischer Weltalmanach, 1999

The future will tell, whether or not capitalism becomes a

The further study of the long period, 1960-1995, on the basis of the UNDP data set (1998), provides a still more alarming picture about the stability and instability of world economic growth. The UNDP calculated, in which year a nation had its lowest and its highest per real per capita income during that period. Only a very small number of countries - mainly the centers and a few exceptions in the periphery - followed the ‘normal’ path of having the lowest real per capita income in 1960, and the highest in 1995. There was an alarming trend of wide regions of our globe having their lowest historical income value over the last 4 decades in 1989 or even later. In terms of a marathon race, there are countries, which - at least once during the race - were relegated back to the starting line, often running for 10 or 20 kilometers already in vain. The UNDP data series also permits the analysis of the question, in which year a country achieved its highest per capita income in real terms. A very fortunate and small number of countries achieved their highest GNP per capita in 1995, while others have to realize that they were better off ten, fifteen, or even twenty years from now. Their racing along the last 10, 15, or even 20 last kilometers was totally in vain, and they have to start again by kilometer 10 or 20. Will they ever mile number 26? In terms of the marathon race, they stumbled on their way while approaching the finish, or they even took a wrong direction. It is no wonder, that serious questions arise about the nature of the international system that permits such a periodic crushing of the economic progress of large sections of the earth’s surface. After the Asian crisis, which stable and dynamic zones remain in the world periphery and semi-periphery? The East and the far North in the world system are under the threat of marginalization, too. Canada, Iceland, Sweden, Finland, Russia, and the three Baltic States are all confronted by the fact that their real income in 1995 was lower than that achieved earlier on in their development history. Interestingly enough, also Switzerland does not benefit from its isolated position in Europe.

We now try to answer a third question. Which countries had an overall 35 years positive development experience for the period 1960-95, and which countries had a negative, reverse record? To achieve a measurement scale, we simply subtracted the year with the lowest real per capita income from the year with the highest real per capita income. Ideally, this will lead to 35 as the maximum value. The worst performers will have their lowest value in 1995, and their highest value somewhere in the 1980s or even earlier on. Libya, Mauritania, and Chad achieved their highest income back in 1970, and 82 countries out of a total of 159 classified nations were richer before 1990 than today. 55 countries followed the ‘ideal path’ of having their highest income in 1995, while 104 runners out of a total of 159 classified competitors stumbled on their way to the development marathon finish. Even more dramatically, a lamentable 13 nations - in Africa and the former USSR - were from 1960 to 1995 never as poor as in 1995; an astonishing number of 34 nations were throughout the period never as poor as in the 1990s, and 58 nations out of 159 classified competitors reached their poverty climax in 1980 or after, while only 88 nations can look back at the 1960s as the period of their worst well-being, measured in real per capita income.

These ‘tectonic’ shifts in world economic growth 1960-95 are now exacerbated by the dramatic consequences of the Asian and Latin American crashes, which threaten to ruin the little stable growth portions of the world economy, left from the debacles of the oil crisis, and the recession of the early 1980s and 1990s.

Political and/or military power seems to be one of the major pillars of the stability of growth in the long run. Apart from ‘special cases’ like Colombia or Thailand, whose very long-term economic stability again must be questioned, or might be explained by narco-capitalism, most of the ‘dark zones’ of thoroughly stable capitalist development throughout the period 1960-95 showed one or more of the following characteristics

1. membership in a world political alliance with the US as the hegemonic power (NATO, ANZUS et cetera)
2. membership in the European Union or
3. a program of nuclear armaments of their own, like China, India and Pakistan

The overall results of the ranking process for industrialized nations are also surprising:

The United States rank only 61^st among the nations of the world in terms of long-term economic growth

Dependency and world system theory hold, that poverty and backwardness in poor countries are caused by the peripheral position that these nations have in the international division of labor. Ever since the capitalist world system evolved, there is a stark distinction between the nations of the center and the nations of the periphery. Fernando Henrique Cardoso, when he was still a social scientist, summarized the quantifiable essence of dependency theories as follows:

1. there is a financial and technological penetration by the developed capitalist centers of the countries of the periphery and semi-periphery
2. this produces an unbalanced economic structure both within the peripheral societies and between them and the centers
3. this leads to limitations on self-sustained growth in the periphery
4. this favors the appearance of specific patterns of class relations
5. these require modifications in the role of the state to guarantee both the functioning of the economy and the political articulation of a society, which contains, within itself, foci of inarticulateness and structural imbalance (Cardoso, 1979)

Of lately, there has been a growing concern about mass demand as the motor of capitalist development in the centers. Already in his famous macro-economic model, Nicholas Kaldor explained the conditions of growth of a capitalist economy in the postwar-period by this mass demand. If mass demand is seriously undermined by the process of globalization, we are back to the long-term stagnation traps of 19^th Century capitalism. Let total product Y be the sum of wages, W, and profits, P, let there be the identity between savings and investments, I = S, and let us divide the savings rate S into savings out of workers’ incomes and out of profits, and let savings of workers Sw be proportional to wages and savings of profit income recipients Sp be proportional to profits, we arrive at the final, but still tautological formulation, that profits are a function of investments:

1. Y = W + P
2. I =S
3. S = Sw + Sp
4. Sw = sw * W
5. Sp = sp * P
6. P/Y = f (I/Y)

At given propensities to save out of profits and wages, the profit rate is a function of investments. On the way to a model of the real economy in the postwar period, Kaldor now says, that real wages have to be above subsistence wages, the profit rate must not fall below a certain minimum, the share of profits is institutionally determined at least at a certain minimum, and the capital output ratio must not be influenced by the profit rate. Only these conditions, Kaldor thinks, assure that the clear causal relationship between investment and profits holds. Else, especially, when wages fall down to the subsistence level, the Keynesian mechanism to guarantee full employment will not be in force anymore, output will be limited by available capital, and not by labor, and finally, the classic and not the Keynesian adjustment mechanism will be in operation: the surplus, available for investment, determines investments, and not investments savings.

Data limitations from the transformation countries severely limit the applicability of the structural equations, mentioned in Tausch, 1998, on the long-run development process. The following scheme should be applied to express the main theoretical expectations:

Scheme 1.1: the expectations of the three main competing development theories:

Source: our own compilations from the theoretical literature

It is no wonder, that in an age of globalization, ‘critical’ theories of world capitalist development are gaining ground as a means of interpretation of these contradictory realities. The international system in the 1990s is characterized, as Arrighi correctly remarks, by two tendencies

1. the growing international competition between the three power blocs, US, Japan and the European Union
2. the relative stability in the international hierarchies

For Arrighi, the GNP per capita at current exchange rates is the best available measurement of the goods and services that the residents of different countries command on the world markets (Arrighi et al., 1996a). Personally, I have no doubt about Arrighi’s results, although the implementation of his research program into empirical tests, based on polynomial regressions, might be surprising to some observers (see below). The international system is characterized by the relative stability of the long-run distribution between peripheries, semi-peripheries and centers: that is Arrighi’s main research result. To control Arrighi’s results, we use a slightly different methodology than his own (see equation (2), below). For us, the international hierarchy of the 123 countries of the world with fairly complete UNDP data about the social and economic system (listed in descending order of their UNDP Human Development Index) is also a stable hierarchy of real purchasing power parity rates (PPP $) in relation to the USA, the country with the highest PPP $ value in both 1960 and 1990 (USA = 100). The exponential regression lines for 1960 and 1990 show, that the ‘band spread’ of international distribution has widened, and that a considerable number of states even experienced a relative downward-mobility, while less than half of the states in the world system experienced an upward mobility, as evidenced by the two exponential trend lines and their cutting point:

Graph 1.1: aspects of international income distribution, 1960-1990

Legend: real income per capita in purchasing power parity rates and constant US $, 1960 (left hand scale) and 1990 (right hand scale), ranging from the highly developed nations to the poorest countries. Put in simple terms: there is a trend, that the poorest countries lose in relative terms.

Arrighi’s method, , by contrast, is based on the following regression analysis of UNDP data about world development from 1960 onwards

2. % of world population = a₀ + b₁ * (ln (GNP per cap/World GNP per capita)) +-b₂ * (...)^{^2} +- b₃ * (...)^{^3} ....

Alternatively, Arrighi’s own peculiar methodology can also be applied:

Graph 1.2: Arrighi’s hypothesis of the constancy of international inequality

Legend: Giovanni Arrighi developed the following method to measure world development polarization: on the x-axis you have the logarithm of the per capita income for each country of the world, divided by the world per capita income of the respective period; on the y-axis you have the share, that each country of the world system has in total world population. Our own calculations from UNDP, HDR, current issues.

Legend: results according to our methodology as compared to the results, based on Arrighi’s method, based on the following regression analysis:

% of world population = a₀ + b₁ * (ln (GNP per cap/World GNP per capita)) +-b₂ * (...)^{^2} +- b₃ * (...)^{^3} ....We used here, like Arrighi (1996a), a polynomial regression of the 6^th degree (Arrighi, 1996a; pages 11 and Figure 7)

Whatever methodological preference we have, our analysis confirms the shape of distribution, expected for the dependency model of global polarization, and certainly not the modernization hypothesis, which clearly would expect a closing of the gaps. Our results also show, that the W-shaped distribution with strong semi-peripheries, expected by the world system approach (Arrighi, 1996a), has become weaker over time, resembling more and more the distribution, expected by classic dependency theory.

Also, the emergence of dozens of nations after 1989 makes cross-national development research in the world of today an especially difficult task. Yet in the name of intellectual honesty and political foresight, such an attempt must be made, integrating the development lessons and experiences of Eastern Europe and the former USSR in a now truly globalized economy. Unfortunately, the lack of appropriate data severely limited the analytical possibilities of this investigation. Nevertheless, some important conclusions can be drawn in the light of our earlier debate. How ‘general’ is the ‘particular’, and how ‘particular’ is the ‘general’ path of world development from the 1980s onwards? Arrighi wrote in 1995:

On the other hand, it is clear that

Antigua, Botswana, China, Cyprus, Dominica, Hong Kong, Maldives, Mauritius, Saint Kitts, Saint Vincent, Singapore, South Korea, Thailand

had a GNP per capita growth rate of 4.5% or more per annum during 1980-93. The prediction of most world system theories for the future long-term prospects of the capitalist system are gloomy. Chase-Dunn and Hall cite especially population growth with ist consequence on natural resources and pressures for migration as the elements that will ultimately cause systemic decline (Chase-Dunn and Hall, 1997: 199). Our reading of the post-1980s tendencies of world development is now in at least some accordance with hypotheses, put forward by Amin. For Samir Amin (1997), ascent and decline is largely being determined in our age by the following ‘five monopolies’

1. the monopoly of technology, supported by military expenditures of the dominant nations
2. the monopoly of control over global finances and a strong position in the hierarchy of current account balances
3. the monopoly of access to natural resources
4. the monopoly over international communication and the media
5. the monopoly of the military means of mass destruction

Performance over the last decades teaches us an important lesson about the evolving mechanisms of the future Kondratieff cycle, that began - our reasoning went - in the mid-1980s (Tausch, 1998). Let us recall, that for dependency and world system theory in the tradition of Samir Amin (1975), there are four main characteristics of the peripheral societal formation

1. the predominance of agrarian capitalism in the ‘national’ sector
2. the formation of a local bourgeoisie, which is dependent from foreign capital, especially in the trading sector
3. the tendency of bureaucratization
4. specific and incomplete forms of proletarization of the labor force

In partial accordance with liberal thought, (i) and (iii) explain the tendency towards low savings; thus there will be

1. huge state sector deficits and, in addition, their ‘twin’
2. chronic current account balance deficits

in the peripheral countries. High imports of the periphery, and hence, in the long run, capital imports, are the consequence of the already existing structural deformations of the role of peripheries in the world system, namely by

1. rapid urbanization, combined with an insufficient local production of food (in the developing countries, urban population growth in the period 1995 - 2015 will be 2.9% per year; UNDP, 1998)
2. excessive expenditures of the local bureaucracies
3. changes in income distribution to the benefit of the local elites (demonstration effects)
4. insufficient growth of and structural imbalances in the industrial sector
5. and the following reliance on foreign assistance

The history of periphery capitalism, Amin argues, is full of short-term ‘miracles’ and long-term blocks, stagnation and even regression. Our graph shows the dramatic decline, measured in real GDP per capita in 1987 $ for Eastern Europe during the world economic crisis of the 1980s (a crisis, which it shared with the Arab nations, Latin America and Sub-Saharan Africa); Latin America recovered more rapidly, however, while East Asia, South Asia and South-East Asia forged ahead from 1960 to 1994, with East and South-East Asia and Latin America thrown into a crisis in 1997:

Graph 1.3: income polarization in world capitalism - 1960 - 1994

Legend: real income, measured in real GDP per capita in 1987 during the world economic crisis of the 1980s and beyond (semi-log-scale). Our own compilations from UNDP, 1997. The data are:

Table 1.1: income polarization in the capitalist world system, 1960 - 1994

Dependency has, according to Amin, a commercial, financial and technological aspect. ‘Rent seeking’ - originally a neo-liberal concept, interpreted here from the viewpoint of dependency theory, - has ist basis in big landholding, which throughout the periphery was introduced, supported and upheld by colonial and post-colonial structures. Profitable investments in many periphery countries are - in part - constrained by the (emerging) unequal income distribution, which again determines, that the local ‘surplus’ is being squandered by luxurious consumption, transferred abroad in the form of capital flight, or being used for speculation. Just to illustrate Amin’s point: in the newly capitalist countries of Eastern Europe, only the Czech Republic, Hungary, and Poland attracted $bn 7.0 or more foreign direct investment. Foreign direct investment in Russia is just $bn 6.5, while recent poverty data on Russia are just alarming. Russia concentrates within ist borders around half the income poor of the entire region, numbering in all 60 million poor Russians (poverty is defined here as $4 or less a day). Another 60 million Russians work in the shadow economy or live from crime, that now controls 45% of Russian GNP: and these are statements by the government, and not by Radio Liberty... (former Interior Minister Kulikov, quoted in Agence France Press, 2^nd July 1997).

In the entire region of Eastern Europe, income poverty increased at an alarming speed between 1988 and 1994 - from 4% to 32% of the total population. 62% of all Russian children and 34% of the aged are poor; the suicide rate increased by more than 50% and the homicide rate more than doubled against 1989. 9.6% of all people are not expected to survive to age 40, 38% of Russians are living below the World Bank absolute world poverty line of a dollar a day, and the Human Development Index has fallen, compared to 1993 (UNDP, 1997). The poorest 20% have an income of 881 $ per capita and year in terms of real purchasing power, while the richest 20% have 12804 $ per capita and year (UNDP, 1997). Under those conditions, the eastward extension of the European Union cannot be compared with the earlier extensions of the Union:

Map 1.2 Screening the Acquis Communautaire at one glance

Socio-economic maturity

Politics of gender equality

Insecurity

Note: data for Slovakia, Switzerland, three states in former Yugoslavia, and in Transcaucasia were not available for this analysis. The map neatly shows, apart from the devastating effects of drinking habits on the crime rate, the effects of the expansion of transnational crime - very endangered countries, the ex-USSR and Denmark, as level 1 countries, the Balkans and Finland at level 2, Portugal, Belgium, Italy, Slovenia, the Czech Republic and Poland at level 3, Germany and Sweden as the next main target countries of transnational crime at level 4, and the rest of Europe still at level 5. For an in-depth analysis of these tendencies, see also Committee for a Safe Society at http://www.alternatives.com/crime/menu.html

Past and present foreign domination and colonialism cause long term structural imbalances. Countries as far apart as large parts of Africa and Asia, just as Poland from 1795 - 1918, were not constituting a national state during the important era of the Industrial Revolution. Their economies were geared to the needs of others, i.e. their colonizers. The structural heterogeneity between the different economic sectors on the one hand and the ‘modern’, export oriented sector, the medium sector and the ‘traditional sector’ in agriculture, industry and services, became the main reason for the unequal income distribution in the countries of the periphery. Colonial trade, foreign investment in the 19^th Century, import substitution in the first half of the 20^th Century, and the new international division of labor that we observe from the middle of the 1960s onwards did not really change the structures of inequality in the world system. While mass demand and agricultural structures (Elsenhans, 1983) were responsible for the transition from the tributary mode of production in Western Europe to capitalism from the Long 16^th Century onwards, periphery capitalism was and is characterized by the following main tendencies (Amin, 1973 - 1997):

1. regression in both agriculture and small scale industry characterizes the period after the onslaught of foreign domination and colonialism
2. unequal international specialization of the periphery leads to the concentration of activities in export oriented agriculture and or mining. Some industrialization of the periphery is possible under the condition of low wages, which, together with rising productivity, determine that unequal exchange sets in (double factorial terms of trade < 1.0; see Raffer, 1987 )
3. these structures determine in the long run a rapidly growing tertiary sector with hidden unemployment and the rising importance of rent in the overall social and economic system
4. the development blocks of peripheral capitalism (chronic current account balance deficits, re-exported profits of foreign investments, deficient business cycles of the periphery, that provide important markets for the centers during world economic upswings)
5. structural imbalances in the political and social relationships, inter alia a strong ‘compradore’ element and the rising importance of state capitalism and an indebted state class

Methodologically, this essay is again in the tradition of cross-national development research (see for surveys of the vast literature, Tausch/Prager, 1993, Tausch, 1997; and Tausch, 1998, for further methodological concepts, also used in this study).

The analysis of the marathon is complicated by the fact that capitalism develops not smoothly, but with very strong and self-repeating ups and downs, called cycles. Our analysis starts from well-known empirical research results of Joshua Goldstein, Volker Bornschier, and Luigi Scandella; and we just re-analyzed and enlarged their perspective on cycles in some ways (Tausch, 1997, 1998). Cyclical fluctuations have also a profound effect on cross-national comparisons of economic growth and societal development in the medium and long run. What could have been spectacular long-run growth, in the end might turn out to be just a short run cyclical spurt after a long recession.

Our leading indicator of the process of dependence and globalization is the refined UNCTAD version for the old MNC (multinational corporation) penetration indicator of a country in the present Kondratieff-cycle. The UNCTAD MNC penetration indicator is based on the concept of the share of FDI stock in terms of total host-country GDP.

The more dependent a country is in the system of the world-wide market economy, the greater will be the penetration of ist economy by transnational capital. Dependency theories (Cardoso/Faletto, 1971) hold, that the countries of the periphery were integrated into the world-economy in the following sequence of events

1. desarrollo hacia exterior (development to the outside)
2. desarrollo hacia adentro (inward-looking development)
3. transnacionalizacion de los mercados internos (internationalization of the internal markets)

Starting from the late 1950s, the transnational system increasingly dominates the industrialization process of the periphery and the semi-periphery (phase iii). The penetration of the host countries by transnational investment becomes the most important scientific yardstick of dependency (Bornschier/Chase-Dunn, 1985).

To these phases in the evolution of the international division of labor, one would have to add

4. financial capitalism and globalization

as the latest stage of center-periphery relationships during the 1980s and 1990s.

Cycle time plays, as we already stated, an important role in our approach. Arrighi’s thought is especially worthwhile mentioning here: that the logic of accumulation on a world scale shifts along time, and that we again witness during the 1980s and beyond a deregulated phase of world capitalism with a logic, characterized - in contrast to earlier regulatory cycles - by the dominance of financial capital. Arrighi further teaches us that even a century can be a ‘short run’ in the evolution of world capitalism. For Arrighi, there are signal crises of world capitalism (the usual Kondratieff depressions), and there are terminal crises of the world system, like the great crash of the early 1340s, which marked the beginning of the Genoese age, the 1560s, which marked the beginning of the Dutch era, the 1750s and 1760s, which marked the beginning of the British era, and the 1930s, which were the terminal crisis of British world capitalist dominance. Regulation can be successful, like after 1560, and 1930, and deregulation can be successful, like after 1340, 1760, and - most probably - the 1980s (compiled from Arrighi, 1995).

We think it fairly safe to assume, that the present recession is not a forthcoming terminal crisis of the capitalist system. The risk for such a crisis would be rather larger in the second half of the 21^st Century, even allowing for the shortening of the crisis-mechanism of the world capitalist system. Even at the risk of gross oversimplification, the following scheme could be drawn:

Scheme 1.2: terminal crises of capitalism

Source: our own compilation from Arrighi, 1995, and Tausch, 1998. The above graph can be interpreted only as a very rough simplification.

The long cycle literature, largely overlooked by macroquantitative development studies, tells us why there is a recurrent pattern of instability in the social orders both at the level of national society as well as at the level of the international system. It also explains the often puzzling aspect, how different studies, using different time perspectives, reach different results. There is no single ‘correct’ theory of economic growth and development, but only theories that explain correctly growth and development at a given, cyclical time period.

Long cycles, themselves to be explained by at least 13 different types of theories, by themselves are quite a strong argument in the debate about the long-run viability of the world-wide market economy: the recurrence of cycles, depressions and wars was thematically portrayed, amongst others, by Scandella (1998), Goldstein (1988), Bornschier and Suter (1992), Bornschier (1988, expanded and updated English version 1996), Tausch (1998) and Arrighi (1995). The intense controversy about cycles should only be mentioned briefly here; for the policy-maker perhaps more important is the fact, that after the economic crisis of 1825, the stock exchange collapse of 1873, the Black Friday of 1929 and the world recession starting in 1973/75, world capitalism has experienced quite severe downswing-phases, that hit with elementary weight especially the countries of the periphery and the semi-periphery. The Kondratieff cycles of approximately 40-60 years duration and the Kuznets cycles, 18-22 years long, are especially relevant for our understanding of the ups and downs of world economics and politics: our data series, constructed from Goldstein’s original data, is explained quite markedly by the application of the Kondratieff and Kuznets-cycle hypotheses, even when there are no data filtering or smoothening operations being performed. And thus, we have to disagree in one fundamental aspect with Chase-Dunn and Grimes, 1995: Kondratieffs exist, especially when you filter out the very short-term Kitchin cycle. And add to this the lagged movement of world prices and interest rates, which are part and parcel of the cycle structure (Scandella, 1998; Bornschier and Suter, 1992; Tausch, 1998). The detailed empirical evidence on cycles is to be found, amongst others, in Tausch, 1997, and 1998.

One of the most alarming features of today’s globalized casino capitalism is that cycles tend to become shorter again. Above we stated that the world economy will certainly enter a Juglar cycle B-phase and then a Juglar cycle trough in the not too distant future. In addition, yet another swing from the 18-22 year Kuznets cycle, that had ist last trough internationally by around 1975, might combine with the next local Juglar cycle trough to produce quite a strong recession. However, it is entirely conceivable that Kuznets cycles will last in future 15 years or less, and Kondratieff cycles 30 years or less. This will mean an enormous growth of instability in the world capitalist system, with an ever shorter sequence of ups and downs, ins and outs, past and future ‘models’ and growth and decay regions, that will change like fashions. The savings and labor of entire generations will be thrown overboard and down the river in a few days of speculative storms. The length of the cycles is the following:

Table 1.2: the length of Kuznets and Kondratieff cycles in the history of world capitalism

The following scheme now shows the continuation of what we interpret to be Arrighi’s thought, above:

Scheme 1.3a: Kondratieff and Kuznets cycles - their length since 1740

Scheme 1.3b: the length of Kondratieff and Kuznets cycles and growth rates since 1740. Cycle length in world capitalism

Legend: yearly economic growth rate in %, left-hand scale. Length of the Kuznets cycle in years (left hand scale). Length of the Kondratieff cycle in years (right hand scale). Our own re-interpretation of the length of Kuznets and Kondratieff cycles in world capitalism, based on Goldstein’s data on world growth, 1988. 1756, 1832, 1885, 1932 and 1975-82 are the beginnings of new Kondratieff cycles, while 1756, 1774, 1793, 1812, 1832, 1862, 1885, 1908, 1932, 1958, 1975, and 1992 are the turning points of Kuznets cycles. For further empirical evidence, see Tausch, 1998

In his new overview of Kondratieff cycle theories, Luigi Scandella re-interprets economic theories, like the Phillips curve and the Fisher equation, in the light of the long-cycle literature and arrives at the conclusion, that price levels and interest rates fluctuate as well in the above described way, with a time-lag of 5 to 10 years between production and price levels and again between price levels and interest rates. Thus the way is open for important further empirical research, since historic price level data are far more complete than historic production data.

Modernization theories (So, 1990), dependency and world system theories (Amin, 1975), and socio-liberal reform theories (Tausch and Prager, 1993), were used here for the basic patterns of explanation of the shirt and long-run tendencies of economic and social development (Kentor, 1998; Tausch, 1998).

In order to determine, why some nations developed so differently from the others, we used the following data-set in accordance with the basic explanatory patterns of modernization, dependency and socio-liberal reform:

What tendencies, then, do emerge from the multivariate analysis of international development for the decade of Casino-capitalism in 134 countries with fairly consistent and complete data? Is Arrighi’s hypothesis about the ‘deregulatory logic’ of post-1980 capitalism confirmed by the data? And what about the other hypotheses of ‘world system research’?

The results are fairly consistent with earlier research findings. First of all, MNC penetration (UNCTAD measure, 1985) significantly lowers the human development index, and increases - ceteris paribus - infant mortality, and - as we show below, is also related to early death (percentage of people dying before age 40). Under inclusion of the world of former ‘real’ socialism, the curve-linear effect of the development level on subsequent economic growth is partially taken over by variables, pertaining to the employment structure. Both the saturation effects of ‘mature capitalism’ with a high labor force participation rate as well as periphery capitalism’s blocked rural transformation are responsible for slow economic growth. Again, only the statistically significant effects, that cannot be explained by simple random, are being taken into account. Countries with a large labor force participation ratio (the saturation effect of mature capitalism), and hence, a relatively smaller industrial de-facto reserve army of employment, grow slower than countries at the middle income level with a still larger industrial reserve army. Neoclassical theory would mention here wage flexibility in the urban sector as one of the main underlying processes. But on the other hand, predominantly rural societies at the present stage of globalization are being negatively affected by the ongoing urban bias in world development (M. Lipton). Seen from the perspective of Third World development, it is amazing to see how some European center countries repeat the experience of what Armando Cordova and Samir Amin once called ‘structural heterogeneity’ and what development sociologists today call structural disarticulation. Especially those countries, that were once or still are characterized by big landholding and or extensive agriculture, implanted in the world system during the Long 16^th Century, like most of the nations of the world’s East and South, are still doomed to slow economic growth, slow human development, and relatively higher infant mortality rates. In terms of measurement, it boils down to the same effect: disarticulation, urban bias, structural heterogeneity - they all happen, whenever agriculture has a much larger share in national labor than in national product, reflecting the relative discrimination of the rural sector in society.

Some of the most surprising data from this comparison about the urban bias on a world level are:

Legend: employment share of agriculture, divided by product share of agriculture. For the ongoing debate about this ‘urban bias’, ‘structural heterogeneity’ or ‘disarticulation’ see Huang, 1995; Rothgeb, 1995, Wickrama and Mulford, 1996, as well as the earlier theoretical advances by Amin, 1976; Cordova, 1973, and Lipton, 1977. Our data analysis is based on EXCEL 7 and UNDP, 1996

Hence also the negative effect of agricultural employment on growth. Redistribution of incomes is significantly affected by the ‘Kuznets curve’, by the labor supply rate, and hence, population growth, and by the power status of a nation in the world economy (market size). Katzenstein’s small state theory is only partially vindicated here. The process of bourgeoisie nation formation (Amin does not use the term ‘nation building’) before the First World War is a crucial determinant of today’s growth and development chances in the world system. Those nations, that were founding members of the UN in 1945 - and hence have a high UN membership age - disproportionately reap the benefits of economic growth today. The international system indeed seems to work like a single, huge, distribution coalition - or to put in Samir Amin’s words - the international system favors at least some of the five monopolies. Economic growth disproportionately favors countries with a long-established record of UN-membership. Participation in the ‘distribution coalition’ of world power allows for a better access to the distributed goods, while the predominantly rural or semi-rural societies of the ‘Fourth’ and ‘Fifth’ World, but also of the ‘East’ are being excluded from the benefits. Those, that have access in the established networks of distribution coalitions, accumulate even more economic power. And Deutsch’s pessimistic stability theory is again vindicated; mainly because a strong state sector role in the economy and low initial exposure to ‘modernization’ (high population growth) still dampen war intensity, while modernization under way (high mean years of schooling) increase conflict intensity.

State sector size affects growth in a way, as predicted by both conventional and radical economic theory. But - contrary to Amin’s expectations - the economic burden of the military sector today also significantly and negative affects economic growth at the level of the 134 nations under analysis. Amin’s own wider theory would allow for such a hypothesis: the state class, and bureaucracies all block against development; militarization, first and foremost, is bureaucratization; while only a handful of nations might reap (if at all?) the benefits of militarily controlling the globe. The effect of militarism must be further qualified: growth is hampered by high military expenditures, and employment is hampered by state sector expenditures. Thus Amin’s hypotheses, derived from his theory, must be qualified: there is a negative employment, and a negative growth effect of monopoly number five in the world system, state capitalism and militarism. Further research should also look into the current account balance effects of militarism and world power political status. High military expenditures are closely linked to the conflict zones of this world, as measured by the indicator War Years from 1990 to 1995.

But some results from earlier research are partially contradicted here. Small states do not tend, in Katzenstein’s sense, towards redistribution but towards a higher income inequality; but the economic burden of international power is seen in the negative correlation between absolute GNP and economic growth; or to put it in reverse, small markets have a partially optimistic growth perspective. Their growth will tend to be fast, but not egalitarian. Thus Katzenstein’s old hypotheses are updated in a way. Former communist countries could grow rapidly , but often stagnate, not because they are former communist nations, but because their peripheral state is too bureaucratic and too big, because their reserve army is too small, because their military burden rate is too high, and because their rural populations are being discriminated against. But per se, the tendencies of world society after 1980 during the new cyclical set-up seem to suggest, that a world political experience as a former communist nation does not block against subsequent economic growth. Again: absolute market size is not a precondition of subsequent economic growth anymore, as successful island nations like Mauritius show impressively. Our equation determines 46.6% of economic growth from 1980 onwards; the F-statistic for the whole equation is 8.05, with 120 degrees of freedom. What flexible specialization has to offer to the megalomania of current European center thinking, would be open for a debate.

Human development, on the other hand, is positively determined by a high agricultural share, and hence the absence of what Michael Lipton once called the ‘urban bias of world development’. It is being negatively determined by a high ratio of foreign direct investment penetration. Thus, findings of earlier cross-national development research, most notably Huang (1995) are being confirmed anew. Our two statements are very well compatible with the essence of dependency theories. A development, that is dependent to a large extent on foreign capital, is socially polarizing and regionally exclusive. The rural regions stagnate relatively, while the rich urban centers are receiving disproportionate shares of the newly created wealth. But ceteris paribus, it also emerges, that a concerted effort in only one area of human capital formation - education - without the proper health policy effort can also be negatively affecting human development. Poland comes to my mind here: education data for Poland are still better than health data, where the need for reform is especially dramatic. Highly repressive totalitarian communist regimes - in the past - had a relatively good quantitative record in the education sector, that was connected with severe deficits in other areas of social policy. This same effect also holds for the determination of infant mortality rates. A policy of high labor force participation ratios, and hence, full employment, less urban bias and chances for rural employment all reduce infant mortality rates significantly, while communist power experience, foreign capital penetration and a one-sided human capital policy, concentrated on schooling, and neglecting health, all contributed significantly to higher infant mortality rates. Employment - here labor force participation, is being determined by a Kuznets-type non-linear process. And employment is the one instance, where neo-liberal theories are vindicated in an important way. Foreign direct investment penetration pushes up the labor force participation rate, while human rights violations, state sector expenditures and past communist experience all determine the labor force participation rate - and hence employment - downward. The effect is of course significant, with an F-value of 8.13 and 42.3% of total variance explained.

The war experience of a nation is only weakly determined in our model (14.9%); yet, the most significant results are achieved by the state sector and low social mobilization (high population growth), working against a prolonged war experience, while military expenditures and mean years of schooling enhance the conflict potential: the state neutralizes violence potential, while modernization and social mobilization increase it. Finally, income inequality is being determined - in an almost brutal Wallersteinean sense - (41.3%) - by the Kuznets curve, population growth, and by the absence of a position of power in the international system (absolute GNP).

The multivariate results are in detail:

Table 1.3: the multivariate model of world development for 134 countries