HISTORICAL CAPITALISM, EAST AND WEST by Giovanni Arrighi Po-Keung Hui Ho-Fung Hung Revised version of a paper presented at the Conference on “The Rise of East Asia: 500, 150, 50 Year Perspectives.” Institute for Global Studies, The Johns Hopkins University, December 4-5, 1999. East-West relations over the last 500 years present two main puzzles. The first concerns the extraordinary geographical expansion of the European system of states. By 1850 or shortly thereafter, that system had come to encompass the entire globe, thereby reducing the China-centered tribute trade system to a regional subsystem of a now European-centered global economy. What is most puzzling about this tendency--which is what we shall understand by "the rise of the West"--are its modest origins. On the eve of its first major expansion across the Atlantic and around the Cape in the late fifteenth century, the European system of states was a peripheral and chaotic component of a global economy that had long been centered on Asia. In spite of this first expansion, two centuries later no European or American state had managed to create within its domains a national economy that could match the size, complexity and prosperity of the Chinese national economy. And yet, within the short span of another century, tiny "Great" Britain was poised to incorporate within its domains the entire Indian subcontinent, and in cooperation and competition with other Western powers, to turn China from the center into a peripheral component of the global economy. How can we explain this turnaround? The second puzzle concerns the extraordinary vitality of the East Asian region in the 150 years since its subordinate incorporation in the European- and later North American-centered global economy. By 1970 or shortly thereafter, this vitality translated in a crisis of Western hegemony that has yet to be resolved. Integral to this crisis has been an acceleration of economic growth in the East Asian region that has made a re-centering of the global economy on East Asia a distinct historical possibility, recent setbacks notwithstanding. This tendency--which is what we shall understand by "the rise of East Asia"--is no less puzzling than the first. The -1- peripherality and chaos that had been emblematic of Europe on the eve of its overseas expansion, came to characterize East Asia throughout the first half of the twentieth century. The results were devastating. By 1950, China had become one of the world's poorest countries; Japan had been reduced to a vassal state of the United States; and a new Western Civil War--as Samuel Huntington (1993: 23) has aptly characterized the Cold War--was creating a seemingly unbridgeable gulf between maritime East Asia and Mainland China. And yet, less than half a century later the gulf was bridged by a dense web of commercial exchanges; Japan and other lesser "islands" of East Asia's "capitalist archipelago" had replaced the United States as the world's leading creditor nations; and Mainland China's weight in the global economy was increasing far more rapidly than that of any other region of comparable demographic size. Whether this turnaround is the preamble to a re-centering of the global economy on East Asia is too early to tell. But whether it will or not, explaining the dynamic of the turnaround and how the turnaround relates, if at all, to the legacy of the China-centered tribute trade system constitutes a major challenge for the historical social sciences. The purpose of this chapter is to provide at least partial solutions to these puzzles by focusing on the role that world capitalism has played in shaping East-West relations since early modern times. In section I, we specify the premises and conceptual apparatus on which our subsequent analysis is based. In section II, we seek a solution to the first puzzle through a comparative analysis of the still distinct but related dynamics of the East Asian and European regions in early modern times. In section III, we seek a solution to the second puzzle through an analysis of the dynamic and contradictions of the single global system that emerged out of the nineteenth century globalization of the European system of states. Finally, in the fourth and -2- concluding section, we discuss the implications of the analysis for an understanding of the present tendencies and likely future trajectory of the East Asian dynamic. I. CONCEPTS FOR ANALYSIS R. Bin Wong (1997) and Andre Gunder Frank (1998) have recently challenged the still dominant view that the rise of the West to global supremacy in the nineteenth century was somehow due to a prior Western superiority in the creation of a market economy. Both authors remind us of what Adam Smith already knew but Western social thought subsequently forgot--namely, that throughout the eighteenth century the Chinese national market far surpassed in size and density any Western national market. It follows from this forgotten fact that primacy in the formation of a national market cannot be taken as a reason, let alone "the" reason, why in the nineteenth century Europe became the new center of the global economy. Indeed, for Wong and Frank, as for us, the backwardness of Europe in creating national markets well into the eighteenth century is one of the reasons why its global supremacy in the nineteenth century is so puzzling. China’s High-Level-Equilibrium Trap and Europe’s Industrial Revolution Wong and Frank seek the solution of the puzzle in the industrial revolution that took off in England at the end of the eighteenth century and in their view soon became the prime mover of the rise of the West to global supremacy. This solution immediately raises two distinct questions: first, why did the industrial revolution not occur in China, where the market economy and the division of labor were most developed? And second, why did it occur in Europe? In answering the first question, Wong and Frank both rely on Mark Elvin's idea that China was caught in a Smithian "high-level equilibrium trap," although they both situate the entrapment in the eighteenth rather than in the fourteenth century as Elvin did. Rapid growth of production and -3- population had rendered all resources except labor scarce and this, in turn, made profitable invention increasingly problematic. In Elvin’s words, With falling surplus in agriculture, and so falling per capita income and per capita demand, with cheapening labor but increasingly expensive resources and capital, with farming and transport technologies so good that no simple improvements could be made, rational strategy for peasant and merchant alike tended in the direction not so much of labor saving machinery as of economizing on resources and fixed capital. Huge but nearly static markets created no bottlenecks in the production system that might have prompted creativity. When temporary shortages arose, mercantile versatility, based on cheap transport, was a faster and surer remedy than the contrivance of machines. This situation may be described as a 'high-level equilibrium trap." (1973: 314) The second question then arises of why is it that England, followed by a growing number of Western countries, escaped this high-level equilibrium trap? In answering this second question, Wong and Frank part company. Wong emphasizes the common "Smithian dynamic" of the European and Chinese economies before the industrial revolution--a dynamic, that is, in which productivity gains were due primarily to greater division of labor and specialization among productive units, both limited by the extent of the market. Although the productivity gains attending division of labor and specialization could and did increase the extent of the market, and thus engender a virtuous circle of economic expansion, the Smithian dynamic could not account for the profound rupture of possibilities initiated by the development of mineral sources of energy. Following E.A. Wrigley (1988, 1989), Wong conceives of this development as an historical contingency largely unrelated to previous developments. Its main feature were productivity gains based on coal as a new source of heat, and steam as a new source of mechanical energy, that far surpassed what could be achieved under the Smithian dynamic. "Once this fundamental break took place, Europe headed off along a new economic trajectory." But the break itself remains unexplained: "technologies of production," we are told, "do -4- not change according to any simple and direct economic logic." Like "forces of production" in Marxist accounts, they are "the exogenous variable that drives other economic changes" (Wong 1997: 48-52). In contrast to Wong, Frank emphasizes the opposite outcomes of the common Smithian dynamic in England/Europe versus China/Asia, and traces the occurrence in England/Europe and the non-occurrence in China/Asia of the industrial revolution to these opposite outcomes. In Asia in general, and in China in particular, economic expansion created the labor surplus and capital shortage that underlie Smithian high-level equilibrium traps. In Europe, in contrast, economic expansion created a labor shortage and a capital surplus. It was this opposite outcome that according to Frank after 1750 led to the industrial revolution. In Europe, higher wages and higher demand, as well as the availability of capital including that flowing in from abroad, now made investment in labor-saving technology both rational and possible. The analogous argument holds for power-generating equipment. Relatively high prices for charcoal and labor in Britain provided the incentive for the accelerated switch-over to coal and mechanically-powered production processes .... [W]orld economic market competition between Europe and China, India, and other parts of Asia rendered such labor-saving and energy-producing technology economically rational for Europeans, but not for Asians. (Frank 1998: 304) The intensive burst of technological innovations that remains exogenous, that is, unexplained from within Wong's reconstruction of the European and Chinese dynamics thus becomes endogenous in Frank's reconstruction. This endogenous explanation of the industrial revolution, however, presents a major problem: Frank has no satisfactory explanation of why a common dynamic had opposite effects in the West and in the East. The demographic explanation that looms large in his account of the emergence of differential regional comparative costs and advantages--namely, that "higher population growth in Asia impeded technological advance generated by and based on demand for and supply of -5- labor-saving and power generating machinery," while "lower population growth in Europe generated the incentives for the same--in competition with Asia!" (Frank 1998: 289, 300)--does not stand up to Frank's own evidence. In table I, we have calculated for different periods ending in 1750 the comparative increases in the population of different regions on the basis of the two estimates reported by Frank (1998: 168, 170). As the table shows, whether Europe's demographic growth was higher or lower than that of China and India depends entirely on the particular period and estimate we select, and no matter which period or estimate we select, it is about the same or higher than that of Japan. More important, in the half century preceding 1750 the gap between the lower European and the higher Chinese rates of growth is narrowing rather than widening. On strictly demographic grounds, Wong's contention that on the eve of the industrial revolution the Smithian dynamic was yielding similar outcomes in Europe and China is more consistent with the evidence than Frank's contention that it was yielding opposite outcomes. [Table I about here] It remains nonetheless true, as Frank maintains, that according to all available evidence (including Adam Smith's own assessment) wages and demand were higher and capital more abundant in Europe than in Asia. If the demographic explanation does not hold water, we need an alternative explanation. European overseas expansion would seem to be the obvious direction where to look for such an alternative explanation. Wong himself quotes approvingly Eric L. Jones' view that expansion in the New World gave Europe an "unprecedented ecological windfall" (Jones 1981: 84). In Wong's opinion, this windfall created for the Europeans a "resource base... superior to that created by the Chinese in their land-based frontier expansion." This, in turn, "postponed the classical economist's end of -6- growth" in Europe, and might even have made "the Smithian dynamics... stronger in parts of Europe than in any part of China." No matter how much stronger, however, "those contrasts alone are unlikely to be adequate to explain the persistence of the constraints of the classical economist's world in China and their destruction in Europe" (Wong 1997: 49). In Frank's account, overseas expansion plays a far more crucial role in determining Europe's fortunes than in Wong's account. In his view, American silver and its reinvestment in overseas ventures was the key that opened the doors of the Asian-centered global economy to the otherwise uncompetitive Europeans. Having dug "money" out of the gold and silver mines they found in the Americas, the Europeans "`made' more money.... [by using it] in a variety of other profitable businesses they ran in--and to--the Americas.... first and foremost the slave plantations... [and] the slave trade itself to supply and run the plantations." Equally important, “they also used both the American silver money and their profits to buy into the wealth of Asia itself." This they did by buying Asian commodities which they resold at a profit not just in Europe, Africa and the Americas but in Asia as well (Frank 1998: 277-82; emphasis in the original). So the Europeans were able to profit from the much more productive and wealthy Asian economies by participating in the intra-Asian trade; and that in turn they were able to do ultimately only thanks to their American silver. Without that silver--and, secondarily, without the division of labor and profits it generated in Europe itself--the Europeans would not have had a leg, or even a single toe, to stand on with which to compete in the Asian market. Only their American money, and not any "exceptional" European "qualities," which, as [Adam] Smith realized even in 1776, had not been even remotely up to Asian standards.... provided the Europeans with their one competitive advantage among their Asian competitors, for these did not have money growing on American trees. (Frank 1998: 282) According to Frank, this one competitive advantage enabled the Europeans to hold out in Asia for three centuries but not to gain a commanding position in a global economy that remained centered on Asia, because the flow of American silver benefitted Asian economies -7- more than the European. Throughout the eighteenth century European manufactures in Asia remained uncompetitive and China remained the "ultimate sink" of the world's money (Frank 1998: 283, 356-7). But if this was the case, why was China affected by a shortage and Europe by a surplus of capital? And why was Europe experiencing greater demand for labor and higher wages than China? By not answering, indeed, by not even asking these questions, Frank undermines his case of an endogenously determined industrial revolution. Ultimately, this event remains as exogenously determined in Frank's account as it is in Wong's. Wong says so explicitly and seeks an explanation in historical contingencies. Frank does not realize that his search for endogenous determination has failed and is thus left with no explanation at all. We have dwelt on these two accounts of the rise of the West and their limitations because they provide a good starting point for our own account. On the one hand, we share two of their main premises, which we shall take for granted. One is that through the eighteenth century the Smithian dynamic had gone farther in Asia in general, and in China in particular, than in the West; and the other is that in the second half of the eighteenth century China was entering (or had entered) a high-level equilibrium trap. We also share, but will restate in our own terms, the premise that overseas expansion rather than any autonomous change in productive organization within Europe was the main force sustaining the Smithian dynamic in Europe. On the other hand, we depart from both accounts by privileging a different unit of analysis; by distinguishing a capitalist dynamic from the (Smithian) market dynamic; and by underscoring the key role that military competition has played in forming the modern world and in shaping East-West relations right up to the present. Let us look at each departure in turn. Regional World Systems, Capitalism and Interstate Competition -8- Wong and Frank privilege very different units of analysis. Wong privileges individual states. His entire construct is based on a comparison of the Chinese state on the one side, and European states on the other. Frank adopts instead what he calls a "globological perspective" and privileges an allegedly "single global economy" as the most relevant unit of analysis. His entire construct rests on the claim that as early as the fifteenth century a single global economy encompassing the whole of Afro-Eurasia (and after 1500 the Americas as well), not only actually existed, but was an intensely competitive system exercising a decisive influence on the dynamics of all its regions. While Frank hardly mentions states, Wong explicitly denies that a global economy actually existed before the nineteenth century (see in particular Wong 1997:150). In contrast to both, we assume that at least up to the middle of the nineteenth century "regional world systems", rather than individual states or the global economy, are the most relevant units for the analysis of the East-West dynamic. Our notion of "regional world system" broadly corresponds to Fernand Braudel's and Immanuel Wallerstein's notion of “world-economy”--an expression which they hyphenate to underscore that it "only concerns a fragment of the world, an economically autonomous section of the planet able to provide most of its own needs, a section to which its internal links and exchanges give a certain organic unity" (Braudel 1984: 22). We prefer the expression regional world system to eliminate a major source of confusion about the spatial scope of the entities in question and to downplay the economistic aspects of Braudel's definition. Thus, we use the term "regional" to convey less ambiguously than a hyphen the idea that we are talking about a “section of the globe.” And while we retain the term “world” to convey the idea that we are talking about a (relatively) autonomous and organic entity, we use the term “system” instead of “economy” lo leave open the possibility that the autonomy and organic unity of the entity in question rest on political and/or cultural rather than merely economic foundations. -9-