THE PHOENIX CYCLE GLOBAL LEADERSHIP TRANSITION IN A LONG-WAVE PERSPECTIVE

The paper develops a systematic account of the shifts from maritime commercial external network environment phases, over industrial internal network environment phases, to the rise of a

THE PHOENIX CYCLE: GLOBAL LEADERSHIP TRANSITION IN A LONG-WAVE PERSPECTIVE

Joachim Karl RennstichDepartment of Political ScienceIndiana UniversityBloomington, IN 47405jrennsti@indiana.edu

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Paper prepared for delivery to the 26th Political Economy of World-Systems 2002Conference at the University of California at Riverside, Riverside, CA, May 3-4, 2002

Draft as of: October 18, 2022

It has been argued that one of the reoccurring phenomenon of hegemonictransitions is the inability of the existing leader to establish a similar leadership position in a newly emerging and structurally different

commercial and organizational arrangement This shift in the

geographical and political location of power has been explained as the outcome of the leader’s experience of success in the current setting, creating an entrenched institutional setting (in a broader sense) that proves adaptive in defending its turf but less so in fostering the rise of new leading sectors However, the case of Britain’s continued leadership over an extended period of time (and separate long waves) has shown that this is not always the case This paper introduces the concept of internal and external global network environments in the world system and argues that the extension of leadership from an old to a new

commercial and organizational arrangement is dependent on the systemicnature of the world system A shift from an external to an internal

network environment (or vice versa) allows the parallel development andrise of new leading sectors because they pose no threat to the existing institutional setting of the established leading sectors The emerging newleading sectors do profit from the relative advantages of the current leadership position (in terms of capital, costs, etc.) without the resistance usually encountered from the established leading sectors The paper develops a systematic account of the shifts from maritime commercial (external network environment) phases, over industrial (internal network environment) phases, to the rise of a digital commercial (external

network environment) phase It concludes that the shift from an

industrial phase to the new digital commercial phase puts the current systemic leader, the United States, in a position of continued leadership over two long-waves

Beginning with the work of Braudel (1992b; 1992c; 1992a), Wallerstein (1974; 1980; 1984; 1989) and others (e.g., Abu-Lughod 1989; Arrighi 1994; Arrighi, Silver, and Ahmad 1999; Buzan and Little 2000; Chase-Dunn 1989, 1995; Chase-Dunn and Hall 1997; Dark 1998; Denemark et al 2000; Frank 1978, 1998; Frank and Gills 1993; Freeman1983; Freeman and Louçã 2001; Gilpin 1987; Goldstein 1988; Kennedy 1988; Modelski and Thompson 1996; Hugill 1993; Modelski 1987, 2000; Pomeranz and Topik 1999; Pomeranz 2000; Rasler and Thompson 1989, 1994; Thompson 1999, 2001; Tilly 1992; Tilly and Stinchcombe 1997) we have taken significant steps toward our understanding of the governance of the world political economy in its historical development Despite the large variety of approaches and models (or rather as a result therefore), the dynamics of systemic change, however, still require further attention The purpose of this paper is to examine the process of transition from one hegemonic leader to the next In doing so, we built on previous models by employing an evolutionary framework to the study of the transition mechanism, creating a synthesis of Arrighi’s and Modelski and Thompson’s conceptualization of the hegemonic leadership transition process

One of the main characteristics of hegemonic1 transitions in most treatments of the subject seems to be the inability of the existing leader to establish a similar leadership position in a newly emerging and structurally different commercial and organizational arrangement This shift in the geographical and political location of power has been

explained as the outcome of the leader’s experience of success in the current setting, creating an entrenched institutional setting (in a broader sense) that proves adaptive in defending its turf but less so in fostering the rise of new leading sectors However, the case

of Britain’s continued leadership over an extended period of time (and separate long waves) has shown that this is not always the case

This paper introduces the concept of internal and external global network

environments in the world system and argues that the extension of leadership from an old

to a new commercial and organizational arrangement is dependent on the capitalist mode and its effect on the systemic nature of the world system A shift from an external to an internal network environment (or vice versa) allows the parallel development and rise of new leading sectors because they pose no threat to the existing institutional setting of the established leading sectors The emerging new leading sectors do profit from the relative advantages of the current leadership position (in terms of capital, costs, etc.) without the resistance usually encountered from the established leading sectors

1 Hegemonic leadership is a highly contested concept and definitions vary significantly (for a discussion on the various definitions in this context, see Rapkin 1990; Goldstein 1988, especially chs 6 and 13) For the purposes of this paper,

we use the term hegemony, hegemonic leadership, and system leader interchangeably (for reasons developed more in depth later).

A large literature has acknowledged the various significant changes currently occurring in the world system, often summarized as the effects of “globalization.” Here weargue (with many of the authors noted above) that “globalization” is not a recent

development, but rather the recent stage of a systematic evolution of the world economic and social system To understand the current shifts then, makes it necessary to gain a betterunderstanding of the historical process of the evolution of this system This paper develops

a systematic account of the shifts from maritime commercial (external network

environment) phases, over industrial (internal network environment) phases, to the rise of adigital commercial (external network environment) phase In contrast to some authors, such as Wallerstein, who argue for the occurrence of a discontinuation of the

developmental process of the world system, we propose a model that allows us to view the current changes as fully consistent with the past development of the world economic and social system The paper closes with a discussion of the geographic locus of the next leaderand concludes that the transition from an industrial phase to the new digital commercial phase puts the current systemic leader, the United States, in a position of continued

leadership over two long-waves

LEADERSHIP TRANSITIONS AND SYSTEMIC STRUCTURE

As noted earlier, a multitude of models of hegemonic leadership and its transitions exist in the literature We have chosen here to focus on the three conceptualizations of Wallerstein, Arrighi, and Modelski and Thompson for several reasons First, these models represent broadly the main arguments and processes put forward based on the assumption that the current world system is an outgrowth of an evolutionary process for at least five centuries Second, these models are not necessarily exclusionary but in fact

complementary We are thus able to create a synthesis of these models that incorporates their individual strengths while allowing us to overcome their respective weaknesses

Existing Models of Hegemonic Change and Transition

Before we can go on to discuss the current process of change, it is necessary to briefly review some of the existing models and to develop a synthesis of these seemingly divergent but in our view compatible theorizations of systemic change and leadership transition By applying an evolutionary framework we are able to use components of the existing models to create a new model of hegemonic change that takes into account not only the hegemonic crises but also systemic crises that result from changes in the capitalist mode of the system and lead to shift in the meta-structure of the world system

Wallerstein’s Model of the Hegemonic Cycle

Wallerstein (1983) conceives of hegemony in the interstate system as the moment

in which the enduring rivalry between great-powers is so unbalanced that one of these

powers emerges as a primus inter pares This elevated position of power is the outgrowth

of its economic supremacy and only occurring during the phase in which the hegemonic state masters an edge in efficiency in all three major economic arenas, namely agro-

industrial production, commerce, and finance As a result, this primus has the ability to

impose its rules and its wishes in the economic, political, military, diplomatic, and cultural spheres Wallerstein identifies three such instances – Dutch, British, and US hegemony –

as the outcome of long periods of “competitive expansion” resulting in a particular

concentration of economic and political power Figure 1 summarizes graphically the process of the rise and fall of hegemonic dominance in the world system

/Figure 1 about here/

Over the course of this competitive expansion, the rising hegemon acquires first a

“decisive edge” in agro-industrial production, then also in commerce, and finally reaches a dominant position in finance as well This process of concentration of productive,

commercial, and financial fitness clustering in one state must be secured, however, throughvictory in a thirty-year-long climatic world war2 (in Wallerstein’s count the Thirty Year’s War from 1618 to 1648 [World War Alpha], the Napoleonic Wars from 1792 to 1815 [World War Beta], and the long Eurasian World Wars from 1914 to 1945 [World War Gamma]), acting as a catalyst “encrusting” the greater edge of the hegemonic state and protecting it against erosion through the creation of a postwar interstate settlement

(Wallerstein 1983, 104)

One feature of this “interstate settlement” is the element of “global liberalism.” While enforcing the principle of the relatively free flow of goods, capital, and labor

throughout the world economy, it not only serves the purpose of intensifying the

hegemonic power’s position of strength, but also delegitimizes the efforts of other state machineries to act against the economic superiority of the hegemonic power At the same time, it allows for the diffusion of technological expertise (know-how) and causes the steady rise of labor factor costs, allowing the competing states to catch up Eventually, these two factors combined lead to a loss of the dominating competitive fitness of the hegemon, allowing for a renewed competitive expansion of the system and the rise of a new hegemonic state (Wallerstein 1983)

Arrighi (Arrighi, Silver, and Ahmad 1999, 24) points out to the obvious problem ofthis model, namely that is exogenizes the source of change that ultimately drives the system Particular complexes of governmental and business agencies develop into an institutional setting (in a broader sense) proving to be more fit than others in the unfolding

of the competitive expansion This fitness, however, is derived from mere reaction to the

2 Here understood to be a “land-based war that involves (not necessarily continuously) almost all the major military powers of the epoch in warfare that is very destructive of land and population.

challenges (in the case of the declining hegemon) or opportunities (in the case of the rising competitors) provided by the structural properties of the world capitalist system on which these actors seem to have no impact In the words of Arrighi “they are all product and not

at all productive” (Arrighi, Silver, and Ahmad 1999, 24) Whereas he accepts the notion that the systemic properties act as powerful constraining and disposing forces on the selection of the hegemonic state, he argues for the need to include the factor of

fundamental reorganization of the system by the hegemon resulting in a change of its properties

Arrighi’s Model of Hegemonic Transition

Building on Wallerstein’s model of hegemonic cycles, but aiming to endogenize systemic change, Arrighi extends this model by employing a Gramscian (Gramsci 1971) notion of hegemony “as something different than domination pure and simple: it is the

additional power that accrues to a dominant group by virtue of its capacity to lead society

in a direction that not only serves the dominant group’s interest, but is also perceived by subordinate groups as serving a more general interest” (Arrighi, Silver, and Ahmad 1999, 26; emphasis in the original) Arrighi defines world hegemony as referring specifically to the power of a state to exercise functions of leadership and governance over a system of sovereign states Hegemony in this context includes not only “push” factors of (military and economic-based) coercion and a systemic reorganization by the hegemon but also

“pull” factors that lead to a widespread imitation of the hegemonic state Arguably the reorganization of the system, then, is as much depended on both, push and pull factors, or what Gramsci (1971, 57) calls “domination” and “moral leadership” (see Figure 2)

/Figure 2 about here/

Buried in the leader’s own success as both a “model” and “modeler” – leading to

“leadership against the leader’s will” (Schumpeter 1934) – lies the demise of the leader’s dominance of the system, leading to a systemic expansion and consequently a hegemonic crisis Arrighi identifies three distinct, but closely related processes characterizing all historical hegemonic crises, namely interstate rivalries and interenterprise competition of followers and imitators, social conflicts arising out of the expansion of the “volume” and

“dynamic density” (Durkheim 1938; 1984) of the system causing the regulatory

overstretch of existing institutions, and the interstitial emergence of new configurations of power In addition, relying to a wide degree on Braudel’s (1992a) identification of

financial expansions, Arrighi puts a strong emphasis on what he argues to be the “most evident manifestation of the capitalist nature of the modern world system” (Arrighi, Silver,and Ahmad 1999, 231), namely the pattern of systemwide financial expansion Employing Marx’s general formula of capital

ΜΧ ′ Μ where M represents money capital (meaning liquidity, flexibility, freedom of choice), C stands for commodity capital (or capital invested in a particular input-output combination

in view of a profit), and M’ means expanded monetary capital (and thus greater liquidity, flexibility, and freedom of choice), Arrighi (1994, 6) goes on to argue that this formula can

be interpreted as depicting not just the logic of historical capitalist investments, but also a reoccurring pattern of historical capitalism as world system For Arrighi, then, the central driver of the capitalist world system becomes the alternating cycle of “epochs of material expansion” in the form of (1) phases of capital accumulations

ΜΧsetting in motion an increasing mass of commodities and consisting of phases of

continuous change, during which the capitalist world-economy grows along a developmental path; and (2) phases of financial rebirth and expansion, formulaically noted as

Χ ′ Μ with an increasing mass of money capital “setting itself free” from the its commoditized form, consisting of phases of discontinuous change during which growth along the

established path has reached or is attaining its limits, with the capitalist world-economy shifting through radical restructurings and reorganizations onto another path Taken

together, these two phases constitute a full systemic cycle of accumulation This

reoccurring pattern of financial expansion is closely related to the pattern of inter-state competition not just for mobile capital (as argued by Weber), but also with the formation

of political structures endowed with ever-more extensive and complex organizational capabilities to control the social and political environment of capital accumulation on a world scale (Arrighi 1994, 14)

Triggered by the financial expansion, the outcome of the interplay between

interstate rivalries, social conflicts, and the emergence of new configurations of power is the eventual breakdown of the hegemonic system and its transformation in a state of

“systemic chaos” (see Figure 2) Systemic chaos, as defined by Arrighi, describes a

situation of severe and seemingly irremediable systemic and self-reinforcing

disorganization as a result of the institutional overstretch of the current regulatory regime The same process of financial expansion, however, also triggers the emergence of a new complex of governmental and business agencies endowed with greater system-level organizational capabilities (or fitness in the language of evolutionary frameworks) Thus, the same processes that have generated systemic chaos have also generated the greater concentration of systemic capabilities that, if paired with the “opportunity” of systemic chaos, eventually result in the establishment of a new hegemonic cycle

Modelski and Thompson’s Model of Leadership Transition

Modelski and Thompson (Modelski and Thompson 1988, 1996; Modelski 1987; Thompson 2000) have developed a model of hegemonic transition that emphasize the coevolution of the cycles of leadership – “long cycles” in the terminology of Modelski and

Thompson (Modelski 1978; 1987; 1990; Thompson 1988; Modelski and Thompson 1996) – with the economic processes of the K-wave Rather than employing the concept of world-hegemony, the authors view hegemony in their model as “leadership” and hegemons

as “world powers” (from a changing pool of global major power states) In this view, each successive long cycle consists of four phases (see Figure 3) After a selection of the world power in the phase of global war, this power finds its high point of leadership during the next phase of world power Triggered by clusters of new innovations (both spatial and temporal), new leading sector arise in the next phase of deligitimation, which in concert with the diffusion of technological know-how leads to the rise of new configurations of power in the following phase of deconcentration, causing the rise of one or several

challengers to the position of world power and leading eventually to another macrodecision

in a new global war phase (see Figure 3)

/Figure 3 about here/

The long cycle in this view is regarded, then, as the output of a political production function whose product is global leadership, here understood as addressing solutions for global problems (Modelski and Thompson 1996, 7-8) The input-factors going into this production function are global reach (advantaged by insularity), a lead economy (i.e., the location of the clusters of innovations creating the dominant leading sectors of the world economy), an open (learning) society, and responsiveness to global demand (i.e.,

problems) through the facilitation of innovation Some factors are more important than others during different phases So, during the global war phase global reach becomes central, whereas during the world power phase the major driver becomes the leadings sectors and their position in the world economy During the deligitimation phase the innovative potential (usually higher in emerging new leader) and flexible institutional settings are at a premium, whereas the deconcentration phase highlights the advantages of the resources of open societies (Modelski and Thompson 1996, 8)

K-waves, defined as the rise and decline of leading sectors, bear important

structural similarities with the long cycles of world powers It is important to note that

Modelski and Thompson’s analysis of K-waves does not center simply on prices or

macroeconomic quantities, but on worldwide leading commercial and industrial sectors in the economies originating in them They arise from the clustering of basic innovations, understood as new products methods of production, opening of new markets and sources

of raw materials, and the pioneering of new forms of business (or commercial)

organizations (Schumpeter 1934, 66) They do so in a four-phased industry and product life cycle and are international phenomenon and as such more visible if viewed from the perspective of a world economy Thus, their similarities of unfolding (four phases), their common processes of clusters of endogenous economic (in the case of K-waves) and socio-political (in the case of long waves) innovations and innovative institutional settings

as responses to (partly endogenous) priority global problems, and a common evolutionary character explains the “double helix” of K-waves and long cycles (Thompson 2000)

A Synthesis of Systemic Transition Theories

Despite the difference in terminology (for reasons of conceptually different

understandings of hegemony, see Rapkin 1990), their definition of long cycles as

“instances of structural change [and] processes that in recent centuries have periodically rearranged the structure of global political arrangements and given rise to the phenomenon

of world powers” (Modelski and Thompson 1996, 7) provides a compatible

conceptualization of “hegemonic change and transition” with the previous two models discussed earlier This claim, of course, requires a brief explanation and we rely partially

on Arrighi, himself a strong critic of the notion of compatibility of K-waves and “secular cycles” and his conceptualization of systemic cycles, to provide it.3

Arrighi (1994, 7) admits that “secular cycles” (i.e., price logistics) and K-waves (as

he identifies them in Braudel’s work) bear some “striking similarities” to his

conceptualization of systemic cycles, argues, however, that secular price cycles and

systemic cycles of accumulation are completely out of synchrony with one another,

contending that “faced with a choice between these two cycles, we have opted for systemic

cycles because they are far more valid and reliable than secular or Kondratieff cycles”

(Arrighi 1994, 7, emphasis added) This notion is based on his argument that systemic cycles of accumulation, unlike price logistics and K-waves, are “inherently capitalist phenomena,” pointing to a fundamental continuity in world-scale processes of capital accumulation in modern times, also constituting fundamental breaks in the strategies and structures that have shaped these processes over the centuries (Arrighi 1994, 8-9) This, of course, is complementary to the conceptualization of K-waves found in Modelski and Thompson’s model Arrighi himself acknowledges the similarities of conceptualization of K-waves by authors such as Mensch (1979), Gordon (1980), and Perez (1983), but

nevertheless stresses the significant difference of the two approaches on two grounds, their conceptualization of hegemony and the dynamic evolution of the system (Arrighi 1994, 27)

Whereas it is true that Modelski and Thompson stress the “pull factors” of

leadership, it would be wrong to assert that this model does not allow for “push factors” as well Especially during both, the global war, and world power phases, the “push factor” of naval force and superiority allows the leader to institutionalize its leadership to some degree While Modelski and Thompson stress the combination of both pull and push factors acting in combination (as Arrighi does), they admit the limitations of this

leadership, stressing that “world powers are unable to exercise the same type and degree ofcommand and control often attributed to imperial centers” (Modelski and Thompson 1996, 35) This, however, does not significantly differ from Arrighi’s conceptualization of hegemony, who’s major focus is not the degree of control in terms of military coercive power, but rather in terms of the leaders ability to induce some form of “transformative action,” changing the “mode of operation of the system in a fundamental way” (Arrighi

3 For another attempt to bridge these seemingly divergent views, see also for example Boswell (1999).

1994, 27) This transformative character of hegemonic change is present in both

conceptualizations

Arrighi in addition mistakenly ascribes a non-evolutionary, static notion to

Modelski and Thompson’s leadership long cycle conceptualization Both works build to some degree on Wallerstein’s model of hegemonic cycles but aim to overcome his

limitation of exogenizing systemic change, by making the endogenous factors of the systemic change explicit in the model Thus, Modelski and Thompson stress that both, K-waves and long cycles, are driven by endogenous basic innovations, both economic and socio-political in nature, and highly evolutionary in nature (especially Modelski and Thompson 1996)

In sum, despite some degree of difference, the greater number of similarities than differences in both approaches allows to form a synthesis of both models that takes into account the strengths of each respective model but introduces a new conceptualization Webelieve it is worthwhile to construct such a synthesis in order to get a better theoretical understanding of the process of hegemonic transition, especially in regard to its future development We might even make the – certainly controversial – argument that the historical account of hegemonic/leadership shifts is not as dramatically different as it seems Whereas Arrighi argues, that to this point three hegemonic transitions – Genoa to Dutch; Dutch to Britain; Britain to US – occurred (with structural shifts from capitalist to capitalist/territorial to a combined territorial/capitalist system), Modelski and Thompson argue for a longer period of shifts of leadership (Northern Sung, Southern Sung, Genoa, Venice, Portugal, Dutch, Britain I, Britain II, US I) It is beyond the scope of this paper to discuss the possibility of Arrighi’s model to account for the same list of leadership

transition; here we shall limit ourselves to the historical development of the transition as it unfolds in the European theater

Two Types of Systemic Chaos

We agree with Arrighi (1994, 33), that “inter-state and inter-enterprise competition can take different forms, and the form they take has important consequences for the way inwhich the modern world system – as a mode of rule and as a mode of accumulation – functions or does not function.” Arrighi (1994, 44-5) broadly differentiates between

“capitalist” and “territorial” systems, arguing that only with the emergence of the Dutch reorganization of political space in the interest of capital accumulation of capital the modern inter-state system came into being Arrighi however also describes the important roots of the Dutch system emerging out of the Venetian and Genoese systems (or

“complex”), using the metaphor of the development of the modern world system not along

a single “track” but rather through several switches to new tracks laid by specific

complexes of governmental and business agencies and with the Venetian, Genoese (in the fifteenth century), Dutch (in the seventeenth century), British (in the nineteenth), and for that matter also the US (in the twentieth century) acting as “tracklaying vehicles” for the emerging new systems (Arrighi, Silver, and Ahmad 1999, 22) Modelski and Thompson’s

version of the development of the modern world system differs on several counts to that of Arrighi’s As noted earlier, they argue for an evolution of the system with its beginnings inthe rise of Northern Sung and Southern Sung China, Genoa, and Venice during the

Chinese/Italian Renaissance (from 930 to the early fifteenth century), the west European development with Portugal, the Dutch Republic and Britain acting as leaders and

transformers of the system (from the fifteenth century to the early nineteenth, and the shift towards a post-European system arising out the leadership of the U.S emerging in the mid nineteenth century

The notion of “chaos” as the result of the disintegration of the systemic system put into place by the hegemonic leader as an outcome of its waning power is present in both, Arrighi’s (from whom we have adopted the term) and Modelski and Thompson’s model (using the term “deconcentration”) and both agree on the importance of the unraveling of the old for the creation of the new system Both models differ, however in the account as towhat causes the unraveling to start and to end Modelski and Thomson view the emergence

of new leading sectors, triggered by clusters of innovation and new capabilities together with the starting technological diffusion (also present in Wallerstein’s model) as the triggerfor the hegemonic crisis and as an outcome interstate rivalries and interenterprise

competition, whereas Arrighi argues that this competition is the cause of the crisis Also, Modelski and Thompson, again similar to Wallerstein in this respect, have argued for the importance of the forceful challenge of the leader/hegemon during the global

war/macrodecision phase acting as the final catalyst for the new leader to emerge and unfold its new leadership system (in Modelski and Thompson’s view) or hegemony (in Wallerstein’s and Arrighi’s terminology) In other words, and to use Arrighi’s metaphor, inthis view the old leader has to be beaten with new tricks out of the tracks before the new train can be set into motion

/Figure 4 about here/

We believe that these differences are not impossible to bridge (see also Boswell 1999) Figure 4 graphically summarizes the model of hegemonic transition proposed in thispaper In our synthesis we combine Modelski and Thompson’s notion of hegemonic crisis and global war as a catalyst for the transition to the new system with Arrighi’s concept of systemic transition and chaos (see Figure 4) Systemic expansion, in this view, allows the development of new clusters of innovations that lead to the emergence of new leading sectors and result in the emergence of new configurations of power in the form of

alternative political and economic institutions These developments cause the rise of a new center of systemic capabilities and an increased inter-state and inter-enterprise competition,ultimately laying the foundation for a new commercial and organizational arrangement andalso the rise of challengers to the existing leader, who’s domination of the system starts to decline Two types of challengers have to be differentiated: catch-up challengers that aim

to challenge the existing leader in the same “tracks” – staying with Arrighi’s metaphor – but with highly improved machinery aiming to overtake the leader on its own tracks A second kind of challenger, however, aims to overtake the old leader on an all-together new

“set of tracks” as a result of its innovative new means, both in technological and

organizational terms and aiming to tackle global problems in a new commercial and arrangement.4 After the breakdown of the old arrangement results in a systemic chaos (equivalent to Modelski and Thompson’ deligitimation phase), the process of global warfare provides the macrodecision that triggers the rise of a new leader, so far always of the second “track-changing” kind, who reinforces the transformation of the world system through its institutional manifestation (push factor) of the new “technological style” (Perez 1983) and experiences further reinforcement through the emulation of leader by other states during this phase (pull factor).

In contrast to Arrighi’s argument that the emergence of a capitalist mode (based on the old one, but qualitatively different and novel) – identified in Figure 4 as “systemic change” – falls together with the rise of a new hegemonic leader, we argue here that the emergence of a new capitalist mode enables the existing leader to develop dual and

alternative (but to some degree complimentary) centers of systemic capabilities, causing the development of a different form of “chaos” and allowing for the generation of a

“Phoenix cycle” of renewed leadership out of the ashes of its former status (for reasons laid out below) This is reflected in the model as laid out in Figure 4

We differ between three major types of capitalist modes (during the time under study here, starting with the Genoan hegemony): commercial maritime, industrial, and digital commercial (on the effect of these types on rivalries between great powers, see Rennstich 2002a).5 Commercial maritime capitalism is in large part characterized by its emphasis on external networks of production and other value-adding processes (including division of labor) and the importance of flows within the world economic system The leading sectors in this phase are predominately service- or flow-oriented In Modelski and Thompson’s (Modelski and Thompson 1996) account this includes the Champagne fairs and Genoan Atlantic trade and trade in the Black Sea during long cycle three (under Genoan leadership), Romanian and Levantine galley fleets during long cycle four

(Venice), the control over Guinean gold and Indian pepper (Portugal), Baltic, Atlantic, and later Asian trade control of the Dutch, and Amerasian trade control of the British during long cycles five, six, and seven respectively Industrial capitalism, by contrast, has its maincenter located in internal production networks The leading sectors in this capitalist mode are commonly associated with our understanding of “industrialization” – Britain’s

dominance of cotton and iron production, and later railroads and steam during the eighth long cycle, followed by the leadership in steel, chemicals, electric power, motor vehicles, aviation, and electronics of the United States during the ninth long wave in Modelski and Thompson’s count We are currently witnessing the rise of a new capitalistic mode, here

4 A necessary and more thorough discussion of the challenger process is unfortunately beyond the scope of this paper

We refer for the closest discussion of our understanding of the challenger process to the treatment of this issue in Thompson (2000, ch 8) Similar to Arrighi, Thompson views the divide between territorially-based and maritime- commercial powers as a crucial divide, and identifies three major challenging strategies, the capture-the-center strategy, an attack on the global network and/or the creation of an alternative network, and carving-out-a-subsystem strategy In his challenger model of global leadership he thus emphasizes the factors of maritime-commercial

orientation, proximity, similarity, and innovativeness of the challenger in comparison with the challenged leader.

5 For a similar account, see Cantwell (1989), who distinguishes between “merchant capitalism” (pre-1770s), “industrial capitalism” (1770s-1940s), and “global capitalism” (post-1940s).

referred to as digital commercial capitalism for its strong resemblance of the earlier

maritime commercial mode, especially in terms of its strong emphasis on external

networks in the world economy This system, however, denotes a new, unique capitalistic mode as a result of its inclusion of digital information as a new commodity and its much more sophisticated integration of production-networks

Internal/External Networks vs Capitalism/Territorialism

Both, Arrighi and Modelski and Thompson emphasize the critical division betweenterritorially driven and (commercial) capitalist power structures Whereas Modelski and Thompson argue for the continuation of this divide, Arrighi argues that Britain was able to fuse both structures, while during the following U.S leadership a slight diffusion back towards a more capitalist orientation took place Here we argue that while useful and important, the two perspectives can be combined by shifting the focus on the structure of networks and the division between capitalist modes dominated by internal or external networks rather than the focus on capitalism and territorialism

The difference between the leading sectors in the maritime commercial (or digital commercial) and the industrial systems is, as Sen (1984, 7) points out, the dual strategic

significance for military self-sufficiency and national economic independence held to

provide the rationale for the desire to acquire this group of industries Great powers in this system try to establish internal rather than external networks, in order to, as Rosecrance puts it, “excel in all economic functions, from mining and agriculture to production and distribution” (Rosecrance 1999, 6) This emphasis on self-sufficiency and national

economic independence characterizing the industrial environment stands in stark contrast

to the necessities of an external network- and service-based environment as found in the maritime commercial and the digital commercial systems Of course, this does not imply that trade dies away or renders unimportant Far from it, trade remains an important factor

in rivalries amongst nation states It is not, however, the central basis of the leading sectors

as in the maritime trade network system

Arrighi (paraphrasing Marx general formula of capitalist production) argues for two logics of power: TMT’ (territorialism) versus MTM’ (capitalism), where M =

economic command or money and T = territory, or

ΤΜ ′ Τ ⇔ ΜΤ ′ Μ Following Arrighi’s argument further, Britain’s synthesis of both logics of power, territorial (T) and economic command (M) can be noted as

ΜΤ

( ) Τ( Μ) Μ( Τ)′

where economic command multiplied by its territorial control (MT) breeds further

territorial gains multiplied by its economic command (TM), resulting in an enlarged

economic command and territorial control (M )’ For Arrighi, the following U.S

leadership, however, while building on Britain’s system, marks the return to an increased emphasis of economic command over territorial factors, since the British system of

combining its economic strategy with an imperial strategy is no longer successfully

executable in an increasingly complex world system This has significant implications for the current transition (if indeed occurring at all) For Arrighi (1999, 80), the difference between the current systemic transition in contrast to previous ones is “that the scale and complexity of the modern world system have already become so large as to leave no little room for further increases” Taking into account Arrighi’s discussion of “space-of-places” and “space-of-flows,” the newly emerging system can thus be formulated as MtM’, where

T = space of places/territory, and t = space of flows/digital space Using Arrighi’s

conceptualization the evolutionary development of the modern world system can be noted

ΧΝ ′ Χ ⇔ ΝΧ ′ Ν where N = network capital (flexibility, freedom of choice) and C = commodity capital (capital invested in particular input-output combinations), paraphrasing Marx’s general formula MCM’ Thus, we can identify the two divergent cycles of CNC’ (internal

networks)6 and NCN’ (external networks) that describe the systematic development of eachhegemonic (or leadership) cycle Both, the commercial maritime as well as the digital commercial systemic phase would thus be characterized by a NCN’ cycle, whereas the phases dominated by an industrial capitalist mode follow a CNC’ cycle Again, we believe this distinction is compatible with both, Modelski and Thompson’s and Arrighi’s model, especially in regard to Arrighi’s discussion of the newly emerging systemic mode

As a result, we can identify four distinct phases in the evolution of the modern world system: a territorial phase (China), a maritime commercial phase (Genoa, Venice, Portugal, Dutch, England I), and industrial phase (England II, US I), and the emerging digital commercial phase (US II) All four phases can be divided into two meta-systems (as

a result of leading sectors and the different capitalist modes) Hegemonies are either characterized by the dominance of internal (territorial; industrial) or their external

(maritime commercial; digital commercial) network structure As laid out in Figure 4, the

6 To some degree, we can identify this notion of internal networks in Arrighi’s conceptualization of “internalization” of costs, security, etc.