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EVOLUTION OF THE WORLD ECONOMY

George Modelski

�� Start by proposing, without further discussion, that to-day�s students of economics pay less than full attention to three problem areas:

1. the very long-range analysis of the world economy;

2. the all-pervasive role of innovation, and

3. the links between the economy, and politics, society, and culture.

�� In this paper I set out to contribute to the exploration of these expansive questions in a systematic manner.�� The manner is systematic because it is grounded in an evolutionary perspective.�� In particular, after setting out the essentials of that perspective, I go on to

1. sketch out a long term perspective on economic history;

2. highlight the role of innovation in that process; and

3. sketch out the links between economics and politics at the global level

in the millennium just past.

�I.�� Evolution of the world economy

�� The principal assignment for this article is to trace long-term patterns in the evolution of economic and political structures.�� Particular interest focuses on the modern era, and the interactions, in that time span, of these two sets of processes.�� But to put such large-scale developments in context, it is necessary to clarify the nature of this evolutionary approach, and the broad outlines of the evolution of the world economy over the long span of what we know as history.

�� The approach adopted here is best described as �evolutionary� because it centers on the problem of understanding social change as the product of learning processes involving the mechanisms of innovation, selection, cooperation, and reinforcement.�� It seeks to clarify how and why the economic organization of the human species has reached the degree of complexity and productivity it exhibits to-day, and how and why the world political system exhibits the degree of global reach and effectiveness it has today, and how both of these sets of structures might change over the foreseeable future.��

�� The distinctive characteristic of this approach is its �human species� focus, that is, its conception of social evolution as a set of continuing and inter-linked processes of change involving the entire human species.�� It might be contrasted, in the first instance, with accounts that place the emphasis on the �evolution� of individual societies and on the question �why do societies differ, and how do they change over time�,� questions that have preoccupied many social scientists attracted by evolutionary theories.�� By contrast, the present approach adopts a species approach, and focuses on the world as a whole.

�� Among evolutionary approaches the present is, furthermore,� an institutional one,� in the traditions of Thorstein Veblen,� Friedrich von Hayek, and Douglass North;� in that respect it needs to be contrasted with biopolitical studies that emphasize above all else the role of the genetics and the biological endowment.�� An institutional approach� allows us to portray social and organizational systems as products of Darwinian search and selection that constitute multi-layered, nested learning processes moved forward by innovators.�� That in turn shows that such social evolutionary analysis does not ignore individual or social actors, for it does indeed single out for special attention the agents of innovation, inventors and innovative organizations, and societies that offer evolutionary potential.�� But the focus remains on institutional change for the human species, and at the global level in particular.

�� The features of the evolutionary approach might be seen more clearly when contrasted with the standard �rational choice� paradigm of neoclassical economics.�� Table 1 singles out four such characteristic features and compares them for the two perspectives.�� It makes it clear that each have their own place, and domain of maximum effectiveness, and that in important respects they might indeed be regarded as complementary;�� but it also makes plain that an evolutionary approach is the one that is best suited for problems of analyzing patterns of long-range change.�� That is so because such an approach naturally inclines toward a long-term perspective;�� it focuses in on structural transformations rather than on equilibrium states;� it does not require the postulate of rationality and it sees collective choice processes as resulting from trial and error search and selection procedures.�� Best of all, it gets away from a purely instrumental rationality and allows for ends to be seen to be changeable, and for constraints to be altered as the result of evolutionary processes.

Table 1:�� Rational choice and evolutionary approaches compared

Characteristic features	Rational choice	Evolutionary
Perspective� (time horizon)	Short-term	Long-term
Focus of explanation	Decisions, equilibrium	Institutions, transitions
Choice process	Rational maximization	Trial and error search and selection
Ends-means schema	Given constraints and preferences, choice of means	Both constraints and preferences are variable

The world economy

�� World history is conventionally regarded as comprising the ancient, classical, and modern eras;� the first two, of about two millennia each, and the last, the modern, taking up the last millennium, as shown in Table 2 below.� Together, these three categories yield a basic grid against which long-term trends might be appraised in more detail.�� But they might also be seen as presenting such history as a continuing process, as successive phases in the evolution of the social organization of the human species and it is within that grid that the world economy assumes shape.��

�� Table 2:�� Evolution of the world economy

From about (yr)	Era	World Economy Process
		Command Economy
BC� 3400��	Ancient	I.�� Bronze
�� 2300		II.�� Fertile Crescent
�� 1200	Classical	III.�� Iron
�� 100		IV.� Silk Roads
		Market Economy
AD�� 930��	Modern	V.�� Market Systems
�� 1850		VI.� World Market

�� That is why economic history, too,� might be seen as a process of such continuity, as proposed by John Hicks.�� Within the overall framework of the ancient, classical, and modern eras unfolds world economic organization, over millennia-long periods marking major institutional innovations.�� These innovations fall into two broad categories, supply-side, concerning broad productive and construction undertakings, and demand-side, relating to distributive, commercial, and trading aspects, such that millennial (supply-side) periods of production achievements might be seen to alternate with (demand-side) periods , of similar length, of trade networking that bring about a� diffusion of technology and wealth.

�� The ancient era is commonly also known as the Bronze Age because it is that new alloy that is characteristic of the� material culture of that time, especially in Mesopotamia.�� The tools, weapons, and art objects fashioned of that material were keys to the development of irrigation agriculture, public works, water and land transportation, and warfare.�� But within the ancient era, two periods might then be distinguished:�� the launching of bronze metallurgy, centered on Sumer, and secondly, the development of the Fertile Crescent into a wider and more dispersed economic and trading zone.��

�� The classical era, after 1200 BC, opens with the age of Iron, as the innovation that makes possible yet greater strides in agriculture, and weaponry, and produces rapid population growth in, and the urbanization of, China and India.�� In the second period of that era, the Silk Roads create for the first time a transcontinental system of trade, where products such as silk, spices, or silver, travel from one end of the Eurasia to the other.

�� These four periods might be said to have instituted and comprised the command economy as the paradigmatic institutional arrangement for the world economic system.�� The command economy is an economic system in which the great instruments of production are publicly owned, either by the temple or the state, and in which basic economic decisions on investment, production, and exchange, are centrally controlled.�� That is not to say that the pre-modern period saw no individual property or private transactions but only that the differentiation between economic and political functions was weak, and that the great projects of investment or long-distance trade were strongly dominated by public concerns.

�� John Hicks has argued that the central tendency of economic history has been the movement from command to market economy.� The larger an economy, the more difficult, if not wholly impossible. it is to coordinate economic (and political) activities from one central point.�� That is why in a general sense and over the very long run, the command economy is unstable, and tends toward �decline�;�� the market economy is, in comparison, more resilient and therefore more likely to prevail.�� But that is not to say that in the short run, central direction might not yield better results for certain limited purposes, and in particular at times of major warfare, when a large share of economic output is directed to the one goal of achieving military victory.�� In the 20^th century, the global war period of World Wars I and II saw the resurgence of such planning on all sides.�� That is why the rise of the market economy has hardly been a smooth or straight-line process.

�� In the temporal dimension, this great evolutionary transition from command to market is represented (in Table 2), over the last millennium, by periods V and VI, named those of Market System, and World Market.�� Markets Systems� stands for the �invention� of reliable markets� serving productive centers on a national or regional basis.�� According to William McNeill, this first occurred in China, in the Sung period, between 1000 and 1200;�� it was followed by the trading system of the Italian Renaissance that organized the western end of the Silk Roads;� it reached high gear with the rise of a �West Europe with a global reach� after 1500, and culminated in what we call the �Industrial Revolution� in England after 1700.�� World Market� is the second phase in this story, whose central feature, after 1850, is increasing globalization of economic activities, and the progressive extension of the reach of world markets to more and more segments of the world economy.�� There is no reason to believe that this process is about to end anytime soon;�� more probably this drastic and unprecedented transformation of the way humanity earns its living is likely to remain the salient feature of the world economy for a� long time to come.

�� In long perspective, the transition from command to market has been a gradual one, spanning centuries.�� The factor mediating this transition was the rise of the Silk Roads, in period IV, to which reference was made earlier, and is illustrated in Table 3.�� This transcontinental system of transportation and communication formed the backbone of the economy of the �Old World� until about 1500, well into the �Market System� period, and the industrial and commercial activities upon which it thrived did in fact help to stimulate the growth of markets in the several areas it did traverse, even though at other times political interventions would for long periods block and immobilize entire segments of those routes.

�� Table 3:�� �Evolution of the Silk Roads 100 BC to 1500 AD

Period	Major linkages	Anchor cities	K-waves

IV: Silk Roads

-100 - 250	Silk via Parthia	Rome, Luoyang
200 - 500	Red Sea Route to India	Alexandria, Guangdong
500 - 650	Byzantium develops the northern route	Constantinole, Changan
750 - 1000	Abbasids develop Persian Gulf route	Baghdad, Changan

V.� Market Systems

930 - 1125	Northern Song via Central Asia	Constantinople, Kaifeng	K1-2
1150-1250	Southern Song	Cairo,-Hangzhou	K3-4
1250-1350	Mongols restore northern route	Genoa, Peking	K5-6
1350 - 1500	Mamluks, Venice work Red Sea route	Venice, Cairo, Calicut, Malacca, Hangzhou	K7-8

��

Overall, the Silk Roads reveal the central portions of the world economy to be a living, pulsating thing, even if the volume of transactions, or the speed of interactions, might have been low by to-day�s more exacting standards.�� Table 3 shows how the intensity of activity along that central artery alternated in a fairly regular manner between the northern and the southern routes, , and in a way that correlated with surges of activity in China, and in Europe.�� Most importantly, the Silk Roads, and the key industrial and commercial structures they supported, became the scaffolding upon which arose the truly global economic system of the modern era.

II.�� Global economic evolution, and innovation

�� This has been so far, in broad strokes, a sketch of the evolution of the world economy as marked by major institutional changes, and above all, viewed as a fundamental transition from command to market economy.�� It covers the entire historical experience with world economic systems, from the very inception of the possibility of such arrangements, inherent even in the pre-historical trading linkages of maybe six or seven thousand years ago, right up to the contemporary experience of an increasingly globalized economy.

�� The next question is:� how did the process work itself out at global organizational level?�� That is, what were the organizational structures that mediated and orchestrated these changes such that a movement toward greater economic interdependence might in fact be observed?�� An answer is suggested in Table 4.��

�� Table 4:� Organizational evolution in the global economy

From about	Phases	Centered on
V. Breakthrough to market systems
�� 930	Song move to national market	China	Experiments
�� 1190	Nautical-Commercial revolution	Italy	Clusters
�� 1430	Oceanic trading	Atlantic Europe	Critical mass
�� 1640	Industrial take-off	Britain	Pay-off
VI.� World Market
�� 1850	Information Economy	United States	Experiments
�� 2080			Clusters

�� Table 4 above shows the main outlines of the organizational evolution that has moved the world economy toward market solutions, in this case with emphasis on the global level (that is, in respect of long-distance and inter-continental trade, and the activities of leading industrial sectors).�� Organizational evolution concerns the setting within which innovation occurs and without which it is unlikely.�� It includes the creation of markets, new types of enterprises and communication systems, the background of political security, and the launching of new productive facilities.

�� As noted in Table 3 above� China had been, for over a millennium, an anchor of the Silk Road system, and as such, a major participant in the then world trading system, exporting silk, (an early innovation whose secrets were for a long time very well� guarded), and importing i.a. jade from Central, and spices from Southeast Asia.�� It is therefore not altogether surprising that about the year 1000 under the Sung Dynasty, China laid the foundations for a �first�:� a national market economy, and became �the� market of the world system, attracting traders from far and wide (ultimately even serving as the ultimate destination� for Columbus).�� But in the longer run this proved to be basically an experiment with wide ramifications, and lessons for others;� and soon the ball was taken up by the Italians, whose commercial and industrial organizations and practices have been more directly foundational for global economic evolution.�

�� It was Italian enterprise that helped to launch Portugal and Spain on their global enterprises that created the first truly global trading (and political) system that in turn served as the foundation for the �industrial revolution�.�� Britain built the factories that made that �revolution�,� a feat to be imitated world-wide.�� The United States completes the picture, for the time being, with its leading role in the 20^th century.��

�� Interestingly, though broadly speaking, these great organizational waves have been reflected quite closely in the long-term movements in English prices of consumables since about 1200.�� A series first constructed by Sir Henry Phelps-Brown and Sheila Hopkins, and recently interpreted by David Hackett Fischer, reveals four great �price revolutions� (each a period of rapidly rising prices):�� the medieval one (1200-1350);� the 16^th century (1475-1650), the 18^th century one (1729-1812-5), and the 20^th century one (1896-2000?).�� They could equally well be called the Italian, Atlantic, British, and American price revolutions, - and re-organizations.

�� Both the organizational sequence, and the price data, make it plain that� global economic development� is to be seen as an evolutionary series of path-breaking innovations by a number of organizational centers, rather than a matter of a sudden� and unprecedented and miraculous �revolution� in the British Isles of the 18^th and 19^th centuries.

K-waves as surges of innovation

�� What drives global economic evolution, the process depicted in Table 4?

It is the thesis of �Leading sectors and World Powers:� The Co-evolution of Global Economics and Politics� by George Modelski and William R. Thompson, that global economic evolution of the millennium just past has been driven by a succession of K-waves.��

�� What are K-waves?�� They may be defined as �processes of rise and decline of leading sectors� or,� as paradigm shifts in the global economy.�� K-waves are surges of innovation that create new sectors either of industry or commerce.�� These sectors are initially of local and national significance but ultimately impact the entire global economy.�� A classical example is the rise of the cotton textile industry in the second half of the 18^th century on the basis of innovative techniques in spinning and weaving� and the organization of factory production around steam engines that became a leading sector of the British economy� and through exports, both of its products, and of its technology, a leading industrial sector of world-wide impact, the foundation of what at the end of the 19^th century came to be described as the Industrial Revolution.

�� The term K-wave is short for Kondratieff wave.�� That latter term, coined by Joseph Schumpeter (writing in 1939) was intended to honor the fact that the first to draw attention in a sustained manner to this important characteristic of the modern world economy was Nikolai Kondratieff (1892-1938), a leading Russian economist writing in the 1920s.�� For a recent translation of his work on this topic see Kondratieff (1984);� a full commentary in the light of more recent work may be found in Van Duijn (1983).� Well received in the 1930s, but neglected in the 1950s and 1960s, Kondratieff�s arguments found once again greater resonance in the 1980s and 1990s.

�� Some basic features of K-waves are quite widely agreed.�� The first is their period, generally seen to last between 50 and 60 years.�� These are figures derived in the first place from empirical observations, going back to long-range studies of both price and output series.�� More recently the emphasis has been on sectoral output and growth, and on international perspectives.�� In a more general context, the period of the K-wave might also be seen to be related to generational turn-over.�� A generation period is usually reckoned as the time required for a generation to replace itself, some 25 to 30 years.�� A K-wave would then be made up of two generation-long phases.�� Indeed, looking again at the empirical record, two phases can usually be discerned, a take-off phase that launches the innovations, but needs to contend with alternative paradigms, in a context where earlier leading sectors have lost their edge and are in decline;� and a high-growth phase, in which the new paradigm prevails and, for a while at least (again, for a generation) occupies center stage, brings prosperity, and leads the world economy.�� Most recently, the� period from say 1972 to 2000 might be regarded as the take-off for the information industries, and from 2000 to say 2020-30 as its high-growth phase (see Table 5)..

Table 5:�� K-waves: the sequence of global leading sectors

K-wave	From about	Leading sector	Major innovation
K1	�930	Printing, paper	Learning society,� book printing
K2	�990	National market formation	North-south market unification
K3	1060	Fiscal/administrative framework	Monetization, paper money
K4	1120	Maritime trade expansion	Compass, large junks

K5	1190	Champagne fairs	European market organized
K6	1250	Black Sea trade	Innovations from East Asia
K7	1310	Venetian galley fleets	New markets in North Europe
K8	1350	Pepper trade	Alexandria-connection institutionalized

K9	1430	Guinea gold	�Discovery� of African trade
K10	1494	Indian spices	Operating oceanic route
K11	1540	Atlantic, Baltic trades	American silver
K12	1580	Asian trade	Dutch East Indies Co. VOC

K13	1640	Amerasian trade	Plantations
K14	1688	Amerasian trade	Tobacco
K15	1740	Cotton, iron	Factory production
K16	1792	Steam, rail	New forms of transport

K17	1850	Electrics, chemicals,steel	Invention of invention
K18	1914	Electronics, autos, aerospace	New products
K19	1972	Information industries	Computers
K-20	2026

�� The substantive content of a K-wave is given by the set of innovations that it launches.�� Table 5 lists a dating scheme for K-waves of the modern world economy, starting with developments in Sung China just over a millennium ago, and tentatively shows for each K-wave the innovations that constitute successive paradigm shifts.

�� The conception of innovation guiding this listing is Schumpeterian.�� In a classic formulation first articulated in 1911, Joseph Schumpeter proposed that economic development is the product of enterpreneurial innovation of the following types:� launching new products;� pioneering new methods of production;� opening new markets;� creating new sources of raw materials;� and introducing new forms of business organization.�� Table 5 shows that K-waves have been produced by all of these.��

�� What is more, the list in Table 5 shows the individual K-waves as arrayed into groups of four.�� This grouping reflects the fact that individual paradigm shifts, however powerful they might be in and of themselves, such as that to railroads, do not stand alone but �stand on the shoulders of others�. and, in their turn, serve as launching pads for new endeavors.�� That is how K-waves 9-12, in Table 5, after 1430, might be seen as adding up to the establishment of an �oceanic trading� system in Table 4;� in effect, a change in the organization of the global economy.

��

�� Table 5:� K-waves: the sequence of leading sectors�� is, in effect, a �short history of the global economy�.�� It also is a dating scheme for K-waves.�� It shows them for the entire time span of the modern era, that is at greater length than some other studies.�� Analysts who do not focus on long-term s are often content to notice the last five well-known pulses, including the most recent one focussed on information industries.�� Students of economic history including Joseph Schumpeter, and Fernand Braudel have proposed pushing the analysis back to the early modern period.�� Starting it with rise of the Sung market economy recognizes the role of China, as earlier proposed.��

�� It remains an open question, though, �whether �leading sector� innovation waves of this length, of some 50-60 years, can also be discerned in pre-modern economies.�� The earlier account of the Silk Roads as having mediated the transition from �command� to �market� economies (in Table 3) did point to a regular alternation between northern and southern routes even before what we now call the modern era.�� But our data are at present insufficient for tracing economic fluctuations, and the rise and decline of leading sectors, in those earlier times.��

�� The agents of innovation driving the K-waves are clusters of enterpreneurs: in individual or family firms, companies, or more recently, multinational corporations.�� In earlier periods it is hard or impossible to identify such individuals whose deeds� have been recorded with less assiduity than those of kings or military heroes.� Such families as the Grimaldi or the Spinola led much of Genoese activity;�� South German merchant houses such as the Fugger or the Welsers, cooperated with the King of Portugal (and his Casa da India) in organizing and financing the crucial voyages to the East.�� It was the advent of the Dutch East Indies Company (VOC) in 1600 that not only put the organization of Asian trade on a solid footing but it also served as a potent model of corporate management, superior by an entire order of magnitude� to the organization that the King of Portugal put together a century earlier.�

�� By the mid-19^th century the innovations can be clearly linked to individual enterpreneurs and their companies:� e.g. the locomotive, and the Liverpool and Manchester Railway (Stevenson), with the railway K-wave (K-16), or the electric dynamo, with Siemens, and the electricity K-wave (K17).�� More interestingly, no single enterpreneur or even firm can confidently be named as the single carrier of any one K-wave;� mostly it is a cluster of related, and competing individuals and firms that carry forward these great changes, and the more recent the K-wave, the thicker these clusters become.�� That is how evolutionary changes of global proportions are carried forward by the concerted action of individual agents, many of whom are difficult to name so long after the event, but whose initiatives continue to impact our lives.

�� An essential dimension of innovation, and of waves of innovation is location.�� This is not merely a matter of geography:� innovative activity tends to be localized within particular regions of a country, as textiles were in Northwest England, or the information industries, more recently, in Silicon Valley.�� More importantly however, all K-waves have been prominently located in distinct national economies.�� Such economies would afford a supply of factors of evolutionary potential:� markets that generated the initial demand for its products; and capital resources as supply factors, openness to trade and financial institutions ready to support innovation.�� Beyond that, political support, and security.�� This high degree to which innovative activity initially centers on one key economy is a key to understanding the linkage between global economics and politics.

�� Data brought together by Modelski and Thompson (1996) in Tables 6.11,6.12,6.13 make plain these two crucial characteristics of K-waves:�� surges of innovation have their origin in one national economy, and then diffuse more widely, at first to other major economies, and ultimately world-wide.�� Secondly,� K-waves are not the automatic property of the largest countries or the wealthiest economies;� they occur in certain specific conditions that favor innovation.�� It is, of course, the case, that hosting a K-wave greatly adds to the value of the output of an economy, for a period of at least� two generations, and therefore greatly adds to its �size�.�� But size alone does not place an economy into the vanguard of economic evolution.

�� The Modelski-Thompson data on national shares for key products of K-waves 15-18 show that Britain leads in cotton consumption, a good indicator of textile production until well past the mid-19^th (not to be overtaken by the United States until 1900).�� Britain also leads in pig iron production,� only to lose its lead by 1890.�� In railroad construction the lead in the indicator used here passes to the United States by 1870, but much of the rail construction in the world continues to be undertaken by British builders, with British expertise and machinery, and on the basis of British capital investment.�� The picture changes with K-17.�� Sulphuric acid is one indicator of the output of the chemical industry that was a locus of innovation of that wave.�� Britain start well in 1870 but is outpaced by the United States in 1900, and is followed closely by Germany, that is also strong in other new branches of that industry, and in particular in dyestuffs.�� The story is the same in steel production.�� In electric power, Britain falls behind right from the start.�� In motor vehicle production (and the closely linked oil industry) the American lead is decisive from the beginning,� European production is less substantial, and by 1980s, the important competition comes from Japan, and the Asia-Pacific area.��

�� This reiterates the central point that over the experience of the modern economy for the past millennium, K-wave animated leading sectors have invariably originated in one well-organized national economy linked to a wider network, and then diffused from there.�� That happened in the early (Sung) China economy, with its links via the Silk Roads, and in the Italian city states that organized the western end of those linkages, and� in the successive stages of the Atlantic economy.�� The source of strength of these economies was not so much population , or size of territory, but evolutionary potential married to innovation that met the needs of the time.�� That is how, broadly speaking, also David Landes explains �The Causes of the Wealth and Poverty of Nations� (1996).�� The alternative view would argue, as does Andre Gunder Frank (1998),� that because of their relative size, Asia in general, and China in particular were the center of the world economy through most of the millennium, and right up to 1800.�� While it is true that Asia did hold some 50-60 per cent of the world population throughout that period, its economies contributed much less then their share to major innovations, and stopped leading global evolution after about 1200.

�� The association of major innovations and specific location might once again be illustrated in Table 6:�� The Clustering of Major Innovations.�� An independently compiled list of 160 major innovations over the best part of the 19^th and 20^th centuries shows that in K16, the plurality of such advances in industrial competitiveness occurred in Britain (44 per cent), followed by the United States.�� In the next two K-waves, the United States holds the lead, followed by Germany as the runner-up.�� In each case, these lead-ins to key� industrial sectors are linked to major innovative firms:�� e.g. the telephone, with the then Bell company, since reorganized into ATT and �Baby Bells� and now one of central players in the information industry, and the microprocessor, the product of Intel, a major participant in the Silicon Valley.

(Table 6 about here)

Table 6:�� Clustering of major innovations, (K16-K18).

K-wave�� (data for)	Total of major innovations	Originating in (percentage shares)	Examples
K16�� (1811-1849)	18	Britain 44 USA 22	Steam locomotive Vulcanized rubber
K17�� (1850-1914)	67	USA 45 Germany 18	Telephone Electric dynamo
K18�� (1915-1971)	75	United States 57 �Germany 17.	Microprocessor Jet airplane

Derived from list of major innovations in Van Duijn (1983:176-9).

III.�� K-waves and global political leadership

�� The localization of K-waves, and their initial close association with a particular national economy, means that national leading sectors translate rather smoothly into global economic leadership.�� The successful launching of new industries of global impact confers high standing on an entire economic system.�� It means new high-growth industries,� products and services meeting a world-wide demand, and consequently prosperity, and added wealth.� But does it also automatically confer political leadership in international affairs,� does it directly lead to global leadership?

�� Global leadership is here understood as the exercise of a role that has been� central to world politics in the last millennium.�� This world power role has evolved from early experiments in Eurasia, to form, after 1500, the principal component of the Atlantic European nucleus that shaped the global system.�� After about 1850, it became a crucial building bloc of world organization.�� Held most recently by the United States, this has been a role for a nation-state with a commanding presence on the world ocean, and a decisive role in the global wars that periodically reorganized the system, in a pattern of �long cycles�, at intervals of about a century.��

�� In the experience of the modern era, the rise and decline of leading sectors - discussed above- is paralleled quite closely by the rise and decline of world powers exercising global leadership.�� We have seen that the first is a process driving economic transformation.�� The latter, too, is an evolutionary process,�� This �co-evolution of global economics and politics� is shown in Table 7.�� Just as K-waves can be numbered consecutively for the entire modern period, so can successive long cycles (LCs), and the powers associated with them.

Table 7 shows that global economic leadership - that is earned by innovation - has consistently gone hand-in-hand with global political leadership - that has been the chief carrier of political innovation, including new forms of world organization.�� But the relationship has not been an automatic but a mutually interdependent one:� with the economic line of enterprise being supportive of, and supported by, political initiatives.�� What precisely has been the pattern of that relationship?

Table 7:�� The Co-evolution of Global Economics and Politics

About	K-waves (global leading sectors)	Long cycles (world powers after 1500)
�930	K1�� Printing and paper	LC1�� Northern Sung
�990	K2�� National market
1060	K3�� Fiscal framework	LC2�� Southern Sung
1120	K4�� Maritime trade
1190	K5�� Champagne Fair	LC3�� Genoa
1250	K6�� Black Sea trade
1300	K7�� Galley fleets	LC4�� Venice
1360	K8�� Pepper
1430	K9�� Guinea gold	LC5�� Portugal
1492	K10� Indian spices
1540	K11� Atlantic, Baltic	LC6�� Dutch Republic
1580	K12� Asian trade (VOC)
1640	K13� Amerasian trade	LC8�� Britain I
1688	K14� Amerasian trade
1740	K15� Cotton, iron	LC9�� Britain II
1792	K16� Steam, rail
1850	K17� Electrics, chemicals, steel	LC10� United States
1914	K18� Autos, air, electronics
1972	K19� Information industries

��

�� Most prominently, the basic relation has been of the form 2:1.�� For each pair of K-waves in the global economy we can observe one cycle of global politics, that is one term of political leadership at the global level.�� The first of the pair of K-waves lays down the economic base of prosperity, and affluence; and upon that base, a political position can be erected.�� Once the political structure is in place - and in the past this been the work of a world power acting as an agent of innovation after a prolonged, generation-long period of global wars -� the� second K-wave is ready to go into high gear.��

�� To give an example:� the economic transformation wrought by K-17 (steel, chemistry, electric power) put the United States, by 1914, in the top-rank of industrial powers, and created the basis for a powerful �arsenal of democracy�� that proved of decisive significance in the period of World Wars I and II (1914-1945), not only in iron and steel, and electric power but also in telephones and wireless communications..�� The second K-wave (K-18), that took off after 1914, moved into high gear after 1945, when a new political order was firmly put in place;� that wave achieved a peak in 1973.�� That is how one such long political cycle might be thought of as two K-waves� in between which is sandwiched a period of major political disturbance, the evolutionary selection process of macrodecision that in the past half-millennium took the form of a global war.��

�� This means that economic and political evolution at the global level are closely related, at the basic level of agents of innovation, and that the relation is a mutually supportive one.�� It is also closely synchronized (because oscillators tend to synchronize) , as is apparent from the table on co-evolution.�� The synchronization is facilitated by the fact that the same nation-state is the locus both of surges of economic innovation, and of political initiatives that are at the heart of new forms of world order.

�� The left-hand column of Table 7, with its sequence of leading powers, may also be read as a �short history of evolutionary global politics�.�� It shows the results of a process whereby world politics is subject to a regular selection process that produces leadership (world powers, etc) for the solution of global problems.�� That process is strongly motivated by the relationship of challengers to receding and ascendant global powers in the democratic lineage, together with their allies.�� Out of that competition that at its strongest took the form of global wars, arise innovations (mutations) in world political arrangements:� both military, in the form of new formations and weapon systems, and political, such as diplomacy, alliances, world organizations, and arms control regimes (cooperation).�� Such innovations characterize the eras of world order association with the respective world powers (reinforcement).�� The entire process has governed a steady increase in the scale and complexity of world politics over the entire millennium� (see also Modelski 1996).

�� The K-wave-global leadership relationship is empirically grounded, and may be documented both quantitatively and qualitatively for most of the modern era.�� Table 8 summarizes some key empirical evidence for the period since 1500.

Table 8:�� K-waves and the attainment of global leadership

First K-wave peak (observed)	World power	Occasions for global leadership	Sea power threshold attained	Second K-wave peak (observed)
1480s	Portugal	1494,1499	1510	1500s/1530s
1560s	Dutch Republic	1601,1608	1610	1620s
1670s	Britain I	1689,1701	1715	1710s
1780s	Britain II	1793, 1815	1810	1830s
1870s/1900s	USA	1917,1941	1945	1960s

After Modelski and Thompson, Table 7.3.

�� In Table 8: K-waves and the attainment of global leadership� the interaction of economics and politics may be systematically observed over a long time span.�� The first column reports the results of a series of observations of leading sector growth rates in Portugal, the Dutch Republic, Britain, and the United States, and records the years of peak rates (for data and methods see Modelski and Thompson 1996, Chapter 6).�� In each case, the observed peak anticipates the �occasions for global leadership�, most of which are linked to, or are occasioned by, global wars.�� The first date for Portugal, 1492, refers to the establishment of the Tordesillas global political regime dividing the ocean space with Spain, and 1499 confirms the King�s strategy of creating an oceanic route to India.�� For the United States, 1917 stands for entry into World War I, and 1941, for the Atlantic Charter, the statement of the war aims of the United Nations coalition that brought World War II to a victorious conclusion.�� To these might be added 1947, for the Truman Doctrine, and the European Recovery Program (Marshall Plan), that put the final stamp of approval on America�s peace-time role in international affairs.� (Full documentation may be found in Modelski and Modelski 1988).

�� Column 4 of Table 8 is a reminder that economic power is not all that matters.�� A crucial element in fighting, and gaining victory in all the five global wars covered here has been sea power.�� Those attaining, or coming close to, a monopoly share of capital ships (ships of the line earlier, battleships, carriers, and� missile submarines more recently) are those having won, or those likely to win,� global wars;� the year of attainment of the naval threshold (more than 50 per cent of the world total of such ships) marks the conclusion of major conflicts�� (World sea power distributions are documented in Modelski and Thompson 1988)..�� The final column shows the peak years of the second K-wave, as observed, and unsurprisingly it is i.a. the 1960s for the United States.

IV.�� The Information Economy

�� At the close of the millennium, at this time of writing, the most prominent feature of the economy, and its leading sector, appears to be information, marking this undoubtedly as the information age, and with computers and communications as its most essential elements.��

�� Those taking a longer perspective adopted in this article will not be surprised, and will recognize the contemporary prominence of information industries as the breakthrough phase of an �Information Economy� that has been in the making since the mid-19^th century (see Table 4).�� First came the telegraph, initially linked to railroads;� then two cable lines successfully crossed the Atlantic as early as 1866 and set in motion the era of global communications.�� Later in the 19^th century came the telephone, that was initially centered on the United States, but that over time became an inexpensive international service, more recently relayed by space satellites.�� In the 20^th century, radio and television made the electronic media a fully global system.�� At the dawn of a new millennium it is the world wide web that is setting the pace, with the number of users to reach the hundreds of millions in the near future.�� We observe that each of these developments was powered by K-waves: K 17:� the electric power wave of the dynamo, and K18, the wave of electronics.�� With those two laying the foundations, the current K19 of computers and digital telecommunications clinches the case for an information economy as the basic requirement of world markets.�� And K20 will probably put the finishing touches on it.

�� Expert observers have been aware since the 1970s that the world economy was ready to spawn new leading sectors.�� Those who coined the term of �new socio-technical paradigm� correctly anticipated that the focus of these new developments would be the information industries.�� It is interesting to note that this was the opinion not just of American experts.�� British students of innovation such as Christopher Freeman, drew their analyses along similar lines.�� The (then) Soviet experts, too, expected major breakthroughs in computers and microelectronics.�� Japanese electronics companies, followed by South Korean and Taiwanese concerns,� invested heavily in semiconductor etc. manufacturing facilities.�� In other words, it was hardly a secret that information technologies would be the sources of future growth.� Yet the basic shape of the information revolution resembles that of earlier leading sector surges:� a nuclues of high growth in one national economy, in this case the American, followed by gradual diffusion world-wide.

�� The information industries mattered not just because they produce valuable equipment, such as computers.�� Their impact is felt throughout the economy because via innovative software these products enter into a wide-range of production processes, and an even wider range of services, and it is services in particular that are coming to comprise an increasingly large proportion of the output of modern economies.�� Table 11.2 in Modelski and Thompson (1996) illustrates how broad and deep that impact has become.�� Four years� since the publication of that book, the Internet and the World Wide Web, not listed in that table, already have become other major features of the infomation landscape, and of the economy as a whole.

�� Computer technology has now been around for several decades, since the 1960s, and some economists have wondered why it was that the important investments� represented by such equipment did not appear to show results in the statistics of productivity for the US economy.�� But in 1990 Paul David, to the contrary, proposed a solution to this �productivity paradox� by drawing on the lessons from the introduction of the electric motor, in the 1880s (that is in K17, the electric power wave).�� He showed that it took some decades for serious gains to be registered, not just because technology diffusion takes time but also because businesses had to reorganize work around the new industrial assembly line.�� He argued that a similar delay was at work in the introduction of the computer.

�� Toward the end of the decade many economists were coming around to his position.�� While spending on information technology was rising, comprising about one-half of the cost of all new business equipment� so, too,� was growth in productivity.�� Federal Reserve Chairman Alan Greenspan himself endorsed the role of information industries in spurring growth when he said that the United States may be �experiencing a structural shift similar to those that have visited our economy from time to time in our past� due to innovations built around computers that have made businesses to operate more efficiently.� (New York Times, April 14, 1999).

�� As shown for earlier K-waves, a crucial question concerns the location of the K19 process.�� We also know that awareness of the importance of information technology has been widespread,� among specialists and among business leaders, for the previous two-three decades.�� Computers certainly have already spread world-wide.�� Is it still the case that the new technologies are centered in one economy, and why is that so?

�� On the evidence of the three decades 1970-2000 the locus of K19 information industries has substantially been the United States.�� The early leader in the computer manufacture was the IBM Corporation, with up to 70 per cent of market share in mainframes and equipment.�� The 1980s saw the rise of the personal computer, with IBM losing its lead to a variety of producers, including Apple, Compaq, and Dell.�� Powerful Japanese electronics companies such as Toshiba, and NEC, as well as South Korean, and Taiwanese firms, assumed important positions in some portions of the industry, as in memories.�� In the late 1980s it appeared as though Japan might be catching up in high technology.

�� But the PC itself was rapidly becoming a �mere� commodity and attention soon focussed on two key components:� on microprocessors, seen as the heart of the computer, and on software.�� In the 1990s, American producers controlled over 90 per cent of the market in microprocessors.�� Intel alone virtually monopolized the field but in 1999 came under attack from low-end producers (see Table 9).�� In software, it was Microsoft that was installing up to 90 per cent of the world�s operating systems, and one half of its applications (and then coming under pressure from government regulators)�� Later in� the 1990s. moreover, the Internet emerged with astonishing rapidity, approaching 2000 with a user-base of the World Wide Web of some 100 million (Table 10).�� One half of these users were to be found in the United States.�� And the principal operators too were American such as� Cisco Systems, in Internet servers, and AOL in service providers.�� That is also where a tremendous expansion was occurring in web commerce:�� transactions over the Internet were estimated at some 50 billion in 1999, and were� to rise exponentially.�� But these developments surely do not exhaust the range of the Information Revolution.�� Wireless telephony (as in cell phones) is now experiencing rapid growth in Europe and Japan, areas less well covered by traditional telephony, and helped by agreement on a common standard, and the application of 3G technology that may make the wireless phone (rather than the PC) the main access to the Internet.

Table� 9:� �World microprocessor market shares

Company	HQ location	�� 1991	Marketshare 1993	�� *1997(4Q)**	�� *1998(4Q)**
Intel	USA	53.2	74.1	87.1	75.7
Motorola	USA	12.3	�8
Advanced Micro Devices	USA	�5.1	�5.8	�6.6	15.6
Hitachi	Japan	�3.6
NEC	Japan	�3.5

Table 10:� �World Wide Web users

(million)

	1997 (actual)	1999 (est)	2001 (est)
Worldwide	�� 68.6	�� 97.2	� 222.7
Unites States	�� 38.7	�� 51.5	� 106.8
�� US share %	�� 56	�� 53	�� 47

��

The reasons for the American focus of information industries are not really surprising.�� United States firms have been the leaders of the world Information Economy at least since the mid-nineteenth century.�� Starting with the telegraph and the Morse code, through the telephone, radio and television,, with a vibrant press and media sector, this has been an economy that flourished on information.�� An open society that values freedom of speech, and fosters enterpreneurship and flexibility, and a political system that assures stability with a military that fosters research and demands �smart weapons�:� all these� have joined to create elements of evolutionary potential that forged this this new K-wave.�� One other piece of evidence relates to the rewards of enterpreneurship:�� Of the world�s 100 richest people, in 1999 (according to Forbes), 41 were in the United States, and of these at least one-half theiir number, more than 20, could attribute their wealth to the new information economy (Microsoft, Intel, Dell, Amazon.com, Priceline.com, Oracle etc).�� The nearest competitor, Japan, by contrast, did build on� its manufacturing prowess and the strength of its K-18 industries in autos and electronics ,� but was lagging in other sectors of the economy as well as in openness and flexibility,. ��Only one of the six Japanese in the world�s top-100 derived his wealth from an information industry (software).

V. Some Implications for World Politics

�� In the light of our earlier analysis� (see also Modelski and Thompson 1999),� what are the broader implications of these considerations for the future world politics in particular?

�� In the first place, if the United States continues as the principal locus of the information industries K-wave, carrying through the high-growth phase into the 2020s, then these developments lay a sound base for the bid for a second term of US� global leadership in the next generation, and into the 21^st century.��

�� Second, the information revolution now underway, and yet to run its full course,� bodes well for the continued spread of democracy in the world.�� The information industries depend upon open societies, but they also strengthen them, and make them work better, because democracies feed upon good information.�� In 1900, just over 10 per cent of the world�s population lived in democracies;� by 2000, that proportion had risen to 50 per cent.� At that rate, the world might be expected to be substantially democratic by the end of the 21^st century.�� That is good news, and raises the prospects for the success of cooperative arrangements world wide in the coming century.�� .��

�� Finally, in the experience of the past, a pair of K-waves sandwiched a longish period of major warfare.�� Are global wars to be expected in the transition from K19 to K20, that may be anticipated maybe for the 2030s, and that is also likely to yield the usual economic strains?�� The information revolution, and the rising salience of a democratic community make it likely that such an outcome is avoidable, even if a period of major tensions and political discomfort is quite likely in two-three decades time.�� And the role of global leadership will evolve too, to include an increasing role for democratic world organization.

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Paper repared for the session on

�Social Dynamics and the Encyclopedia of Human Ecology:

A Kenneth Boulding Retrospective�

sponsored by the Association for the Study of the Grants Economy and

the International Society for the Intercommunication of New Ideas

at the annual meeting of the Allied Social Science Associations and

the American Economic Association,

Boston� MA, January 7-9, 2000.