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

THE PHOENIX CYCLE: GLOBAL LEADERSHIP TRANSITION IN A LONG-WAVE PERSPECTIVE Joachim Karl Rennstich Department of Political Science Indiana University Bloomington, IN 47405 jrennsti@indiana.edu For latest draft, please check: http://www.longtermchange.net/ Paper prepared for delivery to the 26th Political Economy of World-Systems 2002 Conference at the University of California at Riverside, Riverside, CA, May 3-4, 2002 Draft as of: October 18, 2022 ABSTRACT It has been argued that one of the reoccurring phenomenon of hegemonic transitions 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 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 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 INTRODUCTION 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; Freeman 1983; Freeman and Louỗó 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 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 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 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 we argue (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 better understanding 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 a digital 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 leader and 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 agroindustrial 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 summarizes graphically the process of the rise and fall of hegemonic dominance in the world system /Figure 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, through victory 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 of this 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 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 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 ΜΧ setting in motion an increasing mass of commodities and consisting of phases of continuous change, during which the capitalist world-economy grows along a singledevelopmental path; and (2) phases of financial rebirth and expansion, formulaically noted as ΧΜ ′ 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 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 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 of command 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 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, Kwaves 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 We believe 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 in which 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 impact of the transition from an internal to an external network structure (or vice versa) is important not only in terms of the change in the general structure of the new commercial and organizational arrangement but also for the location of the new global leadership So far, we have witnessed one occurrence of hegemonic and systemic transition (as understood in our model), where the existing leader (Britain) was aiming to maintain and strengthen its leadership and are currently experiencing a similar transition.7 It is this cooccurrence of hegemonic and systemic transition that allows for the development of what we term the “Phoenix cycle” of renewed leadership of the old hegemon THE PHOENIX CYCLE The process leading to the development of a systemic chaos as depicted in Figure is normally driven by the clustering of innovations outside the leaders realm (both in a geographical and technological sense), paired with the technological diffusion from core leading sectors technologies (again in a broader sense) and the emergence of new leading sectors, triggering the centralization of new systemic capabilities in one or two newly emerging new centers, and eventually causing the rise of challengers to the existing leader Given a change in the general capitalistic mode dominating the world system– in divergent but broadly compatible forms acknowledged by both, Arrighi (1994, ch 1), and Modelski and Thompson (Modelski and Thompson 1996, 71-2) – historically we have witnessed a phenomenon here referred to as the “Phoenix cycle.” In instances (so far only one, namely Britain’s ability to defend her leadership position during the eighteenth and nineteenth century) where the systemic chaos is not only driven by the “normal” process of hegemonic crisis and breakdown, but also coincides with a systemic crisis (and eventual breakdown) triggered by a change in the major capitalist mode of the system (leading to a system meta-structure shift), the existing leader can defend its leadership position in the transforming world system if it is able to allow the parallel development of a new cluster of innovations and the rise of new leading sectors within its domain (see Figure 4) As shown by a number of authors from various research traditions (such as Christensen 1997; Gilpin 1996; Freeman and Louỗó 2001; Freeman and Soete 1997; Freeman and Perez 1988; Porter 1990; Nelson and Winter 1982), past success often entails the very ingredients for future demise Whereas continuous innovation still takes place within the existing leader, adaptation to a newly emerging, changed environment (as a result of the rise of new leading sectors elsewhere) proves very hard for a society that can (and usually does) become locked in into economic practices and institutions that in the past proved so successful Powerful vested interests resist change, especially in circumstances were a nation is so powerful as to institutionalize its commercial and organizational arrangement on a global level, a change dire needed however to maintain its leadership Gilpin (1996, 413) thus concludes that “a national system of political economy The discussion, as to why China (or rather Chinese leaders) decided against the expansion of their lead during the first occurrence of the co-occurrence of a hegemonic- and systemic crisis is beyond the realm of this paper but increasingly receives more attention in the literature 13 that most ‘fit’ and efficient in one era of technology and market demand is very likely to be ‘unfit’ in a succeeding age of new technologies and new demands.” The cyclical emergence of new commercial and organizational arrangements as shown by Modelski and Thompson, Freeman, and others entails such an environmental change Thus, hegemonic transitions usually entail the shift from one leader to another due to what Boswell (1999, 265) calls the “advantage of backwardness.” If we view the emergence of new commercial and organizational arrangements as a largely endogenous process, its emergence also causes an environmental shift that can be understood as an exogenous factor as well However, the response of the existing leader to this change is largely driven by endogenous factors again The same can be said for the change from one capitalist mode to another, setting off the transition from an internal network structure system to an external network-structured one (and vice versa) It is the set of leading sectors (an endogenous process) that causes – over time – the change of the systemic structure and thus a change of the meaning of “fitness” in the evolutionary selection process The shift from one capitalist mode to another, then, is also both an endogenous but to some degree also an exogenous process As pointed out earlier, we have witnessed in the past that under certain circumstances the old hegemonic leader is capable of maintaining its leadership position Instead of withering away, these leaders are able to renew themselves, like a phoenix arising from the ashes of its declining old leadership position Several reasons account for this phenomenon Unhindered Rise of Second Center of Systemic Capability One of the main obstacles for the existing hegemon, as discussed earlier, is the entrenchment of its own success The institutionalization of its successful strategies creates powerful incentives to “remain on course.” These institutions prove not only to be “sticky” (in the sense that they outlast their original intent and aim to preserve the existing rather than adapt to change) but also defensive New ways of doing things are thus less likely to emerge where such entrenched resistance exists, a phenomenon we can observe both on the micro- (individuals and firms) and macro-level (states) A crucial factor we have to take into account is the kind of global problems (as identified by Modelski and Thomson) the actors are trying to address In a systemic environment that is driven by the same capitalistic mode, these problematiques will be more closely connected than in a situation in which the power strategy is based on two different capitalistic modes It is important to keep in mind that the two network systems – internal or external – are reflective of different power strategies The rise of a new commercial and organizational arrangement reflective of a different network environment provides less of a threat to the existing entrenched order and thus will be met with less resistance We know that the emergence of new leading sectors is a path-dependent process Leading sectors of a new network environment are products of a different path than that of 14 the existing commercial and organizational arrangement (despite their co-existence and often to some degree parallel historical trajectories) Originating in different power-logics, they can be quite complimentary in their development as for example Nef (1934) has demonstrated so eloquently For Nef (1934, 22) the commercial revolution … had a continuous influence reaching back to the Reformation upon industrial technology and the scale of mining and manufacturing But so, in turn, the progress of industry had continuously stimulated in a variety of ways the progress of commerce The former was quite as ‘revolutionary’ as the latter, and quite as directly responsible for the ‘Industrial Revolution.’ (Nef 1934, 22) This “compatibility” or even “complimentary character” is to a large degree the result of not only the difference in power strategies but also the difference in commercial strategies External network arrangements tend to be service-oriented (in today’s economic language) whereas internal network systems tend to be production-focused (see also earlier discussion on the difference between internal and network systems above) Thus, in the same manner as the commercial supremacy of Britain helped her to build up her industrial strength, the U.S informational technologies and digital networking capabilities are based upon the strength of her earlier strengths in an internal network environment (i.e., microelectronics, mass production, aerospace technologies, and semiconductor production) As a result, the parallel development of two centers of systemic capabilities – one rooted in the external network power logic, the other in the internal network power – is not only possible but also complimentary and self-reinforcing Investment Flows Remain Internal Another argument regularly put forward for the likely rise of a new hegemon is the notion of capital “searching” – once liquidized in the M’ phase – for new and better opportunities (i.e., higher returns as a result of new monopoly rents) For reasons laid out above, these opportunities tend to arise outside of the institutionalized setting of the existing leader This process usually leads to the flow of capital from the existing leader to the rising new one However, in the case of a systemic network structure shift and thus the possible development of dual centers within the same “containers of power” (Giddens 1987), these capital flows can (as in the case of Britain during its transition from a external network to an internal network power logic) remain internal and simply shift from one center to another but within the realms of the existing leader We are witnessing a similar process currently in the case of the United States where not only internal flows are switching from an internal network power logic to opportunities arising in the emerging external network power logic driven enterprises but also external flows are significant for the rise of this new commercial and organizational arrangement This does not only take place in the form of “venture-capital” financing, but also to a much larger degree in a shift from established institutions of capital distribution to newer forms Put differently, in the case of a combined hegemonic and systemic breakdown, the old hegemonic leader reemerges out of the ashes of its crumbling old commercial and organizational arrangement fed by the internal flows of its monetary capital (as well as that from others) and as a result 15 is able to develop dual centers of systemic capability The current co-development of dual financial centers within the United States may serve as example of the continuation of this process We currently witness the parallel importance of the declining old capitalist mode (industrial  internal network structure) financial center, the New York Stock Exchange (NYSE), with its roots in the “space-of-place” power logic, but at the same time the rise and development of new capitalist mode (digital commercial  external network) financial network center, characterized by its roots in a “space-of-flows” power logic, namely the Nasdaq Although its origins can be traced back to May 17, 1792, when Twenty-four brokers subscribed to the “original brokers’ agreement,” forming the first organized stock market in New York, the NYSE was institutionalized in 1817 under the name “New York Stock & Exchange Board” which was changed in 1863 to its current-day name “New York Stock Exchange.” Replacing London as the world’s largest financial center, New York and its NYSE have become by far the world’s largest equity market, two and a half times the size of the next market in Japan (followed closely by London) The members (i.e., owners) of the NYSE are closely connected to the rise of the commercial and organizational arrangement that lead to the rise of the U.S leadership in the world system And the NYSE remains a highly influential capital market for U.S (and increasingly international) enterprises At the same time, however, with the rise of electronic networks, the NYSE has experienced strong competition on a worldwide scale from increasingly electronically based equity marketplaces New York, however, has also witnessed the parallel development of the world’s dominating electronic marketplace in the form of Nasdaq Owned by the same set of owners (initially), Nasdaq started its trading life – in 1971 – at the moment, when most authors date the start of the hegemonic crisis of the U.S and has since firmly established its dominance of the capital-side of the emerging digital network system As the world’s largest electronic stock market, Nasdaq is not limited to one central trading location Rather, trading is executed through Nasdaq’s sophisticated computer and telecommunications network, which transmits real-time quote and trade data to more than 1.3 million users in 83 countries Nasdaq’s “open architecture” market structure allows a virtually unlimited number of participants to trade in a company’s stock and is the result of an actively pursued spread of its hubs in other established markets In 1994, Nasdaq surpassed the NYSE in annual share volume and despite the decline in trade and volume after the dot-com bubble burst in 2001 remains a powerful market with the potential to make floor-based markets such as the NYSE obsolete in the not too distant future Advantage of Old Leadership Position Thus, instead of a disadvantage, the declining leader can use its existing institutional setting and resource not only to defend its predominance of the current commercial and organizational arrangement but at the same time facilitate these resources to its advantage by channeling the increasingly liquid capital flows not outside, but rather 16 to the parallel developing new center of systemic capability The ashes of its hegemonic decline prove to be fruitful in nurturing the rising new center This does not prevent the rise of challengers And it does not preclude the further unraveling of the existing order leading to a hegemonic breakdown The unique circumstances of a combined systemic and hegemonic transition, however, provide the old leader with a significant head start in the development of its capabilities in the newly emerging system for reasons laid out above ENTER: THE AGE OF CHAOS OR EVOLUTION OF THE SYSTEM? A CONCLUSION The current view in the literature on the future of world hegemony in the modern world system can be roughly divided into two groups One group, most prominent among them Wallerstein (1994), argues for the end of the current system and the beginning of a prolonged, unresolved systemic “chaos” with a multi- or bipolar hegemonic structure or other varieties of a dissolution of the current system (e.g., Arrighi, Silver, and Ahmad 1999; Goldfrank 1999; Bornschier 1999) A second group allows for the evolution of the system but argues for a continuation of the basic mechanisms (e.g., Modelski and Thompson 1996; Chase-Dunn and Hall 1997; Thompson 2000; Rennstich 2002b; to some degree also Boswell 1999; note also Arrighi 1994, 74-84) This paper has aimed to provide a model bridging existing models on systemic and hegemonic transition and by doing so, allowing to put not only past historical hegemonic transitions into a new perspective but also to further our understanding of the current transitions and their implications for the future of the global world system We believe that by introducing a new understanding of “systemic transformation” through the introduction of a systemic meta-structure differentiated between internal and external network structures we can not only provide a missing theoretical understanding of past transitions but maybe even more important make more sense of the current “chaos.” What unites most of the more recent accounts of the demise of the world system is the puzzling combination of the simultaneous military strength of the U.S and its relative decline in economic and political terms It seems rather peculiar, in this perspective, to witness the economic rise of the triad (and with it a shift of the center of the system further westwards and back into the Asian fold in many accounts) without the demise of the existing leader’s military capability or at least the rise of a serious challenger or challengers in the short-and even medium-term Taken together with the high complexity of the system, the perceived need for international cooperation not only in economic and socio-political, but increasingly also ecological terms, and its truly global proportions that renders dominance of the world system nearly impossible, the notion of a breakdown of the system and a uncertain future structure seems rather obvious However, taking our model and the lessons of a prior occurrence of a “Phoenix cycle” with Britain’s second leadership of the world system into account, we can not only theoretically explain the current “chaos” but in fact would expect it to unfold in the manner it currently does Thus, ours is not an attempt to “twist” existing long-wave explanations to fit current developments, but rather a theoretical extension and 17 clarification based on existing (as pursuit by Modelski and Thompson 1996; Arrighi 1994; Rennstich 2002b) empirical analysis of the historical evolution of the world system The rise of Japan, thus, becomes more closely aligned with the rise of France as a challenger to British hegemony during the eighteenth century and resulting in Britain’s defeat of the French challenge during the French Revolutionary and Napoleonic Wars and consequently Britain’s establishment of her second hegemonic period This is not to argue for a future war between the U.S and Japan, nor that Japan is the most likely candidate for the challenge of America’s claim for leadership of the world system Our model does, however, provide some answers several authors, including Wallerstein, raise in order to explain the phenomenon of Japan’s economic and especially financial importance in the current world system but its apparent “non-challenging” behavior in terms of political power Viewed as a challenge based in the same internal-network structure system, Japan’s capabilities seem far greater than if viewed as a challenge to America’s lead and rising dominance of the newly emerging external network structure-based new commercial and organizational arrangement A number of authors note the similarity between the Dutch systemic structure and the currently evolving system (e.g., Arrighi 1994; Boswell 1999; Rennstich 2002a), something perfectly consistent with our theoretical model here The currently emerging new commercial and organizational structure, in so many ways characterized by its emphasis on external networks, resembles in many ways the earlier maritime commercial setting (also based on external network structures) in existence prior to the industrialized phase (largely dominated by an internal network structure) It does not, however, mark the simple “return” to an old setting Ours is an evolutionary model and prior complexities not simply dissolve Thus, elements of the prior industrial system have become integral parts of the new digital commercial system But just as in prior cycles, what once was the foundation of leading sectors and the basis of monopoly rents has become a necessary but commoditized element of the value-adding process The newly emerging leading sectors are not based on the internal network structure of the prior industrial system anymore but rather both producing and products of the external network structure This transition from an internal network to an external network structure allows for the development of a Phoenix cycle of renewed leadership, out of the ashes of its old hegemonic demise As was the case in the prior transition from Britain’s dominance of the commercial external network structure to an industrial internal one, we cannot expect this transition to progress unchallenged, albeit we would certainly wish for the containment of a future global war and a different form of “macro-decision.” However, as the most recent events in the international interaction of states have reminded us so brutally, human political action and reaction remain the most static element in the evolution of the world system We can only hope that our work can help to bring more insights as to the processes and outcomes of an increasingly “interdependent” and external network-based world system 18 REFERENCES Abu-Lughod, Janet L 1989 Before European hegemony: the world system A.D 12501350 New York: Oxford University Press Arrighi, Giovanni 1994 The long twentieth century: money, power, and the origins of our times London and New York: Verso Arrighi, Giovanni, Beverly J Silver, and Iftikhar Ahmad 1999 Chaos and governance in the modern world system Minneapolis: University of Minnesota Press Bornschier, Volker 1999 Hegemonic Transition, West European Unification and the Future Structure of the Core In The Future of global conflict, edited by V Bornschier and C K Chase-Dunn London and Thousand Oaks, CA: Sage Publications Boswell, Terry 1999 Hegemony and Bifurcation Points in World History In The Future of global conflict, edited by V Bornschier and C K Chase-Dunn London and Thousand Oaks, CA: Sage Publications Braudel, Fernand 1992a Civilization and capitalism, 15th-18th century: The perspective of the world Vol Berkeley: University of California Press Original edition, 1984 ——— 1992b Civilization and capitalism, 15th-18th century: The structure of everyday life Vol Berkeley: University of California Press Original edition, 1982 ——— 1992c Civilization and capitalism, 15th-18th century: The wheels of commerce Vol Berkeley: University of California Press Original edition, 1983 Buzan, Barry, and Richard Little 2000 International systems in world history: remaking the study of international relations Oxford, UK and New York: Oxford University Press Cantwell, John 1989 Technological innovation and multinational corporations Oxford, UK and Cambridge, MA: B Blackwell Chase-Dunn, Christopher K 1989 Global formation: structures of the world-economy Cambridge, MA: B Blackwell ——— 1995 The historical evolution of the international political economy Brookfield, VT: E Elgar Pub Co 19 Chase-Dunn, Christopher K., and Thomas D Hall 1997 Rise and demise: comparing world-systems Boulder, CO: Westview Press Christensen, Clayton M 1997 The innovator's dilemma: when new technologies cause great firms to fail Boston, MA: Harvard Business School Press Dark, K R 1998 The waves of time: long-term change and international relations London and New York: Pinter Denemark, Robert Allen, Jonathan Friedman, Barry K Gills, and George Modelski, eds 2000 World system history: the social science of long-term change New York: Routledge Durkheim, Emile 1938 The rules of sociological method Translated by S A Solovay and J H Mueller 8th ed Chicago, Ill.: The University of Chicago press ——— 1984 The division of labor in society Translated by W D Halls New York: Free Press Original edition, 1933 Frank, Andre Gunder 1978 World accumulation, 1492-1789 New York: Monthly Review Press ——— 1998 ReOrient: global economy in the Asian Age Berkeley: University of California Press Frank, Andre Gunder, and Barry K Gills, eds 1993 The world system: five hundred years or five thousand? 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Concentration of productive, commercial, and financial competitive fitness in a particular state (hegemony) Economic and political consolidation of hegemony Competitive Expansion (variation) Rivalry Technology diffusion Global liberalism Climatic world war (selection) Loss of competitive fitness Rise of employment costs in hegemonic state Source: Wallerstein (1984), graphical conceptualization based on Arrighi, and Silver (1999, 25) Competitive expansion (variation) Figure 2: Dynamics of Hegemonic Transitions, Arrighi and Silver Model Hegemony Hegemonic Transition Hegemonic Crisis Systemic reorganization by hegemonic state (diffusion, imitation, and reinforcement) Emulation of the hegemonic state (innovation) Systemic expansion (variation) Interstate rivalries and interenterprise competition Hegemonic Breakdown Systemic reorganization by new hegemonic state Systemic chaos (evolution) Social conflicts Emergence of new configurations of power Source: Based on Arrighi, and Silver (1999, 29) New Hegemony Centralization of systemic capabilities Emulation of the new hegemonic state Figure 3: Leadership Transition Dynamics, Modelski and Thompson Model Hegemony World Power Hegemonic Transition Delegitimation Deconcentration Global War New Hegemony World Power Naval capability share/concentration Naval capability share/concentration Innovation Interstate rivalries and interenterprise competition Rise of new leading sectors Economic and political consolidation of leadership Macrodecision Technological diffusion Leading sector share/concentration Emergence of new configurations of power Source: Modelski and Thompson (1996) Rise of challenger(s) Global warfare Leading sector share/concentration Figure 4: Dynamics of Hegemonic Transitions, Rennstich Model Hegemony Innovation Systemic reorganization by hegemonic state (diffusion, imitation, and reinforcement) Hegemonic Transition Hegemonic Hegemonic Crisis Breakdown Rise of new leading sectors Systemic expansion (innovation) Emulation of the hegemonic state Centralization of systemic capabilities Systemic Transition New Hegemony Global War Rise of challengers(s) selection Global warfare Systemic reorganization by new hegemonic state Technological diffusion Systemic chaos Emergence of new configurations of power (variation) Emulation of the hegemonic state Global warfare Change in capitalist mode Emergence of new system configurations System meta structure shift Systemic Crisis Systemic Breakdown Dual centers of systemic capabilities metaselection Systemic reorganization by old hegemonic state Phoenix Cycle ... leader is capable of maintaining its leadership position Instead of withering away, these leaders are able to renew themselves, like a phoenix arising from the ashes of its declining old leadership. .. organizational arrangement that lead to the rise of the U.S leadership in the world system And the NYSE remains a highly influential capital market for U.S (and increasingly international) enterprises At the. .. commercial and organizational arrangement but at the same time facilitate these resources to its advantage by channeling the increasingly liquid capital flows not outside, but rather 16 to the parallel