Historical Evolution of the World

Systems
Here evolution of world economic system refers to the
evolution of political and economic concentrations. It is
the network of linkages that tie together the various
countries of the world.

Political Economy:
The attempts to merge economic analysis with practical
politics – to view economic activity in its political
context. Much of classic economics was political
economy, and today political economy is increasingly
being recognized as necessary for any realistic
examination of development problem.
The existing world economic and political
systems have not been developed in a day.
It is the result of continuous effort made by
the wealthier people for getting more and
more, on the other hand the struggle of the
people living at the subsistent level.
Medieval Feudal Economics
Feudalism(Middle age of History)
Period:1100 AD-1400 AD
The attitude and structure of feudal systems:
Feudal systems refers to an economic relationship
that existed during the middle ages in Europe under
this systems people received land from a nobleman,
and worked and fought for him in return. This
relationship were prevailing regional context and
were limited in scope.
Feudalism was a social, political, and
economic system that dominated all aspects of
medieval life. 
 The economic portion of feudalism was
centered around the lord's estates or manor,
and is called manorialism. 
 A lord's manor would include peasant
villages, a church, farm land, a mill, and the
lord's castle or manor house. 
Manors were self sufficient; all economic activity
occurred on the manor.
 This meant that little to no trade occurred during
this time period.  Most of the peasants during the
Middle Ages were serfs.  Serfs were generally
farmers who were tied to the land.  They were not
slaves because they could not be bought or sold, but
they could not readily leave the manor either.
 
Serfs were given land to farm in exchange for
service to their lord.  This service usually
involved working the lord's fields, maintaining
roads and the manor, and providing military
service in times of war.  Serfs paid taxes to
their lord in the form of crops. 
The lords had responsibilities also under
this system. 

 In return for the service and fees paid by

the peasants, they provided land and
protection to them.  Lords also had to pay
fees and give service to high lords and the
king.
Effect of Feudalism
The Feudal System
Kings
Give large land grants to Upper Lords called fiefs
Give Protection
Receives money, military service, and advice

Upper Lords
Give land grants to Lesser Lords
Give Protection
Receives money, military service

Lesser Lords
Give land grants to knights
Receives money, military service
Knights
Give land to peasants/serfs
Receives crops, labor
Peasants/ Serfs
Receives land to farm
Pays with labor, crops
Features of Feudal economic structure

 Church formed the apex of socio economic structure as

It frowned on materialistic values and development of
commercial and industrial activities.
 Most societies were self content with a production
structure characterised by subsistence and self
sufficiency in all most every respect.
 Spatial interaction was essentially domestic, local and
regional at most.
 The development of technology remained at
rudimentary state
Mercantilism
Period: 1600-1800 AD
Mercantilism was the main economic theory in the 16th
to 18th century.  Governments regulated their
economies to limit imports and maximize exports.

  It was believed that by doing this, the nation’s wealth

would increase because of the surplus in the
country’s balance of trade.  The trade balance was
represented by how much gold and silver bullion the
country held in its treasury.
To maximize their trade, countries made efforts to
expand overseas shipping.

  This required a strong naval force to protect the

commercial vessels.  As a result, England, France,
Portugal and Spain were often at war in an attempt to
dominate the seas. On the positive side, mercantilism
spurred an increase in European global exploration as
countries searched for new sources of raw materials. 
Economic benefits from Mercantilism
The spread of mercantilism defied the reigning of
church-dominated feudal production structure in
socio economic field
Commercial production of goods surfaced (appeared
again after hidden or wake up) as an important
economic activity.
Land, labour and capital entered into the market as a
commodity i.e. buying and selling of factors of
production started.
Cities become centres of production therefore number
and size of cities started to grow at a accelerated
pace.
Capitalaccumulation started which is essential for
dynamic economic growth by the profits from
mercantilist trade.

All of these in turn provided the ground work for the

industrial revolution in England in the late 18th
century
Slave Trade
Period: 1700- Very early 1800 AD
The history of the transatlantic slave trade
Slave trade involved a massive transfer to the new
world of able bodied young Africans, the large
majority of whom were males between approximately
15 and 35 years of age.
 In some cases, slave traders began to transfer
younger persons- under 15 years of age, but rarely
older persons, whose productive potential was limited
Between about 1500 and 1900, Europeans forcibly
uprooted millions of people from throughout West
Africa and West Central Africa and shipped them
across the Atlantic in conditions of great cruelty.

To refer to the Africans who were enslaved only as

'slaves' strips them of their identity.

They were, for instance, farmers, merchants, priests,

soldiers, goldsmiths and musicians. They were
husbands and wives, fathers and mothers, sons and
daughters.
European slavers dispersed them across the
Americas to lead lives of degradation and
brutality, without thought for their personal
lives.

Millions died in the process. As a result,

people of African descent are spread
throughout the Americas and Western Europe.
Almost 30 million people were removed from
Africa during the slave trade area.

The slave trade movement not only created a

systematic linkage between Africa and the
new world of South and North America and
the West Indies, but it made possible the
European-based exploitation of resources in
the new world.
Capitalism
Characteristics of Capitalism
Markets: buyers and sellers of goods & services at
agreed upon prices

Market types: perfect competition –monopoly –

oligopoly (and other types)

The profit incentive = revenue – cost

Dynamic behavior of buyers and sellers, including

incentives from innovation in products and
production processes
Attributes of Alternative Market Types
Perfect Competition
Homogeneoous products
Each producer makes a
small share of output
No one seller influences
Prices
Entry to market is easy
Flow of information is
Perfect, eliminating excess
profit
Markets are fluid
Monopoly Oligopoly
Unique Product Similar Products
One producer makes all of Several sellers divide the
the product market
Prices set to maximize Prices set through pricing
profit strategies
High Barriers to Entry High Barriers to Entry
Monopolist is able to Oligopolists engage in
control the market strategic behavior—
competitive or collusive
Market is rigid Market may be unstable,
competitive strategies to
“Pure” Monopoly create stability: product
differentiation,
advertising, industry
agreements
Quick Reference to Basic Market Structures
Buyer
Market Seller Entry Seller
Entry Buyer Number
Structure Barriers Number
Barriers
Perfect
No Many No Many
Competition
Monopolistic
No Many No Many
competition

Oligopoly Yes Few No Many

Oligopsony No Many Yes Few
Monopoly Yes One No Many
Monopsony No Many Yes One
Characteristics of Capitalism
Finance: replacing barter with money, and
institutions to handle and regulate money
Uneven development as an inevitable outcome,
historically persistent, at scales ranging from
local to global
Long-distance trade – fueled by transport
innovation – allowing regional specialization
based on principle of comparative advantage
Ideological change – printing/reading, religion,
science, the Enlightenment – “a worldview that
stressed secularism, individualism, rationality,
progress, and democracy.”
The Industrial Revolution
The industrial revolution, which began in
England in the late eighteenth century.

These new advances changed production

technology dramatically, and in the process
the role of capital shifted to a central position.
The textile industry- probably the most
important industrial sector in England at that
time- was greatly affected by this production
technology change.
The revolution that has made the development
of Britain & USA , as well other European
nations into industrial societies in 18 th century.

 It gave birth to industrial systems. The

revolution that made transformation of
agricultural population into industrial
population.
 Industrial change
Things started to be done with machine rather
than manual labour that enabled the division
of labor.
A variety of goods started to manufacture in a
large quantity in factories rather than at home
Growth of capitalist industries, Created
surplus wealth and owned by capitalist
Growth of textile industries
Contd.
Roads and sea transport for easier transfer of
goods even heavier
Arise the necessity of co-operative efforts i.e
formation of corporations and private ltd.
Company as capital goods become more
expensive
Britain and other European country
established themselves as not only a workshop
but also the shipper, trader & to a great extent
a banker of the world
 Contd.
The production of coal and iron was speeded
up during this period
Machines produced much more than what
was necessary for domestic market and hence
arise the necessity of foreign market for the
disposal of the surplus output
It led to the international economic
dependence (England exported industrial
goods in exchange of food.)
Contd.
Production of industrial goods along with
consumer goods started.
It led to the production of capital at such a
pace that there was a capital glut.
Industry become big field for investment.
 Colonialism
Colonialism is the establishment,
exploitation, maintenance, acquisition, and
expansion of colony in one territory by a
political power from another territory.

Itis a set of unequal relationships between the

colonial power and the colony and often
between the colonists and the indigenous
population.
The European colonial period was the era from the
16th century to the mid-20th century when several
European powers (particularly, but not exclusively,
Portugal, Spain, Britain, the Netherlands, Russia, and
France) established colonies in Asia, Africa, and the
Americas.

 At first the countries followed mercantilist policies

designed to strengthen the home economy at the
expense of rivals, so the colonies were usually allowed
to trade only with the mother country.
By the mid-19th century, however, the
powerful British Empire gave up mercantilism
and trade restrictions and introduced the
principle of free trade, with few restrictions or
tariffs.

Colonialism allowed Britain to monopolize

the markets and raw materials of its colonies,
thereby neutralizing competition.
Economic Benefits from
Colonialism
As Mill pointed out, the colonization of
resource-rich territories in Africa, Asia,
Latin America, and elsewhere guaranteed
a productive outlet for the use of excess
capital generated in industrial countries.
In addition, Mill discussed many other
benefits that the colonial power of
Western Europe derived from formal
colonization.
First, the employment of capital in the
colonies helped increase Europe’s profits by
maintaining the productivity level of capital
that remained behind in Europe.
Second, colonization provided guaranteed
access to raw materials and markets for
Europe’s industries.
Third, aristocratic consumers in Europe head
come to savor exotic, high-quality foreign
products, for example, silk and porcelain from
China, tea and spices from India , not to
mention gold and diamonds.

Colonization allowed Europeans ready access

to all these products at minimal prices.
Fourth, colonization provided a crucial safety
value releasing an increasing number of
domestic unemployment and underemployed
people for work in the colonies.
Finally, colonies became a cheap source of
food products for the colonial powers. By
shipping cheap agricultural products back
home to feed the industrial labor force,
inflation was controlled and wages could be
kept lower.
Mechanisms of the Modern World
Systems
We can identify several mechanisms of
the modern world system that maintain
the dependency relationship established in
a previous era.
This include international trade,
multinational corporations, international
labor migration, foreign aid(both
economic and military), and technology
transfer.
 Multinational Corporations
Multinational Corporations(MNCs), also
known as transnational corporations, are
interrelated with international trade, foreign
trade, foreign aid, and technology transfer in
many ways.
In a sense MNCs are a modern version of the
mercantilist trade but the mode of operation is
very different.
MNCs are primarily private firms and
companies that have legitimately, and with the
consent of host governments, established
branch operations in foreign countries.
These companies command vast amounts of
resources in the form of capital, technology,
managerial expertise and information. Many
of these firms are on the forefront of product
innovation, research, and development.
Functions/Operations of
Multinational Corporations
Direct foreign investment, and the trade
of goods and services, provide examples
of how multinational firms operate across
national boundaries.
From the locational perspective of
economic geography, multinationals have
truly internationalized the space economy.
The fundamental concern in the locational
decision of MNCs is to select a location or
locations that minimize the total cost of
production, including the cost of transportation,
and thus maximize the total volume of profit.
In this regard, multinationals provide a
classical example of efficient and effective
locational decision making concerning the
establishment of their activities at the
international scale.
MNCs often separate the various operations of
the firm locationaly in such a way that they
can take advantages of inexpensive raw
materials, a cheap labor force and the large
markets of the third world.
Each firm maintains a global operating
network.
MNCs invest excess capital in
underdeveloped countries where this resource
is scare and lobor and raw materials are
readily available.
Economic Benefit from
Multinational Activities
It enhances accessibility to necessary
production inputs,
 reduces total production costs, including
the cost of transportation; enlarges
markets; and
thus increases the margin of profit for
multinational
MNCs play an important role in the
development process of under developed
countries.
MNCs make direct investments in these
countries, transfer advanced technologies,
create jobs for their unemployment, and help
them harness natural resources.
Some MNCs are involved in primary and
extractive activities, such as agriculture,
forestry and mining.
Others are engaged in manufacturing
activities, such as textiles, apparel,
automobiles or electronics.
The capital and technology that MNCs
transfer to host countries are very specialized.
The increasing expansion of MNCs into the
third world also affects the employment
situation in home countries.