While reading Neagu Djuvara’s great book “Thoctomer”, I felt intrigued to sketch a brief comparison between the two great economic systems that the Western civilization has used during its existence. Also, I must add that it will take into consideration only the socio-economic aspects, leaving the political sphere unaddressed. Extrapolating the base and superstructure theory, this approach seams the logical thing to do, considering that the political institutions have evolved according to the economic system in use.

On the economic side, in the recent past a revolution took place. As business processes became ever more complex and markets increased their level of competition, outsourcing seamed the best way to adapt the old-fashioned institutions into becoming more efficient. The reasons behind braking up the system of a big enterprise into its basic functions, functions that later became independent companies are numerous but the main are the following:

a) Complexity of functions. As the range of products and services needed becomes ever more complicated to be integrated in the economy, splitting the process between more companies is the best way to handle the job. This principle derives from the concept of division of labour, one of the most important steps in human evolution;

b) The gain in competitiveness. Keeping fewer functions in one single company enables it to achieve a higher level of specialization. This in turn leads to an improvement in efficiency and, most relevant cost-cutting. R. Coase stated in his essay “The Nature of the Firm” that the company by itself bears inefficiency, and that only a hyper-atomized supply and demand can lead to an ideal market;

c) Developing flexibility and fostering innovation. In the end, atomizing the functions of an economic process will contribute to making the entire system more dynamic and adaptable. Adaptability is a direct effect of the newly acquired innovation capacity that smaller structures possess. A trend that underlines the importance of these assets is the creation of spin-offs;

After all this braking-up took place, networking came to reassemble the puzzle together. It was a natural phenomenon that arose from the need to connect the new-formed entities into viable systems. While IT&C provided the much-needed support to bridge the gaps, its expansion was as well stimulated by these trends in the economy. Thus a symbiosis formed, in which networking, knowledge and information technology came to define the new era.

Europe’s case is a particular one in this evolution. The reshaping that took place according to the trends set in the mainstream was felt at all levels of society. Moreover, together with the US it is setting up at the forefront and constantly pushing forward in setting the trends.

As the theory of relativity has shattered Newton’s discovered principles into a small space-time capsule in which they were relevant, and as philosophy constantly renders religion as useful mainly in the cultural field by dismantling its axiological monopoly, so does the world-system theory exercise a huge paradigm change in the fields of economics, history and politics.

And, as all good things in this world, it’s not mainstream.

The approach was initiated by Immanuel Wallerstein and its basic view is set on a strange mixture or neo-marxism with the admittance of liberal economic reason. Basically, the evolution of politics and economics in the world is seen in the core-periphery relationship. The core acts as a hegemonic despot that has as its main goal the accumulation of wealth and power and, in order to do so, it seeks to control the activity of the periphery. Wallerstein sees four instruments of control as being fundamental to the maintenance of the status quo: “commodification, the multiplicity of modes of labor control, commodity chains, unequal exchange between core and periphery (asymmetric trade) and group of monopolizing non-specialized capitalists functioning as the anti-market”¹. What is interesting in this approach is that orthodox economics is recognized as being correct (in principle). Thus, Wallerstein states in his essay that competition is stronger in peripheral (poor) regions and also economic sectors. Here, there is no interest from the core to monopolize resources and factors, thus enabling for a wide dispersion of wealth and power at local level. On the other side, in key sectors and regions, monopoly is the best economic engine that can lead to the accumulation of wealth and therefore used extensively. An interesting example here is vertical integration, which is a form of monopoly, but is widely allowed (from a legal point of view) in the West.

The World System theory partisans consider that the current (modern) hegemony, that of the West, has begun to take shape only in the last two centuries, following an Asian-centered system². The latter was one in which China held a core position (in terms of demographics, resource abundance, technological advancement and political power) but was dethroned in the age of geographical discoveries (in the West) by Europe which came to appropriate large amounts of precious metals from the Americas and, latter man-power from Africa (see also the post How Africa Still Remains An Economic Colony Of Europe). J. Hobson states further in his book that what we currently acknowledge as history is just a deformed eurocentric perspective that ignores the underlying causes of our progress. I believe this to be true and a relevant example is the overwhelming list of Chinese inventions that predated the corresponding European ones we now so pridely recognize as being our own. In a previous post (Towards The New Cultural “Triad”) I have detailed also the fundamental differences in cultural terms between Asia, the West and the Arab World, regarding social organization and moral (social) values.

As the rise of Asian economies becomes more and more obvious and inherent, the approach posed by the World Systems analysis should act like a compass in predicting the future transfer of power and in the reshaping of the world economy.

¹ The Modern World-System and Evolution, I. Wallerstein, Journal of World-Systems Research: Volume 1, Number 19, 1995;

² The Eastern Origins of Western Civilization, J. M. Hobson;

I have wanted to write a post on the necessity of knowledge transfer between countries for some time now, but just hadn’t found the proper incentive. In the end, it came.

I’ve stumbled recently on an article written by Friederich Hayek, called “The Use of Knowledge in Society”. Although this paper is pretty old (it was published in 1945), the ideas Hayek put together are of great significance today.

As economies integrate further, the change of ideas, concepts, information and know-how should be the baseline in forging a higher degree of cohesion between regions. However, as Hayek highlightened, knowledge is easier and cheaper to access than know-how. The difference between these two sets of information is primarily on the way they are generated. If knowledge is mainly produced in universities, schools and research centers (and is generally open publicly), know-how is the product of individual experience (and in the property of few entities). Businesses as well as public institutions fundament their capacity to self govern, organize internal processes and functions and conduct other management functions on a specific set of information arisen mostly from their own experience namely, know-how.

The barriers in transfering knowledge are relatively few and depending on capital intensity and infrastructure. In the case of know-how, certain economic structures and circumstances need to be fulfilled in ordered to break down the barriers. As know-how is found rarely as a public good (as opposed to most of the knowledge), beneficiaries need to buy it (and the price is generally very high). Consultancy agencies and training firms can provide solutions in terms of know-how but first the local competition must require an upgrade of such as provided by importing know-how. In a low-competitive economy, know-how imports (or development) is without an economic stimulus non viable because it’s a non-efficient investment.

Eastern Europe is importing for some time now knowledge from the West and pumping up it’s level of economic efficiency. On innovating and creating knowledge it has remaind behind shedule, but this was to be expected. However, on the level of know-how, there is still much more to be done, mainly because the local competition does not impose such upgrades. In the long run it will, and then B2B consultancy services will be on the forefront. Today knowledge is still more important and that is why international MBAs (such as CEU Budapest) and trans-European university programs are the mainstream.

I’ve stumbled recently on the concept of  amoral familism invoked in an article from a Romanian newspaper.

After researching it, I was completely amazed that I discovered it so hard, when it can be used to describe a vast array of problems Southern Europe is facing. The best definition of the concept is given by the Oxford Dictionary of Sociology: “Social action persistently oriented to the economic interests of the nuclear family“, and it highlights the basic mechanism of asserting value for individuals originating from this region. It is significantly different from methodological individualism (a mindset attributed by von Mises to Europeans), because the individual loses the big social picture (the perspective of the collective good) and focuses exclusively on a narrow group of people that he is discriminating (in a positive sense) without any thought of the general moral (and, in an extreme case, legal) norms.

The first question anyone would ask is if this is not normal, given the fact that anyone cares for its family and is consequently looking out for their best interests. The answer is no, because amoral familism assumes defending the interests of one’s family at any cost.  Countries in which the population exhibits this behavior as predominant are Italy, Greece, Bulgaria and Romania. Here are some examples of the behavior that arises from a culture immersed in amoral familism:

1. Using family ties as sole (or, at least, primary) arguments to ascend on the professional latter. In politics, for example the daughter of Traian Băsescu – the president of Romania – is running for the position of MEP. The local press has significant doubts about her professional abilities;

2. Treating the family members as people exempted from the law (protecting them without any regard to the law, in case of a criminal offence or such). This mindset can explain the sociological background that supported the rise of the Mafia in Italy;

3. Profiting from corruption – disregarding the general norms for the benefit of one’s family. Bulgaria was heavily criticized by the European Commission for it’s corruption scandals.

And the list can go on.

Collective values tend to have little or no relevance in cultures revealing this phenomenon, thus provoking ill-functioning institutions and public organizations that act in disregard to the common good. The main economic an political effects are: a strong polarization of wealth and an arbitrary state of law.

Here’s a cloud of the most relevant words used in this blog.

Created with: Wordle

Currently, we can say without any doubt that Western non-technical knowledge is mostly (if not solely) applicable to and useful for Western societies. By analyzing the distinct social pattern of the world’s macro-regional cultural entities, this conclusion becomes more than obvious.

For this, I have chosen to take a brief look upon , what I consider to be, the major cultural groups today: Western (mostly US and the EU), Islamic (the Middle East and Northern Africa) and Asian (with focus on Japan and China). These three entities are the “triad” of the modern economic and political context and represent the cultural basis upon which social integration structures will come to develop (further).

In the next brief analysis I will point out the crucial differences between these cultural spaces, differences that point to the need to develop specialized ’social solutions’ for every particularized need.

First of all, the Western culture is that which has been for centuries praised as being the most functional, efficient and humane culture in the world. The fundamental beliefs are: individualism, liberalism and materialism. According to these cultural elements, experience has proved that the best model for governance is democracy. Some examples in this matter are Athens and USA. In Athens, democracy came along as an alternative to autocracy and, as it was experimented, it proved more functional for the general well-being of the community. Elements such as individualism and materialism, which were deeply rooted in the collective psyche, favored a participatory form of government because it led to negotiation and compromise between the various interests. In the same way, the American democracy favored (at first)  cohabitation between the European colonists. On the other hand, totalitarian regimes and (absolute) monarchy totally failed socially. While the former started the second World War, the latter led Europe into the Dark Ages. Pluralism is, therefore, a must in the administration of Western societies. It is seen as a way to preserve core values, such as the fundamental human rights. As supra-structure, the integration takes place, for now, regional and the best examples are NAFTA and the EU.

The second macro-culture in perspective is the Islamic culture. ‘Born’ in the Middle East, Islam covers today all of Northern Africa and was, in the past, present (institutionally) in Europe (mostly in Southern Iberia and in the Balkan peninsula). The fundamental elements are: religiousness and patriarchal structure. It relies on the positive discrimination of males and is, to a certain point, individualistic (but, by no comparison, to the extend of the Western culture). As political structure is concerned, the main form is theocracy (on the axiological side), and relies on autocratic leaders to exercise the power. Also, economically, the religion plays a fundamental role. A few particular examples in this matter can cast some light on the matter. For instance, the constitution of Saudi Arabia is the Qur’an itself. Also, the system of interest is banned, because Islam considers it as being sinful. Therefore banks function on associative basis with their customers. In comparison with the West, where religion plays a small, if not minimal, role (Europe is famous for having the majority of its citizens as non-believers), in Islamic societies, religion is fundamental. My personal opinion on this matter is that, by not experimenting (technical) progress at a vast scale, old social institutions – like the religion and the mosques – have continued to exert influence in this part of the world, and have adapted their techniques to the new challenges in order to continue their existence. OPEC is the perfect example of an Islamic supra-structure. Also, it shows how poor economic competitiveness, together with huge and expensive oil resources, is able to support the theocratic regimes. It will be very interesting to observe the evolution of this culture after it has exhausted its current assets.

Asian culture, the last in our analysis, has some very interesting characteristics that distinguishes it from the others. For example, colectivism as a way to define individual relationships with the rest of the society, group orientation and ethics as a vital part in the well-being of the community. As opposed to Western culture, consensus replaces compromise as the process that binds the society together. The role of pluralism and competition is taken by ethics, which is considered to be a natural part of human behavior (unlike in the West). The fact that China uses socialism as fundamental ideology of the state (although it embraces the market economy) and the fact that the Japanese democracy (de facto) has a strong social component are good examples of the political structure of this culture. Also, economically, it’s worth mentioning that Japan’s central bank is one of the least independent in the world. But still, in this circumstances, the Japanese currency remains the 3rd strongest in the world.

This goes to prove that Western knowledge is not very accurate in researching phenomenons from different cultures, and that a less ethnocentric approach would benefit more in providing solutions for the real world.

Although cities are the main propellers of the world’s economies, it is becoming more and more obvious that their pattern of evolution is changing. If, since the Middle Ages, towns were developing according to the potential and resources of the neighboring villages and smaller towns, today the potential of development lies in the city itself, gradually influencing further the surrounding area.

Such is the case of Bucharest, a relatively large city for Eastern Europe. With its almost 2 million inhabitants, it is one of the most economically developed places in the region. It alone produced more than 16 percent of Romania’s GDP in 2006 1 , thus having a better GDP/capita (PPS) than other Western regions of the EU, such as Campania in Italy – the region around Naples – 2. Also, the rate of growth is the biggest in Europe, a staggering 20% 3, up by more than 13% from its country’s growth rate. And this is just one example of an ‘insular city’ that developed separately from its environment, stimulating the region around to grow along. Other such cities in Europe are: Barcelona, Madrid, Lisbon, Budapest and, perhaps the ‘crown’s jewel’, London.

These are spaces that, because of their status as national capitals, or because they are regional/international hubs (financial hubs, knowledge hubs, transport hubs) receive the most ‘attention’ from international visitors/investors of from national governments.

However, the relationship of interdependence between this type of cities and their area of influence remains to be further strenghtened in the future, if the development is desired to be a sustainable one.

Unsurprisingly, nowadays Africa* still depends significantly on the European economic system. Furthermore, its behavior is that of a colony, and the European Union is doing nothing to change this.

First of all, on the monetary level, no less than 15 countries in Central and Western Africa have their currencies pegged to the euro (in what are called: UEMOA and CEMAC areas, plus the Republic of Cape Verde). Most of these states have implemented the system for some time now, their currencies depending previously on the French Franc or Portuguese Escudos (this is the case of Cape Verde) plus, all of them are former French or Portuguese colonies 1. It’s interesting that this is an unilateral decision, and the ECB does not have any obligations to maintain the exchange rate. We can interpret this measure as an act of recognizing one’s inability to pursue a solid and reliable monetary policy, thus transferring these prerogatives to another country. However, this measure also gives an advantage to the African countries (and to their European commercial partners, as well) by reducing the financial risk posed by a fluctuating exchange rate; taking into account that their external trade is mostly denominated in euros.

Further on, the second area where the European dominance is clear is external trade. Given the low levels of production and productivity on the African continent, it is somewhat clear that the level of dependence on imports is very high. In this area, Europe also leads the way, being the top commercial partner for the African nations. Its primal exports are machinery and vehicles, goods that are impossible to be produced in sufficient quantities and with competitive efficiency in today’s Africa. In exchange, the top-imported goods are petroleum and diamonds 2. Thus, the structure of trade today resembles very well the former trade between the metropolis and the colonies. However, besides industrial goods, there is a series of agricultural products that flood the African countries, products that are imported from Europe as well. Although more than 50% of the Africans* work in agriculture (a sector with low productivity and being mostly autarchic), the large imports from Europe connect the food prices to those valid internationally. And, how European agriculture relies on fuel prices (being an industrialized one), a soaring oil price will lead, unsurprisingly, to expensive food and thus to humanitarian problems in the concerned nations. And Europe supports this state of fact trough it’s Common Agricultural Policy 3.

Here is a sample of how the EU feels about it:

Finally, the humanitarian issue is one of great importance from two perspectives:

1. Aid has represents a significant percentage in the income of the African states;
2. The mechanism of aid can set political linkage between countries.

Being the world’s biggest aid donor (in relative, as well as in absolute terms), Europe spills a significant portion of its share of global aid (which is more than 50%) in Africa. This may be intended to represent compensation for maintaining the current trade agreements that are clearly against African economic interests, but can also promote EU’s image as a do-gooder.

Overall, almost 50 years on from the end of the European colonial empires, Africa remains, de facto, an European economic colony.

*I am referring mostly to the Sub-Saharan part of the continent.