Re-reading Giovanni Arrighi on China Two Decades Later: Creative Leadership at the Collision of Systems
Re-reading the late Italian economist and sociologist Giovanni Arrighi two decades after his landmark New Left Reviewessays and Adam Smith in Beijing, the concluding book of his trilogy on global capitalism, is no longer an academic indulgence. These texts have become illuminating bases for developing a practical leadership discipline in today’s uncertain geopolitical and economic environment (2005a; 2005b; 2007).
The current US-Iran-Israel conflict and the wider military and economic standoff in the Persian Gulf sharpen the very dynamics Arrighi identified, including the overextension of US military power, the erosion of its legitimacy, and the emergence of alternative centers of coordination. For firms such as ExxonMobil and TotalEnergies, disruptions to shipping routes, sanctions exposure, and price volatility are no longer peripheral or occasional risks but, increasingly, structuring conditions of strategy.
In 2005, Arrighi argued that the Iraq War had already “jeopardized the credibility of US military might,” “further undermined the centrality of the United States and the dollar in the global political economy,” and “strengthened the tendency towards the emergence of China as an alternative to U.S. leadership while accelerating shifts in the global political economy” (Arrighi, 2005b, p. 83). Developments across two passing decades, now punctuated by another U.S. military intervention, have confirmed the pattern rather than reversed it.
The parallels carry real weight, but so do the contrasts. When Arrighi was writing his hegemony essays in 2005, China’s GDP was roughly $2.3 trillion (less than one-fifth of America’s, at the time) and its global institutional footprint was embryonic. Today, China is the world’s second-largest economy, the principal trading partner of more than 140 countries, and the architect of the Belt and Road Initiative, which has embedded Chinese finance, standards, and long-term relationships across Eurasia, Africa, and Latin America. In his time, Arrighi observed an emerging alternative, while leaders today face one that is structurally consolidated.
The military situations also differ in kind. Whereas the Iraq War was a large-scale land occupation premised on uncontested coercive reach, the current confrontation involving Iran is a more diffuse, proxy-inflected standoff in which no single power controls the tempo of escalation. What the two interventions share is the willingness to absorb the reputational and economic costs of projecting force in the Gulf region – and those costs, as Arrighi anticipated, have compounded rather than dissipated.
As the same Middle Eastern region now concentrates military escalation, energy dependency, and geopolitical realignment, China deepens its economic and diplomatic presence. China’s mediation between Iran and Saudi Arabia in 2023 was not, in itself, decisive, but it signaled that coordination no longer flows through a single center in Washington, D.C. The capitalist world-system, meanwhile, shows no sign of imminent collapse while becoming at once more plural and unstable.
For leaders, both in politics and business, this unavoidably alters the terrain. It is no longer enough to position oneself within a hierarchy, or even to navigate rivalry between blocs. Leadership now demands operating amidst multiple systems that overlap without converging. These are exactly the conditions I explored in “Creative Leadership Today” that require third-loop learning; that is, the capacity to act when frameworks collide and coherence across systems cannot be assumed or assured (Slocum, 2025).
I. Beyond Succession: China as Systemic Anomaly
Among Arrighi’s most valuable arguments is to refuse a straightforward succession narrative. China does not simply replace the United States as global hegemon, he contends, nor does it stand cleanly against it. China has, in fact, emerged within the existing capitalist world-system – meant here as the structural architecture of global trade, finance, and production – while quietly reworking its organizing logic. Companies such as Huawei and BYD illustrate this duality as they compete globally, using established market mechanisms, while nevertheless still drawing on state coordination, domestic scale, and ecosystem integration that do not fit Western regulatory, finance, and management templates.
In Adam Smith in Beijing, Arrighi revisits the foundational work on capitalism of Smith to distinguish between “natural” and “unnatural” paths of development. China’s trajectory, he finds, aligns more closely with internally driven market expansion than with the externally oriented, militarized expansion that characterized much of European capitalism (Arrighi, 2007). The point is not that China is benign or harmonious, but that it is different in kind. Its political economy embeds markets within social and state structures rather than subordinating those structures to markets.
The distinction sharpens the analytical challenge confronting leaders today. If China is not converging toward Western capitalism, it appears to be extending a hybrid formation in which state capacity, relational coordination, and market dynamism coexist. The prominence of firms such as Alibaba Group alongside state-owned enterprises captures this dual structure, which is neither fully liberal nor centrally planned, but a system with its own internal coherence.
That particular logic, however, does not translate readily across contexts. Western systems ordinarily privilege capital markets, formal governance, and individual firm competition. In contrast, Chinese systems operate through networks, long-term positioning, and state alignment. While each approach makes sense internally, their interaction produces deep-seated friction. For example, while the U.S. export control measures affecting NVIDIA provide the makings of a policy dispute, they also represent incompatible assumptions about technology, security, and economic order.
Framing such an example with the familiar question of hegemonic succession, and therefore asking which power will prevail in the dispute and potentially “lead next,” Arrighi believes obscures more than it reveals. What is actually underway is mutation, not handover or – as American sociologist and political scientist Ho-fung Hung writes later – a reorganization of the global capitalist system around multiple, partially incompatible logics (Hung, 2022). Importantly, within China itself, the mutation has been ongoing over the past two decades since Arrighi published his work.
In complementary research, a trio of U.S.-based political economy scholars recently argues that reform-era state capitalism has given way to a more explicitly political formation in which the party governs firm behavior directly, a shift that alters the terms of engagement for any leader whose understanding of China was formed under an earlier institutional regime (Pearson, Rithmire, and Tsai, 2023). Taken together, these shifts mean that the systemic differences Arrighi identified in the mid-2000s have not only persisted but deepened and internally diversified – a reality that sharpens rather than complicates the leadership challenge his analysis poses.
II. From Systemic Difference to Leadership Challenge
My return to Arrighi’s thinking sheds valuable light on the development of leadership practice. In writing about creative leadership today, the value of third-loop learning begins precisely where contradictions cannot be resolved within a single system or by a particular logic. The China-West interface is exactly such a case in which leaders are not navigating difference within a shared system. They are required to navigate differences between distinct if overlapping systems, a practice that requires capabilities beyond competitive or cross-cultural intelligence alone.
Three domains cast these systemic differences in relief. In finance, U.S. dominance rests on deep capital markets, shareholder primacy, and market-priced risk. China’s system allocates capital through state priorities, policy banks, and guided credit flows, often privileging long-term industrial capacity or geopolitical positioning over short-term return. As a result, China operates by a distinct investment logic: infrastructure projects, advanced manufacturing, and strategic technologies receive sustained state funding despite weak immediate profitability, as China’s support for electric vehicles and semiconductors has demonstrated.
For firms that originated in the West, such as Goldman Sachs operating in China, this logic raises barriers that are not merely regulatory. They reflect a system in which capital is an instrument of coordinated development rather than a market-clearing mechanism.
Media scholar Lin Zhang and economic geographer Tu Lan offer a grounded understanding of this system in their framework for the “Local Venture State” that emerged in China after the 2008 Global Financial Crisis (Zhang and Lan, 2025). Whereas Western regulatory regimes manage markets after the fact, Chinese state actors take equity positions and absorb early-stage risk before commercial viability is established, acting less like referees than co-investors with sectoral agendas. That difference in who bears developmental risk, and on whose terms, shapes every partnership, joint venture, or competitive entry a foreign firm attempts in China’s strategic industries.
In the domain of innovation, Western models emphasize proprietary advantage, intellectual property protection, and venture-backed scaling, typically defining competitive success through building defensible moats. Chinese ecosystems pursue alternative pathways that combine rapid iteration, open-source adaptation, platform integration, and state-supported scaling within large domestic markets. In AI, for instance, Chinese actors have blended open models, public-private research collaboration, and application-layer innovation in ways that challenge the capital-intensive, closed approaches of U.S. organizations such as OpenAI or the AI initiatives of tech giants like Google, Microsoft, and Meta.
Importantly, we need to view this divergence as structural rather than tactical. Taiwanese sociologist and legal scholar Ya-Wen Lei’s analysis of China’s “techno-developmental regime” clarifies why the Chinese state fuses nationalist ambition, instrumental control, and tech capital into a formation (Lei, 2023). While the regime has its own internal coherence, it also has internal contradictions, such as those between efficiency and surveillance, between state direction and entrepreneurial energy, between domestic consolidation and global reach.
For business leaders negotiating AI partnerships, standards bodies, or data-governance arrangements across this divide, the pressing question is not which innovation model is superior but which logic is actually governing the specific institutional moment or setting they face. To stake its legitimacy, the United States historically framed its global leadership as serving a general interest underpinned by globally open markets and institutional stability. Across divergent innovation regimes and competing systemic logics, that claim is now broadly contested.
In fact, China’s counter-narrative, grounded in development delivery and non-interference, has found particular resonance across emerging markets, with the Belt and Road Initiative embedding not only infrastructure but Chinese standards, financing practices, and long-term relationships in regions that Western capital has underserved. Put simply, the difficulty for leaders seeking to navigate these systems is less misunderstanding one side or the other and more that both sides are often internally correct. Stalled partnerships, misaligned expectations, and strategic ambiguity all arise from this structural reality rather than from failures of analysis, communication, or goodwill.
III. Actionable Third-loop Learning as Strategic Necessity
Grounded in genuine structural complexity, the third loop is a practical leadership response, not an abstract extension of learning theory. Arrighi’s analysis suggests that leaders must resist the impulse to resolve contradiction too quickly; their task, he presciently insists, is to operate within it. To do so, several capabilities become essential.
Signal awareness and contextual intelligence rank first, requiring leaders to triage structural shifts from ambient noise. Across the fragmented and multi-systemic environments I’ve been discussing here, structural shifts appear initially as weak signals, such as regulatory changes, diplomatic gestures, standards debates at technical bodies. Leaders who develop the habit of reading these signals early and consistently, particularly in periods of geopolitical tension, gain disproportionate advantage. Those who treated the early signs of US-China decoupling in the late 2010s as noise found themselves exposed when decoupling accelerated in the pandemic years.
Operating across systems also requires dual intelligibility, which entails understanding each system on its own terms, not as a deviation from a single familiar norm. This deep understanding demands historical and institutional literacy alongside market analysis. Success in Chinese markets typically depends less on contractual precision than on sustained relational engagement, a difference that is cultural on the surface but structural at its root.
Alongside this engagement, the drive toward convergence must be deliberately deferred or even abandoned. Attempts to force integration across systems tend to intensify differences rather producing superficial alignment. Firms need increasingly to operate with parallel strategies, governance models, and even value propositions across regions. Their challenge is consequently to maintain organizational coherence without forcing uniformity, which requires a tolerance for internal complexity that traditional management models do not easily accommodate (Arrighi & Silver, 1999).
Most demanding of all is the reorganization of individual (and group) character that the third loop requires. With learning, leaders shift from an identity rooted in one system to a capacity to inhabit several, holding competing logics without collapsing them into a single narrative. More than situational adaptability, it is a deeper transformation in how judgment is formed and exercised, one that cannot be produced by training programs but must be cultivated through sustained, reflective engagement with actual complexity.
Third-loop awareness, to be precise, is interdependent with the first two loops. It earns its strategic value only when recognition flows back into revised assumptions and improved operational practice. Here, the substantive content of the China-West interface yields concrete and uncomfortable lessons. China’s comparative strengths – like sustained industrial policy, far-sighted infrastructure investment, and coordinated long-horizon national planning – represent genuine strategic capabilities that Western firms and their home institutional environments have largely underweighted.
These become second-loop challenges to governing assumptions about the appropriate time horizon for investment decisions, about the legitimate role of state coordination in economic development, and about the relationship between industrial capacity and strategic resilience. The third-loop awareness should also generate first-loop operational consequences. These might include longer supply chain timelines, more deliberate public-private coordination, capital allocation that tolerates slower payback in strategically critical areas. While the third loop makes such learning visible and comprehensible, that is, acting on it is the work of the other two.
IV. Hegemony Reconsidered
Arrighi also invites a reconsideration of hegemony itself. Following Gramsci, Arrighi distinguishes hegemony from empire: hegemony is leadership by consent, in which a dominant power is recognized as providing legitimate order that broadly serves the system as a whole; empire is rule by coercion, sustained through military or administrative compulsion rather than shared legitimacy. Both operate within what the world-systems tradition – from Immanuel Wallerstein to Arrighi – calls the “system”: the structural architecture of global production, trade, and finance within which hegemonic and imperial arrangements rise and decline.
The Chinese and Western formations examined throughout this essay are both players within and partial architects of that larger world-system, a relationship that hegemonic succession narratives tend to obscure.
Those distinctions are more than terminological. A firm diagnosing whether the current US posture in the Gulf reflects declining hegemony, imperial overreach, or deeper systemic reorganization will reach materially different strategic and operational conclusions. Moreover, current conditions arguably suggest the lack of applicability of traditional accounts of global order that assume that stability requires a dominant power capable of enforcing rules across the system (Keohane, 2005 Ikenberry, 2004).
In fact, Arrighi shows that periods of transition are often marked by instability, experimentation, and competing claims to legitimacy, where power is actively renegotiated rather than smoothly transferred (Arrighi & Silver, 1999). Drawing on the longue durée cycles he traced in his earlier study, The Long Twentieth Century, he frames hegemonic decline not as collapse but as reorganization (Arrighi, 2010 [1994]).
Our present moment appears to reflect the structural condition Arrighi describes. Military confrontation in the Gulf, technological decoupling, and divergent development models do not point straightforwardly toward a new hegemon. The evidence points, on the contrary, toward a prolonged phase of fragmentation, in which different regions and sectors align with different centers of gravity as circumstances shift. Power, in this context, both political and economic, becomes distributed, contested, and situational rather than hierarchical. Firms, states, and platforms all exercise partial and competing authority, creating a landscape in which influence must be continuously assembled rather than assumed.
For leaders, the practical consequence of this emergent fragmentation is that strategic clarity cannot be found readily and stably in the environment. It must be generated internally through ongoing probing and sensemaking that is rigorous enough to distinguish signal from noise and flexible enough to revise its conclusions when circumstances shift. What Arrighi described as systemic transition, the prolonged and turbulent interlude between one organizing logic and the next, is also a description of the micro-level cognitive and organizational tasks that fall to anyone responsible for navigating it.
If the third loop transforms the architecture of individual judgment, the leaderly perspective today specifies that that judgment must be trained to read and act amidst a more diffused hegemony. Recognizing whether a regulatory shift signals systemic restructuring or tactical friction, whether a partner’s hesitation reflects institutional logic or political instruction, or whether an emerging market opening is durable or contingent on a bilateral relationship that may shift are not analytical exercises but practical competencies that need to be accumulated through experience, institutional immersion, and deliberate reflection.
From the character reorganization experiences in the third loop of actionable learning, leaders acquire what we might call systemic discernment, the capacity to read situations in multiple registers simultaneously without flattening the ambiguity into a single familiar frame. Consider a firm deciding how to structure a joint venture where state and private authority overlap unpredictably or recalibrating a supply chain in response to sanctions whose scope and duration remain actively contested. The operative question in either instance is not what to do in the abstract but which logic is actually governing the moment and how durable that governance is likely to prove. Answering that question reliably requires the kind of historically and empirically grounded, institutionally literate judgment that extended hegemonic transition makes indispensable.
V. Leadership Beyond a Single Coherence
To be clear, in re-reading Arrighi today, I am not claiming one can find our present fully foretold. His writing offers a structurally grounded orientation, one more durable than any particular forecast. Framing the present as structurally open and systemically complex, his analysis demands a different kind of leadership response than stable environments or transitions recommend and reward. Leaders who internalize his orientation will be better positioned to avoid overcommitting to any single narrative of global order, or logic of global economic activity, a habit that has proven costly for firms caught by supply chain disruption, sanctions regimes, or sudden partner realignment.
A ready example is Apple, whose leadership must simultaneously continue to depend on Chinese supply chains and manufacturing ecosystems while navigating US regulatory pressure and geopolitical scrutiny from both sides. Beyond tactics and operations, their challenge is strategic and existential and requires them to operate at the intersection of incompatible systems without being captured by either. This challenge also appears at smaller scale, for any firm managing dual supply chains, running parallel governance structures, or adjusting public commitments against shifting geopolitical expectations.
What leadership requires in this environment extends beyond a single reorientation toward the edge of coherence. More precisely, it requires the active, ongoing development of the judgment – especially, systemic discernment – needed to operate there. And to operate there involves a range of decisions and behaviors such as building teams that can work across systems, designing strategies that accommodate rather than suppress divergence, and cultivating the interpretive capacity to reframe situations faster than the situations themselves evolve.
As I often repeat to students and clents alike, we don’t learn from experience – we learn from reflection on that experience and then actions based on those reflections. Likewise, the judgment needed to navigate contradictory logics and collisional systems do not compound automatically with experience. Systemic discernment requires deliberate cultivation, through structured reflection on decisions made under genuine uncertainty, sustained exposure to contexts that resist familiar frameworks, and engagement with peers whose interpretive assumptions and feedback differ rather than confirm.
The pace of systemic change today and the shifting interfaces between systems and logics, like those of the U.S. and China, compress the window between recognizing a structural shift and acting on it. As a result, leaders need to commit to making the exercise and renewal of judgment an ongoing executive priority rather than a developmental destination.
It is worth my saying plainly what this re-reading of Arrighi is and is not intended to accomplish. It is not a forecast of hegemonic succession, nor primarily a contribution to debates in international political economy. My argument is that a specific form of historical and structural literacy – the capacity to read the collision of systems rather than merely the competition between firms or states – is itself a leadership competency, and one that is developed through the third loop. By proposing that business leaders engage Arrighi’s framework, I am not asking them to become world-systems theorists. I am asking them to recognize that their strategic assumptions are products of a particular systemic logic, that other logics are internally coherent rather than merely different, and that navigating between them requires a different quality of judgment than optimizing within any single one.
Arrighi described hegemonic transitions as prolonged, turbulent interludes measured in decades. The leaders navigating today’s world face in real time those same structural dynamics compressed into market-imposed strategy cycles and quarterly decisions. Developing, exercising, and renewing the capacity for provisional clarity amid that compression benefits, finally, from leadership that creatively navigates not only complexity and uncertainty but contradictory frameworks and incompatible systems.
References
Giovanni Arrighi (2010) The Long Twentieth Century: Money, Power, and the Origins of Our Times, New and updated ed., Verso
Giovanni Arrighi (2005a) “Hegemony Unravelling – I,” New Left Review, 32, March/April 2005, 23-80; https://doi.org/10.64590/5rw
Giovanni Arrighi (2005b) “Hegemony Unravelling – II,” New Left Review, 33, May/June 2005, 83-116; https://doi.org/10.64590/wa8
Giovanni Arrighi (2007) Adam Smith in Beijing: Lineages of the Twenty-first Century, Verso.
Giovanni Arrighi & Beverly J. Silver (1999) Chaos and Governance in the Modern World System, University of Minnesota Press.
Ho-fung Hung (2022) Clash of Empires (Elements in Global China), Cambridge University Press.
G. John Ikenberry (2004) “Review Essay; Illusions of Empire: Defining the New American Order,” Foreign Affairs, 83(2), 144-154; https://www.jstor.org/stable/20033908
Robert O. Keohane (2005) After Hegemony: Cooperation and Discord in the World Political Economy, rev. ed., Princeton University Press.
Ya-Wen Lei (2023) The Gilded Cage: Technology, Development, and State Capitalism in China, Princeton University Press.
Margaret M. Pearson, Meg Rithmire, and Kellee S. Tsai (2023) The State and Capitalism in China (Elements in Politics and Society in East Asia), Cambridge University Press.
David Slocum (2025, November 13) “Creative Leadership Today,” Crafting Leadership, Substack;
Lin Zhang and Tu Lan (2025) “Innovating Urban China: The Rise of the Local Venture State and the Making of New Entrepreneurial Spaces,” International Journal of Urban and Regional Research, 49(1), 142–162; https://doi.org/10.1111/1468-2427.13279