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Dependency theory

Dependency theory


Dependency theory is the notion that resources
flow from a “periphery” of poor and underdeveloped states to a “core” of wealthy states, enriching
the latter at the expense of the former. It is a central contention of dependency theory
that poor states are impoverished and rich ones enriched by the way poor states are integrated
into the “world system”. The theory arose as a reaction to modernization
theory, an earlier theory of development which held that all societies progress through similar
stages of development, that today’s underdeveloped areas are thus in a similar situation to that
of today’s developed areas at some time in the past, and that therefore the task in helping
the underdeveloped areas out of poverty is to accelerate them along this supposed common
path of development, by various means such as investment, technology transfers, and closer
integration into the world market. Dependency theory rejected this view, arguing that underdeveloped
countries are not merely primitive versions of developed countries, but have unique features
and structures of their own; and, importantly, are in the situation of being the weaker members
in a world market economy. Dependency theory no longer has many proponents
as an overall theory, but some writers have argued for its continuing relevance as a conceptual
orientation to the global division of wealth. Basics
The premises of dependency theory are that: Poor nations provide natural resources, cheap
labour, a destination for obsolete technology, and markets for developed nations, without
which the latter could not have the standard of living they enjoy.
Wealthy nations actively perpetuate a state of dependence by various means. This influence
may be multifaceted, involving economics, media control, politics, banking and finance,
education, culture, and sport. History
Dependency theory originates with two papers published in 1949 – one by Hans Singer,
one by Raúl Prebisch – in which the authors observe that the terms of trade for underdeveloped
countries relative to the developed countries had deteriorated over time: the underdeveloped
countries were able to purchase fewer and fewer manufactured goods from the developed
countries in exchange for a given quantity of their raw materials exports. This idea
is known as the Singer-Prebisch thesis. Prebisch, an Argentine economist at the United Nations
Commission for Latin America, went on to conclude that the underdeveloped nations must employ
some degree of protectionism in trade if they were to enter a self-sustaining development
path. He argued that Import-substitution industrialisation, not a trade-and-export orientation, was the
best strategy for underdeveloped countries. The theory was developed from a Marxian perspective
by Paul A. Baran in 1957 with the publication of his The Political Economy of Growth. Dependency
theory shares many points with earlier, Marxist, theories of imperialism by Rosa Luxemburg
and V.I. Lenin, and has attracted continued interest from Marxists. Matias Vernengo, a
University of Utah economist, identifies two main streams in dependency theory: the Latin
American Structuralist, typified by the work of Prebisch, Celso Furtado and Anibal Pinto
at the United Nations Economic Commission for Latin America; and the American Marxist,
developed by Paul A. Baran, Paul Sweezy, and Andre Gunder Frank.
Using the Latin American Dependency Model, in his book, “How Europe Underdeveloped Africa”
the Guyanese Marxist historian, Walter Rodney, described an Africa that had been consciously
exploited by European imperialists,leading directly to the modern underdevelopment of
most of the continent. The theory was popular in the 1960s and 1970s
as a criticism of modernization theory, which was falling increasingly out of favor because
of continued widespread poverty in much of the world.
Many dependency theorists advocate social revolution as an effective means to the reduction
of economic disparities in the world system. According to Vernengo, the Latin American
Structuralist and the American Marxist schools had significant differences but agreed on
some basic points: [B]oth groups would agree that at the core
of the dependency relation between center and periphery lays [lies] the inability of
the periphery to develop an autonomous and dynamic process of technological innovation.
Technology – the Promethean force unleashed by the Industrial Revolution – is at the
center of stage. The Center countries controlled the technology and the systems for generating
technology. Foreign capital could not solve the problem, since it only led to limited
transmission of technology, but not the process of innovation itself. Baran and others frequently spoke of the international
division of labour – skilled workers in the center, unskilled in the periphery – when
discussing key features of dependency. Baran placed surplus extraction and capital
accumulation at the center of his analysis. Development depends on a population’s producing
more than it needs for bare subsistence. Further, some of that surplus must be used for capital
accumulation – the purchase of new means of production – if development is to occur; spending
the surplus on things like luxury consumption does not produce development. Baran noted
two predominant kinds of economic activity in poor countries. In the older of the two,
plantation agriculture, which originated in colonial times, most of the surplus goes to
the landowners, who use it to emulate the consumption patterns of wealthy people in
the developed world; much of it thus goes to purchase foreign produced luxury items—automobiles,
clothes, etc. — and little is accumulated for investing in development. The more recent
kind of economic activity in the periphery is industry—but of a particular kind. It
is usually carried out by foreigners, although often in conjunction with local interests.
It is often under special tariff protection or other government concessions. The surplus
from this production mostly goes to two places: part of it is sent back to the foreign shareholders
as profit; the other part is spent on conspicuous consumption in a similar fashion to that of
the plantation aristocracy. Again, little is used for development. Baran thought that
political revolution was necessary to break this pattern.
In the 1960s, members of the Latin American Structuralist school argued that there is
more latitude in the system than the Marxists believed. They argued that it allows for partial
development or “dependent development” – development, but still under the control of outside decision
makers. They cited the partly successful attempts at industrialisation in Latin America around
that time as evidence for this hypothesis. They were led to the position that dependency
is not a relation between commodity exporters and industrialised countries, but between
countries with different degrees of industrialisation. In their approach there is a distinction made
between the economic and political spheres: economically, one may be developed or underdeveloped;
but even if economically developed, one may be politically autonomous or dependent. More
recently, Guillermo O’Donnell has argued that constraints placed on development by neoliberalism
were lifted by “the military coups in Latin America that came to promote development in
authoritarian guise”. The importance of technology, multinational
corporations, and State promotion of technology were emphasised by the Latin American Structuralists.
Fajnzybler has made a distinction between systemic or authentic competitiveness, which
is the ability to compete based on higher productivity, and spurious competitiveness,
which is based on low wages. The third-world debt crisis of the 1980s and
continued stagnation in Africa and Latin America in the 1990s caused some doubt as to the feasibility
or desirability of “dependent development”. Vernengo has suggested that the sine qua non
of the dependency relationship is not the difference in technological sophistication,
as traditional dependency theorists believe, but rather the difference in financial strength
between core and peripheral countries – particularly the inability of peripheral countries to borrow
in their own currency. He believes that the hegemonic position of the United States is
very strong because of the importance of its financial markets and because it controls
the international reserve currency – the US dollar. He believes that the end of the
Bretton Woods international financial agreements in the early 1970s considerably strengthened
the United States’ position because it removed some constraints on their financial actions.
“Standard” dependency theory differs from Marxism, in arguing against internationalism
and any hope of progress in less developed nations towards industrialization and a liberating
revolution. Theotonio dos Santos described a ‘new dependency’, which focused on both
the internal and external relations of less-developed countries of the periphery, derived from a
Marxian analysis. Former Brazilian President Fernando Henrique Cardoso wrote extensively
on dependency theory while in political exile during the 1960s, arguing that it was an approach
to studying the economic disparities between the centre and periphery. The American sociologist
Immanuel Wallerstein refined the Marxist aspect of the theory, and called it the “World-system.”
It has also been associated with Galtung’s Structural Theory of Imperialism.
With the economic growth of India and some East Asian economies, dependency theory has
lost some of its former influence. It still influences some NGO campaigns, such as Make
Poverty History and the fair trade movement. Other dependency theorists
Two other early writers relevant to dependency theory were François Perroux and Kurt Rothschild.
Other leading dependency theorists include Herb Addo, Walden Bello, Fernando Henrique
Cardoso, Enzo Faletto, Armando Cordova, Ernest Feder, Andre Gunder Frank, Walter Rodney,
Pablo González Casanova, Keith Griffin, Kunibert Raffer, Paul Israel Singer, and Osvaldo Sunkel.
Many of these authors focused their attention on Latin America; the leading dependency theorist
in the Islamic world is the Egyptian economist Samir Amin.
Later, world systems theory expanded on dependency arguments. It postulates a third category
of countries, the semi-periphery, intermediate between the core and periphery. In this model,
the semi-periphery is industrialised, but with less sophistication of technology than
in the core; and it does not control finances. The rise of one group of semi-peripheries
tends to be at the cost of another group, but the unequal structure of the world economy
based on unequal exchange tends to remain stable.
Tausch traces the beginnings of World systems theory to the writings of the Austro-Hungarian
socialist Karl Polanyi after the First World War. In its present form it is usually associated
with the work of Immanuel Wallerstein. Sociologist Fernando Henrique Cardoso summarized
his version of dependency theory as follows: there is a financial and technological penetration
by the developed capitalist centers of the countries of the periphery and semi-periphery;
this produces an unbalanced economic structure both within the peripheral societies and between
them and the centers; this leads to limitations on self-sustained
growth in the periphery; this favors the appearance of specific patterns
of class relations; these require modifications in the role of
the state to guarantee both the functioning of the economy and the political articulation
of a society, which contains, within itself, foci of inarticulateness and structural imbalance.
Tausch, based on works of Amin from 1973 to 1997, lists the following main characteristics
of periphery capitalism: Regression in both agriculture and small scale
industry characterizes the period after the onslaught of foreign domination and colonialism
Unequal international specialization of the periphery leads to the concentration of activities
in export oriented agriculture and or mining. Some industrialization of the periphery is
possible under the condition of low wages, which, together with rising productivity,
determine that unequal exchange sets in These structures determine in the long run
a rapidly growing tertiary sector with hidden unemployment and the rising importance of
rent in the overall social and economic system Chronic current account balance deficits,
re-exported profits of foreign investments, and deficient business cycles at the periphery
that provide important markets for the centers during world economic upswings
Structural imbalances in the political and social relationships, inter alia a strong
‘compradore’ element and the rising importance of state capitalism and an indebted state
class The analysis of development patterns in the
1990s and beyond is complicated by the fact that capitalism develops not smoothly, but
with very strong and self-repeating ups and downs, called cycles. Relevant results are
given in studies by Joshua Goldstein, Volker Bornschier, and Luigi Scandella.
Dependency theorists hold that short-term spurts of growth notwithstanding, long-term
growth in the periphery will be imbalanced and unequal, and will tend towards high negative
current account balances. Cyclical fluctuations also have a profound effect on cross-national
comparisons of economic growth and societal development in the medium and long run. What
seemed like spectacular long-run growth, may in the end turn out to be just a short run
cyclical spurt after a long recession. Cycle time plays an important role. Giovanni Arrighi
believed that the logic of accumulation on a world scale shifts over time, and that we
again witness during the 1980s and beyond a deregulated phase of world capitalism with
a logic, characterized – in contrast to earlier regulatory cycles – by the dominance of financial
capital. At this stage, the role of unequal exchange
in the entire relationship of dependency cannot be underestimated. Unequal exchange is given,
if double factorial terms of trade of the respective country are

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