Dependency theory (1957)

First formulated by American economist Paul Baran (1910-1964), dependency theory proposes that, where a developing country for the most part specializes in producing one good (usually agricultural) for export, an exploitative relationship develops in which its financial and economic resources are controlled by the local elite and the international economy.

Also see: demographic transition

Source:
P Baran, The Political Economy of Growth (New York, 1957);
A G Frank, Dependent Accumulation and Underdevelopment (London, 1978)

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 Prebisch–Singer thesis. Prebisch, an Argentine economist at the United Nations Commission for Latin America (UNCLA), 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 (ISI), not a trade-and-export orientation, was the best strategy for underdeveloped countries.[5] The theory was developed from a Marxian perspective by Paul A. Baran in 1957 with the publication of his The Political Economy of Growth.[6] Dependency theory shares many points with earlier, Marxist, theories of imperialism by Rosa Luxemburg and Vladimir Lenin, and has attracted continued interest from Marxists. Some authors identify two main streams in dependency theory: the Latin American Structuralist, typified by the work of Prebisch, Celso Furtado, and Aníbal Pinto at the United Nations Economic Commission for Latin America (ECLAC, or, in Spanish, CEPAL); and the American Marxist, developed by Paul A. Baran, Paul Sweezy, and Andre Gunder Frank.

Using the Latin American dependency model, the Guyanese Marxist historian Walter Rodney, in his book How Europe Underdeveloped Africa, described in 1972 an Africa that had been consciously exploited by European imperialists, leading directly to the modern underdevelopment of most of the continent.[7]

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. At that time the assumptions of liberal theories of development were under attack.[8] It was used to explain the causes of overurbanization, a theory that urbanization rates outpaced industrial growth in several developing countries.[9]

The Latin American Structuralist and the American Marxist schools had significant differences but, according to economist Matias Vernengo, they 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.[6]

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 (a surplus). 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 (Argentina, Brazil, Mexico) 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 (somewhat) economically developed, one may be politically autonomous or dependent.[10][page needed] 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 (O’Donnell, 1982).[11]

The importance of 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.[12]

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”.[13]

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 (in office 1995–2002) 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. 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.[14]

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.[15]

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 theorists and related theories

Two other early writers relevant to dependency theory were François Perroux and Kurt Rothschild. Other leading dependency theorists include Herb Addo, Walden Bello, Ruy Mauro Marini, Enzo Faletto, Armando Cordova, Ernest Feder, Pablo González Casanova, Keith Griffin, Kunibert Raffer, Paul Israel Singer, and Osvaldo Sunkel. Many of these authors focused their attention on Latin America; dependency theory in the Islamic world was primarily refined by the Egyptian economist Samir Amin.[15]

Tausch,[15] based on works of Amin from 1973 to 1997, lists the following main characteristics of periphery capitalism:

  1. Regression in both agriculture and small scale industry characterizes the period after the onslaught of foreign domination and colonialism
  2. 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 (double factorial terms of trade < 1.0; see Raffer, 1987)[full citation needed]
  3. 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
  4. 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
  5. 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[15]

The American sociologist Immanuel Wallerstein refined the Marxist aspect of the theory and expanded on it, to form world-systems theory. World Systems Theory is also known as WST and aligns closely with the idea of the “rich get richer and the poor get poorer” Wallerstein states that the poor and peripheral nations continue to get more poor as the developed core nations use their resources to become richer. Wallerstein developed the World Systems Theory utilizing the Dependence theory along with the ideas of Marx and the Annales School.[16] This theory postulates a third category of countries, the semi-periphery, intermediate between the core and periphery. Wallerstein believed in a tri-modal rather than a bi-modal system because he viewed the world-systems as more complicated than a simplistic classification as either core or periphery nations. To Wallerstein, many nations do not fit into one of these two categories, so he proposed the idea of a semi-periphery as an in between state within his model.[17] In this model, the semi-periphery is industrialized, 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.[15] Tausch[15] traces the beginnings of world-systems theory to the writings of the Austro-Hungarian socialist Karl Polanyi after the First World War, but its present form is usually associated with the work of Wallerstein.

Dependency theory has also been associated with Johan Galtung’s structural theory of imperialism.

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.[15] 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 the 1980s and beyond once more showed a deregulated phase of world capitalism with a logic, characterized – in contrast to earlier regulatory cycles – by the dominance of financial capital.[15]

It is argued that, at this stage, the role of unequal exchange in the entire relationship of dependency cannot be underestimated.[clarification needed] Unequal exchange is given if double factorial terms of trade of the respective country are < 1.0 (Raffer, 1987, Amin, 1975)[full citation needed].

The former ideological head of the Blekingegade Gang and political activist Torkil Lauesen argues in his book The Global Perspective that political theory and practice stemming from dependency theory are more relevant than ever.[18] He postulates that the conflict between countries in the core and countries in the periphery has been ever-intensifying and that the world is at the onset of a resolution of the core-periphery contradiction – that humanity is “in for an economic and political rollercoaster ride”.

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