Dependency theory
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Dependency theory is a body of social science theories, both from developed and developing nations, which are predicated on 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." This is based on the Marxist analysis of inequalities within the world system, but contrasts with the view of free market economists who argue that free trade advances poor states along an enriching path to full economic integration. As such, dependency theory features prominently in the debate over how poor countries can best be enriched or developed, a process usually carried out by MEDC's or More Economically Developed Countries.
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[edit] Basics
The premises of dependency theory are as follows:
- Poor nations provide market access to wealthy nations (e.g., by allowing their people to buy manufactured goods and obsolete or used goods from wealthy nations), permitting the wealthy nations to enjoy a higher standard of living.
- 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, sport, and all aspects of human resource development (including recruitment and training of workers).
- Wealthy nations actively counter attempts by dependent nations to resist their influences by means of economic sanctions and/or the use of military force.
Consistent with these assumptions, many dependency theorists advocate social revolution as an effective means to the reduction of economic disparities in the world system.
Dependency theory first emerged as a reaction to liberal free trade theories in the 1950s, advocated by Raúl Prebisch, whose research with the Economic Commission on Latin America (ECLA) suggested that decreases in the wealth of poor nations coincided with increases in the wealth of rich nations. Paul A. Baran developed dependency theory from Marxian analysis. The theory quickly divided into diverse schools. Some, like Andre Gunder Frank, adapted it to Marxism. "Standard" dependency theory differs from Marxism, however, 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, 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.
[edit] Spread of theory
"The inflow of capital from the developed countries is the prerequisite for the establishment of economic dependence. This inflow takes various forms: loans granted on onerous terms; investments that place a given country in the power of the investors; almost total technological subordination of the dependent country to the developed country; control of a country's foreign trade by the big international monopolies; and in extreme cases, the use of force as an economic weapon in support of the other forms of exploitation."
The theory became popular in the 1960s and 1970s as a criticism of modernization theory (also known as development theory), which was falling increasingly out of favor due to continued widespread poverty in much of the world. As such, dependency theory stands in sharp contrast with views of development tied to classical and free-market economics. With the economic growth of India and some East Asian economies, however, dependency theory has itself lost some of its former influence. It is more widely accepted in disciplines such as history and anthropology[citation needed]. It also underpins some NGO campaigns, such as Make Poverty History and the Fair Trade movement.
Dependency was said to be created with the industrial revolution and the expansion of European empires around the world, due to their superior military power and accumulated wealth. Some argue that before this expansion, the exploitation was internal, with the major economic centres dominating the rest of the country (for example: Southeast England dominating Britain, or the Northeast United States dominating the South and West). The establishment of global trade patterns in the nineteenth century allowed capitalism to spread globally[citation needed]. The wealthy became more isolated from the poor, because they gained disproportionately from imperialistic practices[citation needed]. This minimized the dangers of domestic peasant revolts and rebellions by the poor[citation needed]. Rather than turn on their oppressors as in the French Revolution or in various communist revolutions, the poor could no longer reach the wealthy and thus the less developed nations became engulfed in regular civil wars[citation needed]. Once the imperialist rich nations established formal control, it could not be easily removed[citation needed]. This control ensures that all profits in less developed countries are remitted to the developed nations[citation needed], preventing domestic reinvestment, causing capital flight and thus hindering growth[citation needed].
[edit] Quantitative dependency theory and the globalization of the dependency argument
Dependency authors explain backwardness and stagnation by the insertion of these countries as dependents in the world economy. Starting with the writings of Perroux, Prebisch and Rothschild in the 1930s, leading spokespersons for dependency theory (Herb Addo, Paul A. Baran, Walden Bello, Fernando Henrique Cardoso, Armando Cordova, Ernest Feder, Andre Gunder Frank, Walter Rodney, Pablo Gonzales Casanova, Keith Griffin, Kunibert Raffer, Paul Israel Singer, Osvaldo Sunkel, et al.) stressed the unequal and socially imbalanced nature of development in regions that are highly dependent on investment from the highly developed countries. Short-term spurts of growth notwithstanding, long-term growth will be imbalanced and unequal, and will tend towards high negative current account balances[citation needed]. Many of these authors focused their attention on Latin America; their leading spokesperson in the Islamic world is the Egyptian economist Samir Amin (Tausch 2003).
Later world systems theory - that started with the writings of the Austro-Hungarian socialist Karl Polanyi after the First World War - was offered as support and expansion of dependency arguments. Capitalism in the periphery, like in the center, is characterized by strong cyclical fluctuations[citation needed], and there are centers, semi-peripheries and peripheries. 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 2003).
Dependency and world system theory generally hold that poverty and backwardness in poor countries - like the third world - are caused by the peripheral position that these nations hold in the international division of labor. Ever since the capitalist world system evolved, there is a stark distinction between the nations of the center and the nations of the periphery. Former Brazilian President Fernando Henrique Cardoso, when he was still a social scientist, summarized the quantifiable essence of dependency theories 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 (Cardoso, 1979) (Tausch 2003).
Periphery capitalism, according to dependency theory, is characterized by the following main tendencies (Amin, 1973 - 1997):
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 )
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. the development blocks of peripheral capitalism (chronic current account balance deficits, re-exported profits of foreign investments, deficient business cycles of 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 (Tausch 2003)
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 (Tausch 2003).
Cyclical fluctuations have also a profound effect on cross-national comparisons of economic growth and societal development in the medium and long run. What could have been 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 along 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 (Tausch 2003).
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 < 1.0 (Raffer, 1987, Amin, 1975). Labor in the export sectors of the periphery is being exploited, while monopolistic structures of international trade let the centers profit from the high prices of their exports to the world markets in comparison to their labor productivity.
[edit] Implications
While there are many different and conflicting ideas on how developing countries can alleviate the effects of the world system, several of the following protectionist/nationalist practices were adopted at one time or another by such countries:
- Promotion of domestic industry and manufactured goods. By imposing subsidies to protect domestic industries, poor countries can be enabled to sell their own products rather than simply exporting raw materials.
- Import limitations. By limiting the importation of luxury goods and manufactured goods that can be produced within the country, the country can reduce its loss of capital and resources.
- Forbidding foreign investment. Some governments took steps to keep foreign companies and individuals from owning or operating property that draws on the resources of the country.
- Nationalization. Some governments have forcibly taken over foreign-owned companies on behalf of the state, in order to keep profits within the country.
[edit] Criticism by Neo-liberal Economists
Dependency theory has been criticized by free-market economists such as Peter Bauer and Martin Wolf, who believe that the promulgation of the theory leads to:
- Corruption. Free-market economists hold that state-owned companies have higher rates of corruption than privately owned companies.
- Lack of competition. By subsidizing in-country industries and preventing outside imports, these companies may have less incentive to improve their products, to try to become more efficient in their processes, to please customers, or to research new innovations.
- Sustainability. Reliance of industries on government support may not be sustainable for very long, particularly in poorer countries and countries which largely budget out of foreign aid.
- Domestic opportunity costs. Subsidies on domestic industries come out of state coffers and therefore represent money not spent in other ways, like development of domestic infrastructure, seed capital or need-based social welfare programs. At the same time, the higher prices caused by tariffs and restrictions on imports require the people either to forgo these goods altogether or buy them at higher prices, forgoing other goods.
Proponents of dependency theory claim that the theory of comparative advantage breaks down when capital (including both physical capital, like machines, as well as financial capital) is highly mobile, as it is under the conditions of globalization. For this reason, it is claimed that dependency theory can offer new insights into a world of highly mobile multinational corporations.
This has been countered by the argument that the conditions of globalization actually make comparative advantage more sound. Two of the key assumptions of comparative advantage - zero transportation costs and zero communication cost - are arguably more realistic in the contemporary global marketplace than in earlier times. While zero communication costs are supported by the internet, it would appear, however, that the theory of the tendency to zero transport costs is dependent on the costs of energy. Furthermore, the assumptions of free trade models only ever includes two factors of production - namely the globalisation of capital and resources, but not labour. Currently the free movement of labour is being restricted world-wide with various forms of immigration control.
Market economists cite a number of examples in their arguments against dependency theory. The improvement of India's economy after it moved from state-controlled business to open trade is one of the most often cited (see also economy of India, Commanding Heights). India's example seems to contradict dependency theorists' claims concerning comparative advantage and mobility, as much as its economic growth originated from movements such as outsourcing - one of the most mobile forms of capital transfer. However, South Korea was able to rise out of poverty while using many tenets which Dependency theory advises[citation needed].
Free market theorists see dependency theorists' complaints as legitimate, but their policy prescriptions as self-fulfilling prophecies, in that the policies only aggravate the disparity between the developed nations and the underdeveloped countries.
[edit] Literature
The voluminous literature on the subject is surveyed and documented in (among others):
Amin S. (1976), 'Unequal Development: An Essay on the Social Formations of Peripheral Capitalism' New York: Monthly Review Press.
Amin S. (1994c), 'Re-reading the postwar period: an intellectual itinerary' Translated by Michael Wolfers. New York: Monthly Review Press.
Amin S. (1997b), 'Die Zukunft des Weltsystems. Herausforderungen der Globalisierung. Herausgegeben und aus dem Franzoesischen uebersetzt von Joachim Wilke' Hamburg: VSA.
Bornschier V. (1976), 'Wachstum, Konzentration und Multinationalisierung von Industrieunternehmen' Frauenfeld and Stuttgart: Huber.
Bornschier V. (1996), 'Western society in transition' New Brunswick, N.J.: Transaction Publishers.
Bornschier V. and Chase - Dunn Ch. K (1985), 'Transnational Corporations and Underdevelopment' N.Y., N.Y.: Praeger.
Köhler G. and Tausch A. (2002) Global Keynesianism: Unequal exchange and global exploitation. Huntington NY, Nova Science.
Sunkel O. (1966), 'The Structural Background of Development Problems in Latin America' Weltwirtschaftliches Archiv, 97, 1: pp. 22 ff.
Sunkel O. (1973), 'El subdesarrollo latinoamericano y la teoria del desarrollo' Mexico: Siglo Veintiuno Editores, 6a edicion.
Tausch A. (1993, with Fred Prager as co-author), 'Towards a Socio - Liberal Theory of World Development' Basingstoke and New York: Macmillan/St. Martin's Press.
Tausch A. and Peter Herrmann (2002) Globalization and European Integration. Huntington NY, Nova Science.
Tausch A., Social Cohesion, Sustainable Development and Turkey's Accession to the European Union: Implications from a Global Model, Alternatives: Turkish Journal of International Relations, 2(1) Spring 2003.
Yotopoulos P. and Sawada Y. (1999), FREE CURRENCY MARKETS, FINANCIAL CRISES AND THE GROWTH DEBACLE: IS THERE A CAUSAL RELATIONSHIP?, Revised November 1999, Stanford University, USA, and University of Tokyo.
Yotopoulos P. and Sawada Y. (2005), Exchange Rate Misalignment: A New test of Long-Run PPP Based on Cross-Country Data (CIRJE Discussion Paper CIRJE-F-318), February 2005, Faculty of Economics, University of Tokyo.
[edit] See also
colonial situation as a social process
[edit] References
- ^ "On Development" Speech delivered by Che Guevara at the plenary session of the United Nations Conference on Trade and Development in Geneva, Switzerland on March 25, 1964
