Dependency Theory Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Defined as an explanation of the economic development of a state in terms of the external influences— political, economic, and social—on national development policies, dependency theory argues that history shapes economic structure, favoring some countries to the detriment of others and limiting their development possibilities. Dependency theory sees the world economy as comprising of two sets of states, those that are dominant and those that are dependent. The dominant states are the advanced industrial nations in the Organization of Economic Co-operation and Development (OECD). The dependent states are those states of Latin America, Asia, and Africa that have low per capita gross national products (GNPs) and which rely heavily on the export of a single commodity.

Most dependency theorists regard international capitalism as the motive force behind dependency relationships, which are caused by a rigid international division of labor that is responsible for the underdevelopment of many areas of the world. The dependent states supply natural resources, in which they might be said to have an absolute advantage, and cheap labor, but depend on the industrialized nations for manufactured goods. Foreign direct investment flows into the dependent states, but the allocation of investment is determined by the economic interests and efficiency requirements of the dominant states, and not by the economic interests of the dependent state.

Theories

While not all dependency theorists are Marxists, many have been, including Paul Baran, whose critically acclaimed book, The Political Economy of Growth, is regarded as a pioneering study of the problems of underdevelopment. Writing in the mid-1950s, Baran tried to relate underdevelopment in the Third World to the global operations of capitalism. He held monopoly capitalism responsible for underutilization of human and material resources, inefficient organization of the productive facilities, and an insufficiency of effective demand. To overcome these weaknesses, Baran advocated a form of centralized planning. Following Baran was Andre Gunder Frank, who wrote extensively on underdevelopment from the mid-1960s to the mid-1970s. A recurrent theme in his works concerns commercial monopoly as the particular economic form with which metropolitan countries have exploited their satellites.

A new theory of dependency was introduced by Theotônio Dos Santos in the 1970s. This new theory of dependency understands industrial development to be dependent on exports, tied to the traditional sectors of an economy that are controlled by the landed bourgeoisie. Exports generate foreign currency with which that bourgeoisie buys imported capital goods. Despite the efforts of the dependent countries to impose policies of exchange restrictions and taxes on foreign exports and to lean toward the nationalization of production, industrial development is conditioned by fluctuations in the balance of payments, which in dependent countries often lead to deficits caused by trading in a highly monopolized international market, the repatriation of foreign profits, and the need to rely on foreign capital aid, leading to deepening dependency that cannot be altered without a change in internal structure and external relations.

Latin American dependency theory and its African and other Third World variants were introduced in the late 1960s and early 1970s. Director of the United Nations Economic Commission for Latin America (ECLA) Raul Prebisch argued that the international division of labor was outdated, imposing on Latin

America, as part of the periphery of the world economic system, the role of producing food and raw materials for the great industrial countries. There was no place within this scheme for the industrialization of Latin American countries.

Yet world events—two world wars and a great economic crisis—were forcing industrialization on the Latin American countries, showing them where their opportunities lay. To eliminate dependence, ECLA advocated planning as a means of rationally allocating scarce resources; a program of export diversification and import substitution; accelerated industrialization; use of the state apparatus to bring about institutional reforms; and the formation of regional entities to integrate the economies of the countries in the region. These policy recommendations evolved into what became known as “state capitalism.”

Critiques

Dependency theory has had numerous critics. Stephan Haggard argues that dependency theory underestimates the growth potential of underdeveloped nations, as evidenced by the emergence of East Asian economies; that it overestimates the importance of external factors and ignores the fact that many of the most powerful obstacles to development lie in the domestic system and in the histories of individual states and societies; that it places too much emphasis on the role of foreign direct investment, downplaying the importance of the international trading and financial system; and that there is no necessary link between dependence in the international economy and political systems, whether democratic or authoritarian.

Citing the rapid development of some southeast Asian countries, which dependency theory failed to predict or to explain, Ted Lewellen calls the theory’s prescriptive solutions, which called socialism or delinking from the capitalist system self-destructive or impractical, and its classification of core and periphery nations, simplistic. This classification has been replaced by a much more complex, multidimensional system of interaction based not on raw material production versus manufacture, but on low-tech manufacture versus high-tech manufacture and factory production versus information processing, combined with attention to international finance, media technology, and local culture. Ngaire Woods notes that in Central America it was not global capitalism and exploitation but Cold War geopolitics and security issues that prompted aspirations of nationalism, independence, and autonomy.

Bibliography:

Ronald H. Chilcote, Theories of Comparative Politics: The Search for a Paradigm Reconsidered (Westview Press, 1994);
David W. Dent, Handbook of Political Science Research on Latin America: Trends from the 1960s to the 1990s (Greenwood Press, 1990);
Martha Fineman, The Autonomy Myth: A Theory of Dependency (New Press, 2004);
N. Ghosh, Dependency Theory Revisited (Ashgate, 2001);
Stephan Haggard, Pathways from the Periphery: The Politics of Growth in the Newly Industrializing Countries (Cornell, 1990);
Ted C. Lewellen, The Anthropology of Globalization: Cultural Anthropology Enters the 21st Century (Bergin & Garvey, 2002);
Mary Ann Taetreault and Charles Frederick Abel, Dependency Theory and the Return of High Politics (Greenwood Press, 1986);
Howard J. Wiarda, New Directions in Comparative Politics (Westview Press, 1992);
Ngaire Woods, Explaining International Relations Since 1945 (Oxford University Press, 1996);
Timothy Yeager, Institutions, Transition Economies and Economic Development (Westview Press, 1998).

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