Dependency School, Development of Dependency Theory and its Criticism

Dependency School, Development of Dependency Theory and its Criticism


Introduction to Dependency School
This paradigm came as counteract to dominant paradigm and it is the first development theory that was formulated in poorer nations. The chief architect of dependency theory was Prebisch, an Argentine economist. This paradigm was informed by Marxist and critical theories and highly focused on the effects of dependency. Theorists of this paradigm believed underdevelopment is a result of the world process of capital accumulation and it cannot be seen apart from development. Dependency paradigm is well known for its cultural imperialism approach that proposes a dominant sociopolitical group influences and shapes the culture of weaker groups, or nations, through mass media and other practices and institutions.

A more direct challenge to the modernisation theory emerged in the 1960s and 1970s in the form of the dependency theory. This theory owes its origin to the writings of Baran (1957), Prebisch (1971) and Frank (1971). Drawing on the notion of inequality between the industrial nations and the non-industrial world (Prebisch, 1971), dependency theory refers to the former as the “core” and the latter as the “periphery.” Contrary to modernisation theory, dependency theory views development from the perspective of the impact of exogenous forces on the periphery.

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 of helping the underdeveloped areas out of poverty is to accelerate them along this supposed common path of development, by various means such as investmenttechnology 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 of Development
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".

In the dependency theory, capitalism is understood as a world system that contains an inherent core-periphery duality or “metropolis-satellite” concept ((Frank, 1971) that determines the developmental potentialities of different countries. Dependency is defined as a “situation in which a certain number of countries have their economy conditioned by the development and expansion of another” (Dos Santos quoted in Valenzuela and Valenzuela, 1978:544). Thus, the possibility of development is determined by the relationship of exploitation that exists between the “core and periphery.”

The dependency theory, furthermore, locates the dynamics of exploitation in the transfer of the periphery’s resources to the core through a process of unequal exchange on the international market (Emmanuel, 1972). The core accumulates its resources for modern development through exploiting periphery countries, consequently under developing them. Increasingly throughout the twentieth century, terms of trade moved against primary products in favour of technologically more sophisticated goods. This unequal exchange acted as a further drain on the surpluses of the periphery and inhibited the process of capital accumulation (ILO, 2004:30).

The dependency approach is consistent with the earlier Marxist theories of imperialism that focused on how the exploitation of the colonial labour force reduced the costs of commodities thereby cheapening the cost of reproducing the working class in the advanced countries as well as keeping the core working class politically more pliant (Larrain, 1989:118). The logical consequence was that exploited classes in the periphery would have to rely primarily on their own resources to overthrow the oppressive state structure that tied them to the world capitalist system. Only then could the exploitative links that chained them to the world system be severed and progressive policies implemented for the benefit of national development and popular demand (Frank, 1974; Amin, 1985). For the dependency theorists, the experience of the developed countries cannot be used as a model to follow because it is their very development which nurtures underdevelopment in the periphery. The major question is not why the developing countries are still poor but how they have become poor.

However, dependency theory is often accused of presenting the global economy as “a zero-sum or negative-sum whereby the gains of the core came at the expense of the periphery” (Hoogvelt, 1997:4). Ultimately, however, dependency theory draws more pessimistic conclusions than modernisation theory about the possibility of peaceful and evolutionary development. As Wallerstein (2004:10) notes, modernisation theory suggests that the “most developed” state could offer itself as a model for the “ less developed” states, urging the latter to engage in a sort of mimicry and promising a higher standard of living and a more liberal government structure (political development) at the end of the rainbow.”

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
§   The foundations of the theory of dependency emerged in the 1950s from the research of the Economic Commission for Latin America and the Caribbean - ECLAC. One of the most representative authors was Raul Prebisch. The principal points of the Prebisch model are that in order to create conditions of development within a country, it is necessary:
1.     To control the monetary exchange rate, placing more governmental emphasis on fiscal rather than monetary policy; b)
2.     To promote a more effective governmental role in terms of national development;
3.     To create a platform of investments, giving a preferential role to national capitals
4.     To allow the entrance of external capital following priorities already established in national plans for development;
5.     To promote a more effective internal demand in terms of domestic markets as a base to reinforce the industrialization process in Latin America;
6.     To generate a larger internal demand by increasing the wages and salaries of workers, which will in turn positively affect aggregate demand in internal markets;
7.     To develop a more effective coverage of social services from the government, especially to impoverished sectors in order to create conditions for those sectors to become more competitive; and
8.     To develop national strategies according to the model of import substitution, protecting national production by establishing quotas and tariffs on external markets.




§  The Prebisch and ECLAC’s proposal were the basis for dependency theory at the beginning of the 1950s. (18) However, there are also several authors, such as Falleto and Dos Santos who argue that the ECLAC’s development proposals failed, which only then lead to the establishment of the dependency model. This more elaborated theoretical model was published at the end of the 1950s and the mid 1960s. Among the main authors of dependency theory we have: Andre Gunder Frank, Raul Prebisch, Theotonio Dos Santos, Enrique Cardozo, Edelberto Torres-Rivas, and Samir Amin. The theory of dependency combines elements from a neo-marxist perspective with Keynes’ economic theory - the liberal economic ideas which emerged in the United States and Europe as a response to the depression years of the 1920s-. From the Keynes’ economic approach, the theory of dependency embodies four main points:
1.     To develop an important internal effective demand in terms of domestic markets;
2.     To recognize that the industrial sector is crucial to achieving better levels of national development, especially due to the fact that this sector, in comparison with the agricultural sector, can contribute more value-added to products;
3.     To increase worker’s income as a means of generating more aggregate demand in national market conditions;
4.     To promote a more effective government role in order to reinforce national development conditions and to increase national standards of living.



§   According to Foster-Carter (1973), there are three main differences between the classic orthodox Marxist movement and the neo-marxist positions, the latter providing a basis for the dependency theory. First, the classical approach focuses on the role of extended monopolies at the global level, and the neomarxist on providing a vision from peripheral conditions. Second, the classical movement foresaw the need for a bourgeois revolution at the introduction of national transformation processes; from the neo-marxist position and based on current conditions of Third World countries, it is imperative “to jump” to a socialist revolution, mainly because it is perceived that national bourgeoisies identify more strongly with elite positions rather than with nationalistic ones. Third, the classical Marxist approach perceived the industrial proletariat as having the strength and vanguard for social revolution; the neo-marxist approach emphasized that the revolutionary class must be confirmed by peasants in order to carry out an armed revolutionary conflict.

§   The major hypotheses with regard to development in Third World countries according to the dependency school are the following: First, in contrast to the development of the core nations which is self-contained, the development of nations in the Third World necessitates subordination to the core. Examples of this situation can be seen in Latin America, especially in those countries with a high degree of industrialization, such as Sao Paulo, Brazil which Andre G. Frank uses as a case study.

§   Second, the peripheral nations experience their greatest economic development when their ties to the core are weakest. An example of this circumstance is the industrialization process that took root in Latin America during the 1930s, when the core nations were focusing on solving the problems that resulted from the Great Depression, and the Western powers were involved in the Second World War.

§   A third hypothesis indicates that when the core recovers from its crisis and reestablishes trade and investments ties, it fully incorporates the peripheral nations once again into the system, and the growth of industrialization in these regions is stifled. Frank in particular indicates that when core countries recuperate from war or other crises which have directed their attention away from the periphery, this negatively affects the balance of payments, inflation and political stability in Third World countries.

Lastly, the fourth aspect refers to the fact that regions that are highly underdeveloped and still operate on a traditional, feudal system are those that in the past had the closest ties to core.

§   However, according to Theotonio Dos Santos, the basis of dependency in underdeveloped nations is derived from industrial technological production, rather than from financial ties to monopolies from the core nations. In addition to Dos Santos, other classical authors in the dependency school are: Baran, who has studied conditions in India in the late 1950s; and Landsberg, who has studied the processes of industrial production in the core countries in 1987.



The Central Propositions of Dependency Theory

There are a number of propositions, all of which are contestable, which form the core of dependency theory. These propositions include:
§  Underdevelopment is a condition fundamentally different from undevelopment. The latter term simply refers to a condition in which resources are not being used. For example, the European colonists viewed the North American continent as an undeveloped area: the land was not actively cultivated on a scale consistent with its potential. Underdevelopment refers to a situation in which resources are being actively used, but used in a way which benefits dominant states and not the poorer states in which the resources are found.



§  The distinction between underdevelopment and undevelopment places the poorer countries of the world is a profoundly different historical context. These countries are not "behind" or "catching up" to the richer countries of the world. They are not poor because they lagged behind the scientific transformations or the Enlightenment values of the European states. They are poor because they were coercively integrated into the European economic system only as producers of raw materials or to serve as repositories of cheap labor, and were denied the opportunity to market their resources in any way that competed with dominant states.

§  Dependency theory suggests that alternative uses of resources are preferable to the resource usage patterns imposed by dominant states. There is no clear definition of what these preferred patterns might be, but some criteria are invoked. For example, one of the dominant state practices most often criticized by dependency theorists is export agriculture. The criticism is that many poor economies experience rather high rates of malnutrition even though they produce great amounts of food for export. Many dependency theorists would argue that those agricultural lands should be used for domestic food production in order to reduce the rates of malnutrition.

§  The preceding proposition can be amplified: dependency theorists rely upon a belief that there exists a clear "national" economic interest which can and should be articulated for each country. In this respect, dependency theory actually shares a similar theoretical concern with realism. What distinguishes the dependency perspective is that its proponents believe that this national interest can only be satisfied by addressing the needs of the poor within a society, rather than through the satisfaction of corporate or governmental needs. Trying to determine what is "best" for the poor is a difficult analytical problem over the long run. Dependency theorists have not yet articulated an operational definition of the national economic interest.

§  The diversion of resources over time (and one must remember that dependent relationships have persisted since the European expansion beginning in the fifteenth century) is maintained not only by the power of dominant states, but also through the power of elites in the dependent states. Dependency theorists argue that these elites maintain a dependent relationship because their own private interests coincide with the interests of the dominant states. These elites are typically trained in the dominant states and share similar values and culture with the elites in dominant states. Thus, in a very real sense, a dependency relationship is a "voluntary" relationship. One need not argue that the elites in a dependent state are consciously betraying the interests of their poor; the elites sincerely believe that the key to economic development lies in following the prescriptions of liberal economic doctrine.

Criticism of DEPENDENCY Theory
Economic policies based on dependency theory has been criticized by free-market economists such as Peter Bauer and Martin Wolf and others:
·         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: industries reliant on government support may not be sustainable for very long, particularly in poorer countries and countries which largely depend on foreign aid from more developed countries.
·         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.
The principal critics of the dependency theory have focused on the fact that this school does not provide exhaustive empirical evidence to support its conclusions. Furthermore, this theoretical position uses highly abstract levels of analysis. Another point of critique is that the dependency movement considers ties with transnational corporations as being only detrimental to countries, when actually these links can be used as a means of transference of technology. In this sense, it is important to remember that the United States was also a colony, and this country had the capacity to break the vicious cycle of underdevelopment.



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 IndiaThe 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. South Korea and North Korea provide another example of trade-based development vs. autocratic self-sufficiency. When the two states were divided at the end of the Korean War, they possessed roughly identical populations, resources and infrastructure and were at similar levels of development. North Korea pursued a policy of import substitution industrialization as suggested by dependency theory, while South Korea pursued a policy of export-oriented industrialization as suggested by comparative advantage theory. In 2013, South Korea's per capita GDP was 18 times that of North Korea. In Africa, states which have emphasized import-substitution development, such as Zimbabwe, have typically been among the worst performers, while the continent's most successful non-oil based economies, such as EgyptSouth Africa, and Tunisia, have pursued trade-based development.

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