Dependency Theory Essay

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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:   

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

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