Dependency theory
Encyclopedia
Dependency theory or dependencia theory is a body of social science theories 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."
The theory arose around 1970 as a reaction to modernisation 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 in helping the underdeveloped areas out of poverty is to accelerate them along this supposed common path of development, by various means such as investment, technology 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, whereas the developed nations were never in an analogous position; they never had to exist in relation to a bloc of more powerful and economically advanced countries than themselves. Dependency theorists argued, in opposition to free market
economists and modernization theorists, that underdeveloped countries needed to reduce their connectedness with the world market so that they can pursue a path more in keeping with their own needs, less dictated by external pressures.
Dependency theory states that the poverty of the countries in the periphery is not because they are not integrated into the world system, or not 'fully' integrated as is often argued by free market economists, but because of how they are integrated into the system.
, 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 Singer-Prebisch 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. The theory was developed from a Marxian perspective by Paul A. Baran
in 1957 with the publication of his The Political Economy of Growth. Dependency theory shares many points with earlier, Marxist, theories of imperialism by Rosa Luxemburg
and V.I. Lenin
, and has attracted continued interest from Marxists. Matias Vernengo, a University of Utah economist, identifies two main streams in dependency theory: the Latin American Structuralist, typified by the work of Prebisch, Celso Furtado
and Anibal 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
.
The theory was popular in the 1960s and 1970s as a criticism of modernization theory
(the "stages" hypothesis mentioned above), which was falling increasingly out of favor because of continued widespread poverty in much of the world.
Many dependency theorists advocate social revolution as an effective means to the reduction of economic disparities in the world system.
Poor nations are at a disadvantage in their market interactions with wealthy nations. There are several aspects to this. One is that a high proportion of the developing nations' economic activity consists of exports and imports from the developed nations—in many cases with only one or a few developed nations. By contrast, only a small proportion of the economic activity of the developed nations consists of trade with the developing nations; a developed nation's trade consists mostly of internal trade and trade with other developed nations. This asymmetry puts a poor nation in a weak bargaining position vis a vis a developed nation. There are also historical aspects: the poor nations are almost all former colonies
of the developed nations; their economies were built to serve the developed nations in a twofold capacity: as sources of cheap raw materials and as highly populous markets for the absorption of the developed nations' manufactured output.
According to Vernengo, the Latin American Structuralist and the American Marxist schools had significant differences but agreed on some basic points:
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.
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. 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" (Vernengo's words, summarising O'Donnell, 1982).
The importance of technology, 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.
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".
Vernengo (2004) has suggested that 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
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.
With the economic growth of India and some East Asian economies, dependency theory has lost some of its former influence. It is more widely accepted in disciplines such as history
and anthropology
. It also underpins some NGO campaigns, such as Make Poverty History
and the fair trade
movement.
, specifically various forms of economic nationalism
and the school of mercantilism
. An early statement of dependency theory is found in Henry Clay
, architect of the American System, in an 1832 speech:
Similar sentiments were expressed by German American
economist Friedrich List
:
and Kurt Rothschild. Other leading dependency theorists include Herb Addo, Walden Bello
, Fernando Henrique Cardoso
, Enzo Faletto, Armando Cordova, Ernest Feder, Andre Gunder Frank
, Walter Rodney
, Pablo González Casanova, Keith Griffin
, Kunibert Raffer
, Paul Israel Singer, and Osvaldo Sunkel. Many of these authors focused their attention on Latin America; the leading dependency theorist in the Islamic world is the Egyptian economist Samir Amin
.
Later, world systems theory
expanded on dependency arguments. It postulates a third category of countries, the semi-periphery, intermediate between the core and periphery. The semi-periphery is industrialised, but with less sophistication of technology than in the core; and it does not control finances.
Capitalism in the periphery, like in the center, is characterized by strong cyclical fluctuations.
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) traces the beginnings of World systems theory to the writings of the Austro-Hungarian socialist Karl Polanyi
after the First World War. In its present form it is usually associated with the work of Immanuel Wallerstein.
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 his version of dependency theory as follows:
Tausch (2003), based on works of Amin from 1973 to 1997, lists the following main characteristics of periphery capitalism:
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 .
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 (Tausch 2003). 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 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 .
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.
The theory arose around 1970 as a reaction to modernisation theory, an earlier theory of development
Development theory
Development theory is a conglomeration of theories about how desirable change in society is best to be achieved. Such theories draw on a variety of social scientific disciplines and approaches.-Modernization theory:...
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 in helping the underdeveloped areas out of poverty is to accelerate them along this supposed common path of development, by various means such as investment, technology 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
Structuralism
Structuralism originated in the structural linguistics of Ferdinand de Saussure and the subsequent Prague and Moscow schools of linguistics. Just as structural linguistics was facing serious challenges from the likes of Noam Chomsky and thus fading in importance in linguistics, structuralism...
of their own; and, importantly, are in the situation of being the weaker members in a world market economy, whereas the developed nations were never in an analogous position; they never had to exist in relation to a bloc of more powerful and economically advanced countries than themselves. Dependency theorists argued, in opposition to free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
economists and modernization theorists, that underdeveloped countries needed to reduce their connectedness with the world market so that they can pursue a path more in keeping with their own needs, less dictated by external pressures.
Basics
The premises of dependency theory are that:- Poor nations provide natural resources, cheap labor, a destination for obsolete technology, and markets for developed nations, without which the latter could not have the standard of living they enjoy.
- Wealthy nations actively perpetuate a state of dependence by various means. This influence may be multifaceted, involving economicsEconomicsEconomics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, media controlPropaganda modelThe propaganda model is a conceptual model in political economy advanced by Edward S. Herman and Noam Chomsky that states how propaganda, including systemic biases, function in mass media...
, politicsPoliticsPolitics is a process by which groups of people make collective decisions. The term is generally applied to the art or science of running governmental or state affairs, including behavior within civil governments, but also applies to institutions, fields, and special interest groups such as the...
, banking and financeFinance"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
, educationEducationEducation in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
, cultureCultureCulture is a term that has many different inter-related meanings. For example, in 1952, Alfred Kroeber and Clyde Kluckhohn compiled a list of 164 definitions of "culture" in Culture: A Critical Review of Concepts and Definitions...
, sportSportA Sport is all forms of physical activity which, through casual or organised participation, aim to use, maintain or improve physical fitness and provide entertainment to participants. Sport may be competitive, where a winner or winners can be identified by objective means, and may require a degree...
, and all aspects of human resourceHuman resourcesHuman resources is a term used to describe the individuals who make up the workforce of an organization, although it is also applied in labor economics to, for example, business sectors or even whole nations...
development (including recruitment and training of workers). - Wealthy nations actively counter attempts by dependent nations to resist their influences by means of economic sanctionsEconomic sanctionsEconomic sanctions are domestic penalties applied by one country on another for a variety of reasons. Economic sanctions include, but are not limited to, tariffs, trade barriers, import duties, and import or export quotas...
and/or the use of military force.
Dependency theory states that the poverty of the countries in the periphery is not because they are not integrated into the world system, or not 'fully' integrated as is often argued by free market economists, but because of how they are integrated into the system.
History
Dependency theory originates with two papers published in 1949 – one by Hans SingerHans Singer
Sir Hans Wolfgang Singer was a development economist best known for the Singer-Prebisch thesis, which states that the terms of trade move against producers of primary products. He is one of the primary figures of heterodox economics.-Biography:Singer was born in Elberfeld, Germany in 1910...
, one by Raúl Prebisch
Raúl Prebisch
Raúl Prebisch was an Argentine economist known for his contribution to structuralist economics, in particular the Singer–Prebisch thesis that formed the basis of economic dependency theory. He is sometimes considered to be a neo-Marxist though this label is misleading...
– in which the authors observe that the terms of trade
Terms of trade
In international economics and international trade, terms of trade or TOT is /. In layman's terms it means what quantity of imports can be purchased through the sale of a fixed quantity of exports...
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 Singer-Prebisch thesis
Singer-Prebisch thesis
The Singer–Prebisch thesis postulates that terms of trade, between primary products and manufactured goods, deteriorate in time...
. 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
Export-oriented industrialization
Export-oriented Industrialization sometimes called export substitution industrialization or export led industrialization is a trade and economic policy aiming to speed up the industrialization process of a country by exporting goods for which the nation has a comparative advantage...
, was the best strategy for underdeveloped countries. The theory was developed from a Marxian perspective by Paul A. Baran
Paul A. Baran
Paul Alexander Baran was an American economist known for his Marxist views. In 1951 Baran was promoted to full professor at Stanford University and Baran was the only tenured Marxist economist in the United States until his death in 1964...
in 1957 with the publication of his The Political Economy of Growth. Dependency theory shares many points with earlier, Marxist, theories of imperialism by Rosa Luxemburg
Rosa Luxemburg
Rosa Luxemburg was a Marxist theorist, philosopher, economist and activist of Polish Jewish descent who became a naturalized German citizen...
and V.I. Lenin
Vladimir Lenin
Vladimir Ilyich Lenin was a Russian Marxist revolutionary and communist politician who led the October Revolution of 1917. As leader of the Bolsheviks, he headed the Soviet state during its initial years , as it fought to establish control of Russia in the Russian Civil War and worked to create a...
, and has attracted continued interest from Marxists. Matias Vernengo, a University of Utah economist, identifies two main streams in dependency theory: the Latin American Structuralist, typified by the work of Prebisch, Celso Furtado
Celso Furtado
Celso Monteiro Furtado was an important Brazilian economist and one of the most distinguished intellectuals of his country during the 20th century. His work focuses on development and underdevelopment and on the persistence of poverty in peripheral countries throughout the world...
and Anibal Pinto at the United Nations Economic Commission for Latin America
United Nations Economic Commission for Latin America and the Caribbean
The United Nations Economic Commission for Latin America and the Caribbean was established in 1948 to encourage economic cooperation among its member states. In 1984, a resolution was passed to include the countries of the Caribbean in the name...
(ECLAC, or, in Spanish, CEPAL); and the American Marxist, developed by Paul A. Baran
Paul A. Baran
Paul Alexander Baran was an American economist known for his Marxist views. In 1951 Baran was promoted to full professor at Stanford University and Baran was the only tenured Marxist economist in the United States until his death in 1964...
, Paul Sweezy
Paul Sweezy
Paul Marlor Sweezy was a Marxist economist, political activist, publisher, and founding editor of the long-running magazine Monthly Review...
, and Andre Gunder Frank
Andre Gunder Frank
Andre Gunder Frank was a German-American economic historian and sociologist who promoted "dependency theory" after 1970 and "World Systems Theory" after 1984...
.
The theory was popular in the 1960s and 1970s as a criticism of modernization theory
Modernization theory
Modernization theory is a theory used to explain the process of modernization within societies. The theory looks at the internal factors of a country while assuming that, with assistance, "traditional" countries can be brought to development in the same manner more developed countries have...
(the "stages" hypothesis mentioned above), which was falling increasingly out of favor because of continued widespread poverty in much of the world.
Many dependency theorists advocate social revolution as an effective means to the reduction of economic disparities in the world system.
Poor nations are at a disadvantage in their market interactions with wealthy nations. There are several aspects to this. One is that a high proportion of the developing nations' economic activity consists of exports and imports from the developed nations—in many cases with only one or a few developed nations. By contrast, only a small proportion of the economic activity of the developed nations consists of trade with the developing nations; a developed nation's trade consists mostly of internal trade and trade with other developed nations. This asymmetry puts a poor nation in a weak bargaining position vis a vis a developed nation. There are also historical aspects: the poor nations are almost all former colonies
Colonialism
Colonialism is the establishment, maintenance, acquisition and expansion of colonies in one territory by people from another territory. It is a process whereby the metropole claims sovereignty over the colony and the social structure, government, and economics of the colony are changed by...
of the developed nations; their economies were built to serve the developed nations in a twofold capacity: as sources of cheap raw materials and as highly populous markets for the absorption of the developed nations' manufactured output.
According to Vernengo, the Latin American Structuralist and the American Marxist schools had significant differences but agreed on some basic points:
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.
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. More recently, Guillermo O'Donnell
Guillermo O'Donnell
Guillermo O'Donnell was a prominent Argentine political scientist, named the Helen Kellogg Professor of Government and International Studies at the University of Notre Dame in the United States. His brother, Pacho O'Donnell, is a well-known politician and writer.-Biography:O'Donnell was born in...
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" (Vernengo's words, summarising O'Donnell, 1982).
The importance of technology, 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.
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".
Vernengo (2004) has suggested that 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
Fernando Henrique Cardoso
Fernando Henrique Cardoso – also known by his initials FHC – was the 34th President of the Federative Republic of Brazil for two terms from January 1, 1995 to December 31, 2002. He is an accomplished sociologist, professor and politician...
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
Immanuel Wallerstein
Immanuel Maurice Wallerstein is a US sociologist, historical social scientist, and world-systems analyst...
refined the Marxist aspect of the theory, and called it the "World-system
World Systems Theory
The world-systems theory is a multidisciplinary, macro-scale approach to world history and social change....
." It has also been associated with Galtung's Structural Theory of Imperialism.
With the economic growth of India and some East Asian economies, dependency theory has lost some of its former influence. It is more widely accepted in disciplines such as history
History
History is the discovery, collection, organization, and presentation of information about past events. History can also mean the period of time after writing was invented. Scholars who write about history are called historians...
and anthropology
Anthropology
Anthropology is the study of humanity. It has origins in the humanities, the natural sciences, and the social sciences. The term "anthropology" is from the Greek anthrōpos , "man", understood to mean mankind or humanity, and -logia , "discourse" or "study", and was first used in 1501 by German...
. It also underpins some NGO campaigns, such as Make Poverty History
Make Poverty History
Make Poverty History is the name of a campaign that exists in a number of countries, including Australia, Canada, Denmark , Finland, New Zealand, Nigeria, Norway, Romania, the United Arab Emirates, Great Britain and Ireland...
and the fair trade
Fair trade
Fair trade is an organized social movement and market-based approach that aims to help producers in developing countries make better trading conditions and promote sustainability. The movement advocates the payment of a higher price to producers as well as higher social and environmental standards...
movement.
Origins and predecessors
Dependency theory can trace its intellectual heritage to the long-running free trade debateFree trade debate
Free trade is one of the most debated topics in economics of the 19th, 20th, and 21st century. Arguments over free trade can be divided into economic, moral, and socio-political arguments. The academic debate among economists is currently settled in favor of free trade, with a consensus having...
, specifically various forms of economic nationalism
Economic nationalism
Economic nationalism is a term used to describe policies which emphasize domestic control of the economy, labor and capital formation, even if this requires the imposition of tariffs and other restrictions on the movement of labor, goods and capital. It opposes globalization in many cases, or at...
and the school of mercantilism
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
. An early statement of dependency theory is found in Henry Clay
Henry Clay
Henry Clay, Sr. , was a lawyer, politician and skilled orator who represented Kentucky separately in both the Senate and in the House of Representatives...
, architect of the American System, in an 1832 speech:
Similar sentiments were expressed by German American
German American
German Americans are citizens of the United States of German ancestry and comprise about 51 million people, or 17% of the U.S. population, the country's largest self-reported ancestral group...
economist Friedrich List
Friedrich List
Georg Friedrich List was a leading 19th century German economist who developed the "National System" or what some would call today the National System of Innovation...
:
Other dependency theorists
Two other early writers relevant to dependency theory were François PerrouxFrançois Perroux
François Perroux was a French economist. He was named Professor at the Collège de France, after having taught at the University of Lyon and the University of Paris...
and Kurt Rothschild. Other leading dependency theorists include Herb Addo, Walden Bello
Walden Bello
Walden Bello is a Filipino author, academic, and political analyst. He is a professor of sociology and public administration at the University of the Philippines Diliman, as well as executive director of Focus on the Global South...
, Fernando Henrique Cardoso
Fernando Henrique Cardoso
Fernando Henrique Cardoso – also known by his initials FHC – was the 34th President of the Federative Republic of Brazil for two terms from January 1, 1995 to December 31, 2002. He is an accomplished sociologist, professor and politician...
, Enzo Faletto, Armando Cordova, Ernest Feder, Andre Gunder Frank
Andre Gunder Frank
Andre Gunder Frank was a German-American economic historian and sociologist who promoted "dependency theory" after 1970 and "World Systems Theory" after 1984...
, Walter Rodney
Walter Rodney
Walter Rodney was a prominent Guyanese historian and political activist, who was assassinated in Guyana in 1980.-Career:...
, Pablo González Casanova, Keith Griffin
Keith Griffin (economist)
Keith B. Griffin is an economist, notable for his pioneering work on the economics of poverty reduction over more than forty years.From 1979 to 1988 he was President of Magdalen College, Oxford and he remains an honorary fellow there.-Selected publications:...
, Kunibert Raffer
Kunibert Raffer
Professor Kunibert Raffer is a development researcher. His main contributions are on international economic relations and the problems of unequal exchange. From 1979-1980 he was Associate Professor of Economics at the University of Vienna and from 1983-84 consultant to UNIDO...
, Paul Israel Singer, and Osvaldo Sunkel. Many of these authors focused their attention on Latin America; the leading dependency theorist in the Islamic world is the Egyptian economist Samir Amin
Samir Amin
Samir Amin is an Egyptian economist. He currently lives in Dakar, Senegal.- Biography :Samir Amin was born in Cairo, the son of an Egyptian father and a French mother . He spent his childhood and youth in Port Said; there he attended a French High School, leaving in 1947 with a Baccalauréat...
.
Later, world systems theory
World Systems Theory
The world-systems theory is a multidisciplinary, macro-scale approach to world history and social change....
expanded on dependency arguments. It postulates a third category of countries, the semi-periphery, intermediate between the core and periphery. The semi-periphery is industrialised, but with less sophistication of technology than in the core; and it does not control finances.
Capitalism in the periphery, like in the center, is characterized by strong cyclical fluctuations.
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) traces the beginnings of World systems theory to the writings of the Austro-Hungarian socialist Karl Polanyi
Karl Polanyi
Karl Paul Polanyi was a Hungarian philosopher, political economist and economic anthropologist known for his opposition to traditional economic thought and his book The Great Transformation...
after the First World War. In its present form it is usually associated with the work of Immanuel Wallerstein.
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 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.
Tausch (2003), based on works of Amin from 1973 to 1997, lists the following main characteristics of periphery capitalism:
- Regression in both agriculture and small scale industry characterizes the period after the onslaught of foreign domination and colonialism
- 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)
- 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
- 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
- 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
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 .
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 (Tausch 2003). 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
Giovanni Arrighi
Giovanni Arrighi was a scholar of political economy and sociology, and as of 1998 a Professor of Sociology at Johns Hopkins University. His work has been translated into over fifteen languages....
believed that the logic of accumulation on a world scale shifts over 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 .
At this stage, the role of unequal exchange
Unequal exchange
Unequal exchange is a much disputed concept which is used primarily in Marxist economics, but also in ecological economics, to denote forms of exploitation hidden in or underwriting trade...
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.
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 goodLuxury goodLuxury goods are products and services that are not considered essential and associated with affluence.The concept of luxury has been present in various forms since the beginning of civilization. Its role was just as important in ancient western and eastern empires as it is in modern societies...
s 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.
Further reading
- 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 C. (1985), 'Transnational Corporations and Underdevelopment' N.Y., N.Y.: Praeger.
- Cardoso, F. H. and Faletto, E. (1979), 'Dependency and development in Latin América'. University of California Press.
- 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.
See also
- World-systems theory
- Marxist international relations theoryMarxist international relations theoryMarxist and Neo-Marxist international relations theories are paradigms which reject the realist/liberal view of state conflict or cooperation, instead focusing on the economic and material aspects. It purports to reveal how the economic trumps other concerns, which allows for the elevation of...
- North-South modelNorth-South modelThe North–South model, developed largely by Columbia University economics professor Ronald Findlay, is a model in developmental economics that explains the growth of a less developed "South" or "periphery" economy that interacts through trade with a more developed "North" or "core" economy...