Dependency Theory: A Critical Review


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Critically Examines the School of Thought known as Dependency Theory, precursor to World Systems Theory

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Dependency Theory: A Critical Review

  1. 1. DEPENDENCY THEORY: A Critical Review by Craig Collins, Ph.D. Dependency Theory evolved in response to the question: "What is the nature of the relationship between rich and poor nations?" This is a complicated, thorny and emotionally charged question. The widely divergent, polarized views that characterize the literature on this issue are clearly illustrated by the choice of adjectives used to characterize the countries involved in this relationship. For instance, while some scholars see a relation between developed and developing nations, or established and emerging nations, others see an interaction between an imperialist core and an exploited periphery, or between dominant and dependent nations. Dependency Theory (and its close relative, World Systems Theory) look at the relationship between rich and poor countries as one of dominance and dependence. Implicit in the word "dependency," regardless of how it is defined or ill-defined, are two essential elements: integration and subordination. As a group, dependency theorists tend to agree that poor nations have a dependent relation to rich nations in-so-far as their interaction is both close and asymmetrical, with the result that poor countries are, in some significant way, subordinated to rich ones. Historical Background The dependency school emerged as an intellectual current in the late 1950s and early 60s, but its roots must be traced back at least as far as the period of rapid de-colonization that followed WWII. During this period, world capitalism revived under American leadership, while colonialism "bit the historical dust." During the previous decades, global depression and war had sparked anti-colonial movements and weakened European empires. The emerging rival superpowers—the Soviet Union and United States— generally opposed any significant return to the old colonialism. As the Cold War intensified, each superpower sought to extend its influence over the emerging nations of Asia, Africa, and Latin America, which became known collectively as the Third World. The leaders of these newly independent Third World nations were eager to
  2. 2. overcome their history of poverty and colonialism and rapidly modernize their countries. Each superpower claimed to possess the secret of success. The United States sought to head-off Soviet expansion by replacing colonialism with formally independent states that were economically, politically, and militarily tied to American influence. The USSR dubbed this strategy "neo-colonialism." The Kremlin championed the “non-capitalist" or "socialist" path to development. It supported anti-American national liberation movements that--after driving out US influence--would model themselves after the Soviet Union and integrate themselves into “the socialist camp”. However, in the Third World, movements for national independence often resisted any attempts at foreign control over their destinies and rejected both superpowers' development strategies. Instead, they sought some form of non-aligned development strategy and attempted to collectively express their demands for global economic reform through the United Nations and the non-aligned movement. In Latin America, where formal independence under American dominance had been a reality for some time, a current of political thought arose that blasted the American model of development as incapable of producing either widespread economic development or genuine independence. These Latin American scholars and activists articulated a somewhat coherent political critique of orthodox western modernization theory. This new outlook borrowed from structuralism, the Leninist theory of imperialism, and a seminal analysis of monopoly capitalism’s impact on underdeveloped countries by the American Marxist, Paul Baran. These scholars became known as dependency theorists, or “dependistas”. Dependency Theory Challenges Superpower Developmentalism Though dependency theory arose as an explicit challenge to Western developmentalist theory, it was also an implicit criticism of the Soviet model of development as well. Many “dependistas” were quick to point out that both superpowers' development schemes held some parallel, self-serving assumptions, despite their obvious differences. The most renowned spokesman for Western developmentalism was Walt Rostow, a famous cold war liberal and high-ranking member of the Kennedy administration. He presented his theory as a direct challenge to the soviet
  3. 3. theory of development and as a guideline for all emerging nations to follow. His book, Stages of Growth: An Anti-Communist Manifesto, describes modernization in terms of linear, evolutionary stages that eventually lead poor countries toward affluent, capitalist, industrial societies like the United States. Rostow assumed economic growth and progress to be possible for all countries—given the proper levels of savings and investment. Also, he assumed that each country is on an evolutionary ladder—a developmental continuum—whose apex is the United States. Despite apparent differences, Soviet developmentalism held some notable similarities to Rostow's "stagist" theory of growth. For example, Soviet theory also described development as a series of stages or production modes (i.e., primitive, slave, feudal, capitalist, and socialist) through which every country must pass to reach affluent, industrial communist society. Also, Soviet theory assumed development to be possible for all countries— providing they carried out the necessary revolutionary transformations, culminating in a state-managed economic system. Also, like Rostow's theory, Soviet developmentalism assumed that each country lies on a socio- economic evolutionary ladder whose apex is the USSR (not the US). Dependency Theory challenged both Western and Eastern "stagist" theories of development, and rejected both the US and the Soviet Union as ideal models of development. Instead, Dependency Theory insisted that nations are not isolated economic units with separate parallel histories, but integrated parts of a single, global, political economy with a hierarchical division of labor, resources, capital, and power--united by a world market. Dependistas insisted that the fundamental unit of political and economic analysis must be this multi-state world economy. If the world system is the focus of analysis, then divergent historical patterns of development are to be expected as each state (or group of states) takes on a different role in the global division of labor. The system’s industrial core—where you find high wages, large capital concentrations, advanced technology and high energy use—presupposes its symbiotic opposite: a low-tech, low wage, low energy, capital-scarce periphery. These two production zones, buffered by a medium-range zone some call the semi-periphery, constitute the essential structural features of a global capitalist system. Dependency theorists generally agreed that each state, or group of states, must have dramatically different historical trajectories, internal socio-economic profiles and political systems in order
  4. 4. to fulfill their particular function, or niche, in this international division of labor. According to prominent dependistas like Andre Gundar Frank and Immanuel Wallerstein, this global system came into existence long ago and has expanded while passing through three phases--agricultural, merchant, and industrial. However, its basic elements (core, periphery, and semi-periphery) have remained intact, as has its central motor force—the ceaseless drive for profit maximization and capital accumulation. Though disputes exist between dependency theorists over the amount of upward and downward mobility possible within this global system, it is generally recognized that, overall, the periphery is held in a dependent/subordinate relation to the core through specific economic, technological, political, and military relationships which perpetuate peripheral subordination. According to the dependistas, the more productive and self-reliant a national economy is, and the stronger the state machinery it possesses, the more capable a country is of distorting the world market in its favor. Core states are more powerful and productive than peripheral states and can therefore set the rules of economic exchange. From this position of dominance they can impose a condition of unequal transfers of wealth, in trade, finance and resource extraction upon the periphery. This view leads dependistas to the conclusion that upward mobility in the world system requires a strong state which can resist core efforts to dominate and exploit it. Thus, in the Third World, the persistence of nationalism is closely associated with the belief that only a strong nation- state can defend a country from core exploitation, promote independent economic development and initiate upward mobility in the world system. An example of a country that has been able to successfully pursue this strategy would be China. In the decades after World War II, most political analysts saw the world as divided between capitalism and communism, East and West, US vs. USSR. However, dependency theorists argued that, even during the Cold War, the deepest underlying contradiction in the world was between the weak peripheral states of Asia, Africa, and Latin America and the industrial core powers that exploit them. Further, dependency theorists took the openly partisan stance that this exploitive hierarchical relation between core and
  5. 5. periphery is detrimental to most of the world’s people and, therefore, must be transformed into a more egalitarian international system. However, dependistas have been unable to reach some common agreement on the mechanisms of this exploitive relationship and, therefore, they cannot agree upon a strategy for overcoming it. Without a unified analysis of the actual process of center-periphery exploitation, or a specific understanding of what measures or social forces can overcome it, the dependency outlook cannot qualify as a consistent theory. Instead, it remains on the level of a descriptive analysis. In Ronald Chilcote’s words, “There is no unified body of thought called Dependency Theory." Chilcote believes that the most obvious divisions and disagreements among dependistas are a reflection of their divided allegiances to two opposing paradigms or “schools of thought”: 1) the bourgeois, structural reformist paradigm, and 2) the neo-Marxist, revolutionary paradigm. The Reformist School of Dependency While the reformist dependistas agree that center-periphery inequality has been, historically, an aspect of the world capitalist system, they do not believe that the structures that promote peripheral dependency are inseparably wedded to global capitalism. Consequently, this school of dependency theory contends that, with some key structural reforms, dependency and underdevelopment can be overcome. The most prominent representatives of this camp of dependency theorists were the Argentine economist and banker, Raul Prebish, and the Brazilian economist, Celso Furtado. As members of the UN's Economic Commission on Latin America (ECLA), they presented a perspective on dependency that was anti- core, but pro-capitalist. Prebish’s theory linked dependency and underdevelopment to worsening terms of trade between the core’s industrial exports and the primary products exported by the periphery. He felt that an intensely competitive buyer's market for primary goods drove the price of Third World exports down, while an oligopolistic seller's market for manufactured products kept the price of core exports high. According to Prebish and Furtado, these structural inequities in the world market could be overcome through commodity cartels (oil, coffee, sugar, etc.) and an aggressive program of import substitution industrialization in the Third World. Prebish felt that state-sponsored industrial development in Latin America could
  6. 6. overcome its consumptive dependence on the core's manufactured goods, create a strong industrial class in the periphery, and sweep aside the traditional landed elites which had paralyzed development by limiting peripheral economies to agricultural and raw material export. As strategies for independent economic growth, commodity cartels and import substitution industrialization have been less than successful. Except for OPEC's partial success, most commodity cartels have been unable to overcome the competitive forces that undermine their solidarity. As for import substitution, small-scale, relatively inefficient peripheral enterprises have been unable, in most cases, to compete with large, efficient multi- nationals—especially without imposing extremely low wages and state protections which have tended only to subsidize and perpetuate inefficiency. Markets for these protected industries have been restricted by artificially high prices, the limited consumptive capacity of a low paid domestic work force, and the fledgling industries’ inability to compete on a global basis, outside their protected markets. Also, most import substitution industrialization schemes have been financially dependent on foreign loans and have, therefore, increased peripheral debt dependence on core lending institutions. However, some nations with comparative advantages in key areas of industrial production--like South Korea, Taiwan, China and Brazil—have experienced very rapid industrial growth over the last several decades. Nevertheless, critics point out that this growth is either wedded to financial and technological dependence on the core, or is the direct result of multi- national corporate investment. They also point out that this type of industrial production is directed primarily toward markets in the core, not the country’s domestic consumers. Many radical dependistas also criticize this development strategy for increasing the exploitation and marginalization of the vast majority workers and peasants in order to increase the profits of the tiny peripheral elite and its international corporate and financial backers. Despite the obvious deficiencies of protected industrialization as a panacea to peripheral dependence and economic backwardness, most Third World elites were wedded to this strategy during the 1960s and 1970s. The non- aligned movement's program for ending dependence, and promoting growth through industrialization and structural reform, became the centerpiece of their demand for a New World Economic Order.
  7. 7. The Revolutionary School of Dependency Revolutionary dependistas approached the problem of dependency from a very different angle. This neo-Marxist, radical paradigm sees the exploitive relation between core and periphery as inseparable from, and irresolvable within, a capitalist international framework. For them, peripheral dependence is inherent in a system of imperialism. The system's global dynamic of profit maximization and capital accumulation requires a periphery vulnerable to exploitation by a more developed core, i.e., a ready source of cheap labor and raw materials, as well as a lucrative, if limited, source of capital investment. Behind the political inequality between core and periphery the radicals see a more fundamental economic relation—a constantly evolving dynamic of labor and resource exploitation and unequal trade with the periphery fostering profit and capital concentration, technological innovation and increased consumption in the core. Hence beneath the structural symptom of political dependency lies a more fundamental process of labor exploitation and the extraction of surplus wealth from the periphery. Like Marx, who argued that European capitalist growth must create ever-widening disparities between concentrated wealth and widespread poverty, radical dependistas extended this phenomenon to a global level. They contended that the more fully peripheral zones are drawn into an exploitive relation with the industrial core the worse-off the majority of people in these countries will become. Thus, while financial and corporate elites in the core, and their junior partners in the periphery, grow ever more wealthy and powerful, the vast majority experience a decline in their standards of living. This drop in living standards is accompanied by a drastic uprooting of traditional patterns of rural existence, as subsistence farming is replaced by mechanized export agriculture, and peasants are forced from their land into the crowded shanty towns surrounding all major Third World cities. For the revolutionary dependistas, industrialization in the periphery cannot solve its basic problems. Multinational investment in peripheral industry or state-sponsored industrial growth tends to only exacerbate the polarity between those social strata linked to the modernizing industrial sector and those in the traditional sector who are uprooted and exploited by the modernizing elite. The renowned radical dependency theorist, Andre Gunar
  8. 8. Frank labeled this process the “development of underdevelopment”. Brazil is often cited as an outstanding example of this phenomenon. A decade after embarking on a crash program of industrial growth in the 1960s, Brazil was being touted, in the West, as a miracle of development. It had the highest rate of economic growth of any Third World country by 1971. However, during this same period, the revolutionary dependistas note that unemployment skyrocketed along with infant mortality, while per capita calorie intake dropped, the balance of payments worsened, and a repressive military regime seized control of the state. For this reason, radical dependistas opposed capitalist industrialization and structural reform as a solution to peripheral dependence, underdevelopment, and poverty. Consequently, their solutions tended to be revolutionary in nature. Many envisioned a process of protracted social revolution in the Third World, pitting those strata that suffer from this global system against those who profit. The status quo will be defended by a class alliance of corporate and financial elites in the core and their junior partners in the periphery. This peripheral elite consists of large landowners, state bureaucrats, military leaders, and the industrial elite tied to foreign investment and finance. The revolutionary forces resisting capitalist globalization would come from the poor peasants and farmworkers in the countryside; and in the cities, from the low-paid workers, the unemployed slum dwellers and the small merchants and local entrepreneurs, unable to compete with the giant multi-nationals. Like the reformist solution, the revolutionary solution has not met with much success so far. Following the example of the Russian and Chinese revolutions, the second half of the 20th Century saw self-proclaimed revolutionary socialist/communist movements take power in countries like North Korea, Albania, Yugoslavia, Vietnam, Cuba, Chile, Tanzania, Angola, Mozambique, and Nicaragua. They toppled corrupt elites, cut or sharply reduced their ties to the global capitalist system and pursued some form of self-reliant, nationally-based, government-directed development. But these initial efforts at trying to build self-sufficient "socialist" political- economies have not been successful. Third World revolutionary governments have not been able to sustain themselves surrounded by a global system antagonistic to their survival and bent on their destruction. Core capitalist countries viewed these movements as a threat to their global military and political dominance; and economically, these self-reliant states
  9. 9. reduced the core’s unfettered access to cheap labor, resources, markets, and super-profits. Led by the United States, the core capitalist states tried to prevent these revolutions from succeeding; when this failed, they embarked on a strategy of overt and covert military and political encirclement, hostility and subversion, combined with economic strangulation and sabotage. New revolutionary governments were forced to adopt a guarded, closed and defensive posture, often to the point of paranoia; this environment was not conducive to political freedom, democracy, or economic development. To defend their revolution, the new governments had to devote large portions of their resources to national security and military defense. Inevitably, this undermined democracy and reduced the resources available for economic development. Unlike the capitalist countries of the core, these new revolutionary states could not rapidly modernize through slavery, colonization or any of the more modern methods of exploiting the vast resources and cheap labor of the periphery. Instead, their development had to be based solely on the country’s own domestic resources. Initially, a slow, but fairly balanced and egalitarian economic growth was achieved in many of these countries, accompanied by a marked improvement in living standards compared to pre- revolutionary times. This was clearly the case for China (under Mao) and Cuba. But even for giant countries like the USSR and China, this was an arduous task requiring hardship, sacrifice and hard-nosed political will. For smaller countries, isolated development became a nearly impossible hardship. Embattled revolutionary governments faced economic stagnation and social discontent. These extreme difficulties and the ever-present temptation to speed-up growth with injections of foreign technology and investment produced a tendency for revolutionary leaders to backslide. Core capitalist powers took advantage of every opening to strangle, undermine and discredit these experiments in egalitarian self-sufficient development and promote rapid, capital intensive, export-oriented growth. In countries like China, Vietnam and Tanzania these tensions produced deep political schisms between those leaders committed to revolutionary self- reliance and those who wanted to modernize rapidly by opening up their country to foreign investment and export-oriented growth. The rapid
  10. 10. modernization path proved very tempting because it presented revolutionary elites with the prospect of getting rich as the junior partners of foreign capital. When socialist governments experimented with opening their economies to injections of foreign capital and export enclaves, these boom sectors quickly overpowered and undermined slower, balanced, more labor- intensive development plans. In short order, state managers were drawn into the role of providing foreign investors with cheap labor and resources and assuming large foreign development loans. Threatened by the military might surrounding them and tempted by the possibility of wealth and luxury should they re-join the capitalist world as junior elites, revolutionary political leaders in most of these countries (with notable exceptions, like embargoed Cuba) eventually succumbed to the Russian and Chinese examples of re-opening themselves to capitalist penetration and exploitation. Ironically, the disappointing record of nationally based revolutionary experiments actually reinforced dependency theory’s central assumption: nations are not isolated units; they are part of a global political economy. Thus, fundamental change can only come from a crisis and breakdown at the world system level. For now, the immense concentration of wealth and power enjoyed by the elites of the world's small industrial core and the reciprocal impoverishment of the vast majority of the people in the periphery remains basically unaltered. But for the distant future, revolutionary "dependistas" like Andre Gunar Frank, Samir Amin, and Immanuel Wallerstein envision a general systemic crisis, more devastating than the Great Depression of the 1930s, which will weaken the financial, economic, technological, military and political structures of the core. Freed from the weakened grip of a crisis- ridden core, social upheavals throughout the periphery will topple local elites, creating regional, and possibly continental, breakaways from world capitalism. Marx's long awaited vision of a worldwide anti-capitalist revolution will then materialize first in the periphery and later in the core. Conclusion Dependency Theory emerged as a challenge to both Soviet and American developmentalist models. By viewing rich and poor nations as inseparable polarities in a global economic system, dependency theory denies the
  11. 11. possibility that all nations can rise to affluence by following the prescribed stages of growth recommended by either competing superpower. However, the dependency perspective lacks strong theoretical cohesion, and is split between reformist and revolutionary camps. Each camp views the struggle as a collective effort on the part of the periphery to re-structure the global hierarchy. However, the reformists believe this can be accomplished within a capitalist framework, gradually, through industrialization and collective bargaining between North and South. However, revolutionary dependistas do not believe a more just world order will emerge without a global system- wide crisis, protracted and sweeping political change, and the establishment of a democratic socialist world system.