Dependency Theory argues that the underdevelopment of certain nations is a direct result of their exploitation by wealthy, developed nations. Resources flow from poor “periphery” countries to rich “core” countries, enriching the latter at the expense of the former.
Key Points
- Dependency theory is an approach that seeks to explain the underdevelopment of certain nations by emphasizing the supposed putative restraints imposed upon them by the global economic and political order.
- This theory which gained popularity especially in the 1960s and the 1970s, is a reaction to modernization theory (Ahiakpor, 1985). It holds that a core of rich nations benefits from the resources that flow into them from a periphery of underdeveloped and impoverished nations.
- The central tenet of dependency theory is that these poor states’ integration into the world system is primarily responsible for their plight as well as the enrichment of the wealthy states.
Definition & Example
Dependency theory is an explanation of the continued lack of development throughout the third world compared with the developed capitalist societies of the West.
Andre Gunder Frank posited that the underdeveloped state of the third world was a consequence of first-world policy.
First-world countries had ‘enclaves’ in the third world, usually in capital cities, which they used to exploit resources that would be transferred to the capitalist countries of the West. This de-capitalization was, according to Frank, the main reason for the under-development of the third world.
An example of the dependency theory is that during the years of 1650 to 1900 Britain and other European nations took over or colonialized other nations. They used their superior military technology and naval strength at the time to do this.
Origins of the Theory
In 1916, Vladimir Lenin posited that advanced and capitalist nations would absorb the wealth of underdeveloped nations. However, the official origin of dependency theory is identified as 1949, when the German-born British economist Hans Singer and Argentine economist Raúl Prebisch published two papers (Ferraro, 2008).
In their papers, the two economists observed that underdeveloped nations could buy progressively fewer manufactured products from developed nations in exchange for the exports of their raw materials. This notion earned the appellation ‘the Prebisch-Singer thesis.’
Prebisch, who was also a member of the United Nations Commission for Latin America, noted that underdeveloped countries ought to utilize certain elements of protectionist trade practices in order to develop in a sustainable fashion.
This meant that trade-and-export orientation should be replaced by import-substitution industrialization. Paul A. Baran later built upon the preceding propositions from a Marxian viewpoint with The Political Economy of Growth (Vernengo, 2004).
Indeed, dependency theory shares manifold points in common with Marxist notions of imperialism propagated by Vladimir Lenin and Rosa Luxemburg.
However, upon closer analysis one can pinpoint two notable and distinct streams in this theory: the Marxian approach developed by Paul Sweezy, Andre Gunder Frank and Paul A. Baran, and the Latin American Structuralist approach generally associated with Anibal Pinto, Celso Furtado and Raúl Prebisch.
While the differences between the Marxist and Structuralist schools were not insignificant, both these approaches agreed that at the core of the relationship between the periphery and center was the periphery’s inability to develop a dynamic and independent process of innovation (Vernengo, 2004).
Characteristics of Dependency Theory
The following essential premises undergird dependency theory (Ferraro, 2008):
Undevelopment is distinct from underdevelopment
The former refers to the non-use of resources (e.g., uncultivated lands), whereas the latter denotes the purported exploitation of poorer nations’ resources by dominant states.
Such usage of resources would benefit the dominant states but not the poorer ones.
The distinction between undevelopment and underdevelopment would place the impoverished countries in a fundamentally different context of history
This proposition denies that the poorer states’ plight could be related to a dearth of apposite cultural values or scientific transformations.
Instead, dependency theory assumes that the poverty of the underdeveloped nations is attributable to their supposedly forced integration into the European system as raw material producers or cheap labor suppliers.
Alternative uses of resources should be preferred to the patterns of use imposed by the predatory states
Instead of clearly defining what these alternative uses are however, dependency theory invokes nebulous criteria.
For example, dependency theorists have criticized export agriculture, and noted that the poorer nations should utilize agricultural lands for domestic production to decrease their rates of malnutrition.
There is an evident national economic interest to be articulated for every country
Dependency theorists hold that each nation’s national interest could be gratified only by attending to the needs of its poor people.
This is also an argument against seeking the satisfaction of governmental or corporate needs.
Discerning what is best for the poor, nonetheless, is not devoid of analytical issues, and it remains a problem for dependency theorists to grapple with.
The ruling elites of the dependent states (not just the wealthy countries) are responsible for the exploitation of the poorer countries’ resources
According to dependency theorists, these ruling elites are generally groomed in developed countries, and the personal interests and values of such elites coincide with those of the dominant nations.
Hence, dependency theorists hold that the relationship between the predatory nations and the periphery could be a voluntary relationship, wherein those ruling elites inadvertently enact policies supposedly hostile to the poor in pursuing neoliberal agendas.
Dependency Theory’s Policy Implications
The acceptance of dependency theory would generally result in the discarding of the customary concepts pertaining to economic development, such as capital accumulation, comparative advantage, and free trade.
Consequently, government leaders subscribing to dependency theory would be more inclined to adopt approaches such as those below (Ferraro, 2008):
- Successful and advanced economies would not be viewed as models to emulate. Instead, their progress would be written off as the fruit of their past exploitative relationships with poorer states.
- Efficient production and the reliance upon the market to allocate its rewards, which characterize the neoclassical model for economic growth, would be replaced by centralized planning and coercive distributive mechanisms. This would be further supported by the assumption that poorer economies suffer from a lack of economic fluidity and integration.
- Dependency theorists would also discount numerical measures of aggregate economic growth, such as trade indices and GDP rates, in favor of indicators such as literacy, education, life expectancy, infant mortality, etc.
- Invitations of the World Bank and the International Monetary Fund to integrate into the global economy would be treated at best with extreme caution. Moreover, the primary focus would be on self-reliance, and autarky would be pursued with little external trade. Tanzania’s Ujamaa, and China’s Great Leap Forward, both of which ended up in phenomenal failures, are striking examples of dependency theory in action.
Criticism
Dependency theory’s subjective definitions of dominant states and underdeveloped countries engender binary constructs that ignore the complexity of the real world as well as the dynamism governing the relations among various nations.
Moreover, economic policies inspired by dependency theory are not without serious problems. For instance, preventing imports and subsidizing domestic industries may provide local companies with perverse incentives to remain inefficient, manufacture low-quality products and disregard consumer needs (Williams, 2014).
Because the domestic populace is deprived of imported alternatives, local producers may readily earn sufficient income from local consumers without any impetus to engage in innovation. Furthermore, the government support of domestic industries, financed by taxation, is an added burden upon the people.
It also represents an opportunity cost, i.e., funds that could have been spent on other ventures such as building infrastructure etc. Additionally, tariffs on imports would readily elicit retaliation from foreign nations often in the form of penalties upon one’s own exports.
In conclusion, abounding are the examples of poorer countries, further impoverished by heeding dependency theorists’ prescriptions, as well as countries that have grown out of poverty by abandoning such schemes.
Mexico’s inefficient, outdated and ailing oil industry controlled by Pemex, which even lacks funds to purchase better extraction equipment, is one example (McMaken, 2008). The Mexican government’s barring of any significant foreign involvement in Mexican oil reserves, inspired much by leftwing political rhetoric against privatizations, is responsible for this situation.
Moreover, Sri Lanka’s present economic crisis, characterized by daily 13-hour power cuts, fuel, food and medicine shortages, and violent upheavals, exemplifies the consequences of pursuing autarky combined with centralized planning (Liyanawatte, & Jayasinghe, 2022)
Conversely, India’s transition from a close socialist economy to an open capitalist economy in the early 1990s was accompanied by an unprecedented annual economic growth rate of 6% [during the preceding 4 decades of economic isolation and centralized planning, India’s annual economic growth rate had been a meager 2%] (Sowell, 2015). As a result, millions of Indians have been able to escape poverty.
Likewise in Africa, while countries which had adopted import-substitution, like Zimbabwe, have lagged behind, economies pursuing pro-capitalist trade policies, such as Tunisia, South Africa and Egypt have experienced significant growth accompanied by relative prosperity (Leke, Acha, et al, 2020).
Further Information
- Santos, T. D. (1970). The structure of dependence. The american economic review, 60(2), 231-236.
- Matunhu, J. (2011). A critique of modernization and dependency theories in Africa: Critical assessment. African journal of History and Culture, 3(5), 65-72.
- Tausch, A. (2010). Globalisation and development: the relevance of classical “dependency” theory for the world today. International Social Science Journal, 61(202), 467-488.
- Herath, D. (2008). Development discourse of the globalists and dependency theorists: do the globalisation theorists rephrase and reword the central concepts of the dependency school?. Third World Quarterly, 29(4), 819-834.
- Kay, C. (2011). Andre Gunder Frank:‘Unity in diversity’ from the development of underdevelopment to the world system. New political economy, 16(4), 523-538.
References
Amadi, L. (2012). Africa: Beyond the new dependency: A political economy. African Journal of Political Science and International Relations, 6 (8), 191-203.
Bouguignon, F. (2016). Inequality and globalization: How the rich get richer as the poor catch up. Foreign Aff., 95, 11.
Frank, A. G. (1966). The Development of Underdevelopment Monthly Review. 1966 and Reprinted in Latin America: Underdevelopment or Revolution, 18.
Leke, Acha, et al (1 Apr. 2020). “ What”s Driving Africa”s Growth .” McKinsey & Company, McKinsey & Company, https://www.mckinsey.com/featured-insights/middle-east-and-africa/whats-driving-africas-growth
Lenin, Vladimir Ilich (2021). Imperialism, the Highest Stage of Capitalism. GENERAL PRESS.
Liyanawatte, Dinuka & Jayasinghe, Uditha (31 Mar. 2022). “ Sri Lanka Imposes Curfew after Protests over Economic Crisis Turn Violent .” Reuters, Thomson Reuters, https://www.reuters.com/business/sri-lanka-turn-off-street-lights-economic-crisis-deepens-2022-03-31/.
McMaken, Ryan (2008). “ The Failure of Dependency Theory: Ryan McMaken .” Mises Institute, https://mises.org/wire/failure-dependency-theory
Munro, A. (n.d.). Dependency theory. Encyclopedia Britannica. https://www.britannica.com/topic/dependency-theory
Perera, Ayesh (28 Sept. 2021). “ Common Sense Solutions to Sri Lanka”s Crisis .” Medium-Centenary Movement, Medium-Centenary Movement Sri Lanka, https://centenarysl.medium.com/common-sense-solutions-to-sri-lankas-crisis-cad4a1348b6b
Sowell, Thomas (2015). “ Basic Economics: A Common Sense Guide to the Economy,” Chapter 2: The Role of Prices. https://riosmauricio.com/wp-content/uploads/2020/07/Basic-Economics-5th-Edition-Thomas-Sowell.pdf
Vernengo, Matias (2004). “ Technology, Finance and Dependency: Latin American Radical Political Economy in Retrospect “. University of Utah, Department of Economics.
Williams, Michelle (2014). The End of the Developmental State ?. Routledge. p. 44. ISBN 978-0415854825.
