Dependency theory is the body of social science theories by various intellectuals, both from the Third World and the First World, that create a worldview which suggests that the wealthy nations of the world need a peripheral group of poorer states in order to remain wealthy.
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.
The premises of dependency theory are:
- Poor nations provide natural resources, cheap labor, a destination for obsolete technology, and markets to the wealthy nations, without which the latter could not have the standard of living they enjoy.
- First World nations actively, but not necessarily consciously, perpetuate a state of dependency through various policies and initiatives. This state of dependency is multifaceted, involving economics, media control, politics, banking and finance, education, sport and all aspects of human resource development.
- Any attempt by the dependent nations to resist the influences of dependency will result in economic sanctions and/or military invasion and control.
Dependency theory first emerged in the 1950s, advocated by Raul Prebisch whose research found that the wealth of poor nations tended to decrease when the wealth of rich nations increased. The theory quickly divided into diverse schools. Some, most notably Andre Gunder Frank, adapted it to Marxism. "Standard" dependency theory differs sharply from Marxism, however, arguing against internationalism and any hope of progress in less developed nations towards industrialization and a liberating revolution. Former Brazilian President Fernando Henrique Cardoso wrote extensively on dependency theory while in political exile. The American sociologist Immanuel Wallerstein refined the Marxist aspect of the theory, and called it the "World-system."
- 1 Spread of theory
- 2 Implications
- 3 Criticism
- 4 See also
- 5 External link
Spread of theory
Dependency theory became popular in the 1960s and 1970s as a criticism of modernization theory (also known as development theory) that seemed to be failing due to the continued widespread poverty of large parts of the world. With the seeming growth of the East Asian economies and India in the last few years, however, the theory has fallen somewhat out of favour. It disagrees sharply with classical and free-market economics. It is far more accepted in disciplines such as history and anthropology, which can count for or against it. It can also be detected in some of the reasoning underpinning recent NGO campaigns such as Make Poverty History and the Fair Trade movement.
The system of dependency was said to be created with the industrial revolution and the expansion of European empires around the world due to their superior power and wealth. Some argue that before this expansion, the exploitation was internal, with the major economic centres dominating the rest of the country (for example southeast England dominating the British Isles, or the Northeast United States dominating the south and east). Establishing global trade patterns in the nineteenth century allowed this system to spread to a global level. That had the benefit of further isolating the wealthy from both the dangers of peasant revolts and rebellions by the poor. Rather than turn on their oppressors as in the American Civil War or in communist revolutions, the poor could no longer reach the wealthy and thus the less developed nations became engulfed in regular civil wars. Once the superiority of rich nations was established, it could not be shaken off. This control ensures that all profits in less developed countries are taken by the better developed nations, preventing reinvestment, causing capital flight and thus growth.
While there are many different and conflicting ideas on how developing countries can avoid the negative consequences of such a world system, several of the following practices were adopted at one time or another by such countries:
- Promotion of domestic industry. By subsidizing and protecting industries within the periphery nation, these third-world countries can produce their own products rather than simply export raw materials.
- Import limitations. By limiting the importation of both luxury goods and manufactured goods that can be produced within the country, supposedly, the country can avoid having its capital and resources siphoned off.
- 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 gone so far as to forcibly take over foreign-owned companies on behalf of the state, in order to keep profits within the country.
While dependency theory as a theoretical approach to global economics still exists, to date, all attempts to use the theory to find a final solution within its framework have failed. The reasons include, but are not limited to:
- Corruption. State-owned industries tend to have a much higher rate of corruption than privately-owned companies.
- Lack of competition. By subsidizing in-country industries and preventing outside imports, these companies have no incentive to improve their products, to try and become more efficient in their processes, to please customers, or to research new innovations.
Proponents of dependency theory claim that the theory of comparative advantage breaks down when capital - including both physical capital like machines and financial capital - is highly mobile, as it is under the conditions of globalization. For this reason, it is claimed that dependency theory can offer new insights into a world of highly mobile multinational corporations.
This is countered, however, by the argument that the conditions of globalization make comparative advantage all the more sound. Two of the key assumptions of comparative advantage - zero transportation costs and zero communication cost - are arguably more realistic in the contemporary global marketplace than in earlier times. Whilst zero communication costs are supported by the internet, it would appear, however, that the theory of the tendency to zero transport costs is a temporary feaure of peak oil. Furthermore, the assumptions of free trade models only ever includes two factors of production - namely the globalisation of capital and resources, but not labour. Currently the free movement of labour is being restricted world-wide with increasing various forms of immigration control.
Market economists point to many examples they claim disprove dependency theory: the improvement of India's economy after it moved from state-controlled business to open trade is one of the most often cited (see also economy of India, CommandingHeights). India's example seemingly contradicts dependency theorists' claims concerning comparative advantage and mobility, as much as its economic growth orignated from movements such as outsourcing - one of the most mobile forms of capital transfer.
Free market thinkers see dependency theorists' complaints as legitimate, but their policy prescriptions as self-fulfilling prophecies. They see the current structure of capitalism and trade favoring the capital owners rather than consumers, but also believe that dependency theorists' prescriptions lead only to more wealth for the capital owners and more poverty for the third world; meaning that their advocacy of restricted trade and self development leads to the same outcome as mercantilist trade as experienced under colonialism. Free market thinkers criticize dependency theory because it conflates free market economics with current capitalist economic trading arrangements, and thus assumes that free market international trade will not work.