Dependency Theory

Dependency theory is a macro-level theoretical perspective concerned with questions of extreme disparities between modern nations. How do we account for such disparities (income, standard of living, etc.) between nations? The dependency theorists argue that the economic and political arrangements of the global capitalist economy are the root cause of such disparities. According to the dependency approach, and contrary to the neoliberal economics or modernization theory, being integrated into the global capitalist economy exacerbates the Third World nations' dependency, instead of alleviating it. While the national economies' positions in the global hierarchy are determined by the external 'rules of the game,' their internal political, economic, and class dynamics are also structured by the asymmetric relationship between the economic center and the periphery. The major social actors — such as the state, domestic business elites, and labor are involved in internal struggles with each other as well as external alliances with transnational business classes and multinational corporations.

Keywords Compradores; Dependency; Dependency Theory; Division of Labor; Economic Integration; Triple Alliance; Undeveloped Economies; Underdeveloped Economies

Global Stratification > Dependency Theory

Overview

Dependency theory is entrenched in a conflict perspective on inequality and was articulated in part to address the modernization argument which asserted that 'traditional' societies remain poor and fail to advance because they fail to adopt 'modern' institutions and technologies. Instead, dependency theorists — such as Andre Gunder Frank, Fernando Henrique Cardoso, Raul Prebisch — turned to a critical examination of the historical events which they argued have given rise to extreme inequality between nations. By examining the legacy of colonialism, the dependency theorists brought attention to the historical roots of the disparities between nations. Colonial dependence was characterized by the colonialist European states commandeering the financial capital, land, and manpower of the colonized nations. By the end of the 19th century, dependence became financial-industrial in nature, and constituted an expansion of industrial production of raw materials and agricultural products in the periphery of the world economy, to be consumed in the core economic regions. Finally, in the aftermath of World War II, dependence was solidified in the industrial-technological form, with transnational corporations being the main vehicle of capital flow and larger investment in production which was geared towards domestic markets of the underdeveloped nations (Dos Santos, 1970).

Dos Santos (1970) offers the following definition of dependency:

In the view of dependency theorists, world trade relations are defined by monopolistic control and transfer of surplus from the dependent countries to the core economies and are characterized by lack of control over productive resources in the dependent economies.

Dependency theorists argue that either of these forms of dependency not only characterize the external, international linkages of the underdeveloped regions with the world economy, but also to a great extent determine their internal economic, social, and political structures. For example, the extractive form of economic production in the underdeveloped countries encourages an internal stratification into 'metropolitan' and 'colonial' centers, creating acute stratification in domestic wage labor. Furthermore, such dependent industrialization does not promote increased wages — and consequently purchasing power — or job creation beyond the extractive sector of the economy, and does not permit for accumulation of economic surplus. The consequence of such an arrangement, according to the dependency theorists, is the result of capitalist integration in the world economy and the most crucial obstacle to economic development.

Applications

Dependency & Development in Latin America

The seminal volume that defined the intellectual terms of the dependency perspective was the book that came out of the collaboration between Fernando Henrique Cardoso (a Brazilian sociologist and a prominent public intellectual who later became a two term president of Brazil) and Enzo Faletto (a Chilean social historian) in 1969. "Dependency and Development in Latin America" was published in Spanish, and an English translation did not appear until ten years later. At the same time, the English speaking theorists first encountered the works of Andre Gunder Frank, a German born economic historian who first articulated some of the conceptual basics of the dependency perspective and for almost a decade in the 1970s served as the conduit of the ideas on dependency emanating from the Latin America. Frank popularized the ideas of dependency theory in the English speaking world. As Gereffi (1983) observes, together Cardoso and Frank have "formulated dependency analysis that …served the same double purpose: they were a response to the perceived failure of national development through the import substituting national industrialization strategy…, and … an alternative to the ahistorical and apolitical structural-functionalist assumptions of modernization approaches" (Gereffi,1983, p. 7). In the early 1970s however, Frank adopted a radical position which — in the name of ending the Latin American dependency-advocated pursuing radical socialism and discontinuing the region's economic integration into the capitalist world.

Influence of Capitalism

Frank (1967) once remarked, "I believe, … that it is capitalism, both world and national, which produced underdevelopment in the past and which still generates underdevelopment in the present" (as cited in Kay, 2005, p. 1178). In fact, Frank maintained that success and development of the core capitalist economies was predicated on underdevelopment of the peripheral regions. Coining the now key term of the dependency theory — 'the development of underdevelopment,' Frank argued that the core capitalist countries may have been undeveloped in the past, but that the contemporary underdeveloped countries are largely the product of the capitalist world order and the outcome of the asymmetrical political and economic conditions that define the linkages between the center and the peripheral regions in the world. Thus, contrary to the neoliberal doctrine, which advocates economic integration as the panacea for underdevelopment, Frank asserted that such linkages in fact perpetuate the situation of dependency rather than providing a solution for it. As he states, the "satellites experience their greatest economic development if and when their ties to the metropolis are weakest" (as cited in Gereffi, 1983, p. 16). Thus, for Frank, it logically follows that there is no real possibility for sustained development within the system, and the only two feasible outcomes for the peripheral countries are to continue their underdevelopment within the system, or break the linkages with the core and redefine the rules of the game through revolution.

Much later in his intellectual career, Frank conceded that he changed his understanding of the possibilities that concerted political and revolutionary action afforded the Third World countries. His reflections on the historic political changes in Latin America, particularly the Chilean coup, prompted him to state that: "experience has shown it to be extremely difficult, if not impossible, for voluntarist political action to de-link particular countries from world economy" (as cited in Kay, 2005, p. 1181).

Dependency & Internal Structures

In its quest to understand underdevelopment in the third world, dependency theory adopts a global framework of analysis and favors two preferred units of analysis: the nation-state and the social classes, and "both are viewed in terms of their manifold relationships to the capitalist world-system" (Gereffi, 1983, p. 12).

Dependency theorists argue that a capitalist world economy is ruled by a division of labor between economic regions, some of which can be characterized as central and some as peripheral. The central economies are industrialized countries that benefit most from the division of labor, and the peripheral economies are subjugated to the interests of the center. The situation of dependency of the peripheral economies is also believed to support an internal structure of inequality between the major social actors such as the state, the domestic business elites, labor, and the transnational corporations.

As Gereffi defines it, dependency "implies a situation of external reliance by third world nations on flows of goods and capital (foreign investment, foreign loans, and foreign aid), usually coming from the center countries of the world capitalist economy" (Gereffi, 1983, p. 8). Thus, rather than being a purely external structural condition, dependency is perpetuated further by participation of local groups and classes whose self-interests are aligned with the conditions of dependency.

Compradores

While mainly concerned with disparities between states, dependency theory also articulates a peculiar class configuration within the third world nations. Compradores — or elites of the third world countries — act as "intermediaries between the capitalist international order on the one hand and subjected local peoples on the other" (Cohn, 2000, p. 114). Because the comprador class depends on the international economic order for its survival, their major political and economic alliances are with the foreign capitalist class. Thus, despite having local interests as well, the elites in the south often take political and economic actions that only buttress their country's situation of dependency. And while the terms of such arrangements vary for different industries and from country to country, the alliance between local capital, the state, and the transnational corporate interests is a precondition for dependent development (Evans, 1979). As Evans defines it, "dependent development is a special instance of dependency, characterized by the association or alliance of international and local capital. The state also joins the alliance as an active partner, and the resulting triple alliance is a fundamental factor in the emergence of dependent development" (Evans, 1979, p. 32).

Dependency & Capitalism

Dependency theory's lineage can be traced to classical Marxism and Latin American structuralism (Cohn, 2000). Similarly to Marxists, dependency theorists focused almost exclusively on capitalist development and were almost uniformly committed to political action. Unlike Marxists, however, they were primarily concerned with problems of development in the Third World and the nature of the relationship between North and South America. Another theoretical approach that affected the fundamental premises of dependency theory was Latin American structuralism, a broad theoretical movement emanating from Latin American scholars, which emphasized the structural obstacles to Third World development, such as disadvantageous terms of trade.

Dependency theories argue that the most fundamental reason for poor development in the Third World countries lies in the structural features of the global capitalist economy. Instead of benefitting the Third World countries, the North-South economic interdependence and trade actually undermines progress in peripheral economies.

Some early scholars working within the dependency theory tradition who emphasized the systemic features of development argued that success of the core countries of a capitalist economy presupposes underdevelopment of the more peripheral nations. Consequently, the only way to escape the unequal arrangement was to abolish the very system. As Cohn (2000) summarizes, "although today's developed countries may have been undeveloped in the past, they were never underdeveloped because they were not part of the periphery of the global capitalist economy. The peripheral countries of today, by contrast, became underdeveloped as a result of their involvement with the countries in the capitalist core" (p. 115).

Dependent Development

This position, however, does not explain the economic success and growth of the more recently industrialized countries such as Mexico or Brazil. Some dependency theorists argue that certain less developed countries can experience what they call dependant development when a country is able to benefit from capital accumulation and industrialization through forming a favorable coalition between the state and the foreign and domestic capital. Thus, countries undergoing dependent development remain locked into an economic and political arrangement that favors the demands and needs of the industrialized core countries. According to Gereffi, dependent development is a "special instance of dependency that refers to cases where capital accumulation and diversified industrialization are occurring in a peripheral country despite the fact that this economic growth is externally conditioned in significant ways" (Gereffi, 1983. p.8).

There are, of course, alternatives to full integration into the capitalist economy, but they come at some cost. North Korea can be cited as an example of an economy that, as a matter of political choice, has extricated itself from the integrated global capitalism. Developing nations have an option of forming South-South economic and political alliances which allow for some flexibility within the capitalist world order. Hubbell (2008) offers Dominica as an inventive example of a 'rascal' economy — not quite bending the rules enough to be called a rogue nation it manages, however, to take advantage of the system. Examples of such political and economic ingenuity include Dominica exploiting the long standing rivalry between China and Taiwan to extract aid from China in exchange for terminating diplomatic relations with Taiwan, or the Dominican government meddling in the business of offshore banking (Hubbell, 2008). Of course such examples only underscore the dire economic circumstance that some poor third world nations endure as a result of the current economic and political arrangement, and far from alleviating Dominica's dependence, such strategies further relegate the country to the fringes of the world order.

Viewpoints

Critiques of the Dependency Theory

One of the typical critiques of the dependency theory argues that it is not sufficient to recognize a country as either dependent or not. As Cohn points out, "What does the term underdeveloped signify when it includes countries as diverse as Brazil, India and Haiti? How does one justify including Portugal along with the United States, Japan, and Germany as a developed country in the core?" (Cohn, 2000, p. 116). What dependency theory approach lacks is a conception of the degree of dependency, which would allow specifying the extent to which a country is dependent as well as compare diverse countries. Furthermore, dependency theory rarely specifies the type of dependency a particular country might exhibit, such as economic, military or cultural.

Another weak aspect of the classical dependency theory is its exclusive focus on capitalism as the prime source of dependency and underdevelopment. A telling critique points out that both political and economic dependence characterized the relations between the Soviet Union and countries of the former Soviet bloc. Since a socialist system can exhibit elements of dependency, capitalism cannot be considered the only defining factor in an unequal relationship between states, and both the socialist and the capitalist systems can be marked by "asymmetric and unequal linkages between a dominant center and its weaker dependencies" (Clark & Bahry, 1983, p. 286).

Articulated in the late 1960s and early 1970s and precipitated by growing inequalities between countries integrated into the global capitalist world order, the dependency theory offered a cogent and coherent interpretation of underdevelopment. Addressing the inadequacies of the modernization theory approach to explaining persistent inequality, dependency theorists shifted the spotlight from the 'backwardness' of underdeveloped nations onto to the inherent contradictions of the global capitalist system. Dependency theory proposed to examine the structural linkages which defined the market relations and terms of production between the industrialized core states and the periphery. The ensuing articulation of the mechanisms that preclude successful development in dependent economies called into question the very nature of the capitalist world order.

Despite numerous critiques of the classical dependency perspective, it remains a weighty counterbalance to the neoliberal doctrine, and to the revivals of modernization theory with its specter of civilizational incompetence. In the age of economic globalization, dependency perspective still offers valuable insights into the persistent nature of inequality between modern states and a cautionary message that "genuine economic development can only occur in a world respecting equality and difference" (Cohn, 2000, p. 117).

Terms & Concepts

Compradores: Business elites of the third world countries who depend on the international economic order for their survival and who often act as intermediaries between the capitalist international order (transnational capital and multinational corporations) on the one hand and domestic labor on the other.

Dependency: Conditions of external reliance by third world nations on flows of goods and capital (foreign investment, foreign loans, and foreign aid), usually coming from the center countries of the world capitalist economy.

Dependency Theory: Macro-level theoretical perspective aiming to explain the situation of interdependency between world economies, where some self-sustaining dominant economies dominate the terms of trade, production and overall economic development in their favor and at the expense of the dependent countries.

Division of Labor: According to the dependency perspective, the world economic production and trade are organized in an asymmetrical way, designed to benefit the core economies and extract surplus economic value from the dependent nations.

Economic Integration: The process by which national economies are integrated into the world economy in a manner that benefits the core economies, and according to the dependency theorists also the main reason for the Third World nations' underdevelopment and dependency.

Triple Alliance: An alliance between the international and local capital and the state, which according to some dependency theorists, is a crucial structural arrangement ensuring the emergence and perpetuation of dependent development in the third world.

Undeveloped Economies: The past historical and economic phases of development of countries that now constitute the core of industrialized, developed economic regions of the world.

Underdeveloped Economies: In contrast to the undeveloped economies of the past, modern underdeveloped economies are the product of the capitalist world order and the outcome of the asymmetrical political and economic conditions that define the linkages between the center and the peripheral regions in the world.

Bibliography

Austin, K. F., McKinney, L. A., & Thompson, G. (2012). Agricultural trade dependency and the threat of starvation. International Journal of Sociology, 42, 68–89. Retrieved October 24, 2013, from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=77495913

Cohn, T.H. (2000). Global political economy: Theory and practice. New York: Longman.

Clark, C. & Bahry, D. (1983). Dependent development: A socialist variant. International Studies Quarterly 27:271–293.

Dos Santos, T. (1970). The structure of dependence. The American Economic Review, 60 : 231–236. Retrieved October 18, 2008, from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4494260&site=ehost-live

Evans, P. (1979). Dependent development: The alliance of multinational, state, and local capital in Brazil. Princeton, NJ: Princeton University Press.

Gereffi, G. (1983). The pharmaceutical industry and dependency in the third world. Princeton: Princeton University Press.

Hall, S. M. (2013). The politics of belonging. Identities, 20, 46–53. Retrieved October 24, 2013, from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=86010041

Hubbell, L. (2008). Rethinking dependency theory: The case of Dominica, the rascal state. Journal of Third World Studies, 25:95–109. Retrieved October 18, 2008, from EBSCO Online Database Academic Search Premier http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=31692290&site=ehost-live

Kay, C. (2005). Andre Gunder Frank: From 'Development of Underdevelopment' to the 'World System.' Development and Change 36:1177–1183. Retrieved October 18, 2008, from EBSCO Online Database Academic Search Premier http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=19050409&site=ehost-live

White, H. (2013). In the shadow of time. Journal of the Royal Anthropological Institute, 19, 256–257. Retrieved October 24, 2013, from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=87371998

Suggested Reading

Cardoso, F.H. (2001). Charting a new course: The politics of globalization and social transformation. Rowman and Littlefield Publishers.

Colloredo-Mansfeld, R. (2011). Work, cultural resources, and community commodities in the global economy. Anthropology of Work Review, 32, 51–62. Retrieved October 24, 2013, from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=67198067

Frank, A.G. (1966). The development of underdevelopment. Monthly Review 18:17–31.

Frank, A. G. (1967). Capitalism and underdevelopment in Latin America: Historical studies of Chile and Brazil. New York: Monthly Review Press.

Pjero, E., Jahollari, P., & Agaraj, X. (2011). Environmental market failure and globalization in developing countries. Scientific Annals Of The 'Alexandru Ioan Cuza' University Of Iasi: Economic Sciences Series, 315–326. Retrieved October 24, 2013, from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=73365357

Ray, D. (1973). The dependency model of Latin American underdevelopment: Three basic fallacies. Journal of International Studies and World Affairs 15:7–8.

Wallerstein, I. (2005). After developmentalism and globalization, what? Social Forces 83:1263–1278. Retrieved July 20, 2008, from EBSCO Online Database Academic Search Premier http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=16832485&site=ehost-live