Dependency Theory-Introduction

 The post-World War II classical development theory upheld the modernization

paradigm, which saw Third World development as a process of emulation of the
patterns of development previously experienced by the now so-called developed
nations. Diffusion model was the key.
 But to the dismay of development economists, and of course the millions of
people living in developing countries, these countries did not follow the expected
path of development and instead stayed more or less underdeveloped, while the
gap between the rich and the poor countries steadily increased.
 However, classical development theory failed to account for the failure of the
Third World and to suggest alternative paths.
 Hence it resulted in an academic vacuum which, together with the dire conditions
in developing countries, generated the dependency school, which offered
alternative explanations and a plan of action to overcome underdevelopment.

1
 Dependency Theory-Introduction
 Dependency Theory developed in the late 1950s under the guidance of the
Director of the United Nations Economic Commission for Latin America
(UNECLA), Raul Prebisch.
 It emerged as a reaction to prevailing developmentalism
 Prebisch and his colleagues were troubled by the fact that economic growth in
the advanced industrialized countries did not necessarily lead to growth in the
poorer countries.
 Indeed, their studies suggested that economic activity in the richer countries
often led to serious economic problems in the poorer countries.
 Such a possibility was not predicted by neoclassical theory, which had assumed
that economic growth was beneficial to all (Pareto optimal) even if the benefits
were not always equally shared.
 Among the main proponents of dependency theory we have: Andre Gunder
Frank, Raul Prebisch, Theotonio Dos Santos, Enrique Cardozo, Edelberto
Torres-Rivas, and Samir Amin. 2
 Dependency Theory-Introduction
 The dependency school can be controversially considered a
convergence of two intellectual traditions: neo-Marxism and ECLA.
 While the neo-Marxist writers found the solution to dependency and
underdevelopment in a socialist revolution, the ECLA writers, also
known as reformists, favored reforms in the international economic
system.
 Both streams came up with the concepts of ‘center and periphery’,
which were the pillars of dependency theorizing.
 However, the debates among the liberal reformers (Prebisch), the
Marxists (Andre Gunder Frank), and the world systems theorists
(Wallerstein) was vigorous and intellectually quite challenging.

3
 Dependency Theory-Introduction
 There are still points of serious disagreements among the various
strains of dependency theorists and
 It is a mistake to think that there is only one unified theory of
dependency.
 It is in a way ironic that not all dependency writers oppose
dependency.
 Within the dependency camp some, like FH Cardoso (moderates), do
not see dependency as inimical to the development of the
underdeveloped countries, where the industrialization process,
especially manufacturing industry, is assisted by foreign capital.
 Bill Warren sees both imperialism and capitalism as productive forces
with regard to developing nations and thus dependency is necessary
for such countries.
4
 Dependency Theory-Introduction
 For some of the dependency theorists it is not capitalism per se that matters but
the particular form it takes.
 For example, Geoffrey Kay tries to distinguish between merchant capitalism and
industrial capitalism.
 The form of capitalism seen in developing countries, according to him, is
merchant capitalism, which is basically trade-centred and not industry-oriented.
 Nonetheless, there are some core propositions which seem to underlie the
analyses of most dependency theorists.
 Dependency can be defined as an explanation of the economic development of a
state in terms of the external influences--political, economic, and cultural--on
national development policies(Osvaldo Sunkel).
 Dos Santos (1970) emphasizes the historical dimension of the dependency
relationships in his definition:
5
 Dependency Theory-Introduction
 [Dependency is]...an historical condition which shapes a certain
structure of the world economy such that it favors some countries to
the detriment of others and
 limits the development possibilities of the subordinate economics...a
situation in which the economy of a certain group of countries is
conditioned by the development and expansion of another economy, to
which their own is subjected.
 There are three common features to these definitions which most
dependency theorists share.
 First, dependency characterizes the international system as comprised
of two sets of states, variously described as dominant/dependent,
center/periphery or metropolitan/satellite.
6
Dependency Theory-Introduction
 Second, both definitions have in common the assumption that external forces
are of singular importance to the economic activities within the dependent states.
 These external forces include multinational corporations, IFIs, foreign
assistance, communications, and any other means by which the advanced
industrialized countries can represent their economic interests abroad.
 Third, the definitions of dependency all indicate that the relations between
dominant and dependent states are dynamic because the interactions between the
two sets of states tend to not only reinforce but also intensify the unequal
patterns.
 Moreover, dependency is a very deep-seated historical process, rooted in the
internationalization of capitalism. Dependency is an ongoing process:
 In short, dependency theory attempts to explain the present underdeveloped state
of many nations in the world
 by examining the patterns of interactions among nations and by arguing that
inequality among nations is an intrinsic part of those interactions.7
 Dependency Theory : Some Propositions
 There are a number of propositions, all of which are contestable, which
form the core of dependency theory. These propositions include:
 Proposition 1: Underdevelopment is a condition fundamentally
different from undevelopment.
 The latter term simply refers to a condition in which resources are not
being used.
 For example, the European colonists viewed the North American
continent as an undeveloped area: the land was not actively cultivated
on a scale consistent with its potential.
 Underdevelopment refers to a situation in which resources are being
actively used but used in a way which benefits dominant states and not
the poorer states in which the resources are found.
8
Dependency Theory : Some Propositions
 Proposition 2: The distinction between underdevelopment and
undevelopment places the poorer countries of the world is a
profoundly different historical context.
 These countries are not "behind" or "catching up" to the richer
countries of the world.
 They are not poor because they lagged behind the scientific
transformations or the Enlightenment values of the European states.
 They are poor because they were coercively integrated into the
European economic system
 only as producers of raw materials or to serve as repositories of cheap
labor, and were denied the opportunity to market their resources in any
way that competed with dominant states.
9
Dependency Theory : Some Propositions
 Proposition 3:Dependency theory suggests that alternative uses of
resources are preferable to the resource usage patterns imposed
by dominant states.
 There is no clear definition of what these preferred patterns might be,
but some criteria are invoked.
 For example, one of the dominant state practices most often criticized
by dependency theorists is export agriculture.
 The criticism is that many poor economies experience rather high
rates of malnutrition even though they produce great amounts of food
for export.
 Many dependency theorists would argue that those agricultural lands
should be used for domestic food production in order to reduce the
rates of malnutrition (nil/indigo, shrimp cultivation in Bangladesh,
Cocoa in Ghana). 10
 Dependency Theory : Some Propositions
 Proposition 4: Dependency theorists rely upon a belief that there
exists a clear "national" economic interest which can and should
be articulated for each country.

 Proponents of dependency theory believe that this national interest can

only be satisfied by addressing the needs of the poor within a society,
 rather than through the satisfaction of corporate or governmental
needs.
 Trying to determine what is "best" for the poor is a difficult analytical
problem over the long run.
 Dependency theorists have not yet articulated an operational definition
of the national economic interest. 11
 Dependency Theory: Some Propositions
 Proposition 5 :The diversion of resources over time (and one must
remember that dependent relationships have persisted since the
European expansion beginning in the fifteenth century) is maintained
not only by the power of dominant states,
 but also through the power of elites in the dependent states.
 Dependency theorists argue that these elites maintain a dependent
relationship because their own private interests coincide with the
interests of the dominant states.

12
 Dependency Theory: Some Propositions
 These elites are typically trained in the dominant states and share
similar values and culture with the elites in dominant states.
 Thus, in a very real sense, a dependency relationship is a "voluntary“
relationship.
 One need not argue that the elites in a dependent state are consciously
betraying the interests of their poor;
 the elites sincerely believe that the key to economic development lies
in following the prescriptions of liberal economic doctrine.

 Proposition 6: Delinking the 3rd World from the world economy

through a socialist revolution was the only solution to
underdevelopment.
13
 Dependency Theory : Policy Implications
 If one accepts the analysis of dependency theory, then the questions of
how poor economies develop become quite different from the
traditional questions concerning comparative advantage, capital
accumulation, and import/export strategies.
 Some of the most important issues include:
 The success of the advanced industrial economies does not serve as a
model for the currently developing economies.
 Indeed, in the 1950s and 1960s there was a paradigmatic consensus
that growth strategies were universally applicable, a consensus best
articulated by Walt Rostow in his book, The Stages of Economic
Growth.

14
 Dependency Theory : Policy Implications
 Dependency theory suggests that the success of the richer countries
was a highly contingent and specific episode in global economic
history, one dominated by the highly exploitative colonial relationships
of the European powers.
 A repeat of those relationships is now highly unlikely for the poor
countries of the world.
 Dependency theory rejects the central distributive mechanism of the
neoclassical model, what is usually called "trickle-down" economics.
 The neoclassical model of economic growth pays relatively little
attention to the question of distribution of wealth.
 Its primary concern is on efficient production and assumes that the
market will allocate the rewards of efficient production in a rational
and unbiased manner. 15
 Dependency Theory: Policy Implications
 This assumption may be valid for a well-integrated, economically
fluid economy where people can quickly adjust to economic changes
 and where consumption patterns are not distorted by non-economic
forces such as racial, ethnic, or gender bias.
 These conditions are not pervasive in the developing economies, and
dependency theorists argue that economic activity is not easily
disseminated in poor economies.
 For these structural reasons, dependency theorists argue that the
market alone is not a sufficient distributive mechanism.

16
 Dependency Theory: Policy Implications
 Since the market only rewards productivity, dependency theorists discount
aggregate measures of economic growth such as the GDP or trade indices.
 Dependency theorists do not deny that economic activity occurs within a
dependent state.
 They do make a very important distinction, however, between economic
growth and economic development (human development).
 For example, there is a greater concern within the dependency framework
for whether the economic activity is actually benefitting the nation as a
whole.
 Therefore, far greater attention is paid to indices such as life expectancy,
literacy, infant mortality, education, and the like.
 Dependency theorists clearly emphasize social indicators far more than
economic indicators.
17
 Dependency Theory :Policy Implications
 Dependent states, therefore, should attempt to pursue policies of self-
reliance.
 Contrary to the neo-classical models endorsed by the IMF and the WB,
greater integration into the global economy is not necessarily a good
choice for poor countries.
 Often this policy perspective is viewed as an endorsement of a policy
of autarky ( a country which is economically independent),
 There have been some experiments with such a policy such as China's
Great Leap Forward (1958-1961, famine took a death toll of 15-30
million people) or Tanzania's policy of Ujamaa (1967, Julius Nyerere,
it was abandoned in1985).

18
 Dependency Theory :Policy Implications
 The failures of these policies are clear, and the failures suggest that
autarky is not a good choice.
 Rather a policy of self-reliance should be interpreted as endorsing a
policy of controlled interactions with the world economy:
 poor countries should only endorse interactions on terms that promise
to improve the social and economic welfare of the larger citizenry.

19
 Dependency Theory :Modern Day Reflections
 Arundhati Roy (2004) argued that multilateral trade laws and financial
agreements perpetuate poverty in some corners of the globe.
 She implies that the so-called free trade and market ideologies are hypocritical in
the sense that they do not operate in areas where developing countries have an
advantage.
 Developed nations spend billions of dollars on subsidizing agriculture in their
home countries to defeat competition from developing countries.
 Roy therefore calls for global resistance against the project of ‘corporate
globalization’.
 The position of China presents a very interesting case. With low labor costs,
China’s rapidly growing economy is making inroads into the European and North
American markets.
 The American and European market take this as unfair competition. But if
neoliberal ideology is adopted, this is where China has a comparative advantage
and, in theory, it cannot be considered as unfair competition. 20
 Dependency Theory Modern Day Reflections
 There are others who point out that the issues confronting the
developing countries have taken on new dimensions.
 Ghosh (2001), for example, argues that, although during the 19th
century the developed countries used to take away physical capital
from colonies by force,
 in the 20th century they extract human capital (Brain Drain) from the
Third World in the form of skilled labor without paying the mother
countries due compensation (Bhagwati 1976) for the cost of the
investment that they have borne on skilled workers who migrate to
developed countries.
 The economic stagnation of the Third World induces skilled labor to
leave it, while such leaving further reinforces stagnation.
21
 Dependency Theory : Modern Day Reflections
 The efficacy of international aid as regards the developing countries
is hotly contested.
 An independent review of international aid shows that there are
innumerable deformities and anomalies in international aid
mechanisms in terms of allocation, type of aid, amounts, interests,
motives and tendencies.
 Of all international aid channeled to developing nations, only 0.1%
goes to basic education and 0.3% to basic health, two key areas which
have a direct impact on the lives of millions living in poor countries.
 In general the amount of international aid from OECD countries (they
agreed to .7% of their GNI in in 1970) had fallen to 0.3% of their GNP
in 1994 to mark the lowest level in 20 years. In 2013, it was 0.4% of
their GNI).
22
 Dependency Theory : Modern Day Reflections
 Sometimes aid is tied to purchasing goods and services from the
donors and is structurally linked to the commercial interests of the
donors.
 The World Bank review further points out that FDI is no substitute for
aid.
 FDI is highly selective and goes to selected growth centers in Asia and
Latin America; it cannot be channeled to where the greatest need
exists.
 Further worsening this situation is the debt burden(165 USD per head
in BD in 2015) of developing countries.
 In some cases, debt serving costs exceed the total funding requirement
for health, nutrition, family planning and education (Randel &
German, 1996). 23
 Dependency Theory : Modern Day Reflections
 Rajasingham-Senanayake (2001), revealing another facet of
international aid which she calls ‘the international post-conflict
industry’,
 explains how development efforts in the war-torn areas of Sri Lanka
are dominated by the interests of multilateral aid agencies.
 She strongly criticizes the marginalization of local scholarship,
knowledge and expertise in formulating development projects by
multilateral agencies and the consequent misfit of the projects thus
formulated.
 She argues that a large sum of money from the aid basket channeled
to Sri Lanka is lost in the form of administrative costs for foreign
experts from donor countries who work in Sri Lanka.
24
 Dependency Theory : Modern Day Reflections
 For example, a beneficiary family would be given US$1000 for
building a house and starting a new life,
 while the very same amount is paid in salary to a consultant from UN,
World Bank or AusAid for less than two days work.
 Moreover, a very large portion of such aid (loans) is claimed by local
and international firms bidding for large-scale infrastructure projects
and contracts in the country.
 Speaking broadly about development from a different theoretical
perspective, one scholar brings in the theory of gift exchange.
 When one receives a gift, there is a natural obligation to give a gift in
return; the failure to do so results in a loss of status.

25
 Dependency Theory :Modern Day Reflections
 Aid recipient countries, being unable to return something of equal
value for the aid, suffer a loss of status (Friberg, 2001).
 The current trends of globalization are undoubtedly founded on
neoliberal economic ideology.
 But the theoretical as well as empirical evidence, as we have shown,
points to the fact that this dominant economic system has run into a
crisis, at least as regards the developing nations.
 State intervention in the process of development in terms of planning
were highly valued in Third World countries even two decades after
World War II.
 However, this development paradigm was challenged in the 1970s by
the policy recommendations of the Bretton Woods institutions.
26
 Dependency Theory : Modern Day Reflections
 The remedy was to free the market from state intervention to allow it
to take its own course.
 However, ironically, human capabilities in the developed countries
were not the product of the free market but
 the product of the regulation of the market by the state and of strong
public action and involvement with a view to winning their rights
(Shanmugaratnam, 2001).
 Amartya Sen, using comparative growth data for the period 1960–80,
illustrates the way there were strong states active in economic
intervention in many growing economies.
 For example, Sri Lanka has made strong interventions in education,
health and food consumption and has reaped much-appreciated
benefits (Sen, 1983).
27
 Dependency Theory : Modern Day Reflections

 The idea of government intervention is in line with ‘strategic trade

theory’, which highlights the importance of developing comparative
advantage through industrial targeting.
 Strategic trade theorists cite Japan and East Asian countries as proof
for the view that state invention can assist a country in the
manufacturing and technology areas of production.

28
 Dependencia and Modernization:
Commonalities
Although the modernization school and the dependency school
conflict in many areas, they also have certain similarities, the
most important being:
a) A research focus on Third World development
circumstances;
b) A methodology which has a high-level of abstraction and is
focused on the development process, using nations-state as a
unit of analysis;
c) The use of polar theoretical structural visions; in one case
the structure is tradition versus modernity -modernization-, in
the other it is core versus periphery –dependency. 29
 Contrasts with Modernization theory
Dependency Modernization

Unit of analysis Global system and how a nation is Nation

integrated into it

Time dimension History matters – makes Countries go through same

development harder for latecomers stages, lateness makes
development easier

Colonialism Bad Good

 Dependency Theory:
Critiques
 The principal critics of the dependency theory have focused on the fact
that this school does not provide exhaustive empirical evidence to
support its conclusions.
 Furthermore, this theoretical position uses highly abstract levels of
analysis.
 Another point of critique is that the dependency movement considers
ties with transnational corporations as being only detrimental to
countries, when actually these links can be used as a means of transfer
of technology.
 In this sense, it is important to remember that the United States was
also a colony, and this country had the capacity to break the vicious
cycle of underdevelopment.
31
 Dependency Theory: Critiques
 A serious criticism levelled against most dependency theorists is that,
while blaming external forces, they have neglected the role of local
and national, political, legal and social institutions.
 Further, during the 1970s dependency theorists as well as world system
theorists held social relations among corporate and private elites to be
the primary source of capitalist exploitation.
 They ignored the possible mutually beneficial relations between labor
and capital and the varying levels of success among the developing
countries .
 Therefore the dependency approach failed both as a theoretical
explanation and also as a practical plan of action .

32
 Dependency Theory: Critiques
 The decline of dependency theory involved a fundamental paradigmatic shift led
by the rise of `world-systems’ theory.
 Pessimism had definitely set in by the late 1970s and early 1980s. The later
work of Gunder Frank and the world systems theory of Immanuel Wallerstein
formulated the terms of this paradigmatic shift.
 The new defeatist theorizing stipulated that even revolutions could not bring
about delinking or socialism.
 The later work of the erstwhile revolutionary writer Gunder Frank was
characterized by some critics as a prime indicator of the prevailing pessimism.
 It seemed as though Frank had given up hope about the possibility of ending
capitalism through revolution to such an extent that he had begun to think of it
as nearly eternal .
 The point of WST theory was that national units could not individually escape
capitalism and hence all their revolutionary efforts for independence and
socialism were in vain. 33
 Dependency Theory: Critiques
 Dependency theory suffers from two additional problems
 The inability of its advocates to develop their insights into a sustained
theory generating research and speculations at different levels and over
a sustained period of time
 and thus achieving cumulative results and disastrous consequences of
the parties and the governments inspired by dependentista ideas.
 Whether on not their failures was precisely the consequences of those
ideas and however much it could be blamed on the injustice of
international system, the experiments in Chile, Mozambique and
Nicaragua offer strong offer strong support for that argument.

34
 Dependency Theory: Critiques
 The practical implementation of the policies propelled by dependency
thinking failed in Latin American countries and also in many other
parts of the world.
 Amartya Sen (1983) pinpoints how, in LA, the pattern of
industrialization led to exploitative relations with the metropolitan
countries in many instances, particularly in relation to the USA.
 This was accompanied by serious internal consequences in the form of
economic inequality and social distortion.
 Most countries which adopted these policies ended up in economic
stagnation and crisis.

35
 Dependency Theory: Critiques
 Import substitution(singer-prebisch) failed both as an approach and as
a method and dependency merely shifted from consumption goods to
capital goods.
 Import substitution industrialization (ISI) is a trade and economic
policy which advocates replacing foreign imports with domestic
production and creating an
 internal market.
 ISI works by having the state lead economic development through
nationalization, subsidization of vital industries (including agriculture,
power generation, etc.), increased taxation, and highly protectionist
trade policies.
 The repercussions of failed import substitution policies seriously
undermined the reputation of DS dependency school.
36
 Dependency Theory : Which Way Out
 Samir Amin argues that polarization cannot be overcome as long as the rules of
the global game, i.e dominance of the market, are accepted.
 He says that for communities and nations which have become victims of
capitalist globalization, the only alternative is to delink from those rules and
adopt regionalism (Amin, 1999).
 In fact, many scholars talk about regionalization within the framework of new
regionalism as a response to globalization, not to prevent it but to confront it and
use it in a manner which benefits all those in a particular region. Hettne calls it
the ‘New Regionalism’.
 The regionalism debate focuses mainly on the European Union, the North
American Free TradeArea (NAFTA) and the Asia Pacific Economic Co-operation
(APEC) initiative, however.
 These projects removed barriers against trade within those regions and allowed
competition within their respective regions but did not get rid of similar barriers
to the rest of the world (Payne, 2004).
37
 Dependency Theory : Which Way Out
 We see many such attempts globally manifested through regional
projects such as the Association of Southeast Asian Nations (ASEAN),
the Southern African Development Community (SADC), the Economic
Community of West African Nations (ECOWAS) and many others like
the South Asian Association for Regional Cooperation (SAARC,
BRICS, Bay of Bengal Initiative for
Multi-Sectoral Technical and Economic Cooperation (BIMSTEC).
 Given the current global economic and political order, it is not easy for
developing nations to pursue radical changes in the economic system
and in that light regionalism may prove to be a pragmatic approach.
 However, there is no guarantee that smaller economies within a region
will not become ‘peripheries’ to large economies.

38
 World Systems Theory-WST
 The essence of World systems theory (WST) is that the modern world, dominated
by capitalism, has since the sixteenth century increasingly become an integrated
whole in which single countries cannot be usefully analyzed without placing
them within the context of the entire global economic and political system. 
 Immanuel Wallerstein and his followers recognized that there are worldwide
conditions that operate as determinant forces especially for small and
underdeveloped nations, and that the nation-state level of analysis is no longer the
only useful category for studying development conditions, particularly in Third
World countries.
 Those factors which had the greatest impact on the internal development of small
countries were the new global systems of communications, the new world trade
mechanisms, the international financial system, and the transference of
knowledge and military links. 

39
 World Systems Theory-WST
 These factors have created their own dynamic at the international level,
and at the same time, these elements are interacting with the internal
aspects of each country.
 The principal differences between the world-systems approach and the
dependency studies are:  
 a) The unit of analysis in the dependency theory is the nation-state
level, for the world-system it is the world  itself;
 b) Concerning methodology, the dependency school posits that the
structural-historical model is that of the boom and bust of nation states,
the world systems approach maintains the historical dynamics of
world-systems in its cyclical rhythms and secular trends;

40
 World Systems Theory-WST
 c)
The theoretical structure for the dependency theory is bimodal,
consisting of  the core and the periphery;  according to the world
systems theory the structure is trimodal and is comprised of the core,
the semiperiphery and the periphery; Between peripheral and core
countries are ‘semiperipheral’ ones that act as a kind of global middle
class stabilizing the world capitalist system.
 d) In terms of the direction of development, the dependency school
believes that the process is generally harmful; however, in a world
systems scenario, there is the possibility for upward and downward
mobility in the world economy;  
 e) The research focus of dependency theorists concentrates on the
periphery; while world systems theorists focus on the periphery as well
as on the core, the semiperiphery and the periphery.
 
41