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Dependency Theory

Dependency Theory

A RICH DEBATE

EMPIRICAL CHALLENGES

A LASTING LEGACY

BIBLIOGRAPHY

In the early 1950s, a group of economists stationed at the United Nations Economic Commission for Latin America (ECLA) in Santiago, Chile, launched a rigorous research program around one pressing question: What accounts for the growing divergence in living standards and gross domestic product (GDP) between the wealthy countries of the industrialized North and the poorer developing countries of the South? In 1850, for example, Argentina was among the richest nations of the world and GDP per capita in Latin America was $245, compared to $239 in North America. A century later, Argentina was mired in debt and poverty, and GDP per capita in Canada and the United States had quickly outpaced that of Latin America as both had firmly joined the ranks of the developed-country bloc.

According to neoclassical economic theory, strong trade and investment linkages between North and South should lead to a positive-sum outcome for all participants. However, by the 1950s it was difficult to ignore the widening global cleavages between North and South, as well as the growing gap between rich and poor within the developing countries. This latter trend, characterized by an uneasy coexistence between a modern urbanized sector of the economy with strong global ties and a largely rural traditional sector where production modes sorely lagged, was increasingly referred to as dualism. Both dualism and the North-South divide became the focus of conceptual debates and practical policy prescriptions for a new generation of dependency school theorists that emerged during the 1960s and 1970s.

At heart, most dependency theorists saw the problem of underdevelopment as the inherently exploitive and contradictory nature of the capitalist system, which pitted capitalists and workers against each other as both sought to maximize their respective economic well-being. The North, with its capital abundance and accumulation of wealth, was the oppressor, while the South, with its ready supply of cheap labor and vastly rich land and natural resources, was the oppressed. It was the external sector that perpetuated underdevelopment, as well as the various private (multinational corporations) and public entities (the World Bank, the International Monetary Fund, and industrial-bloc governments) that represented it.

Whereas the earlier diagnoses of ECLA had generated proposals for restructuring the developing worlds economic relationship with the northern industrial bloc, the dependency school advocated assertive state intervention to promote the economic and political independence of the developing world vis-à-vis the North. Along with endorsing ambitious programs of import-substitution industrialization, the dependency school expanded the ECLA critique to include the urgent need for the underdeveloped South to overcome its dependence on the developed North through any variety of means, state intervention being one of these.

A RICH DEBATE

An initial wave of dependency thinking was triggered by the work of the Argentine economist Raúl Prebisch (19011986), director of his countrys first central bank from 1935 to 1943 and subsequently the executive secretary of ECLA between 1949 and 1963. In Prebischs classic 1949 treatise, The Economic Development of Latin America and Its Principal Problems, he introduced the idea of an industrial, hegemonic center and an agrarian, dependent periphery as a framework for understanding the emerging international division of labor between North and South. Prebisch argued that the wealth of poor nations tended to decrease when that of rich nations increased due to an unequal exchange of industrial versus agricultural goods in the North-South trading relationship. For the early structuralists, industrialization was considered a necessary step toward rectifying this pattern of unequal exchange and thus the most important objective in a development program.

From here, dependency theory quickly divided into diverse strands. Most notably, André Gunder Frank (19292005) adapted it to Marxism, as did Paul Baran (19101964), arguing that imperialism and the colonial legacy had left Asia, Africa, and Latin America in a highly disadvantageous position. Like Karl Marx (18181883), these theorists argued that economics was the main determinant of politics, and that social class should be the prime unit of analysis. Frank identified a comprador class of local southern elites whose interests and profits from this system of exploitation had become closely intertwined with their counterparts in the developed or metropolitan countries. For both Baran and Frank, this third world bourgeoisie was parasitic in nature, leaving it to workers and peasants to break with imperialism and move a given nation toward progress. While acknowledging the debilitating nature of these dual economies, others such as Ernesto Laclau criticized the Marxists for overlooking important distinctions between capitalist and precapitalist modes of production in the South. Given the tenacity of the latter, Laclau argued, it made no sense for dependency analysts to focus solely on capitalist modes of production as the linchpin for change.

Another key debate within the dependency school concerned the weight that should be given to domestic or international factors. In contrast to the hard-line Marxian viewpoint, which held that southern development could only be grasped by placing this process within its proper global historical context, Fernando Henrique Cardoso and Enzo Faletto (19352003) argued that it is the internal dynamics of the nation-state and not its structural location in the international division of labor that determines a countrys fate. Cardoso and Faletto emphasized that external factors had different impacts across the developing world due to the diverse internal conditions (history, factors of endowment, social structures) inherent in each country. In contrast to Frank or Baran, they regarded the national bourgeoisie within dependent peripheral societies as a potentially powerful force for social change and economic progress.

There were other points of consensus among dependency theorists. First, most saw the problem of underdevelopment as deeply rooted in the colonial experience and subsequently perpetuated by a sophisticated set of transnational class linkages composed of political and military elites, powerful economic interests, multinational corporations, and multilateral institutions like the International Monetary Fund. Second, and in light of this cumulative historical legacy, dependency theorists saw the world economy as a functionally integrated whole in which a huge underdeveloped periphery of poor states, and a semiperipheral group of partially industrialized developing countries, are dominated by the industrial-bloc countries that form the core. Third, the nature of economic interaction between these segmented markets is such that the peripheral and semiperipheral countries are stuck in a zero-sum game characterized by diminishing returns from trade and investment with the North.

Dependency theorists were most likely to part ways when it came to the practical political and economic policy prescriptions that flowed from this worldview. One main difference arose between those advocating that the development of the periphery could still be achieved by working within the confines of the capitalist system and those who saw the need for a complete rupture with the advanced capitalist powers and the pursuit of a state-planned socialist model. The former stance embraced a more dynamic and evolutionary view of economic development and the possibilities to achieve upward mobility within the capitalist framework; the latter saw the future of the underdeveloped periphery as locked into a static world economic system that had determined its fate since the sixteenth century and could only be rectified via outright revolution and the installation of a socialist economy.

EMPIRICAL CHALLENGES

Even as dependency theory flourished in Africa, Asia, and Latin America, the empirical validity for many of its presumptions was shaky at best. The more revolutionary brand of dependency thinking had been fueled by evidence of the regions robust growth during the first and second world wars, as demand boomed for the regions commodities. Although a unique set of historical circumstances, this wartime boom prompted some to call for a complete de-linking of North and South, the nationalization of major industries, and levels of protectionism akin to autarky. Chile and Peru proceeded along such lines in the early 1970s, but with fairly dismal results.

State planners and economic policymakers in Argentina, Brazil, and Mexico also subscribed to dependency thinking, but chose to work within the capitalist system. It was the track record in such countries that informed some of the main empirical hypotheses that underpinned the dependency model, for example the Prebisch-Singer hypothesis about the secular deterioration of the terms of trade and the Lewis-Nurkse hypothesis. These hypotheses refer to an international pattern of specialization that has the northern countries exporting manufactures among themselves while the southern countries send their primary products to the North, and thus suggest that a balanced growth strategy would be the ideal strategy for less-developed countries.

The dependency era was replete with ambitious stateled policies geared toward industrial modernization and the full exploitation of those endogenous endowment factors (land, labor, and rich natural resources) with which the developing countries had been blessed. Yet, by the end of this period, the international division of labor between North and South remained basically the same, as did the pattern of unequal exchange that that ECLA and dependency theorists alike had originally decried. That is, the South was still largely dependent on the import of increasingly expensive manufactured and technologyintensive goods from the North and the export of primary commodities plagued by volatile price trends in return.

Perhaps the biggest empirical challenge to dependency theory was the takeoff of the newly industrializing countries of East Asia in the 1970s. While Latin America seemed to be running in place with rising inflation, poverty, and debt, countries like Japan, Taiwan, and South Korea were proving that the seemingly hierarchical structure of the world economy was not structurally determined. Under a more pragmatic set of economic policies that combined state and market approaches, this smaller and much less-endowed group of Asian countries showed that it was possible to produce high growth with better income distribution and to do so by integrating more strategically into international markets for trade and investment. Strong leadership and sound economic institutions could, in fact, mitigate the external challenges inherent in the North-South divide.

A LASTING LEGACY

While few of the dependency schools theoretical assertions have stood the test of time, this perspective continues to offer a powerful description of the political and economic plight of the majority of countries that remain on the periphery of the world economy. A full understanding of the causal mechanisms and policy solutions for remedying underdevelopment may still be a long way off; however, the dependency schools specification of concrete problems like dualism, inequality, diminishing returns to trade, and the North-South divide have enriched debates about development and helped them to move forward.

SEE ALSO Dual Economy; Harris-Todaro Model; North-South Models; Underdevelopment; Unequal Exchange

BIBLIOGRAPHY

Amin, Samir. 1974. Accumulation on a World Scale: A Critique of the Theory of Underdevelopment. Trans. Brian Pearce. New York: Monthly Review Press.

Cardoso, Fernando Henrique, and Enzo Faletto. 1979. Dependency and Development in Latin America. Trans. Marjory Mattingly Urquidi. Berkeley: University of California Press.

Darity, William. 1981. On the Long-Run Outcome of the Lewis-Nurkse International Growth Process. Journal of Development Economics 10 (3): 271278.

Love, Joseph. 2005. The Rise and Decline of Economic Structuralism in Latin America. Latin American Research Review 40 (3): 100125.

Mamdani, Mahmood. 1996. Citizen and Subject: Contemporary Africa and the Legacy of Late Colonialism. Princeton, NJ: Princeton University Press.

Wallerstein, Immanuel. 1979. The Capitalist World Economy: Essays. New York: Cambridge University Press.

Carol Wise

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"Dependency Theory." International Encyclopedia of the Social Sciences. . Encyclopedia.com. 29 Mar. 2017 <http://www.encyclopedia.com>.

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"Dependency Theory." International Encyclopedia of the Social Sciences. . Retrieved March 29, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/dependency-theory

dependency theory

dependency theory A set of theories which maintained that the failure of Third World states to achieve adequate and sustainable levels of development resulted from their dependence on the advanced capitalist world.

Dependency theories developed in opposition to the optimistic claims of modernization theory which saw the less developed countries being able to catch up with the West. They stressed that Western societies had an interest in maintaining their advantaged position in relation to the LDCs and had the financial and technical wherewithal to do so. A variety of different accounts of the relationship between the advanced and less developed states evolved within the broad framework of dependency theory, ranging from the stagnationism and ‘surplus drain’ theory of Andre Gunder Frank (which predicted erroneously that the Third World would be unable to achieve significant levels of industrialization), to the more cautious pessimism of those who envisaged a measure of growth based on ‘associated dependent’ relations with the West.

The major contribution to dependency theory was undoubtedly that of Frank, a German economist of development who devised and popularized the phrase ‘the development of underdevelopment’, describing what he saw as the deformed and dependent economies of the peripheral states—in his terminology the ‘satellites’ of the more advanced ‘metropolises’. In Capitalism and Underdevelopment in Latin America (1969), he argued that the Third World was doomed to stagnation because the surplus it produced was appropriated by the advanced capitalist countries, through agencies such as transnational corporations. Frank himself insisted that growth could only be achieved by severing ties with capitalism and pursuing autocentric socialist development strategies.

Dependency theory was flawed by an overemphasis on economic factors and in some versions a necessitarian logic based on the idea of a ‘surplus drain’ (extraction and appropriation of profits) from the LDCs to the rich and powerful nations. None the less, it had the merit of drawing attention to the international dimension of development, and brought the power relations between states under scrutiny. The emergence of the newly industrializing countries (NICs) as a group of successful late developers challenged the validity of the core assumptions of dependency theory, demonstrating that successful late industrialization was possible under certain circumstances, and suggesting the need for a more sophisticated and disaggregated approach to Third World development. See also DEVELOPMENT, SOCIOLOGY OF.

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