The theory of “underdevelopment” became popular during the 1970s within development studies, an important subfield within the social sciences. It addresses the question of why economic growth has been elusive in postcolonial countries. Is it primarily because of internal factors, such as local culture, religion, lack of skills, lack of institutions, corruption, and patrimonial relations? Or is it primarily the result of external factors, particularly the power relations within a world capitalist system dominated by a core of industrialized countries exploiting a periphery of poor countries in a form of “neocolonialism”?
Before the 1970s it was common within the modernization school of thought, which arose out of Western Keynesian and neoclassical economic thinking, to regard colonial and postcolonial countries as being “un developed.” In this perspective, internal factors were emphasized, and these countries were encouraged to follow particular stages of economic growth in order to catch up and “develop” in a manner similar to that of the Western industrialized countries. The more postcolonial countries integrated within the world capitalist system, it was argued, the more they would reap the benefits through increased aid, trade, and investment.
In contrast, a school of thought emerged which argued that the colonized world was actively under developed by its contact with imperial powers. According to the underdevelopment perspective, which has close links to the dependency and world-systems perspectives, the economies of colonized countries were distorted to meet the needs of emerging capitalism in Western Europe. This was particularly so during the phase of industrialization, when capitalist firms in competition with each other needed cheap labor, raw materials, and new markets for their products. The colonial and postcolonial regions became satellites (or peripheries) of the industrialized countries that formed the metropoles (or centers) of a world system of capitalist expansion, through relations of economic dependency.
The theory of underdevelopment arose within Marxism but as a departure from the classical Marxist view that capitalism, while it exploits and destroys, also develops. As Karl Marx (1818–1883) said in Capital (Vol. 1): “The country that is more developed industrially only shows, to the less developed, the image of its own future” (1954, p. 19). The Russian-born American economist Paul A. Baran (1910–1964) wrote in 1957 that, on the contrary, postcolonial societies were blocked from development by the peculiar manner in which they came into contact with industrialized countries. For Baran, the origins of underdevelopment can be traced back to the plunder and enforced trade of the seventeenth and eighteenth centuries. This was a time, he argued, when Western European colonization of the rest of the world began on behalf of merchant capitalists, to be later followed by producer capitalism. Imperialism, as famously stated by V. I. Lenin (1870–1924), is the “highest stage of capitalism,” as it grows out of the inevitable tendency toward the creation of monopolies. Competition among capitalist firms eventually results in the more successful firms destroying or swallowing the less successful.
Baran argued, however, that monopoly capitalism faced a crisis of overproduction due to the lack of effective demand in the capitalists’ home countries. The economic surplus generated had to be productively absorbed by the capitalism system if a crisis was to be avoided. Parts of this surplus were absorbed through military expansion, state expenditure (for example, building a welfare state to prevent the working class at home from revolting), and technological innovation. However, this was not sufficient to absorb the massive surplus and create the conditions for the continued accumulation of capital, which is the motor force of capitalism (i.e., accumulation for the sake of accumulation). Capitalism had to conquer new markets and create new investment opportunities, argued Baran, and this could only be achieved through expansion into new territories in the form of colonialism (political and economic dominance) and neocolonialism (economic dominance over politically “independent” countries).
According to Baran, the class interests that came to dominate within these countries, foreign and local, benefited from this state of dependency in various ways. These beneficiaries included domestic landowners, merchants and monopoly capitalists, and the foreign capitalists— none of whom had any real interest in the development of a domestic market that would generate a developmental dynamic within the satellites. Foreign capital in particular was mainly interested in primary resource extraction, where profits are repatriated to the metropoles. This resulted in the development of modern enclaves to serve a very small domestic market composed of expatriates and domestic elites, who aspire to mimic the consumption patterns of the metropolis. The rest of the periphery was composed of an expanding “reserve army of cheap labor” living in poverty in the countryside and in urban slums.
The theory of cumulative causation developed by the Swedish economist and sociologist Gunnar Myrdal (1898–1987) also arose during the 1950s and covered similar ground but from a non-Marxist perspective. Myrdal (1957) laid emphasis on the cumulative development path of industrial countries that had made breakthroughs in science, technology, and industrial production. These countries had large domestic markets with a high demand for goods and services, thus attracting capital into their economies. Poor countries, on the other hand, fell into a downward spiral of stagnation and impoverishment due to, among other things, low savings, small domestic markets, and the low skills and poor health of the work force. Low tax revenue meant that the governments of poor countries could not invest in social and economic infrastructure, except in small export enclaves that benefit foreign capital. These conditions lead to rising intranational as well as international inequality, thus perpetuating the underdevelopment of the periphery.
While Baran favored Soviet style state planning to overcome underdevelopment, Myrdal saw the solution in state-led industrialization and market regulation, where infant industries are protected from foreign competition. These ideas were popularized and refined by a number of neo-Marxist thinkers, such as Andre Gunder Frank (1967), Samir Amin (1970), and Walter Rodney (1971), who argued that the development of Europe rested on the underdevelopment of Africa. This perspective found a ready audience among revolutionary nationalist leaders in the postcolonial world who were not necessarily Marxists. To mitigate the negative impact of neocolonialism and dependency, many countries used the postcolonial state as an active agent of development, with policies ranging from import substitution to a relative delinking from the world capitalist system in the pursuit of self-reliant development.
These strategies during the 1960s and 1970s did achieve some success in growing a domestic market, achieving respectable growth rates, and improving health and education services in many African, Latin American, and Asian countries. However, these achievements were also accompanied by an overreliance on increasingly authoritarian, corrupt, and unaccountable states, and massive borrowing that resulted in an unsustainable debt crisis beginning in the 1980s. This, and the declining fortunes of Soviet state socialism, helped pave the way for the ideology of “free market” neoliberalism to penetrate the periphery.
This period saw the resurgence of modernization theory, albeit couched in the language of “globalization.” During the 1990s, development studies seemed to be in crisis, as globalization theory, whether from the Right or the Left, posited that a “global village” of open economies was being created. National boundaries, it was argued, were being eroded; the state was being replaced by “the market” (i.e., private firms) as a key agent of development, and there was no longer an industrialized core in the “first world” and an impoverished periphery in a “third world.” Instead, global inequality was becoming “deterritorialized” as investment and jobs flowed increasingly to the periphery, leading to increased economic growth and employment, while the industrialized countries experienced greater unemployment and inequality. The only exception is much of sub-Saharan Africa, which remained marginalized from the process of global integration.
The 1997 East Asian economic crisis and subsequent crises elsewhere in the world exposed the vulnerability of the newly industrializing economies, forcing a retreat from neoliberal policies, and the reemergence of the state as a critical actor in development. Writers such as Samir Amin insist that the core-periphery model remains valid. Only two countries, namely South Korea and Taiwan, have risen out of their periphery status, largely because of the privileges they received as U.S. allies during the cold war. For the rest, including fast-developing China and India, rapid industrial growth has followed the pattern of enclave development. These countries are still reservoirs of cheap labor and seas of extreme poverty. On the other hand, the industrialized “triad” of the United States and Canada, the European Union, and Japan continues to dominate the world economy at the core, with the United States performing the hegemonic role with the help of the World Trade Organization, the International Monetary Fund, and the World Bank. These institutions impose rules on underdeveloped countries that undermine efforts at domestic development, in the interests of transnational corporations that remain firmly based in industrialized countries.
There is now increased recognition that both internal and external factors are responsible for the inability of poor countries to rise out of their conditions of underdevelopment. Poor countries are challenged to democratize internally, develop local capacities, and spread the benefits of economic growth to all citizens. At the same time, they need to act in concert with other countries and civil society organizations to reap the benefits of globalization. Some emphasize regulating capitalism at a global level through transformed global institutions that are reoriented toward the needs of poor countries. Others urge a focus on strategic delinking, especially from the financial markets dominated by the financial institutions of the triad, in pursuit of a “polycentric negotiated globalization” that is governed by democracy, disarmament, and a new system of international law that respects national and regional autonomies.
SEE ALSO Caribbean, The; Colonialism; Dependency; Development Economics; Globalization, Social and Economic Aspects of; Imperialism; Neocolonialism; North-South Models; Poverty; South, The (USA)
Amin, Samir.  1974. Accumulation on a World Scale: A Critique of the Theory of Underdevelopment. Trans. Brian Pearce. New York: Monthly Review Press.
Baran, Paul. 1957. The Political Economy of Growth. New York: Monthly Review Press.
Frank, Andre Gunder. 1967. Capitalism and Underdevelopment in Latin America: Historical Studies of Chile and Brazil. New York: Monthly Review Press.
Marx, Karl. 1954. Capital. Vol. 1. London: Lawrence & Wishart. (Orig. pub. 1887).
Myrdal, Gunnar. 1957. Economic Theory and Under-developed Regions. London: Duckworth.
Rodney, Walter. 1972. How Europe Underdeveloped Africa. London: Bogle-L’Ouverture. Rev. ed., 1981. Washington, DC: Howard University Press.