Dependency theory
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 labour, a destination for obsolete technology, and markets to the wealthy nations, without which they 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. This is very rare, however, and dependency is enforced far more by the wealthy nations setting the rules of international trade and commerce.
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."
Spread of Theory
Dependency theory became popular in the 1960s and 1970s as a criticism of standard 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 other disciplines such as history and anthropology, which can count for or against it.
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 and thus growth.
Implications
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, supposedly, 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.
Practical Failure
While dependency theory as a purely theoretical approach to global economics still exists, to date, all attempts to use the theory to find a practical 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, the theories of dependency theory may offer many new insights in a world of highly mobile multinational corporations.
Market economists have any variety of case studies to point to in order to discredit dependency theory; the improvement of India's economy after it moved from state-controlled business to open trade is by far one of the most cited examples (see also economy of India, Commanding Heights). Also, India's example seemingly contradicts dependency theorists' aforementioned claims about comparative advantage and mobility, as much as its economic growth came as the result of such movements as outsourcing, one of the most mobile forms of capital transfer.