Describe dependency theory?

  Dependency theory was popular in the 1960s and 1970s as a criticism of modernization theory. The main propounders of dependency theory are: Prebisch, Singer, Paul Baran, Paul Sweezy, C. Furtado, F H Cardoso, Gunnar Myrdal, A Gunder Frank, Girvan, and Bill Warren. Many of these scholars focused their attention on Latin America. The leading dependency theorist in the Islamic world is the Egyptian economist, Samir Amin.

Earlier theories held that all societies progress through similar stages of development. They say that at some time in the past, today's developed areas were in a situation that is similar to that faced by today's underdeveloped areas. Therefore, the task of helping the underdeveloped areas out of poverty is to accelerate them along the supposed common path of development by various means, such as investment, technology transfers, and closer integration into the world market. Dependency theory rejected this idea, arguing that underdeveloped" countries are not merely primitive versions of developed countries; rather they have unique features and structures of their own. They are weaker members in a world market economy and the developed nations were never in an analogous position. They never had to exist under the patronage of more powerful countries than themselves. Dependency theorists argued, in opposition to free market economists, that underdeveloped countries needed to reduce their connectedness with the world market so that they might pursue their own path, more in keeping with their own needs, and less dictated by external pressures.

Hans Singer and Raul Prebisch, the prominent dependency theorists, observed that the terms of trade for underdeveloped countries, relative to the developed countries, had deteriorated over time. The underdeveloped countries were able to purchase fewer and fewer manufactured goods from the developed countries in exchange for a given quantity of their raw materials exports. This idea is known as the Singer-Prebisch thesis. Prebisch, an Argentinian economist at the United Nations Commission for Latin America (UNCLA), went on to conclude that the underdeveloped nations must employ some degree of protectionism in trade if they were to enter a self-sustaining development path. He argued that import substitution industrialization (ISI), but not a trade-and-export orientation, is the best strategy for underdeveloped countries.

The advocates of dependency theory believe that the theories of Smith, Ricardo, and the other European classical economists are not suitable to an analysis of the dualistic dependent structure of many nations such as Brazil, Mexico, and India. According to the dependency theorists, the less developed countries are to be understood as part of the global process. Their fate is merely to provide inputs for advanced nations. They provide low wage manufacturing under adverse terms of trade. Dependency analysis was built on the ideas of structuralists, more specifically, on the distinction between centre and the periphery made by Prebisch. The centre is viewed as the cause, and the periphery as the effect. Dependency theory found the causes for the lack of development to be external to the socioeconomic formations of the LDCs (Less Developed Countries). It does not treat dysfunctional institutions of the LDCs as the cause of backwardness. Internal institutional structures such as corruption levels, unproductive land holdings, concentration of wealth, and unresponsive political systems are never considered the causes of underdevelopment. Many dependency theorists advocate social revolution as an effective means to reduce economic disparities in the world system.

Dependency Theory developed in the late 1950s under the guidance of the Director of the United Nations Economic Commission for Latin America, Raul Prebisch. Prebisch and his colleagues were troubled by the fact that economic growth in the advanced industrialised countries did not necessarily lead to growth in the poorer countries. Indeed, their studies suggested that economic activities 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, even if the benefits were not always equally shared.

Prebisch’s initial explanation for the phenomenon was very straightforward: poor countries exported primary commodities to the rich countries, who then manufactured products out of those commodities and sold them back to the poorer countries. The “Value Added” by manufacturing a usable product always cost more than the primary products used to create those products. Therefore, poorer countries would never be earning enough from their export earnings to pay for their imports.

Prebisch’s solution was similarly straightforward: poorer countries should embark on programs of import substitution so that they need not purchase the manufactured products from the richer countries. The poorer countries would still sell their primary products on the world market, but their foreign exchange reserves would not be used to purchase their manufactures from abroad.

Three issues made this policy difficult to follow. The first is that the internal markets of the poorer countries were not large enough to support the economies of the scale used by the richer countries to keep their prices low. The second issue concerned the political will of the poorer countries as to whether a transformation from being primary products producers was possible or desirable. The final issue revolved round the extent to which the poorer countries actually had control over their primary products, particularly in the area of selling those products abroad. These obstacles to the import substitution policy led others to think a little more creatively and historically at the relationship between rich and poor countries.

At this point dependency theory was viewed as a possible way of explaining the persistent poverty of the poorer countries. The traditional neoclassical approach said virtually nothing on this question except to assert that the poorer countries were late in coming to sound economic practices and that as soon as they learned the techniques of modern economics, their poverty would begin to subside. However, Marxist theorists viewed the persistent poverty as a consequence of capitalist exploitation. And a new body of thought, called the world-systems approach, argued that poverty was a direct consequence of the evolution of the international political economy into a fairly rigid division of labor which favored the rich and penalised the poor.

The basic premises of dependency theory are

i) Poor nations provide natural resources and cheap labor. They are export destinations for obsolete technology and for markets for the wealthy nations, without which, the latter could not have the standard of living they enjoy. Poor national , are at a disadvantage in their market interactions with wealthy nations.

ii) Wealthy nations actively perpetuate a state of dependence by various means. This influence may be multifaced, involving economics, media control, politics, banking and finance, education, culture, sport, and all aspects of human resource development, including the recruitment and training of workers.

iii) Wealthy nations actively counter all attempts made by dependent nations to resist their influences by means of economic sanctions, and, possibly, by the use of military force. 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.

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