What is Dependency Theory and how does it apply to development?

by antoinebg78 (student)

Antoine Le Mézo 2nd SIA

Dependency Theory was developed in the late 1950’s by Raul Prebisch, Director of the United Nations Economic Commission for Latin America, as a reaction to modernization theory. He believed that the economic growth in the advanced industrialized countries (the First world) did not necessarily lead to growth in the poorer countries (the Third World). Indeed, economic activity in the richer countries often led to severe economic problems in the poorer countries. As a field, development economics looks not only at traditional economic rubrics, such as or per-capital income, but also looks at things like standard of living, health care, education, and equal rights opportunities.

In this essay I am going to write about the Dependency Theory, its history, its ideas and later on, on how it applies to Development. I think that this theory allows us to examine the economic balance in the world today.

The dependency theory can be considered as an opposition to the well - known free market theory. The free market ideology holds that open markets and free trade benefit developing nations, helping them eventually to join the global economy as equivalent players.

The dependency theory isn’t only a reaction to the free market theory but also, a reaction to the modernization theory. This theory suggests that all countries have similar stages of development, that today's underdeveloped nations are in a similar stage than the developed countries a few years ago.

Dependency theory rejected these views, arguing that underdeveloped countries are not old versions of developed countries, but they have their own features and structures that aren’t necessarily the same as the wealthy countries, and because of this, these underdeveloped countries will be the weaker members in a world market economy.

In the 1960s and the 1970s, the dependency theory was extremely popular. As the world developed in a more global market, the dependency theory itself rose too. However, this theory lost support by the 1990s, with the rise of countries like Thailand or even India.

Actually, there isn’t only one unified Dependency Theory. Nevertheless, there are some main propositions to inspire the analyses of most dependency theorists:

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Actually, there isn’t only one unified Dependency Theory. Nevertheless, there are some main propositions to inspire the analyses of most dependency theorists:

Firstly, dependency illustrates the international system with two sets of states, usually described as dominant/dependent, center/periphery or even metropolitan/satellite. The dominant states are the industrially developed and advanced countries in the OECD (Organization of Economic Co- operation and Development). The dependent states are countries that have low GNPs (Gross National Product) and which rely a lot on the export of a single resource. These dependent states belong mostly to Latin America, Asia and Africa.

Secondly, the dominant states influence the dependent states through multinational corporations within the developing states.

Third, the relations between dominant and dependent states are dynamic. Dependency is an ongoing process. For example, Latin America is today, and has been since the sixteenth century, part of an international system dominated by the now-developed nations.

The first explanation for the Dependency Theory would be that poor countries exported primary resources to the rich countries like USA. Less developed nations provided raw materials, cheap labor and markets for developed countries. Rich countries then manufactured products or objects out of the resources given by the poor countries. Later on, rich countries (like USA or Germany) would sell it back to a poor country. But, as a matter of fact, the rich countries would sell their manufactured products to the poor countries for more money than the poor countries would sell their primary resources to the rich countries. Therefore, poor countries would never be earning enough money from their exports to pay their imports.

For this reason, supporters of the Dependency Theory have been trying to work out a way to prevent the poor countries to buy from the rich ones. The only solution was to produce the manufactured products on their own soil. This was known as import substitution programs. These poor countries would still be able to sell their primary products out on the world market, but on the other hand, they would not spend their money on manufactured goods coming from rich countries. A lot of countries, for example, in Latin America tried to manufacture goods on their own soil.

Nevertheless, this was a very hard program to adopt. Different issues made this policy so difficult to follow. The first reason would be the fact that the internal markets of the undeveloped countries were too small to support the economies of scale used by the developed countries like USA and to keep the prices low. Another issue would be that, poor countries didn’t have the full control of their primary products. For example, the prices of cereals are decided in London and New York’s Stock Exchange. So, the poor countries produced their primary resources (for example cereals) but they couldn’t control them completely.

Alternately, some countries couldn’t apply the import substitution programs, and for this reason, dependency grows time to time. The thing is that developed countries influence the poor countries with their wealth. The poor countries think that by interacting with rich countries will help them develop. However this is not the case, wealthy countries influence the poor ones into adopting policies that will in the future increase the developed countries even more. But there is another reason, the wealthy countries are afraid to see the Third World countries develop too much. To prevent this, the wealthy countries get wealthier and then they can re-enforce their system to protect themselves from being turned on by the developing countries. Capital continues to transfer from developing countries to developed countries.

This will then result to a deficiency of wealth in the poor countries, however this will oblige them to take out more loans from the wealthier countries, and this will indebt the developing countries even more.

Wealthy nations actively preserved a state of dependence by various means. This influence can involve , , , and , , , , and all aspects of development (including recruitment and training of workers).

Wealthy nations actively counter attempts by dependent nations to resist their influences by means of and/or the use of military force.

There are a number of propositions, which form the core of dependency theory related to development. These propositions include:

1.Underdevelopment is very different from undevelopment. “Development and Underdevelopment are opposite sides of the coin: the development of the industrialized world was and is made possible only by the corresponding underdevelopment of the Third World” said Randall and Theobald in1985.

For example, the European thought that North American continent was an undeveloped area. Underdevelopment refers to a country in which resources are being used, but used in a way in which benefits the dominant states and not the states in which the resources are found.

2. The undeveloped countries are not "behind" or "catching up" to the developed countries of the planet. They are poor and undeveloped because they were pushed to integrate the European economic system only as producers of primary resources or cheap labor, and weren’t allowed to sell their resources in order to compete with wealthy states.

3. Dependency theory suggests an alternative use of internal resources in order to prevent malnutrition instead of following the policies imposed by the rich countries. For example, poor states in Latin America have high rates of malnutrition even though they produce great amounts of cereals to export. Many dependency theorists would argue on the fact that domestic population should consume these agricultural goods in order to reduce the rates of malnutrition.

In conclusion, I think that the Dependency Theory is one of the most interesting economic theory in the post-war era. It allows us to analyze the causes of undevelopment in the poor countries but also to understand the economic balance in the world market today and the links between the LEDC’s (Less Economically Developed Countries) and the MEDC’s (More Economically Developed Countries) today. Even if this theory isn’t as popular today as it was a few years ago, it is still today an interesting way to understand the inter connections between the poor and the rich countries because the world is becoming more and more a global market with the development of multinational corporations.

Sources:

7 September 2012 < http://en.wikipedia.org/wiki/Dependency_theory > “What is Dependency Theory?” Wisegeek

< http://www.wisegeek.com/what-is-dependency-theory.htm >

<> “Dependency Theory” (Power point)

<https://docs.google.com/viewer?a=v&q=cache:TJWc4_4I-0QJ:salises.mona.uwi.edu/sa64a/Presentation6_SA64A.ppt+dependency+thoer&hl=fr&gl=fr&pid=bl&srcid=ADGEESg5bineMakBLQDttLSoKMg6_7Dy2qvqW12DOTG-k5Bz-WG8IOEv4TjAvDrAqdGEWiFoFU8hPSMDFQ0RLnk-UWac6Y6p5FHVNdJ12Oa2nXqyoTKkz2hzoPULCbjPAGNDRzfMy7hB&sig=AHIEtbQLbaeiUjnbgrdBGGshZtRI2n1czg>

by : Vincent Ferraro, “ Dependency Theory : an introduction” Mtholyoke2008 <https://www.mtholyoke.edu/acad/intrel/depend.htm>