Dependency Theory in International Relations

[Theories in International Relations]

Written by: Indira Ghosh, 07-Oct-2014

Introduction: This theory derives its name from the word – La Dependencia. It is an
economic theory proposed by the developing Latin American countries. Dependency theory
developed under the guidance of Raul Prebisch, the director of the United Nations Economic
Commission for Latin America, in the late 1950s. Dependency was very important tool of
analysis in the 1960s and 1970s. The dependency theory explains the dependence of
developing countries on powerful developed countries.

There are various strains of dependency theory because of intellectual disagreements among
the liberal reformers (Prebisch), the Marxists (Andre Gunder Frank) and the World-system
theorists (Wallerstein).1

The dependency theorists distinguish various states according to the different economic
functions they perform. Highly developed and advanced super powers like the United States
if America fall under the centre-centre (CC) category. Countries like Canada, the Netherlands
and Japan fall under the periphery-centre (PC) category. These countries have significant
economic development and industrialisation. The third category is the centre-periphery (CP)
category, which includes developing countries that are growing fast like Brazil, China, India
and South Africa. The last category is the periphery-periphery (PP) category which consists
of countries that are economically backward and have a lot of social issues, like Cambodia,
Zambia, El Salvador etc.

According to the Dependency Theorists, breaking the cycle of the increasing economic
disparities between the richer and poorer countries would be to try to become self-sufficient
as much as possible, reducing the level of imports and establishing state control over the
economy. 3

Historical Background for Dependency2: By the end of 19th century, the elites of Latin
American countries comprised of landed oligarchic families and the military. They had the
lion’s share in politics. The British and the US companies dominated the markets of Latin
America. Slowly, the discontent middle class voiced their dissatisfaction about the social
inequality and imperialism through poetry, essays etc. National Universities shaped many in
the public-sphere to become future politicians to lead democratic parties in Latin America.
The Economic Commission for Latin America (ECLA) was created by the United Nations in
1948 to encourage economic cooperation between the member states. In 1949, the ECLA
published the works of Raul Prebisch, an Argentinean thinker who wrote – Economic
Development in Latin America and its Main Problems. The ideas of Raul Prebisch and Hans
Singer both of which were published in 1949 led to the formulation of Dependency Theory.

Observations and Questions raised by Dependency theorists:

1. Why are so many countries in the world not developing?

2. Why the economic growth in the advanced, rich and industrialised states did not lead to the
economic development of the poorer states?

3. On the other hand, why did the economic growth of the richer states often lead to serious
economic issues in the poorer states?

4. Why is the economic gap between the richer and poorer countries increasing?

5. How can the countries on the periphery come out of their dependence on the centre
economies?

Key Points of Dependency Theory:

1. No Universal Model for Growth

The growth-model of the advanced industrial economies does not serve as a model for the
developing economies. The dependency theorists think that the success of the developed
economies was marked by a specific time period in global economic history which was
dominated by exploitative colonial European powers. This model is not likely a repetitive
model and it cannot be emulated by the poorer countries. The dependency theorists argue
against the conclusions drawn by Walt Rostow in his book The Stages of Economic Growth,
in which he writes that the economic growth models of the developed economies were
universally applicable. 1
2. Inclusion of Social Indicators

The dependency theorists do not measure economic growth just based on indicators like GDP
or trade indices. They link economic growth with economic development by paying attention
to indices like life expectancy, infant mortality, education etc. The dependency theorists
emphasise more on social indicators rather than economic indicators.

3. Different Market Distribution Scenarios in Developing Countries

Dependency theorists disagree with the neo-classical model of economic growth that pays
little attention to the distribution of wealth. The neo-classical model assumes that there is a
central distributive mechanism which allocates rewards of efficient production in a rational
and unbiased manner. According to the dependency theorists the rational central distributive
mechanisms could work for a well integrated economy where consumption patterns are not
affected by non-economic forces such as racial, gender, ethnic biases etc. Hence according to
the dependency theorists market alone cannot be a sufficient distributive mechanism for
poorer economies where economic activities are susceptible to social and economic changes.

4. International division of labour

According to the dependency theorists, the centre-centre economies are industrialised,

technically advanced, have advanced research facilities and run on the capital-intensive
industrial model. On the other hand, the countries on the periphery survive on agricultural
production and resource extraction as the major sectors of economy. They provide labour to
the countries in the centre. For example, the periphery-centre serves the interests of the
centre-centre, the centre-periphery serves the interests of the centre-centre and periphery-
centre and the periphery-periphery serves the interests of everyone else.

5. Class Distinction

According to the dependency theorists, there is a clear divide between the rich and poor
people in all states. The rich control the political system and the economy and are the social
elites. They want to stay in power and accumulate more income. In order to do so, the rich
elites of all the states co-operate with each other to keep the system going for their own
benefit. The poor remain poor in the whole process.

6. Exploitative global capitalism

According to the dependency theorists, the system of liberal economic theory dominates
among all the states. The liberal economic theory makes way for free-trade, unfettered market
links with little or no interference from the governments. This global capitalistic system
serves the interests of the countries at the centre-centre or periphery-centre and the entire
system promotes dominance of the rich economies and exploitation of the under-developed
economies. For instance, MNCs, banks, international institutions like World Bank and IMF,
media etc serve the rich of the centre economies

7. Widening Economic gap between states

The dependency theorists are also concerned about the growing economic inequality between
and within different states of the world. They blame the exploitative nature of the
international economic system which serves the interests of a rich few.

The Three Schools of Thoughts:

1. Prebischian:

This school of thought began with Raul Prebsich who was an economist from Latin America.
He said that the economic dependency of the Latin American countries is because of certain
factors which are listed below:

1.1 Primary commodities

Most of the Latin American countries produce primary commodities like agricultural produce
or extraction of minerals. For example, Brazil produces coffee, Chile produces Copper,
Bolivia extracts Bauxite, Cuba produces sugar, Peru extracts Silver and nitrates of different
metals etc.

The primary commodities depend on international market prices that fluctuate very often. For
example, many of the Latin American countries depended on the export of a single primary
commodity to sustain themselves. The price of commodity is susceptible to market
fluctuations depending upon the supply and demand. Any fall in the price of the commodity
would force them to become debtors and thus unable to develop industries for economic
growth.3

1.2 No economic advantage

Raul Prebisch stated that Latin American countries are not the only countries producing
primary commodities. Hence there is no economic advantage for the Latin American
countries. For example Argentina produces wheat. European countries, the US, Russia and
India also produce wheat for the international market. Banana is grown in Costa Rica and
also in many Asian countries.

1.3 Fashion fad

Sometimes the international market goes through certain trends and fads which destabilises
the market for the primary commodities of Latin America. For example, due to lack of
caffeine in Columbian coffee the demand for Columbian coffee has increase and the demand
for Brazilian coffee has decreased in the international markets due to changes in the
preferences of the consumers.

Bolivia used to gain a lot of international revenue till the 1960s by exporting bauxite. Soon
steel came in the market which replaced aluminium thereby stunting the economy of Bolivia.

Peru was famous for its nitrates which were generated from the droppings of birds. Suddenly
many synthetic products came in to the international market which replaced the demand for
Peruvian nitrates.

1.4 Import of manufactured goods

Raul Prebisch argues that the reason Latin American countries are unable to come out their
dependency is because they use their primary commodities to buy manufactured goods. The
prices of the manufactured goods are higher and more amount of primary commodities are
needed to buy a few manufactured goods, hence the balance of payment always remains on
the side of the countries selling manufactured goods to Latin America.

Also, one cannot indefinitely produce primary commodities whereas the production of
manufactured goods is not bound by such limitations.

1.5 Suggestions by Raul Prebisch

The following suggestions were made by Raul Prebisch to bring the Latin American
countries out of dependency:

1.5.1 Industrialisation
According to Raul Prebisch, the Latin American countries needed to industrialise in order to
reduce their dependency on manufactured goods. His suggestion was that the heavy
industries should be first established and then the capital-goods industries should be
established. But unfortunately most of Latin America started manufacturing capital goods
which pushed them more into dependency due to non-availability of domestic markets as
there was very little middle-class people, substandard nature of the capital goods produced
and high prices of these goods as the technology and the raw materials were imported from
outside. The market of Latin America was also open for foreign goods and hence people
preferred buying the cheaper and better quality foreign goods over the domestically produced
ones. Therefore the entire idea of industrialisation crashed

1.5.2 Regional integration

Except for a few countries, most of the countries in Latin America are very small in size.
According to Raul Prebisch, one to one negotiations between a giant state like the USA and a
puny state from Latin America would never work in favour of the latter. Hence he asked all
the countries of Latin America to come together while negotiating with the US.

In 1960, the Latin American free trade area (LAFTA) was formed for the same reason. But it
could not succeed in the international arena as there was no coherent single opinion on
different issues and the levels of development between countries were highly mismatching.
For example, Haiti and the Dominican Republic were very poor as compared to Chile or
Mexico. Also the US manipulated the poorer LAFTA members who were under military rule,
for their own interests. For instance the US would offer to train their troops and give weapons
for free to individual countries so as to get their share of the market.

2. Structuralists:

The Structuralists were headed by Celso Furtado, Henrique Cardoso. The Structuralists had a
different viewpoint on the analysis of dependency. Unlike the Prebischians who laid a lot of
emphasis on external factors, the Structuralists looked into the deficiency in the structure of
the Latin American economy. According to the Structuralists, Latin American economy,
polity and society was controlled by three groups of people viz, the landed oligarchy, the
military and the comprador/nationalist bourgeoisie.

2.1 The Landed Oligarchy

This group has tremendous amount of social, political and economic powers. They own
millions of hectares of land; determine the country’s agriculture, productivity, trading etc.
They are a social powerhouse by themselves and those who live on their lands need to take
permissions from these elites to get married, take baptisms etc. This group is also a political
powerhouse. They mobilise the people under them to support a particular politician. There
are two groups under the landed elites: those who hold the lands and the church, which owns
some of the best and fertile lands of Latin America. Both the church and the landlords who
own lands are against land reforms in Latin America.

2.2 The Military

This is another important and powerful group and is often related to the first group of landed
oligarchy. They are against any kind of land reforms in Latin America as they believe it is a
communist idea.

2.3 The Comprador Bourgeoisie and Nationalist Bourgeoisie

This group consists of the capitalist class of Latin America. The Comprador Bourgeoisie do
not produce or manufacture anything, but act as sellers for foreign goods. The nationalist
bourgeoisie aims at setting up their own industries and catering to the working people of
Latin America and also to the peripheral industries. They generate jobs, capital goods,
infrastructure etc in contrast to the Comprador bourgeoisie. The comprador bourgeoisie does
not want any land reforms because it does not want the national bourgeoisie to take upper
hand.

According to Structuralists, unless one restructures the internal workings of the society,
economy and polity, the full productivity of the land cannot be achieved and hence the
problem of dependency will persist.

3. Marxists:

The most important contributor of the Marxist form of dependency theory was German
sociologist, Andre Gunder Frank. According to the Marxists dependency of the developing
countries is not the result of internal or external factors but it is the outcome of a capitalist
system. They believe that as long as there is something to appropriate or expropriate,
dependency will continue. Appropriation and expropriation are the benchmarks of capitalist
system. They explain dependency in terms of centre-satellite relationships. The centres
comprise of the states which are core economic powers whereas satellites are on the
periphery and they revolve around the centre. Satellites are dependent on the centres for their
economic well-being. Centres can also depend on satellites which create a system of
interdependence. For example, the US is a centre for India. India is a centre for Pakistan or
Bangladesh and Bangladesh is a centre for Bhutan.

According to Andre Gunder Frank, independence and not inter dependence is a way to get
out of dependence, but this is not feasible for the economic growth of a country. For example,
in 1959, when Cuba became an independent state, Andre Gunder Frank thought that Cuba
will become self-reliant and will not have to depend on any other state. But this soon changed
when Cuba became a satellite of USSR for its existence.

Criticisms of The DependencyTheory:

The free market economists although see the complaints of the dependency theorists’ but they
criticise the policy prescriptions, which according to them, only aggravate the disparity
between the developed and undeveloped states, because of the following reasons:

1. Corruption

The state owned companies of developing countries show higher rates of corruption and
malfunction.

2. Lack of Competition

By preventing the entry of foreign goods and subsidising the domestic production, the
efficiency of the in-country companies tend to decrease and also because of lack of
competition research and new innovations do not take place.

3. Lack of Sustainability

In poor countries, which depend on foreign aid from more prosperous countries, the
dependence of the domestic industries on government support may not be sustainable in the
long run.

4. Higher Cost of Domestic Production

Subsidies on domestic industries, restrictions on imports, higher prices by tariffs etc cause the
domestic cost of production to be very high. And it is ultimately the consumers who suffer.
Because of the money spent on subsidies the developmental programmes and social welfare
programmes also suffer setbacks due to lack of capital.

Conclusion

Initially the policies adopted by the Dependency Theorists seemed to attain some kind of
success but by the 1980s due to hyperinflation, ballooning budget deficits, artificially low
rates of interests etc., the failure of the policies became apparent. Large scale capital was
gained through foreign loans to sustain subsidizing the domestic industry which quadrupled
the Latin American debts from 1975 to 1982. The acute debt crisis led to the lowering of the
per capita incomes and produced a “Lost Decade” in Latin America.

Today, the policies adopted by the Dependency Theorists seems to have failed and there has
been a heavy pressure on the under developed countries to free market policies that attract
foreign investments for industrialization which was discredited by the Marxists. Nevertheless,
Dependency theory as a tool of analysis still exists in the contemporary world where
economic inequalities still abound as well as the cycles of recession and prosperity.3

Often the dependency theory is seen as an endorsement of a policy of autarky. For example,
policies like the Great Leap Forward in China and the policy of Ujamma in Tanzania have
failed, suggesting that self-reliance and autarky are not good choices for economic growth
and development. The policy of a state towards self-reliance should be not by cutting of
interactions with the world but by endorsing a policy of controlled interactions on terms that
promise to emancipate the social and economic conditions of the developing states.
Bibliography:

1. Ferraro, Vincent. "Dependency Theory: An Introduction." Dependency Theory: An

Introduction. 1 July 1996. Web. 6 Oct. 2014. <http://www2.fiu.edu/~ereserve/010029521-
1.pdf>.

2. Beigel, Fernanda. "Dependency Analysis: The Creation of New Social Theory in Latin
America." Http://www.jornaldomauss.org/. The International Handbook on Diverse
Sociological Traditions, London. Web. 6 Oct. 2014.
<http://www.jornaldomauss.org/periodico/wp-content/uploads/2009/04/copia-de-handbook-
of-diverse-sociological-traditions.pdf>.

3. Mansbach, Richard W., and Kirsten L. Taylor. "The Global South." Introduction to Global
Politics. 2008 ed. London: Routledge, 2008. 581,582. Print.