Development and dependency

10 B. Development and dependency

Change is a value-neutral concept whereas development is a value-laden concept. Only planned and desired changes can be described as development. Economic development of a class does not necessarily trickle down to the entire population. Social development includes satisfaction of basic needs, essential amenities, physical and mental health, literacy, vocation, social integration, and minimization of disparities. Dudley Seers states that development is about creating the right conditions. It is the capacity to attain basic needs, jobs, equality, participation, adequate educational levels belonging to a nation. He sees justice, sustainability, and inclusiveness as components of development, while equating development to freedom. The Brundtland Commission on environment and development defined sustainable development as development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.

Dependency Theories:

Classical Economics claimed that development and growth in the first world will lead to a trickle-down effect on the third world countries. Dependency theory rejects this view. Its main propositions are:

1. It differentiates between underdevelopment and un-development. Underdevelopment means resources are used in such a manner that it benefits the dominant. Low-income countries are not underdeveloped; rather, they are misdeveloped.
2. Poor countries are poor due to unequal integration with the system, examples being colonialism and the WTO.
3. Alternative uses of resources are preferable to the resource usage patterns imposed by dominant states. Example: Cash crop farming for export.
4. National interest can only be satisfied by addressing the needs of the poor within a society, rather than the satisfaction of corporate or governmental needs.
5. Dominance of the dominant is maintained not just through external agents but also through elites of the dependent state.

The solution is self-sufficiency. It does not mean autarky but controlled integration with the world. Theotonio Dos Santos defined dependency as a historical condition that shapes a certain structure of the world economy such that it favors some countries to the detriment of others and limits the development possibilities of the subordinate economies. It is a situation in which the economy of a certain group of countries is conditioned by the development and expansion of another economy, to which their own is subjected. Its features are:

1. Dependency characterizes the international system as comprised of two sets of states, variously described as dominant/dependent, center/periphery, or metropolitan/satellite. The dominant states are the advanced industrial nations in the Organization of Economic Co-operation and Development (OECD). The dependent states are those states of Latin America, Asia, and Africa which have low per capita GNPs and which rely heavily on the export of a single commodity or a few commodities for foreign exchange earnings.
2. The assumption that external forces are of singular importance to the economic activities within the dependent states. These external forces include multinational corporations, international commodity markets, foreign assistance, communications, and any other means by which the advanced industrialized countries can represent their economic interests abroad.
3. The relations between dominant and dependent states are dynamic because the interactions between the two sets of states tend to not only reinforce but also intensify the unequal patterns. Moreover, dependency is a very deep-seated historical process, rooted in the internationalization of capitalism.

Development and Dependency Theory developed as a Latin American reaction to the Neo-Classical Model which stated that poor countries are poor due to lack of technology and the solution lies in trickle-down economics. This view was rejected by dependency theorists. There are three variants of dependency theory:

Dominant - Dependent Model:

This developed in the late 1950s under the guidance of the Director of the United Nations Economic Commission for Latin America, Raul Prebisch. Poor countries exported primary commodities to the rich countries, who then manufactured products out of those commodities and sold them back to the poor countries. These products always cost more than the primary products used to create them. Therefore, poorer countries would never be earning enough from their export earnings to pay for their imports. These further result into BoP Crisis and a Debt Trap which may further diminish the autonomy of the poor countries. Early 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 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.

Metro - Satellite Model:

Most dependency theorists regard international capitalism as the motive force behind dependency relationships. Andre Gunder Frank in historical research demonstrates that contemporary underdevelopment is in large part the historical product of past and continuing economic and other relations between the satellite underdeveloped and the now developed metropolitan countries. Furthermore, these relations are an essential part of the capitalist system on a. According to this view, the capitalist system has enforced a rigid international division of labor which is responsible for the underdevelopment of many areas of the world. The dependent states supply cheap minerals, agricultural commodities, and cheap labor, and also serve as the repositories of surplus capital, obsolescent technologies, and manufactured goods. These functions orient the economies of the dependent states towards the outside: money, goods, and services do flow into dependent states, but the allocation of these resources is determined by the economic interests of the dominant states, and not by the economic interests of the dependent state. This division of labor is ultimately the explanation for poverty, and there is little question but that capitalism regards the division of labor as a necessary condition for the efficient allocation of resources. The most explicit manifestation of this. This theory also believes that economic and political power are heavily concentrated and centralized in the industrialized countries. Hence, any distinction between economic and political power is spurious and governments will take whatever steps are necessary to protect private economic interests, such as those held by multinational corporations.

AG Frank suggests that developing countries should make their own power blocs on the line of OECD, to break the monopoly of the developed countries. Another option can be to isolate oneself like erstwhile China and Paraguay. They can also break away at a time when the metropolitan country is weak, in times of war or recession.

World System Theory:

In the 1960s international financial and trade systems were beginning to be more flexible, in which national governments seemed to have less and less influence. In this changing order, Immanuel Wallerstein felt that there were wider forces that impacted and influenced small and underdeveloped nations and the nation-state level of analysis was no longer useful to explain conditions in underdeveloped countries. New global systems of communications, new world trade mechanisms, the international financial systems, and transfer of military links were influencing the world. These factors created their own dynamic at the international level, and at the same time, they were interacting with internal aspects of each country.

He argues that the world capitalist economic system is not merely a collection of independent countries engaged in diplomatic and economic relations with one another, but must instead be understood as a single unit. This world system is seen as comprising four overlapping elements:

1. A world market for goods and labor
2. The division of the population into different economic classes, particularly capitalists and workers
3. An international system of formal and informal political relations and competition
4. The carving up of the world into three unequal economic zones, with the wealthier zones exploiting the poorer ones.

All countries in the world fall into one of these three zones. They are termed as:

1. Core - economic system. Political, economic, and military powers. Example: USA, Germany, Japan
2. Periphery - low income, largely agricultural countries that are often manipulated by core countries for their own economic advantage. They export raw materials and are the market for finished goods of the core, this unequal trade limiting their economic development. Example: several countries in Africa, Latin America, Asia
3. Semi-Periphery - these countries occupy an intermediate position. They are semi-industrialized, middle-income countries that extract profit from the periphery and in turn yield profits to the core. Example: Mexico, Brazil, Argentina, Chile

Technology is the central feature of the core proposition. Surplus flow of wealth occurs from periphery to the core. They periphery depends on the core for technology. However, both are dependent on each other and change in one affects the other as well. Example: Brexit and Syrian War.

Although the world system changes very slowly, it is envisioned that the 21st century will see a multipolar world with economic power being shared between the old and the newly developed countries.

Optimistic View of Dependency Theory:

Fernando Henrique Cardoso believes that the main problem faced by the undeveloped countries is the lack of autonomous technology and a developed sector of capital goods. To develop these, they need to insert themselves into the circuit of international capitalism. The inflow of foreign investments creates islands of highly developed modern enterprises in the sea of backwardness and traditionalism. These islands serve as an example; they educate a skilled working class, train a local managerial elite, open up opportunities for cooperating subsidiary enterprises and produce incentives to imitate their economic success. Entrepreneurial motivations are born and spread, local middle class slowly arises, and early accumulation of local capital begins. At some stage, these incremental quantitative changes may produce a qualitative leap and takeoff to indigenous growth and development, gradually diminishing the dependence. The global economic interconnections appear as means towards ultimate emancipation rather than instruments of continuing subjugation. Examples: Brazil, Mexico, Taiwan, South Korea, Singapore, Hong Kong.

Critique of Dependency Theories:

1. Goldthorpe - fail to explain the rise and fall of Latin American countries - they developed borrowing technology from the USA, but fell due to corruption and political turmoil. Therefore, the dependency model lacks empirical evidence.
2. Samir Amin - dependency theory explains problems but fails to provide concrete solutions.
3. They do not provide any substantive empirical evidence to support their arguments. There are few examples that are provided but many exceptions exist which do not fit in with their core periphery theory, like the newly emerged industrial countries of Southeast Asia.
4. Highly abstract and tend to use homogenizing categories such as developed and underdeveloped, which do not fully capture the variations within these categories.
5. They consider ties with multinational corporations as detrimental, while one view has been that they are important means of transfer of technology.
6. They contain Eurocentric biases, for example, the assumption that industrialization and possession of industrial capital are crucial requisites for economic progress. The inability to think beyond the state as the primary essential agent of economic development. Also, there is a Eurocentric bias in de-emphasizing production undertaken by women and in not realizing the hazardous implications for the environment of industrialization.
7. They underplay the role of culture and wrongly treat wealth as a zero-sum game. They consider only economic factors and are too simplistic and like a protest - Cultural Globalization Theory.
8. Cannot explain occasional success stories like Brazil, Singapore, Hong Kong, Argentina, and Mexico.

Though on the face of it, dependency theories may not seem to be reflecting contemporary circumstances and situations, and some of their formulations have been questioned. However, in the face of growing interconnected economies and political economy, it is worthwhile to critically evaluate these theories.