Dependency Theory of Development Unit 9

UNIT 9: DEPENDENCY THEORY OF DEVELOPMENT

UNIT STRUCTURE
9.1 Learning Objectives
9.2 Introduction
9.3 Emergence of Dependency Theory of Development
9.3. 1 The Basic Premises of Dependency Theory
9.4 Characteristics of Dependency
9.5 Approaches to Dependency
9.5.1 The Marxian Theory of Dependency
9.5.2 The Structuralist Theory of Dependency
9.6 Criticisms of Dependency Theory
9.7 A. G. Frank’s Theory of Underdevelopment
9.8 Let Us Sum Up
9.9 Further Reading
9.10 Answers to Check Your Progress
9.11 Model Questions

9.1 LEARNING OBJECTIVES

After going through this unit, you will be able to -

l know the dependency theory of development
l understand the basic characteristics of dependency theory
l distinguish between the Marxian and non Marxian approaches of
dependency theory
l know the criticisms of dependency theory.
l know A.G. Frank’s Theory of underdevelopment

9.2 INTRODUCTION

This unit emphasises on the theory of dependency by highlighting

it’s fundamental premises, characteristics, approaches, theorists, etc.

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‘Dependency’ is a body of social science theories. It contends that

resources flow from a periphery of the poor and underdeveloped states to
a core of wealthy states, enriching the wealthy states at the expense of the
underdeveloped states. It is a central contention of dependency theory that
the poor states are impoverished and the rich states are enriched, and the
poor states are integrated into the world system. Dependency theories were
one of the strongest critics of the growth oriented theories which came
largely from the Western nations.

9.3 EMERGENCE OF DEPENDENCY THEORY OF

DEVELOPMENT

Dependency theory evolved around 1950 and it 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 on Latin America. The
leading dependency theorist in the Islamic world is the Egyptian economist,
Samir Amin.
The earlier theories held that all societies progress through similar
stages of development and 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 the
underdeveloped countries are not merely primitive versions of the 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. Dependency theorists argued,
in opposition to free market economists, that the underdeveloped countries

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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 the 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 Argentinean 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, but not a trade-and-export orientation,
is the best strategy for the underdeveloped countries.
The advocates of dependency theory believe that the theories of
Smith, Ricardo, and the other European classical economists are not suitable
for 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 the 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 the centre and the periphery made by Prebisch. The center 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.
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9.3. 1 The Basic Premises of Dependency Theory

The following account highlights some of the fundamental premises

of the Dependency theory. Dependency theory, it is argued, rests
on these ideas, as discussed below.
l Poor nations provide natural resources and cheap labour. 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 nations are at a disadvantageous position
in their market interactions.

l Wealthy nations actively perpetuate a state of dependence by

various means. This influence may be 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.

l Wealthy nations actively counter all attempts made by the 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.

9.4 CHARACTERISTICS OF DEPENDENCY

After knowing the fundamentals of dependency theory, let us now

discuss the characteristics of a dependent economy. Dependency is said
to have been created with the industrial revolution, with the expansion of
European empires around the world, and due to the superior military power
and accumulated wealth of these empires. Some argued that before this
expansion, the exploitation was internal, with the major economic centres
dominating the rest of the country. The establishment of global trade patterns
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in the nineteenth century allowed capitalism to spread globally. The wealthy

became more isolated from the poor, because they gained disproportionately
from imperialistic practices. This control ensures that all profits in less
developed countries are remitted to the developed nations. It prevents
domestic reinvestment, causing capital flight and, thus, it hinders economic
growth. The features of a dependent economy are as follows:
i) economic growth is not self activating
ii) profits are normally repatriated, but not reinvested
iii) the production of export industries is dependent on imported inputs
iv) income, employment, and growth are determined by
(a) the prices and the demand conditions of international market
(b) the willingness of transnational corporation to invest
v) income, employment and growth are conditioned by
(a) changes in the prices and types of imports
(b) economic fluctuation abroad
(c) changes in taste and fashion
(d) changes in technologically created substitutes
vi) backward and forward linkages of export activities are very rare
vii) foreign capital, foreign technology, and management are dominant
economic factors.
The underlying conditions for dependency of any country are
as follow:
i) exporting firms are primarily owned by foreigners
ii) exports are dominated by one, or a few commodities
iii) the export sector dominates the economy, and imports are larger
in relation to GDP
iv) mineral and petroleum products are produced under conditions
of vertical integration

9.5 APPROACHES TO DEPENDENCY

There are two main streams in dependency theory: The Structuralist

stream, typified by the works of Prebisch, and Furtado; and the Marxist
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stream, developed by Baran, Sweezy, and Frank. Thus, two approaches

are developed by two classes of economists. They are
The Marxian theory of dependency
The Structuralist theory of dependency

9.5.1 The Marxian Theory of Dependency

This theory was developed by Paul Baran in 1957 and is

detailed in his book, The Political Economy of Growth. Dependency
theory shares many points with earlier Marxist theories of imperialism.
It continues to attract interest from Marxists. Celso Furtado of Brazil
was one of the first economists to use the term ‘dependency’ and
to argue that development and underdevelopment are two aspects
of one economic structure. Both Keynes and Myrdal greatly
influenced his thinking concerning the link between the economy
and power, the crucial role of the state, and the ways in which the
international economy influenced, or constrained, the developmental
process of national economies. After a political coup in 1964, Brazil
strictly followed the developmental strategy of industrialization which
generated a social exclusion process in the country. According to
Furtado, however, development should be a social process. So, he
argued for the necessity of incorporating Brazil’s vast population of
poor workers, farmers, and marginalized people into a process of
inclusive social development. In his view, industrialization can
unleash new social forces and pressures which bring about a
process of inclusive social development. Being the head of National
Bank of Brazil, Furtado focused on the northeast region and observed
that the income gap between the poor farmers and those residing
in Sao Paul was greater than the income gap between the average
income in Sao Paul and Europe in the 1950s. He created SUDENE
(Superintendency for the Development of the Northeast) is 1959 a
Brazilian government agency, which was designed to promote
industrial development and land reform in the northeast region to
counteract ‘internal colonialism’, as manifested in the exclusion of
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the northeast from Brazil’s economic growth. According to Furtado,

the northeast faced falling terms of trade for its commodity exports,
and falling terms of trade in relation to its income earnings on the
industrial goods bought from Sao Paul and Rio.
Development and underdevelopment are one totality
constantly produced within the structure of the economy. He
maintained that there was a necessary link between FDI-led growth
and rising internal inequality. To overcome dependence, the
underdeveloped nations would have to create their own economic
plans.
Marx believed that capitalism is characterized by creative
destruction. It has two effects: destruction, and regeneration. Paul
Baran emphasized the destructive side of capitalism in
underdeveloped countries. He did not find evidence of regeneration.
Rather, the monopoly capitalism of the twentieth century, unlike the
competitive capitalism of the nineteenth century, had a vested
interest in maintaining backwardness and dependence in the
periphery.
Baran’s theoretical point of departure was an analysis of
economic surplus. He defined economic surplus as the mass of
resources (actual and potential) which a society could have at its
disposal, in order to facilitate economic growth. It is the amount that
might be reinvested in productive ways to increase the future level
of social output. This surplus is the residual from total income after
society’s basic needs for food, clothing, shelter, and human
companionship have been met. But, this surplus may be grossly
misused. It may be utilized to erect sumptuous and multiple
residences for the rich, or it may be wasted through a variety of
ways of conspicuous consumption.
According to dependency theory, the exploitation of the people
is multiplied because the oppression and violence inherited from
the feudal past is combined with the rationality and intelligent capacity
of the capitalists. The fruits of capitalism were not to raise productive
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wealth in many countries such as India. These fruits went abroad

and served to support a parasitic bourgeoisie at home. People lived
in abysmal misery, and they had no prospect of a better future.
Poverty and underdevelopment continued. They lost their time,
means of livelihoods, their arts and crafts. There was no modern
industry to provide new ones in their place. They were thrust into
extensive contact with the advanced science of the west, yet they
remained in a state of darkest backwardness. By reviewing the
history of colonialism, Baran made the following conclusions:
i) Profit margins fall due to the workers’ demand for higher wages
ii) Foreign capital becomes the targeted source of increasing state
revenue (by imposing higher taxes and higher royalty payments)
iii) Foreign exchange control is imposed to curb the funds flowing
out of the country as repatriated profits.
iv) Tariff on imported wage goods are imposed to protect domestic
manufacturing.

9.5.2 The Structuralist Theory of Dependency

There is a group of structuralist dependency theorists who

are not Marxians. They reject the perspective of stagnation. Amongst
them, the most reputed writer was Fernando Henerique Cardoso,
an active Brazilian sociologist and economist of international repute.
He argued that nations on the periphery suffer from a type of
‘peripheral capitalism’. One of the important features of these
economies is economic stagnation, or, in the words of Andre Gunder
Frank, ‘development of underdevelopment’. Cardoso says that the
dependent countries are not stagnant. The societies and economies
of the periphery are continuously evolving. There are three major
stages in the economic history of LDCs.
The first is the agro-export stage of the colonial period, when
economic dualism was prevalent. During this stage, pre capitalist
sectors of artisans, petty producers, and peasant producers
accounted for the bulk of economic activity. At this stage, some
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sectors, such as precious metals, minerals, and tropical products

are integrated with the world market. The production of these
exportable goods takes place in modern and semi-capitalist
enclaves.
The second is the stage of developmentalist alliances. After
the Second World War, some LDCs experienced major
transformation through Import Substitution Industrialization. In this
stage, a new social structure of accumulation is created which is
based on the collective interest of industrial workers, peasants, and
capitalists.
The third is a corporatist regime stage, where there are
drastic curbs on democracy, unions, universities, and other areas
of society where dissent might be encountered. The populist
orientation of the second stage (in which social security, minimum
wage legislation, public health care, and public education are
expanded) is broken. There are drastic cuts in the state’s budget
for public services. Above all, the TNCs (transnational corporations)
are welcomed. They become pivotal in the new process of
accumulation, and are central to the growth process.
According to the structuralists, one should not be surprised
at some economic progress, nor should one think LDCs are
powerless to shape their destiny. The third stage is not immutable
either. There is no continuous stagnation. Under this new regime in
which the authoritarian state and TNCs cooperate, some economic
growth and development do occur. The TNCs keep costs down in
the era of global competition. GDP rises, and even the standards of
living of the masses may improve. There is a new process of capital
accumulation which Cardoso terms ‘associated dependent
development’.
Cardoso rejects the possibility of a political shift towards a
revolution in these countries, during this stage. As the economic
growth created by the new alliance between domestic capital and

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TNCs progresses, some new possibilities for the working class,

the techno-bureaucracy and the state open up.
The new dependency associated with globalization is
presented as interdependence in an effort to conceal the
asymmetries. Thus, the wheel comes full circle from the 1960s.
According to Girvan, this new orthodoxy calls for renewed critical
analysis from an updated dependency perspective. These non
industrialized countries are caught in a post colonial torpor. They
continue to specialize in one, or a few raw material exports. These
nations are described as dependent economies stuck on the
periphery of progress. The centre- periphery relationship results in
a dependent development pattern. They seem incapable of
autonomously altering their economic structures. This is
characterized by the alliance of international and local capital. The
state also joins this alliance as an active partner. The resulting triple
alliance is a fundamental factor in the emergence of “updated
dependent development”. According to the non Marxist version of
dependency theory, a dependent system does the following:
i) It fosters financial /technological penetration by developed capitalist
countries
ii) It produces an unbalanced economic structure, both, within the
peripheral societies, between them, and the centres
iii) It leads to limitations on self sustained growth in the periphery
iv) It favours structural imbalance and specific patterns of class
relations
v) It requires modifications in the state’s role.

9.6 CRITICISMS OF DEPENDENCY THEORY

Some free market economists, such as Peter Bauer and Martin

Wolf, write primarily for non economists. They argue against the path of
dependency theorists. Autonomous path of periphery countries leads to

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higher corruption, domestic opportunity costs, lack of competition and

sustainability in these countries. By late 1970s, a chorus of voice dissented
against dependency theory. The arguments of dependency theorists are
mainly criticized on the following grounds:
i) Some argue that the dependency theory is an incomplete and
inaccurate description of the socioeconomic conditions of LDCs.
ii) This theory does not highlight how the countries that follow a
dependent development pattern suffer from a variety of economic
ills, such as regressive income distribution, an emphasis on luxury
goods, underutilization and exploitation of human resources, over
reliance of foreign forms for capital intensive technology, and the
perennial problems of poverty and unemployment.
iii) This theory has no relevance to many nations which are neither in
the periphery, nor at the centre. They are called semi periphery
countries.
iv) One need not accept dependency as a necessarily zero sum game
in which the periphery loses, and the centre gains. The dependency
condition provides opportunities for a win-win game, in which both
developed countries and LDCs gain from each other.
v) With the economic growth of India and East Asian economies,
dependency theory has lost its validity. It is more widely accepted in
disciplines such as History and Anthropology.

9.7 A.G. FRANK’S THEORY OF UNDERDEVELOPMENT

Andre Gunder Frank was immensely influ-enced by Paul Baran.

He, in the beginning, criticized the well-recognized contribution of Rostow’s
“Stages of Economic Growth” published in 1971, and popularized the views
of Baran. Frank was very critical of the theories of sociology of devel-opment
and the connected processes of modernization and evolution. Frank is
convinced that neither developed nor undeveloped societies reveal the
characteristics suggested by Hoselitz or, for that matter, by Parsons. Frank
also rejects the theory of diffusion, which suggests that the less developed

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societies cannot be developed because they are not able to be influenced

by the changes in the developed world due to obstacles to development.
Economic diffusions, according to Frank, do not bring about changes in the
Third World. Frank also criticizes McClelland (1961) and Hagen (1962). He
is of the view that these scholars have ignored the fact that historical
circumstances lead to the establishment of one world economic system in
which the Third World functions to develop the First World. Though Baran
originated the theory of dependency, but for popularising it, the credit may
be given to Frank. The basic elements of the theory of underdevelopment
are:
l Historical account of the underdeveloped societies.
l Underdevelopment is a result of their relationship with the developed
societies.
l Development and underdevelopment are the two aspects of the
same system.
l Underdevelopment, dependency and world system are the names
of the same theory.
l This is a theory which presents a historical account of the
relationship of dependency of the less developed countries on the
rich European ones.
Frank is of the view that the world capitalist system involves both
development and underdevelopment as the two aspects of the same system.
Development in one area is a direct result of underdevelopment in some
other area. Frank opines that the world system negates the significance of
national boundaries and that countries are structured into the metropoli-tan-
satellite relationship. This relationship is found not only between the rich
metropolitan countries of the West and the poor satellite countries of the
world but within a country too, where the hinterland supplies to the city and
is exploited by it. In the global economic system, according to Frank,
metropolitan countries develop by expropriating the economic surpluses of
the satellites and perpetuate their underdevelopment. Frank has made a
periodic presentation of the history of the world system. Both the processes
of development and underde-velopment commenced in the mercantile
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period (1500-1770), carried through into industrial capitalism (1770-1870)

and culminated in imperialism (1870-1930). Throughout the process, the
colonies, semi-colonies and neo-colonies existed primarily for the benefit
of the capitalist metropolis and as a direct result became underdeveloped.

9.8 LET US SUM UP

l Dependency theory contends that resources flow from a periphery

of poor and underdeveloped states to a core of wealthy states,
enriching the wealthy states at the expense of the underdeveloped
states.
l Dependency theories have been one of the strongest critics of the
growth oriented theories which came largely from the Western
nations.
l According to dependency theory, the exploitation of the people is
multiplied because the oppression and violence inherited from the
feudal past is combined with the rationality and intelligent capacity
of the capitalists.
l There are two main streams in dependency theory: The Structuralist
stream, typified by the works of Prebisch, and Furtado; and the
Marxist stream, developed by Baran, Sweezy, and Frank.
l The new dependency associated with globalization is presented as
interdependence in an effort to conceal the asymmetries.
l The arguments of dependency theorists are mainly criticized for
being incomplete and inaccurate in their description of the
socioeconomic conditions of LDCs; for not highlighting economic
plight of the countries that follow a dependent development pattern,
amongst others.
l Andre Gunder Frank is of the view that the world capitalist system
involves both development and underdevelopment as the two
aspects of the same system. Development in one area is a direct
result of underdevelopment in some other area.

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CHECK YOUR PROGRESS

Q 1. Name two propounders of the Dependency Theory.

Q 2. What does LDC stand for?
Q 3. What are the two main streams of Dependency theory?

9.9 FURTHER READING

1) Ghosh, B.N; 2001; Dependency Theory Revisited; Ashgaie

2) Frank, A.G; 1966; Development of underdevelopment; New England Free
Press, Bobton

9.10 ANSWERS TO CHECK YOUR PROGRESS

Ans to Q No 1: Paul Baran, Paul Sweezy

Ans to Q No 2: Less Developed Country
Ans to Q No 3: Structuralist stream, Marxist stream

9.11 MODEL QUESTIONS

Short Questions (Answer each question within 150 words)

Q1: State the characteristics of dependent economy.
Q2: List the basic premises of dependency theory.
Q3: What are the main stages in economic history of LDC?
Long Questions (Answer each question within 300-500 words)
Q1: Discuss the criticisms of dependency theory.
Q2: Elaborate the two approaches of dependency theory.
Q3: Discuss A.G. Frank’s ‘Theory of Underdevelopment’.

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