Dependency Theory – An Introduction

Introduction
Emergence of Dependency Theory
Policies to overcome dependency
Summary

Introduction

In an effort to adopt a modern perspective that embraced rapid economic development and growth in the global market, modernization theories sought to chart the course of development that societies would take as they discarded traditional ways and values. Due to competition for global resources and market space, this growth would bring economies into commercial contact with one another. The emergence of the dominant economies is based on variables such as technological advancements, the sophistication of the production process, the resources at a country's disposal, and the degree of skill of its workforce. Any regress in one or both of these areas will have a negative impact on the status in international economic relations. The weaker economies are forced to comply with the terms of trade set by the more powerful ones, often to their own detriment. Modernization depicts a society's development as a socioeconomic force unto itself, but in actuality, no society can advance independently of its close geographic neighbors. Economies interact with one another as buyers and sellers as trade and commerce spread across the globe. These players have an impact on market forces, laws and policies that govern the global market, and all of these things together. To maintain favorable trade conditions, different economies keep up business ties with one another. The quantity of import goods that a country can buy for each unit of export goods is referred to as the terms of trade. When the amount of goods imported is equal to or less than the amount of goods exported, this is considered to be a favorable trade balance for an economy. The nation suffers from a disadvantage when its import to export ratio is higher. In contrast to the terms of trade of the developed countries, as shown by the Prebisch-Singer hypothesis, the terms of trade of the underdeveloped countries deteriorate over time. In other words, over time, less manufactured goods are exchanged for raw materials by the developed countries from the underdeveloped countries.

Emergence of Dependency Theory

The dependency theory first appeared in the 1960s in response to the modernization theory, which contends that underdeveloped nations are simply at an earlier stage of development than developed nations and will eventually catch up. Dependency theory disagreed, contending that underdeveloped nations have distinct characteristics and structures that set them apart from developed nations and, more importantly, that they are the weaker participants in a global market economy. According to dependency theory , the underdeveloped nations make up the "periphery" of the global market, while the developed nations make up its "core." Resources flow from the core to the periphery, which continues to experience economic growth at the expense of the latter. From a global systems perspective, the underdeveloped countries' poverty is a result of the growth of the global economy, where resources are distributed so that the developed nations continue to benefit at the expense of the underdeveloped nations.

According to this theory, the developed nations exploit the less developed nations' access to cheap labor and raw materials by using the global market as it currently is. In exchange, the underdeveloped nations receive outdated technology, which keeps them at a disadvantage almost constantly and worsens their marginalized status. Dependency theory promoted an inward-looking approach to development and a larger state role in terms of enacting trade restrictions, challenging foreign investment, and encouraging the nationalization of important sectors of the economy.

Dependency theories are based on the following assumptions:

1. Two groups can be in a dominant/dependent, metropolitan/satellite, or center/periphery relationship. The nations that have experienced economic growth at their own rate and created technological advancements that meet their needs and requirements make up the center. The nations in the periphery are those that have embraced the economic growth models that have been successful for the developed nations. These peripheral members rely heavily or partially on exports from developed nations because they have not fully utilized their own resources. The terms MECD, or more economically developed countries, and LECD, or less economically developed countries, respectively, are also used to refer to developed and underdeveloped nations.
2. Dependency theorists disagree with modernization theorists' definition of underdevelopment, which states that underdeveloped nations go through the same stages of economic development as developed nations, with the exception that they are still in a stage of development that is earlier than that of developed nations. The dependency theorist claims that this approach ignores or denies the history of underdeveloped economies and reduces their very nature to that of "primitive" economies as opposed to one that is distinct from developed economies. By treating them as less developed versions of developed countries, the historical advancements of underdeveloped nations are refuted.
3. The dependence of the relationship is clear from the extent to which the underdeveloped nations are impacted by developed nations and the various ways in which they advance their economic interests. In other words, any modifications or alterations to the economic circumstances of the developed country have a direct impact on the economy of the underdeveloped country.
4. Since the earliest technological developments and the establishment of commercial use, there has been a dependent relationship that gives some countries an economic advantage over others. In exchange for manufactured goods, raw materials were acquired, but there has always been and continues to be a discrepancy between the values of the two commodities. Dependency is therefore historical in origin.
5. The underdeveloped nations are making full use of the resources at their disposal, but the developed nations benefit most from them. They receive no benefit from their use in relation to the underdeveloped nations, to which these resources actually belong.
6. The dependency relationship still exists because of the elites in the underdeveloped countries as well as the developed countries' economic superiority and use of their resources. Elites in developing nations have interests that coincide with those of developed nations, so they see no reason to change the current system of dependence. The poor in underdeveloped nations are those who suffer from the dependency relationship's exploitative nature.
7. According to dependency theorists, in order to break the cycle of dependency, a common national economic interest should be established, and the governments of the underdeveloped nations should be supported and protected in order to advance their own interests. One of the deciding factors in selecting the best course of action to protect the interests of the underdeveloped economy as a whole should be the needs of the poor. However, they do not provide any predetermined guidelines as to what constitutes these interests, making it challenging to translate these theoretical guidelines into a practical strategy.

The Marxist perspective and the power perspective are two additional angles on dependency theory that can be studied. Marxist theory holds that the capitalist system creates a division of labor between developed and underdeveloped nations on the global market. The underdeveloped nations serve as the market for outdated technology, manufactured goods, and consumer goods that are no longer in demand in the domestic markets of the developed countries. They also provide cheap raw materials in the form of natural resources, agricultural products, and human resources (both skilled and unskilled). From a larger perspective, it is always taken into account the interests of the developed country rather than the needs of the underdeveloped countries. The benefits of the developed countries far outweigh the apparent benefits made by the underdeveloped countries.

No effort is made to create innovations that are completely suited to the needs and resources of the underdeveloped states because technology continues to flow into them, regardless of how outdated it may be. Instead, less developed nations direct their spending toward importing goods and services from more developed nations. As a result, the underdeveloped country's overall level of poverty increases, and the gap between it and the developed country -- as well as their dependence on each other -- keeps widening. Overall, the dependence of the underdeveloped nation makes it nearly impossible for it to achieve self-sustaining economic growth. But not all dependency theorists adhere to the Marxist interpretation of global market dynamics. A capitalist framework for the global market cannot adequately describe the current state of affairs.

The dependent relationship between the dominant and dominated countries is self-reinforcing. e. The exploitative and dependent relationship will continue to exist unless there is an outside disruption. As they compete for the resources provided by the Marxist-Leninist framework, dominant countries' existence is not put to an end. Instead, depending on who comes into power after the conflict is resolved and the continued economic ties between dominant and dependent states with different players, the dominant countries may change in identity. This means that the dependence cannot be attributed solely to the global market's and international economics' capitalist nature. Instead, it is based on the power differences that exist between the various nations. In terms of trade, the economically powerful and technologically developed nations dominate the less developed ones. Due to the capitalist system's continual support of the dependent and exploitative relationship between developed and underdeveloped countries, the developed countries are able to maintain their dominant position and enjoy economic superiority.

Policies to overcome dependency

Only if the underdeveloped economy is made the main driver of growth and the dependent relationship is completely ended can the cycle of dependence between the underdeveloped and developed economies be broken. The dependency theorists make the following points in order to accomplish this main objective:.

1. The underdeveloped nations shouldn't attempt to follow the developed nations' path of development and use them as models for economic growth. The developed nations' economic growth has been organic in nature; it has resulted from changes that have satiated their current needs in line with available scientific and technological knowledge. Innovations were made with their needs and future aspirations in mind, and this led to an increase in the economy. In order to find a development model that best meets their needs and makes the best use of the resources at their disposal, underdeveloped nations should examine their own needs and aspirations.
2. Dependency theory rejects the notion of a trickle-down effect that is supported by neoclassical models of development. According to the neoclassical model, as the economy expands, benefits will inevitably "flow down" or "trickle down" to the poorest sectors of society. This is based on the assumption that the economy is dynamic enough to prevent wealth from stagnating at any point and that consumption patterns will adjust to take into account economic growth. Dependency theory approaches this supposition with realism and concentrates on the best way to distribute wealth. It contends that because economic conditions are still evolving and are leading to wealth concentration in some areas, steps should be taken to ensure equitable wealth distribution. Governmental policy can help ensure this and combat the obstacles caused by the still-dominant consumption habits that are influenced by social and economic biases.
3. Between economic development and economic growth, dependency theory makes a very distinct distinction. The production of goods and services in a country relative to its population simply increases over time, and this is what is referred to as economic growth. The only way to measure growth is quantitatively and only in economic terms. On the other hand, economic development is a qualitative idea that takes into account social growth and development indicators. The objective of economic development is to raise the overall standard of living while preserving an increase in per capita income. Improvements in the quality of human resources, better core infrastructure, and improvements in health, education, and safety are additional aspects of growth that fall under economic development. According to dependency theory, the goal of a growing economy is economic development, with economic growth being a subcategory of the developmental process. This theory aims to produce comprehensive outcomes that are beneficial to all facets of society.
4. The overall objective of the dependent economies should be to achieve self-sufficiency and to end, or at the very least, reduce, dependence on the dominant economies. This is only possible if prospects for growth are pursued and establishing business ties with other economies puts their needs first. A bad economic relationship will only increase dependence and push the needs of the emerging economy back to the margins.

After careful consideration of their strengths, the resources at their disposal, and their immediate and long-term needs, the dependent economies should shift their focus from merely meeting their needs under the conditions set by developed economies and pursue a developmental model. The ultimate objective should be a self-reliance model that is suitable for developing countries. The criticism of dependency theory focused on the following flaws that show up in real-world applications. The following are these criticisms:

1. Governmental control over an economy's economic resources would increase instances of red tape and corruption, which would once more result in the concentration of wealth in a few pockets and accomplish the opposite of what governmental participation is intended to prevent.
2. Long-term viability cannot be guaranteed by a development model that heavily depends on government involvement. The upkeep of the status quo, which stifles industrial innovations, and social welfare are the main priorities. Change is met with a great deal of resistance, which hurts economic growth.
3. Because the economy would have to use a trial-and-error approach to determine which model best meets its needs, development would happen more slowly. The poorer segments of society, who should benefit socially and economically from the development process, are currently bearing the social cost of this delay.

Summary

As many current economic developments were perceived to be at odds with the predictions made by dependency theory, its popularity started to wane. The development of the Indian economy, which discarded the state-controlled model in nearly all sectors and opened itself to the open trade model, was foremost among these. As a conceptual orientation to the global distribution of wealth, some authors have argued that it still has value today. The dependency theory has been simplified by American sociologist Immanuel Wallerstein, who calls it the "World System." He applies the Marxist approach to dependency theory on an international, macro level and claims that there are three types of countries: the core, which holds the majority of capital intensive production and skilled labor, and the semiperiphery and the periphery, which hold resources like labor (cheap and unskilled), labor intensive production, and capital intensive production, respectively. Due to improvements in communication and transportation technology, this system is more dynamic than the one suggested by the dependency theory.'

References

1. Apter, David E. Rethinking Development: Modernisation, Dependency and Postmodern Politics 1987 Newbury Park, Sage
2. Blomstrom, Magnus; Hettne, Bjorn. Development Theory in Transition: The Dependency Debate and Beyond: Third World Responses 1988 London: Zed Books
3. Ferraro, Vincent Dependency Theory: An Introduction http://marriottschool.net/emp/WPW/pdf/class/Class_6-The_Dependency_Perspective.pdf
4. James, Paul "Post-Dependency: The Third World in an Era of Globalism and Late Capitalism". Alternatives: Social Transformation and Human Governance. vol. 22 (no. 2) 1997. pp. 205–26.