International Political Economy - Essay Example

1. Introduction. Ttreault and Abel (1998: p. 3) identify two important realities in modern international political economy ly material and ideological realities. These realities are both absolutely real and occupy the same space at the same time and none of them is destined to predominate the other. The material reality derives from the distribution of raw materials; technology; economic and political alliances; and the cost of labour, investment capital, and land. The ideological reality is often based upon nationalism and its seemingly inevitable cconcominatnists: misperception, insecurity, and the need to establish and expand power and prestige. (Ttreault and Abel, 1998: p. 3). With reference to the material reality individual actors are expected to be pursuing their self-interest through bargaining and the interplay of the market. (Ttreault and Abel, 1998: p. 3). Similarly considering the ideological reality one would expect to see a multi-faceted order and its potential for improving overall production and wealth skewed in various ways to provide different sorts of short-term advantages for those who can manipulate the system to conform to specific goals. (Ttreault and Abel, 1998: p. 3). For instance the flow of resources, the availability of money as well as the cost of doing business can be manipulated, even by weak countries if they seize the right moment. While the material reality may be evolving toward a complex interactive system, such an outcome serves to justify and describe one way or another to rig the system to a particular advantage rather than to structure a mutually beneficial international economic order likely to raise overall global wealth but unlikely to generate individual distinction or preeminence for particular countries. (Ttreault and Abel, 1998: p. 3). Dependency theory refer to a set of theories, which maintained that third world countries fail to attain adequate and sustainable levels of development as a result of their dependence on the advanced capitalist economies. (Scott and Marshall, 2005). Built upon Lenin's theories of imperialism, the theory focused upon the economic penetration of the third world particularly Latin America by the large capitalist economies. (Lievesley, 2003). Dependency theory was developed in 1960 and called into question the structural developmentalism associated with Raul Presbish as well as the United Nations Economic Commission for Latin America (ECLA), which emerged in 1948 in Santiago, Chile. (Lievesley, 2003). According to the ECLA, the world was regarded as divided into center (the developed, industrialized North) and the periphery (the underdeveloped agricultural South) and the relationship between them was determined by the structure of the world economy. (Lievesley, 2003). The economy of Latin America concentrated on the production of primary inputs for export to the developed industrialized North. Presbish later discovered that instead of a mutually advantageous relationship between North and South, there was an unequal exchange with Latin American economies facing a long-term secular decline in their terms of trade thereby resulting in a chronic balance of payment deficits with the periphery having to export more and more in order to maintain the same levels of manufactured imports. (Lievesley, 2003). The figure in the following page represents the relationship between the developed industrialized North and the underdeveloped agricultural south. Figure 1. Dependency Theory Core/Metropolitan Centre Power Development Unequal Exchange Periphery Under development Marginal = Dependency Theory Source: Lecture Notes. Frank, a German Economist of development was the major contributor to dependency theory who in his book Capitalism and Underdevelopment in Latin America (1967), concentrated upon the external mechanisms of control exerted by the centre (or metropole) upon the periphery (or satellite). (Lievesley, 2003; Scott and Marshal, 2005). The centre maintained the periphery in a state of underdevelopment for purposes of super exploitation. The periphery was willfully maintained by the centre in a state of underdevelopment for purposes of super exploitation. (Lievesley, 2003). According to Frank, underdevelopment of the periphery was not an inherent condition, it was rather the determined outcome of the historical relationship between advanced capitalists and subordinate developing countries. Dependency theory therefore holds that since underdevelopment was the outcome of capitalist development, it would only end when the capitalist itself collapsed. Frank however, proposed socialist resolution as the solution to dependency theory. (Lievesley, 2003). Like any other theory, dependency theory has been subject to criticisms. Critics of the dependency thesis have complained of careless terminology, simplistic class analysis, lack of conceptual rigour, and excessive polemic. Dependency should be regarded more as a tool of interpretation, a critical methodology rather than a fully developed theory. It has not provided answers to Latin American problems but has provoked debate. (Lievesley, 2003). This paper aims at determining the relevance of dependency theory to the reality of developing economies today. This will be done by reviewing a series of literature on the relationships between the advanced capitalist (metropolis) and their counterpart underdeveloped economies (satellites). the study will also look at case studies and relevant conclusions will be drawn based on the findings. The rest of the paper is organized as follows: section 2 looks at some literature review on dependency theory studies, section three presents some case studies and practical examples of relationships between advanced economies and developing economies and section four presents a conclusion. 2. Literature Review of Dependency Theory. Like any theory, dependency theory has been tested by a number of studies. While some find that dependency theory has a negative impact on the development of Africa, for example, Griffin (1970), Griffin and Enos (1970), Rahman (1968) cited in Hasan (2002: p. 689) document an inverse relationship between savings and foreign Capital inflows, economic growth and foreign capital flows, other studies document that dependency theory has a positive impact on the growth and development of developing countries. For example, Papaneck (1972, 1973), Gulati (1975a), Over 1975b document a positive beneficial relationship between domestic savings and foreign capital inflows, growth and foreign capital inflows. Some studies have also documented an insignificant relationship between dependency theory and the growth and development of developing countries. For example, Gupta (1970) and Gulati (1975b) document an insignificant relationship between savings and foreign capital inflows, growth and foreign capital inflows etc. (Hasan, 2002). The study by Hasan (2002) was carried out based on two hypothesis as follows: 1. Foreign capital inflows to developing countries from developed countries exert significant beneficial effects on the recipient country's economic development by mitigating severe domestic savings and foreign exchange constraints. 2. The second more radical view known as the radical hypothesis is based on the inverse relationship between foreign capital inflows and domestic savings. The theory contends that foreign capital inflows exert significant negative effects on the savings growth efforts of the recipient country and thus makes recipient countries increasingly dependent on foreign capital for sustaining growth rates. 3. The Relevance of Dependency Theory on the Reality of Developing Countries. The case Study of Africa. African is one of the most underdeveloped continents in the world today and represents a good case study for this study. Abubakar (1989: p. 19) describes Africa as a continent locked in an unequal exchange with the developed world. Being perhaps the richest continent in the world, Africa has been transformed into undeniably the poorest continent. The following are from prominent leaders in Africa: "Every morning I listen to the B.B.C. to learn the price of the cotton and coffee with which Tanzania earns its foreign exchange. The prices of tractors and other goods we need to buy are not announced; they are fixed by the manufacturers in the Developed World, and we learn what they are when we go to buy". (Abubakar, 1989: p. 19) quoting Julius Nyerere "... the Principle of relieving debts by increasing them". (Abubakar, 1989: p. 19) quoting J. H. Mensah Africa is endowed with rich natural resources. For example, the continent has rich soils for agricultural production; abundant water resources for irrigation, transportation, and hydroelectric generation. (Abubakar, 1989: p. 19). Africa has 97% of the world's reserves of chromium, 85% of the world's platinium, 64% of the world's gold, 50% of manganese, and 25% of its uranium which represent minerals of strategic industrial and military importance. According to Abubakar (1989: p. 19) Africa's poverty can be regarded from two broad perspectives. That is, it can be attributed to a global perspective, and to a domestic perspective, in terms of the dynamics of African governments. Africa's primary activity is the export of raw materials and earnings from these depend on volume and price. Volume is determined by technology, prices and vagaries of the weather, none of which Africa has complete control over not even the man-made institutions of technology and price. (Abubakar, 1989: pp. 19-20) One the one hand the the vagaries of weather are uncontrollable. On the other hand price is determined by demand and supply in the world market. It should be noted that there is not perfect competitive market that can freely determine prices of goods. This is because the market is always manipulated by the advanced capitalist economies to suit their selfish desires or interests. Price manipulations occur frequently when there is monopsony, that is, a situation where there is only one buyer. (Abubakar, 1989: pp. 20). In addition, advanced economies use techniques such as substitution and stockpiling and cutback in consumption to manipulate demand and thus prices. (Abubakar, 1989: pp. 20). For example, these techniques were used with respect to petroleum oil, and the result was a slump in oil prices. both third world countries and Newly Industrialized Countries (NICs) both export close substitutes resulting in high competition between third world countries and NICs in the market for raw materials. (Abubakar, 1989: pp. 20). They all supply the same commodities at the same time when demand is falling and this results to increase in supply and according to the rules of demand and supply, a decrease in demand and thus prices. (Abubakar, 1989: pp. 20). Recently Africa has been suffering from fragile socioeconomic and political structures and has been facing a very harsh global economic environment. Declining demand for raw materials on which Africa depends for earning foreign exchange to buy capital and consumer goods such as tractors, vehicles, machines, trucks, consumables can be attributd to the global recession. (Abubakar, 1989: pp. 20). The resulting effects of falling demand has been a fall in prices of raw materials. (Abubakar, 1989: pp. 20). With dwindling foreign exchange, inflation continues unbated in the developed countries which is the market for capital goods, which Africans need for production and development. The foregoing results in unfair terms of trade between Africa and industrialized countries as well as unequal exchange, which contributes enormously to Africa's underdevelopment. (Abubakar, 1989: pp. 20). In addition to falling demand and inflation, which greatly hampers Africa's terms of trade, natural disaster adds more salt to the injury. For example, there have been frequent and prolonged droughts which have adverse effects on production of both cash and food crops, the latter (food crops) representing the most important basic necessity. (Abubakar, 1989: pp. 19-20). Abubakar (1989: p. 20) asserts that droughts have helped to weaken Africa's socioeconomic systems in two ways: firstly they have drastically cut down the volume to offset the effect of low prices; secondly, they have reduced food production. This has resulted into hunger, starvation, death and refugee problems. The forgoing has transformed Africa into a desperate international begger which reflects a position of great weakness. (Abubakar, 1989: pp. 20). Prolonged droughts have made Africa to appreciate the critical importance of food in the scheme of things since everything on earth is based on food, for it is the key to a person's livelihood: food provides energy to enable people to engage in productive activities. An economy that has adequate food supply has certainly solved the most essential economic problem. it therefore has the foundation to begin searching for solutions to other economic problems. (Abubakar, 1989: pp. 20). Cameroon, which is located at the armpit of Africa for example, is blessed with abundant food supply reason why it is difficult for people in this country to go into conflict despite rising political tension. Africa's Terms Of Trade The issue of terms of trade has been discussed extensively and intensively following the era of commercial capitalism. As industrialization progressed, the discussion assumed greater importance for both developed and developing countries. Debate on terms of trade is still continuing, and arguments as to who is benefiting at the expense of whom will continue forever. The questions now are: Why this argument about terms of trade What is so important about terms of trade as to generate such an amount of debate These are the questions I want to answer in the course of this discussion. (Abubakar, 1989: pp. 20). Commercial capitalism preceded industrial capitalism. Even in selfsufficient "primitive" societies, some exchange went on. It was done by barter, but nevertheless it was a form of trade. With time, societies living far apart started to trade over long distances. But we may assume that modern commercial exchange or trade started after the discovery of distant lands by European explorers. However, of interest here is the commercial experience of Western Europe, whose countries were the colonizers of Africa. Trade between Africa and Europe started with slaves: after the abolition of the slave trade, other commodities became articles of a trade that continued for centuries until the dawn of imperialism. (Abubakar, 1989: pp. 20). As is well known, imperialism was designed to achieve specific ends: markets, sources of raw materials, and profits. As capitalism developed in the metropolitan countries, there arose competition among them for natural resources, markets, and investment opportunities. This was the reason for the partition of Africa and World Wars I and II. The European countries had relatively fewer raw materials than the other parts of the world, and markets and investment outlets at home were saturated. Yet profits and employment had to be maintained and even raised. Profits are needed for more investment and a high standard of living, and millions came to depend on external investment and trade for their jobs. Hence the rush and competition for empires. It is thus clear that the stability and survival of the metropolitan countries depended on their imperial acquisitions, with which one of the major links was trade in manufactured exports and raw materials. (Abubakar, 1989: pp. 22). When trade and exports became crucial to the survival of the imperialist countries, the theory of comparative advantage was developed. This theory maintains that nations exchanging commodities in which they have a comparative advantage will end up gaining in welfare by having from other countries those commodities that would have been more expensive for them to produce themselves. A country has a comparative advantage in a commodity it can produce at lower cost than its trading partner could. This underpins the principle of the division of labor. Going by this logic then, countries that have a comparative advantage in producing manufactures should continue to do so, as should those producing raw materials. There is one danger in this for Third World countries: countries on the periphery will never have the chance to industrialize; they will remain suppliers of raw materials. Meanwhile, countries that have a competitive advantage will continue to promote the principle of comparative advantage. But some of these (Abubakar, 1989: pp. 22). 4. Conclusions. Based on the above findings, one can see that the terms of trade between developing countries, which in our case was Africa and the Capitalist countries have not been in favour of the developing countries. Prices of raw materials are manipulated by the advanced capitalist countries and they are made to favour their selfish desires to remain powerful. On the other hand capital and consumer goods are sold back to Africa at very expensive prices. there is therefore an inbalance in the flow of resources between the developed and underdeveloped world making the developing countries poorer and poorer while the advanced economies get richer and richer thus exerting more power on the developing countries. The forgoing is consistent with the ECLA model observed earlier and leads us to conclude that dependency theory plays a significant role in the growth and development of developing countries. Only if the developed countries could allow developing countries to freely determine prices of raw materials which are necessary inputs to industries in the developed world, can Africa achieve levels of development equal to those of the developed world. BIBLIOGRAPHY Ttreaul M. A., Abel C. F. (1986). Dependency Theory And The Return Of High Politics. Greenwood Press. New York. Scott J., Marshall G. (2005). Dependency theory"A Dictionary of Sociology. John Scott and Gordon Marshall. Oxford University Press Oxford Reference Online. http://www.oxfordreference.com/views/ENTRY.htmlsubview=Main&entry=t88.e549 Lievesley G. (2003)."Dependency"The Concise Oxford Dictionary of Politics. Ed. Iain McLean and Alistair McMillan. Oxford University Press, Oxford Reference Online. http://www.oxfordreference.com/views/ENTRY.htmlsubview=Main&entry=t86.e339 Abubakar A. (1989). Africa and the Challenge of Development: Acquiescence and Dependency Versus Freedom and Development. Praeger Publishers. New York. Hasan M. S. (2002). Concessional foreign capital inflows and domestic savings across countries. Dependency hypothesis re-visited. Journal of Economic Studies, vol. 29, No. 6, pp. 388-422. Read More