Is Dependency Theory still Relevant Today - Term Paper Example

Dependency theory was mainly critisised by communist nations such as Soviet Union, China etc., because the weaker (having fewer resources) is exploited and manipulated by the stronger (having extensive resources, technological strength, political certainty and cultural acceptance). Indeed, the former becomes dependent on the latter for trade and commerce activities; thereby providing latter the strength to coerce, manipulate, instruct and set conditions for accomplishment of goals and desired outcomes. However, the debacle of Soviet Union in 1991 and rise of capitalism later reduced the discussions on Dependency Theory among theorists, pundits and economists. Nevertheless, the globalisation of world after rapid technological advancements, development of communication and transportation networks has mostly benefited the stronger nations (consider the difference between rich American / European / Asian and poor African) followed by relatively greater dependence of weaker on powerful that accumulated wealth and resources. Therefore, it’s high time to reinitiate a discussion on Dependency Theory, which should be viewed as relevant in international political context. The paper will provide arguments on questions such as ‘how exploitation takes place’, ‘why dependence impedes the growth’, ‘is self-sufficiency possible’ and ‘what gains do periphery nations obtain from dependence’. “All the countries in the world named as ‘underdeveloped’ are exploited by others and the underdevelopment with which the world is now preoccupied is a product of capitalist, imperialist and colonialist exploitation” (Smith, 1979, p. 252) Dependency theory has discussed the two major terms named Core and Periphery. The theory was based on the assumption that development of core (economically and politically stronger countries) although provide some opportunities to the periphery (poor nations with fewer resources and greater inefficiencies), yet the technological strength and greater productivity per labour results in maximum benefits to the core, while periphery is disadvantaged. For instance, periphery supplies raw materials, inputs or intermediate goods to the core, which then utilise their industrial expertise and efficient production methods to manufacture finished products. These goods are resold to periphery where demand exist for value added products. In this way, the flight of capital takes place from periphery because outflows are greater than total flows, whereas the core accumulates wealth from greater total inflows. In other words, the nations that lack self-sufficiency become dependent on self-sufficient countries, and thus are exploited by the core. In addition, the core provides training and education its labour / human resources, thereby increasing their productivity level, skills, proficiency, specialisation and expertise. Hence, the core proves to have highly skilled and semi-skilled labour resources that later enhance productive efficiency, effectiveness and performance. The periphery is left with largely unskilled or semi-skilled labour resources, which are not capable enough for value-addition and meeting demands. Vernengo (2004, p. 5) confirms, “The origins of the center-periphery relation are strictly technological and determined by the international division of labor. In other words, the center produces manufactured goods for itself and the periphery produces commodities mainly for the center, while maintaining a relatively big subsistence system.” It should not be forgotten that many problems of so-called underdeveloped nations are actually a result of mismanagement and administrative weaknesses followed by weaknesses of political institutions. Indeed, corruptions, embezzlements and improper use of available resources (financial, natural and human) also lead to dependence on core states. More specifically, the dependency theory does not explain in detail the aforementioned as confirmed by Sen (1994). “One can undertake domestic policies to improve domestic economic conditions within the rules of the current international economic order. A number of internal causes are crucial for explaining underdevelopment. The dependency perspective neglects the causes of poverty attributable to domestic policies and denies domestic actors autonomy of action in steering their economies.” (Sen, 2004, p. 13) “The dependency paradigm postulates that the process of development should be analyzed at the following macro levels: regional, central, and peripheral; external factors are responsible for the underdevelopment of the Third World; the deprivation of surplus at the periphery promotes the continuous development of the centre, which action ensures the underdevelopment of the periphery; and finally, the periphery should dissociate itself from the world market and strive for self-reliance” (Uche, 1994, p. 43) In short, this international division of labour actually triggers and supports massive industrialisation at the core, which impedes the growth of periphery while maximises the economic and financial gains of core. Nevertheless, core enhances its political strength and plays dominant role among the international community followed by greater use of soft and diplomatic power / influence on periphery. As Uche (1994) states “To consider development in terms of the agents of capitalism, comprador classes, multinational corporations, and other Instruments of domination through which the workings of Imperialism... will produce the dependency as a kind of negative inevitability seems at best simpleminded. The absence of such Instruments would not necessarily help countries develop" (Uche, 1994, p. 43) quoted (Apter, 1987, p. 26) An important criticism on capitalism is that it creates inequality among people in society. This is because of the fact it endorses the idea of free market enterprise system and minimum government intervention in the form of fewer regulations and control measures. Obviously, when market forces are solely responsibility for deciding fate of individuals / households / businesses, then the fittest (with excellent skills, knowledge, proficiency and resources) will survive and the weaker becomes a periphery. Developing countries initiated a campaign known as ‘New International Economic Order’ (NIEO) in the United Nations General Assembly (UNGA) that was deliberately led to failure because it was against the sacred interests of many core countries. For instance, UNGA did not have sufficient power to implement NIEO supporters thus there was no official acceptance of political, economic, financial and institutional reforms. In other words, the core never had any inclination to withdraw from their exploitable tactics and to let periphery enjoy their just share in exchange of contributions. It should also be emphasised that creation and implementation of new international monetary framework by IMF and World Bank (after breakdown of Bretton Woods Agreement in 1973) was nothing but a so-called initiative for welfare and well-being of periphery. In real, the IMF sanctioned loans and funds for economic development, yet it set harsh conditions that economically sabotaged the peripheries where unemployment, poverty and inflation increased drastically after implementation of IMF programme. Therefore, it is justified to argue that IMF and World Bank had been protecting the interests of core instead of providing support to peripheries to stand and compete with core. Consequently, the core nations of North America, Europe and Asia in 1970s / 1980s are still the cores in 2010 (excluding China) whereas the peripheries across Asia, Africa and South America are yet to transform into cores in international political and economic arena. It should be recalled that this is an era of globalisation in which investors, organisations and individuals have facilities to remain connected with consumers worldwide. Hence, any business could go global provided it produces and offers want-satisfying products. In the light of above, self-sufficient and relatively independent nations enjoy a competitive edge over dependent countries. Nevertheless, it is worthwhile to mention that resources are scarce but countries could gain self-sufficiency if they have potential and industrial base to meet consumer demand through domestically manufactured products. For example, Britain largely relies on revenues generated from secondary (manufacturing) and tertiary (services) sectors because it has been facing dearth of fertile agricultural land (primary). Britain, thus, imports agri-products to meet domestic needs. However, Britain still enjoys the status of ‘core’, ‘dominant’ and ‘advance’ because of its self-sufficiency in production of value-added and heavily demanded products worldwide. It is, therefore, justified to argue that 100% self-sufficiency and independence in primary, secondary and tertiary sectors is not possible at all because of scarcity. However, economic self-sufficiency is possible if a nation becomes capable to meet all its needs through development of sectors that bring greater economic, political and social benefits. The second example is regarding oil-rich Arab countries that are dependent upon revenues from oil exports because they are deprived of self-sufficiency in secondary and tertiary sectors. Yet, these Arab nations are among the richest countries since they positively utilise their natural resources to meet their domestic demands. Another example is of China that has highest population of 1.3 billion people but still known as fastest emerging nation in international arena. Indeed, China developed and expanded its industrial base by utilising its extremely cheaper human resources and now enjoys the status of 2nd largest economy (Gross Domestic Product). Indeed, China also imports agricultural products to meet its domestic derived demand, but it is self-sufficient in secondary and tertiary sectors, a permanent member of UN Security Council and has great influence in international political environment. The following quote reinforces the above mentioned analysis, “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.” (Ferraro, 1996, p. 3) It is worthwhile to mention that periphery states usually have lower wage rates that result in lower total costs of production. Recall that these nations also have natural resources, thus could easily supply raw materials to business organisations. Hence, many international and multinational companies choose them as attractive destinations for investment. For instance, the periphery countries attract foreign direct investment and cash inflows that create employment and new business opportunities across host nations. However, the foreign organisations are the actual beneficiaries because they utilise enormous resources to meet global demand of their products and generate abnormal profits because of lower aggregate production costs. Later, the profits obtained from exports from host nations are reconverted in international currency (for example US Dollar) and transferred to parent company in the home country. In a nut shell, a periphery nation only benefit from some employment opportunities and capital inflows, but later disadvantaged because revenues / profits generated by international companies are sent back to headquarters, which simply refers to outflow / flight of capital. Thus, the economic activity does take place but sustainable growth is not observed because there is no real transfer of knowledge, skills, expertise and technology. In addition, the natural resources of periphery states deplete with the passage of time provided they are only raw material and input suppliers to the organisations of core nations. It is, indeed, a vicious cycle because it does not alleviate the miseries and adversities of the periphery rather makes it a colony of international enterprises. Finally, the consuming nations are unable to develop, while they remained the importers of finished products and exporters / suppliers of intermediate goods / inputs. Ferraro (1996) stated “Dependency theorists do not deny that economic activity occurs within a dependent state. They do make a very important distinction, however, between economic growth and economic development.” (Ferraro, 1996, p. 6) Indeed, there grave issue could be resolved if international trade and financial laws are amended and molded for genuine welfare of periphery. Nonetheless, the international community should consider its responsibility to make the adjustments in existing monetary / financial systems so that the periphery could receive their just share for contributing in growth and development of global economy. Otherwise, the rich / core / advance should better mentally prepare for a revolution that will be triggered and completely endorsed by the periphery. The following quotes corroborate the above mentioned analysis: “Dependency theorists go on to argue that development is impossible without reform in the international trade, monetary and financial regime. At the extreme there has to be a total revolution. While changes in trade and monetary regimes would be of help they are far from panaceas.” (Sen, 2004, p. 13) “Baran concluded then that the only way to break with the circle of dependency would be a political revolution.” (Vernengo, 2004, p. 7) References: Uche, Luke (1994). Some Reflections on the Dependency Theory. Africa Media Review, Vol. 8 No. 2 Smith, Tony (1979). The Underdevelopment of Development Literature: The Case of Dependency Theory. World Politics, Vol. 31, No. 2, pp. 247-288 Whyte, Martin and Richard Barrett (1982). Dependency Theory and Taiwan: Analysis of a Deviant Case. American Journal of Sociology, Vol. 87, issue 5 pp. 1064-1089 Lombardo, Vincenzo and Leonardo Lesmo (1998). Formal aspects and parsing issues of dependency theory. University of Torino, pp. 787-794 Ferraro, Vincent (1996). Dependency Theory: An Introduction. University of Virginia, pp. 1-6 Bodenheimer. Susanne. Dependency and Imperialism: The Roots of Latin American Underdevelopment. in Fann and Hodges, Readings Vernengo, Matias (2004). Technology, Finance and Dependency: Latin American Radical Political Economy in Retrospect. University of Utah, Working Paper No: 2004-6, pp. 1-29 Sen, Amit (2004). Dependency Theory how relevant is it today? Indian Institute of Management Calcutta, pp. 1-13 , Read More