Is Dependency Theory Still Relevant to the World Today, or Not - Assignment Example

IS DEPENDENCY THEORY STILL RELEVANT TO THE WORLD TODAY, OR NOT? Why? Dependency theory suggests that the issue of worldwide poverty can at the very least be moderately ascribed to the fact that the economically backward nations have been oppressed by the advanced countries. While examining certain events as a component of particular historical development - the growth of international capitalism / free enterprise - dependency theorists perceive the insatiability of the advanced economies as a fundamental cause of the growing poverty and misery of the economically backward countries as well as their citizens. Dependency theory argues the belief advocated by the development approach, as well as that put forward by the modernization theory, in particular, that the economic advancement is the key to accomplishing and satisfying vital human needs in a society. As opposed to that, the economically backward countries find themselves ambushed in a series of structural dependency on the advanced countries on account of their need for infusions of international funds and peripheral markets for their raw materials, thereby further making it impractical for the poorer nations to chase their own financial and human development programs. As a consequence the dependency theorists consider that countries such as Brazil, Nigeria, India, as well as Kenya do not have adequate capacity or resources to attain the persistent financial development models like those of the relatively advanced capitalist economies1.The question whether the dependency theory holds any relevance in present times is a matter of debate, but overall, and in my particular opinion, it does not hold adequate relevance in present day and age. The dependency theory has been largely and quite frequently related to the newly industrializing countries (NICs) such as Latin America, while academics investigating the NICs of East Asia established the fact that dependency theory had a modest or no significance to economic development and growth in that part of the world. Consequently, dependency theory needs to be extended to include intercontinental fiscal associations to influence the developing countries together with other factors such as international assistance, international trade, foreign direct investment, and international advances / credits. On the one hand in Latin America and sub Saharan Africa international business associations like overseas assistance, foreign direct investments by international conglomerates, overseas debt and export trade have been major barriers to growth within a nation. While on the other hand there are certain East Asian countries such as Taiwan, South Korea and Singapore for instance, which have traditionally had significantly higher rates of dependency on international assistance, international trade and interdependence on international firms nevertheless they continue to experience impressive rates of economic growth regardless of such high dependency. In view of the noted sociologist Gary Gaetti (1994), the disparities in result are most likely related to the disparities in the timing and sequencing of a country’s association with the peripheral bodies such as international administrative bodies as well as corporations2. Dependency theory makes a constructive contribution to our understanding of universal paucity by pointing out that underdevelopment is not essentially the root of inequity. In fact, to a certain extent, it suggest that mistreatment of one country by another as well as that of countries by giant international institutions may restrict or impede monetary development and individual well being in several nations. Yet, what remains as inexplicable is the manner in which certain Asian countries such as India, has managed to achieve a thriving dependency management policy, while several others such as the Latin American countries, struggle to cope (Geretti, 1994). Dependency theory is founded on the view that there exists a group of economically well-off nations or “core” and a “periphery” of deprived underdeveloped nations, commonly referred to as the third world countries. Capital resources are extracted by the core from the periphery with a view to uphold their financial development and increase their prosperity. This apparently, is a continuous process. According to dependency, theory scarcity of resources and underdevelopment in the peripheral states is not the consequence of tradition or deceleration. It is essential for the growth of free enterprise in the core states. In other words, the accomplishment of the core states is the root of underdevelopment of the periphery. This is because of the intimidating and manipulative way by which the peripheral states have been incorporated into the world economy. Hence underdevelopment is not just a straightforward meaningful expression which refers to a traditional economy. It is embedded in asymmetrical exchange based on imperialism. Such an uneven exchange has not only facilitated the urbanized world to expand and attain higher standards of living but it also persists to permit them to do so. The dependency theory has to be compared with free market economics which disputes that assimilation into the world scheme of construction is advantageous. On the contrary dependency theory perceives the international market as distinguished by a prearranged association between the core states which, through the application of their political, armed and financial strength extract additional resources from the peripheral countries. Any effort by the reliant nations, to defy the powers of dependency frequently leads to fiscal permits and/or military assault and power. There are numerous alternatives of dependency theory. One such alternative theory, which initiated in Latin America was founded by Raúl Prebisch. It became popular in the 1950s as a response to the free trade theories. Latin American underdevelopment, in those times, was attributed to the unwarranted dependence on exports of key merchandise, whose value demonstrated a descending trend in the long run; an outcome of the steadily weakening terms of trade. Thus, involvement in world trade was viewed as a trailing proposal. As a result the majority of Latin American nations implemented policies and approaches of self-sufficiency or autonomy. They sought to speed up industrialization through import replacement and expanding their exports. Higher taxes / duties were developed and implemented. However, such a structure of growth and advancement encountered various setbacks as it strived to aggravate the balance of payments complexities3. In particular, several theorists dispute that a fresh state of affairs of reliance has materialized, wherein the technical backwardness and the global division of labor are of lesser significance, and the monetary reliance or the original sin hypothesis, replicated in the incapability of peripheral countries to use in worldwide markets in its own legal tender, is the genuine impediment to expansion and growth (Vernengo, 20064). Marxist theorists elucidated the lack of vitality in the economically backward world as being the consequence of its specific introduction in the world economy. According to this belief, the practice of growth relied on accretion of capital, which, in turn, centered on additional extraction of resources. A bigger surplus led to additional buildup of capital and a superior development rate. Further, in terms of the Marxists, it was in the application of such surplus that the disparities between the developed and underdeveloped provinces were most obvious. In the most underdeveloped economies, where the progression of urbanization wasn’t initialized, and agriculture was still the overriding factor, underdevelopment often transpired from the models of land occupancy. The prevalence of large assets in agricultural estate societies entailed that a significant portion of the leftover was in the hands of the landowners, which was characteristic of the spending patterns of developed countries. Disproportionate and redundant utilization of luxuries would then lessen the prospective for savings and buildup of capital resources. Thus, prominent expenditure would be the foundation of stagnation in the periphery. The global division of labor which triggered the export oriented plantation system in a greater section of the developing world emphasized the necessity for import of luxury goods, which in those times, was at the core of the dependency relation. According to Gunder Frank5 (1967) the only practical and viable alternative to impede this vicious circle of dependency is achieving political revolution. Cardoso and Faletto6 (1967), supported this view and further stated that apart from achieving a political revolution, which is an extremely viable alternative, the dependency rate could be brought down by reinvesting the foreign capital received as aid, in the domestic markets. Thus, the type of dependency i.e., fractional or total could help in achieving desired growth and development. On the basis of the arguments thus presented, it can be safely concluded that dependency is not based on the association between exporters of products or services and the industrialized countries but it is in fact highly dependent on the linkages between the various extents of industrialization. Development and underdevelopment were fiscal classifications associated with the level and scope of growth of the industrious construction, and to its intensity of technical progress. On the other hand, reliance and self-sufficiency referred to the scale of expansion of the political organization, and the capability or the lack of it of the indigenous political leaders to take economic administration into their own hands. Consequently, dependent growth in connection with international aid was achievable and took place in several countries including Argentina, Brazil and Mexico, and in various other parts of East Asia. These were the countries which responded to the semi-periphery. Cardoso and Faletto stressed the significance of household inner growths, as opposed to the outside forces of the global economy, as the key determinant of the circumstances of dependency. It was the interior political procedure which led to the consequences which preferred overseas facilitators in the course of growth and expansion. Additionally, the national capitalist development was not irreconcilable with the amalgamation of technical acquaintance from the international corporations. Debatably if the objective was to attain expansion, dependent development was a sensible method to achieve such a goal, even though self-directed growth was politically more attractive. Nevertheless, the Structuralist description of dependency, in rebutting the Marxist prominence on the significance of outside elements, went to the other extreme and asserted that domestic factors were the nearly elite facilitators of economic expansion. The incapability to produce a household self-motivated technological and industrial advancement, the in-house prototypes of utilization, and the boundaries of the domestic privileged group which opted for political dependency were held accountable. If the triumphant industrialization of certain sections of the periphery reflected the flaws of the Marxist tradition, then the arrears catastrophe and the malfunction to modernize the course of development in the 1990s confirmed the belief that the hopefulness of the Structuralist approach was not assured. The incapability to have access to global markets and use its own currency mirrors the incapability of the domestic currencies of peripheral countries to obtain all the roles of money, as reserve of worth, component of account, as well as an effective and worthy medium of exchange. Benjamin Cohen (1998)7 proposes that there is a pyramid which echoes the characteristics of money, with internationalized currencies at the pinnacle and brittle currencies, on the threshold of currency replacement at the root. The key dilemma connected with the incapability to offer all the financial roles is that financial markets remain under-developed in peripheral countries, and the methods of industrialist accretion is delayed which comprises of the actual obstruction to expansion and growth. Barry Eichengreen, Ricardo Hausmann and Ugo Panizza8 (2003), in line with the preceding contributions by Hausmann, dispute that to a certain extent under-development is a consequence of the so-called original sin, meaning thereby, that the reality that the currencies of developing nations are non convertible and hence non exchangeable in international markets9. According to this perspective the peripheral volatility of domestic currencies in the outdoor markets impedes the progression of accumulation of resources. Hence while on one hand the conventional and the dependency authors have similar opinions regarding the significance of inability of converting the currency they would oppose on the explanations or clarifications thus offered. The mainstream or conventional authors often highlight the significance of effective economic policies, and financial regulations which endorse trustworthiness and reliability, while dependency authors on the other hand often tend to stress the requirement for implementing adequate capital control measures and concentrated assimilation with the global economic markets. Economic growth is the consequence of a multifaceted group of elements and hence neither the unsuspecting assimilation into the international economy nor the monetary autarky would help in influencing the economic growth. Thus irrespective of their financial strength, and the degree and extent of their economic development, the nation states must ensure to achieve adequate degrees of liberty to contrive their own independent developmental policies. References: Kendall, D., (2008). Sociology in Our Times, Cengage Learning, Pp. 269 Michael P. Todaro, Stephen C. Smith. Economic Development. Eigth low prize edition. Pearson Education, 2003 Michael E. Porter: The Competitive Advantage of Nations. Harvard Business Review March-April 1990 pp. 73-93 Vernengo, Matías (2006), “Technology, Finance and Dependency: Latin American Radical Political Economy in Retrospect,” Review of Radical Political Economics, 38(4), Fall, pp. 551-568. Frank, André Gunder (1967), Capitalism and Underdevelopment in Latin America: Historical Studies of Brazil and Chile. New York: Monthly Review, 1969. Cardoso, Fernando Henrique and Enzo Faletto (1967), Dependência e Desenvolvimento na América Latina. Rio de Janeiro: Zahar, 1970. Cohen, Benjamin (1998), The Geography of Money. Ithaca: Cornell University Press. Eichengreen, Barry; Ricardo Hausmann; and Ugo Panizza (2003), “Currency Mismatches, Debt Intolerance and Original Sin,” NBER Working Paper, No 10036. Read More