DEPENDENCY THEORY

The Dependency Perspective

By Alvin Y. So
(in his book Social Change and Development – Modernization, Dependency
and World Systems Theories)

The Historical Context

* The dependency school can be said to view development from a Third World perspective.
The dependency school represents "the voices from the periphery" that challenge the
intellectual hegemony of the American modernization school.
*The dependency school first arose in Latin America as a response to the bankruptcy of the
program of the U.N. Economic Commission for Latin America (ECLA) in the early 1960s.
Many populist regimes in Latin America tried out the ECLA developmental strategy of
protectionism and industrialization through import substitution in the 1950s.
* However, the brief economic expansion in the 1950s quickly turned into economic
stagnation. In the early 1960s, Latin America was plagued by unemployment, inflation,
currency devaluation, declining terms of trade, and other economic problems. Popular protests
were followed by the collapse of popular regimes and the setting up of repressive military and
authoritarian regimes.
* Many Latin American researchers were disappointed. They became disillusioned with both
the ECLA program and the American modernization school, which proved unable to explain
economic stagnation, political repression, and the widening gap between rich and poor
countries.
* The dependency school was also a response to the crisis of orthodox Marxism in Latin
America in the early 1960s. From an orthodox communist viewpoint, the Latin American
countries had to go through the stage of "bourgeois" industrial revolution before they could
wage a "proletarian" socialist revolution. However, the Chinese Revolution in 1949 and the
Cuban Revolution in the late 1950s showed that Third World countries could skip the stage of
bourgeois revolution.
* This indigenous Latin American dependency school then quickly spread from Latin America
to North America. Andre Gunder Frank, who happened to be in Latin America in the early
1960s, was instrumental in disseminating the ideas of the dependency school to the English-
speaking world.
* The dependency school received a warm welcome in the United States in the late 1960s
because it resonated with the sentiments of a new generation of young radical researchers who
came of age during the campus revolts, antiwar protests, women' s liberation activities, and
ghetto rebellions of that time.

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* United States of America became the very model of evil, and capitalism, which had been
seen as the cause of social progress, became a sinister exploiter and the main agent of poverty
in most of the world. Imperialism, not backwardness and lack of modernity, was the new
enemy.
The Intellectual Heritage
I. The Economic Commission for Latin America (ECLA)
* The formulation of a distinctly Latin American school of development is related to the ECLA.
In what is known as the "ECLA Manifesto," Prebisch (1950), who was the head of the ECLA,
criticized the outdated schema of the international division of labour. Under this schema, Latin
America was asked to produce food and raw materials for the great industrial centres, and, in
return, Latin America would receive industrial goods from these centres.
*It was Prebisch's contention that this scheme was at the root of the developmental problems
of Latin America. Reliance on exports of food and raw materials would inevitably lead to a
deterioration of Latin America's terms of trade, which would further affect its domestic
accumulation of capital.
* It was Prebisch's contention that this scheme was at the root of the developmental problems
of Latin America. Reliance on exports of food and raw materials would inevitably lead to a
deterioration of Latin America's terms of trade, which would further affect its domestic
accumulation of capital: industrialization, production of raw materials and government.
* Initially, this ECLA strategy was rather coldly received by Latin American governments in
the 1950s. This resistance explains why the ECLA could not push forward radical measures
such as land reforms. In fact, structural changes have never been placed high on the priority
list of necessary changes. To a certain extent, the ECLA strategy can be considered overly
optimistic. It assumes that the various characteristics of an underdeveloped society would.
Automatically disappear in the process of industrialization.
* Unfortunately, the ECLA program did not succeed. Economic stagnation and political
problems came to the fore in the 1960s. The failure of the moderate ECLA program prompted
the dependency school to propose a more radical program.
II. Neo-Marxism
* Another theoretical tradition upon which the dependency school draws is neo-Marxism. The
success of the Chinese and Cuban revolutions helped to spread a new form of Marxism to Latin
American universities, giving rise to a radical generation whose members described themselves
as "neo-Marxists."
* According to Foster-Carter (1973), neo-Marxists are different from orthodox Marxists in the
following respects: views on imperialism, revolution and venue of revolution.
Andre Gunder Frank: The Development of Underdevelopment
* Before presenting the concept of underdevelopment and the model of metropolis-satellite
exploitation, Frank starts with a critique of the modernization school. According to Frank, most
of the theoretical categories and development policies in the modernization school have been

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distilled exclusively from the historical experience of European and North American advanced
capitalist nations.
* First, the modernization school is deficient because it offers an "internal" explanation of Third
World development. The modernization school assumes that there is something wrong inside
Third World countries and this is why Third World countries are backward and stagnant.
> By ignoring the history of Third World countries, the modernization school assumes that
these countries are now at the early stage of development according to the experience of
Western countries, and therefore they need to look to Western countries as mentors and follow
the Western path of development in order to reach modernity.
* According to Frank, Third World countries could never follow the Western path because
Western countries have not experienced colonialism, while most Third World countries are
former colonies of Western countries. The modernization school seldom discusses the factor of
colonialism in detail. The colonial experience has totally restructured Third World countries
and has drastically altered their paths of development.
* Frank offers an "external" explanation for Third World development. According to Frank, the
backwardness of Third World countries cannot be explained by feudalism or traditionalism.
Instead, the historical experience of colonialism and foreign domination have reversed the
development of many "advanced" Third World countries and forced them to move along the
path of economic backwardness.
* Frank formulates the concept of "the development of underdevelopment" to denote that
underdevelopment is not a natural condition but an artifact created by the long history of
colonial domination in Third World countries.
* In addition, Frank has formulated a "metropolis-satellite" model to explain how the
mechanisms of underdevelopment work.
> This metropolis-satellite relationship has its origins in the colonial period, when the
conqueror implanted new cities in the Third World with the aim of facilitating the transfer of
economic surplus to Western countries. According to Frank, the national cities then became the
satellites of the Western metropolis.
> His metropolis-satellite relation, however, is not limited to the international level-it penetrates
to the regional and local levels of Third World countries as well. These satellites immediately
become the colonial metropolises with respect to the provincial cities, which in turn have local
cities as satellites surrounding them.
> A whole chain of constellations of metropolises and satellites is established to extract
economic surplus from Third World villages to local capitals, to regional capitals, to national
capitals, and finally to the cities of Western countries.
* Frank argues that this national transfer of economic surplus has produced underdevelopment
in Third World countries and development in Western countries. Based on this metropolis-
satellite model, Frank has proposed several interesting hypotheses concerning Third World
development:

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 1. In contrast to the development of the world metropolis, which is no one's satellite, the
development of national and other subordinate metropolises is limited by their satellite
statuses.
2. The satellites experience their greatest economic development when their ties to the
metropolis are weakest.
3. When the metropolis recovers from its crisis and reestablishes the trade and investment
ties that then fully reincorporate the satellites into the system, the previous
industrialization of these regions is choked off.
4. The regions that are the most underdeveloped and feudal today are those that had the
closest ties to the metropolises in the past.
Theotonio Dos Santos: The Structure of Dependence
* In spelling out the classical definition of dependence, Dos Santos states that the relationship
between two or more countries "assumes the form of dependence when some countries (the
dominant ones) can expand and can be self-starting, while other countries (the dependent ones)
can do this only as a reflection of that expansion."
* He further argues that relations between dominant and dependent countries are unequal
because development of the former takes place at the expense of the latter. For example,
through monopolistic control of the market in trade relations, and through loans and the export
of capital in financial relations, there is a transfer of surplus generated in dependent countries
to dominant countries.
> For dependent countries, this transfer results in the limitation of the development of their
internal markets and their technical and cultural capacities, as well as of the moral and physical
health of their people.
* In addition to formulating the commonly used definition of dependence, Dos Santos has
distinguished three historical forms of dependence: colonial dependence, financial-industrial
dependence and technological-industrial dependence.
> In colonial dependence, the commercial and financial capital of the dominant country in
alliance with the colonial state, monopolized the control of land, mines, and human resources
(serf or slave) and the export of gold, silver, and tropical products from the colonized country.
> However, by the end of the nineteenth century, financial-industrial dependence emerged. The
economies of the dependent countries were then centered upon the export of raw materials and
agricultural products for consumption in European countries. The production structure in this
stage was characterized by an export sector with rigid specialization and mono-cultivation in
entire regions. Alongside these export sectors, there were complementary economic activities
(like cattle raising and some manufacturing) that were dependent on the export sector to which
they sold their products. Then there was also a subsistence sector that both produced human
resources for the export sector in boom periods and absorbed unemployment during periods of
economic decline.
> Dos Santos's greatest contribution, however, is his formulation of the third historical form of
dependence: technological-industrial dependence. This form emerged in the post-World War II
era, when industrial development began to take place in many underdeveloped countries.

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According to Dos Santos, there are fundamental structural limitations placed on the industrial
development of underdeveloped economies.
(1) First, industrial development is now dependent on the existence of an export sector. Only
the export sector can bring in the needed foreign currency for the purchase of advanced
machinery by the industrial sector.
(2) Second, industrial development is strongly influenced by fluctuations of the balance of
payments, leading to a deficit. The causes of the deficit are three:
a) Highly monopolized international market tends to lower the price of raw materials and
to raise the price of industrial products. As such, dependent countries suffer a trade
deficit because of their reliance on the export of raw materials.
b) Since foreign capital retains control of the economy of dependent countries, it carries
off a high volume of profit. The amount of capital leaving dependent countries is
actually much greater than the amount entering. This process produces a deficit in
capital accounts and limits the importation of foreign inputs for industrialization.
c) The result is that "foreign financing"-in the form of foreign capital and foreign aid-
becomes necessary to cover the existing deficit and to finance further development.
> Third, industrial development is strongly conditional on the technological monopoly
exercised by the imperial centres. On the one hand, transnational corporations do not sell
machinery and process raw materials as simple merchandise. Instead, they either demand
payment of royalties for their utilization or convert these goods into capital and introduce them
in the form of their own investments. On the other hand, dependent countries are short of
foreign currency to pay for the utilization of machinery and raw materials that are patented.
These factors oblige the governments of dependent countries to facilitate the entry of foreign
capital into their domestic markets in order to obtain needed technology and patented raw
materials.
* What are the effects of this latest form of technological-industrial dependence on the
productive structure of underdeveloped countries?
> First, the unequal capitalist development at the international level is reproduced internally in
an acute form, with the productive structure of underdeveloped countries torn between a
"traditional" agrarian export sector and a "modern" sector of technological and economic-
financial concentration.
> Second, the context of a local cheap labour market combined with the utilization of a capital-
intensive technology has led to profound differences among various domestic wage levels.
> Third, this unequal production structure has imposed limits on the growth of internal markets
in underdeveloped countries.
* Dos Santos concludes that the economic backwardness of underdeveloped countries is not
due to a lack of integration with capitalism. Instead, it is the monopolistic control of foreign
capital, foreign finance, and foreign technology at national and international levels that
prevents underdeveloped countries from reaching an advantageous position, resulting in the
reproduction of backwardness, misery and social marginalization within their borders.

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Samir Amin: Transition to Peripheral Capitalism
* Amin's theory of the transition to peripheral capitalism has the following key assertions.
> First, transition to peripheral capitalism is fundamentally different from transition to central
capitalism. The onslaught from without canned out by central capitalism upon the precapitalist
formations caused certain crucial retrogression to take place.
> Second, peripheral capitalism is characterized by extraversion – the distortion toward export
activities. Amir points out that "extraversion does not result from inadequacy of the home
market but from the superior productivity of the centre in all fields, which compels the
periphery to confine itself to the role of complete entry supplier of products for the production
of which it possesses a natural advantage: exotic agricultural produce and minerals."
> Third, another form of distortion is the hypertrophy of the tertiary sector at the periphery. At
the centre, hypertrophy of the tertiary sector reflects the difficulties in realizing surplus value
in monopoly capitalism, so more resources have to be spent in the marketing and the accounting
of commodities. However, at the periphery, hypertrophy of the tertiary sector is mainly a result
of the contradictions inherent in peripheral capitalism.
> Fourth, the theory of the multiplier effects of investment cannot be extended in a mechanical
way to the periphery. Instead of benefiting the periphery the export of foreign profit transfers
the multiplier effect from the periphery to the centre, serving to accelerate the latter's
development.
> Fifth, Amir warns that researchers should not confuse underdeveloped countries with the
now-advanced countries as they were at earlier stages of their development. This is because
underdeveloped countries possess the following distinctive structural features:
1. the extreme unevenness that is typical of the distribution of productivity at the
periphery,
2. disarticulation due to the adjustment of the orientation of production at the periphery to
the needs of the centre, and
3. economic domination by the centre, which is expressed in the forms of trade and
financial dependence.
> Sixth, as a result of the above structural features of underdevelopment, it necessarily leads to
the blocking of the growth of the peripheral countries.
> Finally, the specific form of underdevelopment assumed by these peripheral formations
depends upon
1. the nature of the precapitalist formation that was there previously, and
2. the forms and the periods in which the peripheries were integrated into the capitalist
world-system.
Basic Assumptions of Dependency School
* The dependency school is highly heterogeneous. Its members come from many soda] science
disciplines, focus on different countries in Latin America as well as on other regions, and have
different ideological orientations and political commitments. Nevertheless, members of the
dependency school tend to share the following basic assumptions.

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> First, dependency is seen as a very general process, applicable to all Third World countries.
The aim of the dependency school is to outline the general pattern of dependency in the Third
World throughout the history of capitalism from the sixteenth century to the present.
> Second, dependency is understood to be an external condition, that is, imposed from the
outside. The most important obstacle to national development, therefore, is not lack of capital,
entrepreneurial skills, or democratic institutions; rather, it is to be found outside the domain of
the national economy.
> Third, dependency is analysed mostly as an economic condition. It is seen as a result of the
flow of economic surplus from Third World countries to Western capitalist countries. Thus,
Third World countries generally suffer from declining terms of trade with Western countries.
> Fourth, dependency is treated as a component of regional polarization of the global economy.
On the one hand, the flow of surplus from Third World countries leads to their
underdevelopment; on the other, the development of Western countries is benefited by this
influx of economic surplus. Thus, underdevelopment in the periphery and development in the
core are two aspects of a single process of capital accumulation, leading to regional polarization
in the global economy.
> Finally, dependency is seen as incompatible with development. The development is not
possible in the periphery.
Policy Implications of the Dependency School
* Proponents of the dependency school feel that there is a need to redefine the term
development. It should mean more than just more industry, more output, and rising
productivity. Instead, it should be defined in terms of improving the living standard for all the
people in the periphery.
> Thus, developmental programs should not cater to elites and urban dwellers, but should
attempt to satisfy the human needs of rural peasants, the unemployed, and the needy Any
developmental program that benefits only a small sector at the expense of the suffering majority
is no good at all.
* The dependency school argues that it is harmful for peripheral countries to have more contact
with core countries. In fact, the dependency school asserts that the periphery has too much
harmful core contact already.
* Consequently, the dependency school suggests that peripheral countries should sever their
ties with core countries. Instead of relying upon foreign aid and foreign technology, peripheral
court tries should adopt a self-reliance model-relying upon their own resources and planning
their own paths of development so as to achieve independence and autonomous national
development.
> It means only that peripheral countries should not be dominated by core countries. They
should trade with other peripheral countries on equal and mutually beneficial terms.
* From the dependency school perspective, the old elites in peripheral countries most likely
would not accept such a complete break from core countries and their multinationals. The
interests of the old elites are too closely tied to foreigners for them to accept such an option.

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As a result, many dependency researchers propose that a socialist revolution may be necessary
for a country to get rid of the old ruling elites.
> Only when there is a new power group whose mission is to satisfy the human needs of the
peasantry and the workers would the radical policies of total restructuring be carried out, as is
revealed by the experience of the Chinese and Cuban revolutions.
Comparison of the Dependency and Modernization Schools
* So has identified the following similarities and differences between the dependency and
modernization perspectives.
Similarities
> First, the two classical perspectives share the same research focus: They are concerned with
Third World development, and they want to find out what factors promote Third World
development.
> Second, the two perspectives adopt similar methodologies. They anchor their discussions at
a highly abstract level, with an eye toward explaining the very general process of development
applicable to all of the nations.
> Third, the two perspectives have developed a polar theoretical framework, although the
classical modernization perspective tends to call it " tradition versus modernity" while the
classical dependency perspective calls it "core (metropolis) versus periphery (satellite)."
Differences
> Despite the above similarities, these two classical perspectives in fact differ from each other
in basic ways. First, they come from different theoretical backgrounds. The classical
modernization perspective is strongly influenced by European evolutionary theories and
American functionalist theories, while the classical dependency perspective is strongly
influenced by the liberal ECLA program and radical neo-Marxist theories.
> Second, with respect to the causes of Third World problems, the classical modernization
perspective offers an internal explanation, pointing to such traits as traditional culture, lack of
productive investment, and absence of achievement motivation in Third World countries. The
classical dependency perspective, in contrast, offers an external explanation, stressing the roles
played by colonialism and neocolonialism in shaping the underdevelopment of Third World
countries.
> Third, the classical modernization perspective characterizes the linkages between Third
World countries and Western countries as beneficial. The classical dependency perspective, on
the other hand, sees the linkages as harmful—Western countries are exploiting Third World
countries for their own benefits.
> Fourth, in predicting the future direction of development, the classical modernization
perspective is generally optimistic. With patience, Third World countries will eventually catch
up with Western countries and modernize themselves. The view of the classical dependency
perspective concerning the future of Third World countries is pessimistic. If the present
exploitative linkages remain unchallenged, Third World countries will become more and more
dependent on Western countries.

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> Finally, regarding solutions to the backwardness of Third World countries, the classical
modernization perspective has advocated more linkages with Western countries. Classical
dependency researchers offer a totally different approach. They advocate reduction of core
linkages so that Third World countries may attain autonomous, independent development.