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To explain the theory of 'Underdevelopment and Dependency', a distinction between what really constitutes 'development' and 'underdevelopment' is to be made for better understanding of the entire concept. This paper will therefore be started with a brief analysis of how globalization started and what impact it had on the world process both in domestic and international functioning of the countries. The analysis of globalization is important since the dependency theorists in a way see underdevelopment as an impact of globalization. The paper shall be proceeded with a distinction or rather an explanation of what development means and what underdevelopment stands for in a globalized context; and then move on with the debates on dependency and underdevelopment.
Globalization as a process consists of change and transformation of the relationship shared by countries at the domestic and international level. Forming networks of processes and structures of governance, establishing interdependence among countries, globalization changed the very nature of governance; it created a borderless world, where the economic and political interests of countries got bound up. This process of globalization have through the years of economic engagement have let to the division of countries, consisting of the economically well off countries known as the 'developed countries' and on the other hand a group of countries who still have not reached that level of economic prosperity known as the 'developing countries'.
Through the analysis of the social, political and economic activities that the developed and the developing countries engage in is seen to lead to underdevelopment. And globalization as understood as the globalization of capital, underdevelopment in turn is seen to be associated with the development of capitalism on a world scale. Studies on the issues of development, underdevelopment has been a consequence of the development of capitalism. In the contemporary globalized world, the countries that constitute the underdeveloped category are the ones referred to as the Third World, basically parts of Asia, Africa and Latin America. As globalization refers to changes and transformations, the Third World as underdeveloped connotes its backwardness, stagnation and therefore known as 'traditional societies' 1 Globalization involves political, economic and social interaction of nations with each other. In terms of development, globalization offers assistance or a cooperative functioning of institutions between the so called developed and the developing nations. It is asserted that the interaction basically consists of involvement of external forces or agents which are really the agents of the developed nations, within the internal structure or dynamics of the developing nation.
The motive for the involvement of such external forces is to help with the process of development of that region or nation. This in turn proves what has already been mentioned that the analysis of development and underdevelopment cannot be separated, such an involvement instead of fostering development leads to underdevelopment, which holds contradictory meanings. "Underdevelopment is a distinctive historical process linked to the expansion of developing capitalism". (C. Furtado; 1964) Three phases mainly in the development of the underdeveloped structures, firstly, the development in Western Europe, characterized by pre-capitalist artisan economy and progressive absorption at a higher level of productivity of the factors released.
Second phase, is the development of the European industrial economy.
And the third phase was the expansion of this European Industrial Economy to other regions. Such an expansion was done through trade and also via encouragement to the regions to produce raw materials. Such production of raw materials was in order to feed the industries which would generate capital. Through this process of encouragement and interaction, the factors to be analyzed are the labor required, the level of real wages, the involvement of the capitalistic enterprise that involves itself in the development process of less developed regions do not itself guarantee development, labor employment is only given to a few and also wage is paid according to the living conditions in the country and not the amount of work done. The nature of the capitalist economy is generally viewed in terms of the role played by the entrepreneurial class.
Bernstein, Henry, "Underdevelopment and Development: The Third World Today". Introduction: Development and the Social Sciences. Pp.26.
DEVELOPMENT AND UNDERDEVELOPMENT:
To the dependency theorists, the process of globalization has created distinction between the countries into the developed and the underdeveloped countries. Though there is a category of countries that belong to neither of the category, though they play an important role in the global economy still they lack certain capacities which stops them from making it to the level of developed countries, and on the other hand they are doing better than most of the developing countries which keeps them above the level of the underdeveloped countries.
To understand this situation, first an understanding of development is to be brought about. Development stands for changes in the society; progressive transformation of society. Development entails certain value judgments such as the desirability of overcoming malnutrition, poverty and disease which have adverse effects on human suffering; this is a sociological dimension of development. The social development is inseparable from economic development. And also there exists a difference in economic growth and development; the former is seen as a "quantitative process, involving principally the extension of an already established structure of production, whereas development suggests qualitative changes, like the creation of new economic and non-economic structures'.
Globalization was considered a process that turned the very nature of governance in the world; with states no longer the center of analysis, market was also included as an important mechanism for facilitating the world economic process. Globalization was considered to be a facilitator of development by some and some considered globalization as the cause of underdevelopment. Both development and underdevelopment are seen as historical processes. There are various approaches to the study of development, of which 'modernization theory' considers development to be a "multidimensional process in which psychological, intellectual, demographic, social, economic and political changes are related one to another (Samuel P. Huntington) 2.
Modernization theory also believes that "political modernization involves assertion of the external sovereignty of the nation-state against transnational influences and the internal sovereignty of the national government against local and regional powers". Modernization theory shows a high inclination towards the state as having an important role in selecting the transnational influences, which even the dependency theorists assert. Globalization has brought about development, but the kind of development it has brought is capitalist development. This is what dependency theory is critical of; it believes that such a capitalist development has brought about a kind of unbalanced and un-integrated economy
Sautter, Hermann, "Underdevelopment through Isolationism? Dependency Theory in Retrospect." Intereconomics, July/August pp.184.
characterized by the coexistence of a dynamic 'modern' sector of production, typically export oriented and a 'traditional' sector of subsistence agriculture inhibiting the development of the integral market. (C. Furtado)
This modern sector is referred to the developed countries or the North as it is known, consisting of countries such as the United States, Europe and also Japan. Though Asia and Africa mostly come under developing countries, however Japan has established itself as a developed country thereby separating it from most of its Asian counterparts. And the traditional sector basically refers to the sectors where no or the least development has taken place. With this respect the 'third world countries' are referred to as the 'traditional societies'; traditional in respect of its backwardness in terms of economy and therefore the society.
This backwardness of the third world was considered to be a result of the weak internal economic and non-economic structures of the countries, this was what modernization theory asserted and so this backwardness was expected to be diagnosed with the involvement of certain external forces like the involvement of powerful developed countries like United States and others. External forces were to involve themselves and assist the development in such developing countries. Globalization brought about a development of capitalism with its roots in the European countries which brought about industrial development which helped countries develop. So in order for a developing country to foster their own development, they were to look up to the developed countries for assistance.
The principles of globalization interdependence, global interaction increased the flow of capital; goods fostered everything on international lines. Everything that was analyzed was done so on a wider level. As said by Leslie Sklair "Globalization as a process involves the study of contemporary problems not at the level of individual states or its inter-national relations, but in terms of global processes", this shows that whatever goes on at the domestic level is bound to have an impact on other countries and anything happening outside will definitely impact upon the domestic processes of a country. This is what the dependency or the underdevelopment theorists were against. To them, this global process of interdependence and interaction has led to the exploitation of the poorer countries.
UNDERDEVELOPMENT AND DEPENDENCY:
The concept of underdevelopment and dependency are associated with the studying of the third world countries and this theory is concerned with the position of the third world countries in the global arena as developing or underdeveloped countries and the reason why it is so. They basically assert that in the name of development when developed countries through their market mechanisms get involved in the domestic or internal dynamics of the third world countries, it only gives impetus to underdevelopment and no development could be possible this way.
There were two consequences of the globalization and its interdependence aspect:
Firstly, to the dependency theorists, the interdependence among the countries have led to the division of countries mainly into the wealthy developed countries also known as the First World or the North and on the other hand there is the poorer countries known as the Third World Countries or the South, with wide economic disparities among them.
And secondly they also assert that the interdependence criteria consist of exploitation of the poor by the rich developed countries thereby leading to the underdevelopment of the former.
For the underdevelopment and dependency theorists (UDT), exploitation took up a prominent place in their analysis. For them there were two ways in which the dependence of the countries could lead to exploitation: direct and indirect exploitation. Direct exploitation referred to the open or covert transfer of profits by foreign investors in developing countries thereby 'decapitalizing' them and indirect exploitation was related to the deterioration in terms of trade of developing countries and unequal exchange between developed and underdeveloped economies.
Few names associated with the 'Underdevelopment and dependency theory' are namely: Andre Gunder Frank, Paul Baran, Samir Amin, Theodore Dos Santos, Cardoso and Immanuel Wallerstein. There exists a division in the theories of dependency itself. Frank, Baran, Amin and Santos are more radical dependency theorist who asserted that dependency for development would only lead more to underdevelopment of the developing countries. On the other hand Cardoso and Wallerstein formed a second category of dependency theorist who consider that dependency and development can co-exist; i.e. for them dependency could be helpful in fostering development.
To Theodore Dos Santos "Dependency is a conditioning situation in which the economies of one group of countries are conditioned by the development and expansion of others. A relationship of interdependence between two or more economies when some countries expand through self-impulsion and others being in a dependent position can only expand as a reflection of the expansion of the dominant countries; which may have positive or negative effects on development"
Classical dependency theory and the new dependency theory share certain similarities, both the groups have third world development as their focus, both focus on national level analysis, and the key concept that they follow is the 'core, semi-periphery and the periphery'. And both the groups imply that dependency is harmful to development.
The core, semi-periphery and periphery are the model that the dependency theorists adopt in order to explain the development pattern and the underdeveloped condition of the third world countries. They mostly focus on the core and the periphery, where the core consists of the central forces of the economy i.e. the industrialized capitalist countries- the developed countries; and the periphery consists of the underdeveloped or undeveloped countries i.e. the third world countries. All these categorizations of the countries into the developed/developing, core/periphery, North/South and First World/Third World all relate to the categorization on countries based on their economic wealth and their capacity to generate such wealth. Thus the capacity to generate wealth is what the third world countries lack. However the interest with which the developed countries interfered in the affairs of the developing countries was because the developing countries had unscrupulous amount of resources and raw materials that lay unused and unexploited. The developed countries who already had achieved much in terms of development their resources and raw materials were depleted. So in terms of the involvement of the developed countries in developing countries it leads to underdevelopment.
One result of globalization has been that the State no longer is seen as the only unit of analysis; contemporary issues are analyzed beyond what is national but as a transnational, across borders phenomenon and therefore in terms of a global process. So now the countries all over the world are to be seen as one Total system. Here what the dependency theorists assert is this total system gets divided into the core-periphery groups and so with increase in globalization process the core states become more dependent on the peripheral states for development and the position of the peripheral states become vulnerable and no development would be feasible since interdependence have led to a situation where an increase in the wealth of the first world could be brought about only when there would be a decrease in the wealth of the third world. So developing countries were at the losing end.
MECHANISMS OF INVOLVEMENT:
The emphasis shifted to the involvement of transnational corporations (TNCs) and multinational corporations (MNCs). These MNCs are "firms of any nationality; partially or wholly owned or doing business in one or more country or economy". MNCs or TNCs are considered to be one of the mechanisms through which one country seems to get involved in the economy of another country; they are engaged in facilitating the movement of capital and production. These corporations are mostly headed by the developed countries. What the dependency theorists argued was that such involvement of TNCs were mainly under US, Japan and European countries and trade mainly went on among these economic powers.
Globalization is seen to change the very nature of the state centric approach that existed earlier. The introduction of TNCs and also the social movements spread ideas about universal human rights, global environmental responsibility have reduced the emphasis on states as the main unit of analysis. On an economic level, with the introduction of TNCs, globalization has changed the very nature of global economy, the idea of a new 'global culture' is what has emerged. Globalization has impacted on the local, national and regional economies. Two main focus of globalization researchers have been: first, the ways in which the transnational corporations (TNCs) have facilitated the globalization of capital and production. Second, the transformations in the global scope of particular types of TNCs, those who own and control the mass media which impacts upon the spread of ideas and particular patterns of consumption and a culture and ideology of consumerism at the global level. The TNCs have immense economic power, besides countries, the TNCs have come to be known as global economic power, for instance to name a few General Motors, Toyota, Volkswagen, PepsiCo have more economic power at their disposal than the majority of the countries in the world.3 The impact of globalization is the reduction in the importance of the state and privatization of most sectors of the economy. The TNCs are not only headquartered in the first world countries but most TNCs have headquarters in the third world, such as the 'national' oil companies of Brazil, India, Mexico, Taiwan and Venezuela. Sklair also points out that the TNCs mostly under the US, Japan do not always express national interests; they are more interested in the interests of those who own and control them.
Two laws under which MNCs are said to function: first is the law of capitalism of increasing the firms' size and scope and therefore creating hierarchies. Second is the law of uneven development. The size, mobility and power of the MNCs lead to exploitation in the name of development of the already developed powers. Such involvements of MNCs lead to the development of North and underdevelopment of South. The uneven development of North and South, MNCs have a role in maintaining this unequal status.
Globalization for development is seen to be important however such globalizing process have very desirable and undesirable effects on countries and the latter is explained by the dependency theorists. Dependency theorists suggested many reforms that they felt would help facilitate the development process of the third world countries. One such changes and the most important reform proposed by them is the 'delinking' of the developing or underdeveloped countries from the world market and the global system of economic exchange of capital and goods for development.
They proposed to focus more on the internal dynamics and development rather than external factors. For development initially it was external factors and assistance from developed countries was what was focused on; however, now what the dependency theorists proposed was to become independent of such external help and assistance. They asserted that
Sklair, Leslie, 'Competing Conceptions of Globalization", pp.146, Journal of World Systems Research,vol.2, Summer 1999, pp.143-163.
the developing countries ought to be self-reliant, self-dependent for development. The core principle here is 'self-development'. However delinking in this sense can be seen to be somewhat a complex notion, since globalization has increased interdependence in the world binding economic, social, political relations of the world together and so isolation from the world economic system would only give impetus to underdevelopment. The entire theory of dependency and underdevelopment is based on this principle of delinking.
Andre Gunder Frank on speaking of the underdeveloped conditions of the third world countries also spoke of delinking from the world market to be important for a country to develop. He blamed external factors like historical colonialism for the underdeveloped status of the third world countries. The dependency theorists saw that globalization in a way strengthened colonialism, though different from the kind of colonialism that existed long time back, this colonialism was basically an economic criterion via which all other structures of the country would be taken over. However this assertion of colonialism leading to nothing but underdevelopment could be proved wrong if examples of Taiwan and South Korea are cited. Both countries followed independent development however they both still followed the strategy of world market. These two countries today stand on a different platform when compared to its other Asian counterparts. The reason not being a self-reliant development path, but both developed on the lines of its colonizer, Japan. The Japanese encouraged strategies like co-operative style organizations in rural areas and agricultural lands. Both Taiwan and South Korea heavily depended upon imports of capital goods. Both these countries were influenced by the Japanese occupation in the initial years after independence and after which United States played a dominant role in their development especially in that of South Korea. As such dependency in any way could not be avoided, maybe direct dependency could be however there still would be a kind of 'structural dependency' that would be inevitable as seen with the case of Taiwan and South Korea.
Another theorist of dependency is Samir Amin, who talks in terms of the core-periphery formula. The core as already mentioned refers to the group of autonomous developed states, however the periphery for Amin was not underdeveloped but for him it was an overdeveloped export sector which produced goods for feeding foreign industries rather than producing for themselves and stimulating regional development and growth. This leads to unequal exchanges which are also branded as a consequence of globalization which thereby leads to the domination of the poor countries by the rich countries. Dependence of the countries based on unequal exchanges has led to the richer countries getting richer and the poorer countries getting poorer. The raw materials of the developing countries are exploited in the name of development, with a kind of assurance that with the resources of the developing countries utilized in feeding the industries of the developed countries would in turn help the development of the developing or the underdeveloped countries.
Such dependency have led to a great disparity in terms of wealth and power and the obstacles which the developing countries faced has only led to a great reaction by the countries of Africa, Asia and Latin America against the dependency of their countries. The belief was that the underdevelopment of third world economies was caused by the predominance of the external influences transmitted to poor countries by the international capitalist system. Dependency theory emphasizes the international power relationships that underlie the functioning of the world economy. For them the internal inequalities and the misery was the impact of external factors. Therefore they turned their attention to internal barriers to change and development and trying to do away with the overreliance on external influences. Dependency theory is said to have through its approach made many leaders of the developing countries realize their strength and their weaknesses.
Immanuel Wallerstein is one theorist of dependency who like Samir Amin explain the underdeveloped nature and the process of economic exchange that characterize the relation between and among the nations of the world according to the core-periphery formula. He belongs to the category of the 'new dependency' theorists who not only looked at the interdependence and its impact in accordance to the economic perspective but also keep in mind the socio-political aspects. For Wallerstein, "the world system was a 'world economy' integrated through the market rather than a political center; in which two or more regions are interdependent with respect to necessities like food, fuel and protection; and two or more polities compete for domination without emergence of one single center forever" (Gold frank)4
Wallerstein defined the world system as a "multicultural territorial division of labor" in which production and exchange of basic goods and raw materials is necessary for the everyday life of the inhabitants. The core-periphery according to him were geographically and culturally different, the former focusing on labor intensive and the other focusing on capital intensive production. It was a structural relationship, a structure of power hierarchy existed between them in which the powerful i.e. the core societies dominated and exploited the weaker or poorer countries. According to him, the semi-periphery states acted as a buffer zone between core and periphery, they were basically neutral states. India and Korea could be cited as an example of the semi-peripheral states.
For Wallerstein, nation-states did not lose importance, for him the states were powerful elements within the system; in the core countries the states were used by class forces to pursue their interest. Two notions are basically involved in the world systems theory as propounded by Wallerstein, and these were the notion of imperialism and hegemony: the former referring to the domination of the weak peripheral regions by strong core states and the latter referring to
Carlos A. Martinez-Vela, "World Systems Theory", ESD.83, Fall 2001.
the existence of one core state temporarily overpowering the rest. Therefore for Wallerstein, the global world system comprises of a global class struggle.
Wallerstein's world system is based on three important sources; the Annales school which focused on geo-ecological regions as units of analysis and paying attention to rural history and reliance on empirical materials. Second source of his theory was Marx; from Marx he understood the reality of social conflict, the dialectical sense of motion through conflict and contradiction. And the third source of the theory is dependency theory itself. As this theory helped in understanding the 'periphery' by looking at the core-periphery relations and it is from this dependency theory that contemporary critiques to global capitalism has arisen.
Global capitalism has also received criticism from the "think global act local" groups, they disrupt the capacity of TNCs and global financial institutions to accumulate private profits at the expense of their workforces, however economic globalization with their increased dispersal of the manufacturing process and their dependence on variety of forces have generated a different advantage for themselves. Globalizing capital has defeated labor and the global organizations like the TNCs and its allied globalizing government agencies and the World Bank have proved too powerful for the local organization of labor and communities.
The powerful status of the TNCs mostly because it is run by the developed industrialized countries which possesses the capacity and the ability to generate capital generally seem to have control over the third world economy and society. Since the relation is guided by an international division of labor, the third world cannot escape the influence of the developed countries since even they depend on foreign capital for structuring their internal economy, interdependence causes a change in the international arena to impact upon the national arena and vice versa. So any delinking even if possible might just deprive the developing countries from the facilities that the foreign market could provide.
From a certain aspect, the reform path of development as suggested by the underdevelopment and dependency theorists i.e. a change in focus from "development towards outside" to "development towards the interior"; referring to a focus on the internal dynamics of a country rather than focusing on the external forces could also prove to be complex. For delinking in such a way has not decreased dependency but has increased dependency since foreign currency was now used to purchase inputs for national industries which earlier were used for imported products for luxury consumption. Interdependence among national economies became dependence in case of underdeveloped countries and was subordinated to the power of those who control the world market and the most advanced techniques and means of production.
Dependency theory can also be critiqued by using the idea of comparative advantage. Comparative advantage as we know refers to the utilization of the best available resources for producing good quality products at lower cost. As such when third world countries adopts the strategy of internal structures for utilizing its raw materials as a result of comparative advantage, still such third world countries after being subjected to decades of foreign power would hardly be able to work on its own since it would require a high degree of factor mobility, entrepreneurial vision and political stability which only the dominant colonial power would possess, therefore, there would still be a kind of dependency that would exist- this is termed as 'structural dependency'; so complete isolation or delinking would not be possible.5
An inward looking strategy as proposed by the dependency theorists have been adopted by many developing countries but Burma has been cited as an extreme example by Hermann Sautter in the article "Underdevelopment through isolationism? Dependency Theory in Retrospect". Burma restricted all forms of interaction with the outside world and kept it to the minimum. Burma turned everything into a state owned enterprise; private enterprises were limited, public ownership was increased. However in such a state of isolationism or protectionism what occurs is the export of primary goods declines. So rice being the main export of the country, in 1944/1945, its export declined, and export was restricted so Burma's agricultural sector experienced great loss. The agricultural sector was to supply their produce to the national government at lower prices rather than exporting it to other countries and generating much more capital. Therefore this shows that a policy of delinking or isolation pushes the status of underdevelopment to a further extent.
Dependency theories is seen to uphold the policy of protectionism, restricting the domestic market to the interior and refraining the outside market from participating in the internal dynamics of the developing countries. So definitely, a criticism of such a dependency theory has come from the proponents of free trade or free market policy. Peter Bauer and Martin Wolf were two such free trade theorists who were critical of the policy of isolation as proposed by the underdevelopment-dependency theorist (UDT). Bauer and Wolf suggested that the State owned enterprises and industries were more prone to corruption than privately owned enterprises since the former would not be obliged to the rules of economic and political sanctions that world economic systems offer in case of any mismanagement since in a globalized interdependent world a mismanagement in one country would definitely have effects on other interdependent country as well as such this interdependence could act as a check.
Also the State led administration experienced high degree of mismanagement, corruption and wastage in the bureaucracy further limiting development like in Latin America
Sautter, Hermann, "Underdevelopment through Isolationism? Dependency Theory in Retrospect." Intereconomics, July/August pp.182.
where the peoples' movements led to the rise of military coups and this aligned with the US for benefits. Similarly in Burma, powerful military rulers grew into a 'state class' who were very little inclined towards the interests and needs of the people, thereby explaining the reason for the underdeveloped nature of Burma.
Therefore, the principle features of dependency theory namely: the delinking from the world market, self-reliant development and the policy of isolation further widened the gap between the rich and the poor countries and thereby leading to underdevelopment of the region. In a globalized world of interconnectedness, inter linkages among nations- delinking proposed by the dependency theories would be unfeasible.
When dependency theory is read one of its criticism has been that the development and exploitation that they talk of has not really been clearly explained. Exploited how and to what extent has not been clarified. It is mentioned that "capitalism has created underdevelopment not simply because it has exploited the underdeveloped countries but because it has not exploited them enough". (Kay)
Therefore this entire paper deals with the theory of dependency and underdevelopment, how it explains the process of development process in a globalized world. Development as a process involves the aspiration to change and institutional means for achieving it are central to the concepts of development. As explained in the paper earlier the development is a process; a historical process that was presumed to have started from the rise capitalism in Europe and spread to other parts of the world as a process involving colonialist and imperialist tendencies. Since the policy for development is a major policy of the developing countries they are unable to achieve it on their own thus they receive the help from the developed rich countries. Thus, this help from the developed countries form a kind of dependency among the countries. However it is not to be mistaken that this dependency is based not only on the developing countries being dependent on the developed countries for help, but it is a two way process, the developed countries are dependent upon the unexploited raw materials and resources of the developing countries, which feed their industries via which they earn profits and benefits and help them generate capital. What the dependency/underdevelopment theorists assert is that these dependencies instead of helping poor developing countries develop instead they are exploited to a great extent that instead of development, underdevelopment is the consequence. Thus, the underdevelopment and dependency theorists (UDT) bring forth this argument and therefore suggest reforms which would help the development process in the third world developing countries. However the UDT have not been free of criticisms, which have been provided by mainly free trade theorists namely Peter Bauer and Martin Wolf. With all the plus points and negative points for the UDT it does seem a way for the self-development of the countries however in a globalized world it can be attributed as being an idealistic one. Though it provides a way out to thedeveloping countries from the perils of being under the domination of the developed countries still dependency or underdevelopment theory can be said to be unfeasible in an era of globalization.