Dependency theory

The premises of dependency theory are that: • Poor nations provide natural resources, cheap labour, a destination for obsolete technology, and markets for developed nations, without which the latter could not have the standard of living they enjoy. • Wealthy nations actively perpetuate a state of dependence by various means. This influence may be multifaceted, involving economics, media control, politics, banking and finance, education, culture, and sport. ==History==

Dependency theory originates with two papers published in 1949, one by Hans Singer and one by Raúl Prebisch, in which the authors observe that the terms of trade for underdeveloped countries relative to the developed countries had deteriorated over time: the underdeveloped countries were able to purchase fewer and fewer manufactured goods from the developed countries in exchange for a given quantity of their raw materials exports. This idea is known as the Prebisch–Singer thesis. Prebisch, an Argentine economist at the United Nations Commission for Latin America (UNCLA), went on to conclude that the underdeveloped nations must employ some degree of protectionism in trade if they were to enter a self-sustaining development path. He argued that import-substitution industrialisation (ISI), not a trade-and-export orientation, was the best strategy for underdeveloped countries. The theory was developed from a Marxian perspective by Paul A. Baran in 1957 with the publication of his The Political Economy of Growth. Dependency theory shares many points with earlier, Marxist, theories of imperialism by Rosa Luxemburg and Vladimir Lenin, and has attracted continued interest from Marxists. Some authors identify two main streams in dependency theory: the Latin American Structuralist, typified by the work of Prebisch, Celso Furtado, and Aníbal Pinto at the United Nations Economic Commission for Latin America (ECLAC, or, in Spanish, CEPAL); and the American Marxist, developed by Paul A. Baran, Paul Sweezy, and Andre Gunder Frank. Using the Latin American dependency model, the Guyanese Marxist historian Walter Rodney, in his book How Europe Underdeveloped Africa, described in 1972 an Africa that had been consciously exploited by European imperialists, leading directly to the modern underdevelopment of most of the continent. The theory was popular in the 1960s and 1970s as a criticism of modernization theory, which was falling increasingly out of favor because of continued widespread poverty in much of the world. At that time the assumptions of liberal theories of development were under attack. It was used to explain the causes of overurbanization, a theory that urbanization rates outpaced industrial growth in several developing countries. The Latin American Structuralist and the American Marxist schools had significant differences but, according to economist Matias Vernengo, they agreed on some basic points:[B]oth groups would agree that at the core of the dependency relation between center and periphery lays [lies] the inability of the periphery to develop an autonomous and dynamic process of technological innovation. Technology – the Promethean force unleashed by the Industrial Revolution – is at the center of stage. The Center countries controlled the technology and the systems for generating technology. Foreign capital could not solve the problem, since it only led to limited transmission of technology, but not the process of innovation itself. Baran and others frequently spoke of the international division of labour – skilled workers in the center; unskilled in the periphery – when discussing key features of dependency. More recently, Guillermo O'Donnell has argued that constraints placed on development by neoliberalism were lifted by the military coups in Latin America that came to promote development in authoritarian guise (O'Donnell, 1982). These positions particularly in regard of Latin America were notably challenged theoretically in the work and teaching of Ruy Mauro Marini who developed wider recognition for a specifically Marxist Dependency Theory, after close reading of Marx, that super-exploitation and unequal exchange characteristically arose out of the specific forms in the capital reproduction of dependency, and the specific class relations particular to that dependency in the periphery. The importance of multinational corporations and state promotion of technology were emphasised by the Latin American Structuralists. Fajnzylber has made a distinction between systemic or authentic competitiveness, which is the ability to compete based on higher productivity, and spurious competitiveness, which is based on low wages. The third-world debt crisis of the 1980s and continued stagnation in Africa and Latin America in the 1990s caused some doubt as to the feasibility or desirability of "dependent development". The sine qua non of the dependency relationship is not the difference in technological sophistication, as traditional dependency theorists believe, but rather the difference in financial strength between core and peripheral countries–particularly the inability of peripheral countries to borrow in their own currency. He believes that the hegemonic position of the United States is very strong because of the importance of its financial markets and because it controls the international reserve currency – the US dollar. He believes that the end of the Bretton Woods international financial agreements in the early 1970s considerably strengthened the United States' position because it removed some constraints on their financial actions. "Standard" dependency theory differs from Marxism, in arguing against internationalism and any hope of progress in less developed nations towards industrialization and a liberating revolution. Theotonio dos Santos described a "new dependency", which focused on both the internal and external relations of less-developed countries of the periphery, derived from a Marxian analysis. Former Brazilian President Fernando Henrique Cardoso (in office 1995–2002) wrote extensively on dependency theory while in political exile during the 1960s, arguing that it was an approach to studying the economic disparities between the centre and periphery. Cardoso summarized his version of dependency theory as follows: • there is a financial and technological penetration by the developed capitalist centers of the countries of the periphery and semi-periphery; • this produces an unbalanced economic structure both within the peripheral societies and between them and the centers; • this leads to limitations on self-sustained growth in the periphery; • this favors the appearance of specific patterns of class relations; • these require modifications in the role of the state to guarantee both the functioning of the economy and the political articulation of a society, which contains, within itself, foci of inarticulateness and structural imbalance. With the economic growth of India and some East Asian economies, dependency theory has lost some of its former influence. It still influences some NGO campaigns, such as Make Poverty History and the fair trade movement. ==Other theorists and related theories==

Two other early writers relevant to dependency theory were François Perroux and Kurt Rothschild. Other leading dependency theorists include Herb Addo, Walden Bello, Ruy Mauro Marini, Enzo Faletto, Armando Cordova, Ernest Feder, Pablo González Casanova, Keith Griffin, Kunibert Raffer, Paul Israel Singer, Walter Rodney and Osvaldo Sunkel. Many of these authors focused their attention on Latin America; dependency theory in the Arab world was primarily refined by the Egyptian economist Samir Amin. The American sociologist Immanuel Wallerstein refined the Marxist aspect of the theory and expanded on it, to form world-systems theory. World Systems Theory is also known as WST and aligns closely with the idea of the "rich get richer and the poor get poorer". Wallerstein states that the poor and peripheral nations continue to get more poor as the developed core nations use their resources to become richer. Wallerstein developed the World Systems Theory utilizing the dependence theory along with the ideas of Marx and the Annales School. This theory postulates a third category of countries, the semi-periphery, intermediate between the core and periphery. Wallerstein believed in a tri-modal rather than a bi-modal system because he viewed the world-systems as more complicated than a simplistic classification as either core or periphery nations. To Wallerstein, many nations do not fit into one of these two categories, so he proposed the idea of a semi-periphery as an in between state within his model. ==Criticism==

Economic policies based on dependency theory have been criticized by free-market economists such as Peter Bauer and Martin Wolf and others: • Lack of competition: by subsidizing in-country industries and preventing outside imports, these companies may have less incentive to improve their products, to try to become more efficient in their processes, to please customers, or to research new innovations. • Sustainability: industries reliant on government support may not be sustainable for very long, particularly in poorer countries and countries which largely depend on foreign aid from more developed countries. • Domestic opportunity costs: subsidies on domestic industries come out of state coffers and therefore represent money not spent in other ways, like development of domestic infrastructure, seed capital or need-based social welfare programs. At the same time, the higher prices caused by tariffs and restrictions on imports require the people either to forgo these goods altogether or buy them at higher prices, forgoing other goods. Market economists cite a number of examples in their arguments against dependency theory. The improvement of India's economy after it moved from state-controlled business to open trade is one of the most often cited. India's example seems to contradict dependency theorists' claims concerning comparative advantage and mobility, as much as its economic growth originated from movements such as outsourcing – one of the most mobile forms of capital transfer. In Africa, states that have emphasized import-substitution development, such as Zimbabwe, have typically been among the worst performers, while the continent's most successful non-oil based economies, such as Egypt, South Africa, and Tunisia, have pursued trade-based development. According to economic historian Robert C. Allen, dependency theory's claims are "debatable" due to fact that the protectionism that was implemented in Latin America as a solution ended up failing. The countries incurred too much debt and Latin America went into a recession. One of the problems was that the Latin American countries simply had too small national markets to be able to efficiently produce complex industrialized goods, such as automobiles. == Examples of dependency theory ==

Many nations have been affected by both the positive and negative effects of dependency theory. The idea of national dependency on another nation is not a relatively new concept even though the dependency theory itself is rather new. Dependency is perpetuated by using capitalism and finance. The dependent nations come to owe the developed nations so much money and capital that it is not possible to escape the debt, continuing the dependency for the foreseeable future. An example of the dependency theory is that during the years of 1650 to 1900 European nations such as Britain and France took over or colonized other nations. They used their superior military technology and naval strength at the time to do this. This began an economic system in the Americas, Africa, and Asia to then export the natural materials from their land to Europe. After shipping the materials to Europe, Britain and the other European countries made products with these materials and then sent them back to colonized parts of the Americas, Africa, and Asia. This resulted in the transfer of wealth from these regions’ products to Europe for taking control of the products. Some scholars and politicians claim that with the decline of colonialism, dependency has been erased. Other scholars counter this approach, and state that global society still has national powerhouses such as the United States, European nations such as Germany and Britain, China, and India that hundreds of other nations rely on for military aid, economic investments, etc. ==Aid dependency==

Aid dependency is an economic problem described as the reliance of less developed countries (LDCs) on more developed countries (MDCs) for financial aid and other resources. More specifically, aid dependency refers to the proportion of government spending that is given by foreign donors. A nation having an aid dependency ratio of about 15%-20% or higher is correlated with negative outcomes for that nation. What causes dependency is the inhibition of development and economic/political reform that results from trying to use aid as a long-term solution to poverty-ridden countries. Aid dependency arose from long term provisions of aid to countries in need in which the receiving country became accustomed to and developed a dependency syndrome. Aid dependency is most common today in Africa. The top donors as of 2013 were the United States, the United Kingdom, and Germany while the top receivers were Afghanistan, Vietnam, and Ethiopia. History of aid dependence International development aid became widely popularized post World-War Two due to first-world countries trying to create a more open economy as well as cold war competition. In 1970, the United Nations agreed on 0.7% of Gross National Income per country as the target for how much should be dedicated for international aid. In his book “Ending Aid Dependence”, Yash Tondon describes how organizations like the International Monetary Fund (IMF) and the World Bank (WB) have driven many African countries into dependency. During the economic crisis in the 1980s and the 1990s, a great deal of Sub-Saharan countries in Africa saw an influx of aid money which in turn resulted in dependency over the next few decades. These countries became so dependent that the President of Tanzania, Benjamin W. Mkapa, stated that “Development aid has taken deep root to the psyche of the people, especially in the poorer countries of the South. It is similar to drug addiction.” Motives for giving aid While the widespread belief is that aid is motivated only by assisting poor countries, and this is true in some cases, there is substantial evidence that suggests strategic, political, and welfare interests of the donors are driving forces behind aid. Maizels and Nissanke (MN 1984), and McKinlay and Little (ML, 1977) have conducted studies to analyze donors’ motives. From these studies they found that US aid flows are influenced by military as well as strategic factors. British and French aid is given to countries that were former colonies, and also to countries in which they have significant investment interest and strong trade relations. Stunted economic growth A main concern revolving around the issue of foreign aid is that the citizens in the country that is benefiting from aid lose motivation to work after receiving aid. In addition, some citizens will deliberately work less, resulting in a lower income, which in turn qualifies them for aid provision. Aid dependent countries are associated with having a lowly motivated workforce, a result from being accustomed to constant aid, and therefore the country is less likely to make economic progress and the living-standards are less likely to be improved. A country with long-term aid dependency remains unable to be self-sufficient and is less likely to make meaningful GDP growth which would allow for them to rely less on aid from richer countries. Food aid has been criticized heavily along with other aid imports due to its damage to the domestic economy. A higher dependency on aid imports results in a decline in the domestic demand for those products. In the long-run, the agricultural industry in LDC countries grows weaker due to long-term declines in demand as a result from food aid. In the future when aid is decreased, many LDC countries's agricultural markets are under-developed and therefore it is cheaper to import agricultural products. This occurred in Haiti, where 80% of their grain stocks come from the United States even after a large decrease in aid. In countries where there is a primary-product dependency on an item being imported as aid, such as wheat, economic shocks can occur and push the country further into an economic crisis. Political dependency Political dependency occurs when donors have too much influence in the governance of the receiving country. Many donors maintain a strong say in the government due to the country's reliance on their money, causing a decrease in the effectiveness and democratic-quality of the government. This results in the receiving country's government making policy that the donor agrees with and supports rather than what the people of the country desire. Government corruptibility increases as a result and inhibits reform of the government and political process in the country. These donors can include other countries or organizations with underlying intentions that may not be in favor of the people. Political dependency is an even stronger negative effect of aid dependency in countries where many of the problems stem from already corrupt politics and a lack of civil rights. For example, Zimbabwe and the Democratic Republic of the Congo both have extremely high aid dependency ratios and have experienced political turmoil. The politics of the Democratic Republic of the Congo have involved civil war and changing of regimes in the 21st century and have one of the highest aid dependency ratios in Africa. As aid dependence can shift accountability away from the public and to being between state and donors, “presidentialism” can arise. Presidentialism is when the president and the cabinet within a political system have the power in political decision-making. In a democracy, budgets and public investment plans are to be approved by parliament. It is common for donors to fund projects outside of this budget and therefore go without parliament review. Efforts to end aid dependence Since 2000, aid dependency has decreased by about one third. This can be seen in countries like Ghana, whose aid dependency decreased from 47% to 27%, as well as in Mozambique, where the aid dependency decreased from 74% to 58%. Long-term investment in agriculture and infrastructure are key requirements to end aid dependency as it will allow a country to slowly decrease the amount of food aid received and begin to develop its own agricultural economy and solve food insecurity. Countering political corruption Political corruption has been a strong force associated with maintaining dependency and being unable to see economic growth. During the Obama administration, congress claimed that the anti-corruption criteria The Millennium Challenge Corporation (MCC) used was not strict enough and was one of the obstacles to decreasing aid dependence. Often, in countries with a high corruption perception index the aid money is taken from government officials in the public sector or taken from other corrupt individuals in the private sector. Efforts to disapprove aid to countries where corruption is very prevalent have been a common tool used by organizations and governments to ensure funding is used properly but also to encourage other countries to fix the corruption. Other methods of aid It has been proven that foreign aid can prove useful in the long-run when directed towards the appropriate sector and managed accordingly. Specific pairing between organizations and donors with similar goals has produced more success in decreasing dependency than the tradition form of international aid which involves government to government communication. Botswana is a successful example of this. Botswana first began receiving aid in 1966. In this case, Botswana decided which areas needed aid and found donors accordingly rather than simply accepting aid from other countries whose governments had a say in where the money would be distributed towards. Recipient-led cases such as Botswana are more effective partially because it negates the donor's desirability to report numbers on the efficiency of their programs (that often include short-term figures such as food distributed) and instead focuses more on long-term growth and development that may be directed more towards infrastructure, education, and job development. ==See also==