Dependency Theorem

 What is dependence?

By dependence, we mean a situation in which the economy of certain countries is

conditioned by the development and expansion of another economy to which the former is
subjected. According to Dos Santos, such dependence takes place when some countries (the
dominant ones, viz, the large capitalist countries) can expand and can be self-sustaining,
while the other countries (the dependent ones, viz, the less developed countries or LDCs) can
do this only as a reflection of that expansion which can have either a positive or negative
effect on their immediate development.

In the mid-1960s, the neo-Marxist economists started arguing that the development of the ‘core’
(or the developed capitalist countries, often called as ‘centres’) and the underdevelopment of the
‘periphery’ (or the LDCs or primary goods producing countries) are the two sides of the global
capitalism. Historically, the dependent countries of Asia and Africa were the colonies, and the
dominant countries were the European capitalist and imperialist powers. The dependency school
of thought emphasized the fact the development we observe in LDCs is actually a
‘development of underdevelopment’ since they become too much dependent on the developed
capitalist countries in the process of economic growth.

In the mid-1960s, the neo-Marxist economists started arguing that the development of the ‘Core’ (or the
‘Centre’ or the developed capitalist countries) and the underdevelopment of the ‘periphery’ (or the LDCs)
are the two sides of global capitalism.
Peripheral
Countries
(LDCs)

Peripheral
Peripheral
Countries
Countries
(LDCs)
(LDCs)
CORE/Centre
(Developed
Capitalist
Countries)

Peripheral
Peripheral
Countries
Countries
(LDCs)
(LDCs)

Dr. Debashis Mazumdar, Professor & HOD, Economics Dept, THC 1

  Different forms of dependence of ‘Periphery’ upon the ‘Centre’.

According to the dependency school of economic development, when the peripheral

countries (viz., the LDCs or the dependent ones) get integrated with the ‘Centre’ (viz, the
developed capitalist countries) through trade and commerce, it results in dependency.
Historically, different forms of such dependency have evolved:
a) Colonial dependence: This is based on trade and exploitation of natural resources.
Here, the commercial and financial capital in alliance with the colonialist state
dominated the economic relations state dominated the economic relations and the
colonies.
b) Financial-industrial dependence: This was consolidated itself at the end of the 19th
century. It was characterised by the domination of big capital (financial capital) of the
centre and its expansion in LDCs through investment in the production of raw materials
and agricultural products. These were produced in LDCs for the consumption of the
centre.
c) Technological-industrial dependence: According to Dos Santos, a new type of
dependence of LDCs (the dependent countries) upon the dominant capitalist countries
had developed during the post-war period (since 1945) it is based on MNCs which
began to invest in industries geared to the internal market of LDCs. This form of
dependence is basically ‘technological-industrial’ dependence.

Historically, the dependent countries of Asia and Africa were the colonies, and the dominant countries
were the European capitalist imperialist powers. According to the Dependency School, when the
peripheral countries get connected with the DCs through trade and commerce, it results in dependency of
these peripheral LDCs on the developed capitalist countries. This school of thought (based on the writings
of Paul A. Baran, A.G. Frank, Dos Santos, F.H. Cardoso, C. Furtado, S. Amin etc.) believed that
development in the ‘Centre’ would certainly require exploitation and underdevelopment in peripheral
nations.

P.A.Baran (Political Economy of Growth, 1957) considers underdevelopment in a global perspective.

Two building blocks of his theory are:

i. Monopoly capitalism and

ii. Imperialism.

According to his view, underdevelopment is the natural process of capitalist development. He was one of
the critics of the vicious circle of poverty formulated by the orthodox economists. According to Baran,
underdevelopment and backwardness in the peripheral countries is an externally induced phenomenon.
Internal constraints such as low savings and low investment are less important in explaining
underdevelopment. Thus, India’s underdevelopment can be attributed to its incorporation to the highly
unequal world capitalist system. On the contrary, the success of Japan is ascribed to its isolation from that
system at the initial process of her development.

Baran argues that the study of underdevelopment has to be evaluated in terms of the theory of
imperialism. In many ways, the theory of imperialism follows from the theory of capitalism. He argued

Dr. Debashis Mazumdar, Professor & HOD, Economics Dept, THC 2

that capitalist development of LDCs is impossible today since these countries are not expected to break
out the state of their economic dependency. The generation of economic surplus is important in the
process of economic development. For the existence of capitalist order, surplus generation is
indispensible. However, from this view point, the relationship between the LDCs and the developed
capitalist nations is one of exploitation. The potential surplus generated in the backward LDCs is
siphoned off to those developed capitalist nations through:

(i) Foreign investment,

(ii) Foreign aid and
(iii) Foreign trade.

In fact, the development of one part of the global capitalist system requires underdevelopment of the other
part of the world. Baran has stressed the point that capitalist penetration though developed some
prerequisites of capitalist development in LDCs but it blocked others through

(i) The removal of previously accumulated or currently generated economic surplus that retarded
capital accumulation in LDCs, and
(ii) The destruction of indigenous industries in LDCs.

Baran has also indicated the role played by the wealthy classes in LDCs in expanding monopoly
capitalism. This class by itself is not capable developing itself into a ‘bourgeoisie’ class and, hence, is not
capable of establishing the capitalist mode of production in LDCs. Rather this class can be regarded as the
comprador capitalists (e.g., feudal lords, merchants, military rulers etc.) who are closely allied to foreign
interests and act as an agent of monopoly capitalism.

A.G.Frank, while analyzing the development process of Latin America, also indicates that the ‘lumpen
bourgeoisie’ develops in LDCs as a class and they can only be considered as a passive or an active tool of
foreign commerce and industry. But their interests are identical to those of metropolitan capitalists of
DCs. So, underdevelopment is still generated by the same historical process which generated economic
development, viz. the development of capitalism itself. He identified monopoly and exploitation as the
two important characteristics of capitalism.

New Dependence: According to Dos Santos, during the post-Second World War period, a new type of
dependence was observed. It was based on investments made by the Multi-National Corporations
(MNCs) in the industrial sector of the LDCs and it created a technological-industrial dependence. This
process was conditioned by the interests of the capitalist world in the international commodity and capital
markets. It was observed that in most LDCs the industrial development depended much upon the
expansion of export sector which was geared to the needs of DCs. In many cases, this export sector is
controlled by the foreign capital. It implied huge outflow or drainage of resources from the LDCs to DCs.
Again, the international trade environment also moved against the LDCs with an unfavourable TOT
(since LDCs mainly exported primary goods the demand for which were price and income inelastic in
nature) and unfavourable Balance of Payments A/C. The technological monopoly of the ‘centre’ also
affected the industrial development of the LDCs. In fact, the peripheral countries suffered from some
basic structural loopholes that made them more dependent on the DCs.

Dr. Debashis Mazumdar, Professor & HOD, Economics Dept, THC 3

Thus, on the basis of the foregoing analysis it can be said that the historical process of development of the
‘Centre’ resulted in an ‘underdevelopment’ of the ‘periphery’.

MNCs with Foreign capital

Periphery
Centre

Extraction of Surplus through trade & Commerce

Unequal Exchange (UE): The concept of unequal exchange was developed by A. Emmanuel
(1972). He argued that the UE between the developed and developing countries is the main
reason for the unequal distribution of income in the world economy. Exchange is unequal
between the rich and poor countries in comparison with that between rich nations. So, any
commodity produced on the basis of a number of hours worked in peripheral countries (viz,. in
LDCs) can be bought by the ‘Centres’ (viz., the developed capitalist countries) in exchange for a
commodity that costs a smaller number of labour hours. Due to such UE, the LDCs are obliged
to sell their goods, embodying a relatively large amount of labour time in exchange for goods of
DCs which embody fewer labour hours.

Dr. Debashis Mazumdar, Professor & HOD, Economics Dept, THC 4