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Dependency Theory

By lukwesa2 Dec 26, 2011 2098 Words
This essay will start by giving an introduction and a brief history of the origins of dependency theory and how these developing countries have found themselves in the state of dependency. It will then proceed to outline and discuss the major tenets of the dependency model. The essay will further analyze why developing countries have maintained links with the western societies even after realizing that the same links have played a role in under developing these third world countries and then a conclusion will be drawn from the discussion. Theorists from all works of life have been trying their best to find the remedy in addressing the problems of third world countries. In spite of all these efforts, third world countries which are characterized with high poverty levels, poor medical facilities, and poor infrastructures seem to be experiencing more of underdevelopment. Developed nations on the contrary seem to be benefiting from this continuances lack of development in these countries. The state of underdevelopment prompted some scholars like Raul Prebisch, Gunder Frank and many others to analyze and find solutions to overcome such a state. This gave rise to the birth of a model which was Dependency model. The proponents of this model managed to point out the problems and offered remedial measures to overcome this problem of underdevelopment as it shall be seen in the unfolding discussion. Dependency has its roots tracing back to the era of imperialism which is a stage in development of capitalism characterized by low wages and declining profits in developed states. For these capitalist states to overcome this problem, they had to embark on the search for markets and cheaper sources of raw materials in order to keep the industries running. The markets for their manufactured goods and sources of raw materials were found in Asia, Africa and Latin America (Swanepoel, 1997). Imperialism later resulted into colonialism which can be explained as a direct military and economic subjugation of newly acquired lands in order to secure profitable investment opportunities, source of cheaper raw materials and markets abroad for the colonial masters. During the era of colonialism, raw materials and cheap labour were being repatriated to the Western countries to support and develop their industries. When time for independence came for most third world countries, it was difficult for the colonial masters to let go of full control of these countries. They made sure that links were kept with these newly independent countries in order for them to continue accessing markets, cheap mineral resources and labour. At this stage it was not direct governance as in colonialism but indirect and this was termed as Neo-colonialism. These countries appeared to be independent on the outside but economically and politically, they were not. Western countries still had control over their internal affairs (ibid.). Owing to the preceding explanation, a number of scholars arose to try and address this scenario hence Dependency Model or theory was born to explain asymmetrical relations that existed between developed and developing countries. Dependency Theory developed in the late 1950s under the guidance of the Director of the United Nations Economic Commission for Latin America (ECLA), Raul Prebisch. Prebisch and his colleagues were troubled by the fact that economic growth in the advanced industrialized countries did not necessarily lead to growth in the poorer countries. Indeed, their studies suggested that economic activity in the richer countries often led to serious economic problems in the poorer countries. Such a possibility was not predicted by neoclassical theory, which had assumed that economic growth was beneficial to all even if the benefits were not always equally shared (Ferraro, 2008). Underdeveloped states are characterized by low standard of living for the majority, production of agricultural primary products and raw materials and most of these are not consumed but traded on international market. Most of these countries (Underdeveloped) are concentrated in Africa, Asia and Latin America. On the other hand, developed states are characterized by high standards of living for the masses, production of industrial manufactured commodities and technologically advanced. Prebisch's initial explanation for the phenomenon was very straightforward: poor countries exported primary commodities to the rich countries that then manufactured products out of those commodities and sold them back to the poorer countries (Swanepoel, 1997). The "Value Added" by manufacturing a usable product always cost more than the primary products used to create those products. Therefore, poorer countries would never be earning enough from their export earnings to pay for their imports. For example, Zambia exports copper in its raw form and imports finished products made from copper from developed countries at a higher price. Prebisch's solution was similarly straightforward: poorer countries should embark on programs of Import Substitution Industrialization (ISI) so that they need not to purchase the manufactured products from the richer countries. The poorer countries would still sell their primary products on the world market, but their foreign exchange reserves would not be used to purchase their manufactured goods from abroad. This policy entailed that developing countries were to develop their local industries to an extent that they were able to manufacture those finished products they were importing from abroad (Todaro, 2005). The deteriorating Terms of Trade (TOT) between the poor nations and the rich also necessitated the rise of dependency theory. It was believed that poor countries were not benefitting much from international trade. Prebisch and Hans Singer argued that international trade reproduced the disparities between the poor and rich countries. This results in the poor countries to lag behind in both productive and technological terms. This, ultimately results in long- run tendency for prices of primary products to deteriorate relative to the prices of manufactured products. The developed countries also tend to apply protectionist policies such as trade quotas and tariffs to restrict market for export form the developing countries (Furtado, 1964). Dependency theory opposes the central distributive mechanism of the neoclassical model, what is usually called "trickle-down" economics. The neoclassical model of economic growth pays relatively little attention to the question of distribution of wealth. Its primary concern is on efficient production and assumes that the market will allocate the rewards of efficient production in a rational and unbiased manner (Ferraro, 2008). These conditions are not pervasive in the developing economies, and dependency theorists argue that economic activity is not easily disseminated in poor economies. For these structural reasons, dependency theorists argue that the market alone is not a sufficient distributive mechanism. The state should play a role in the allocation of resources so as to foster real development. Despite all the evidence that there has been some glaring unfairness in their relationship, that is, between the developed and the poor countries, the poor countries have failed to break links. A lot of reasons can be put forward which include among them: too much dependency on a single product for export, lack of capacity by their local industries, globalization and small populations to provide market for their manufactured goods. Most of the developing countries rely so much on a single product for their export earnings. They have failed to diversify their economies. Those endowed with the potential for agriculture depend on agriculture and those endowed with minerals also depend on mining industry (Todaro, 2005). If you take for example, the case of Zambia, it will be discovered that Zambia is endowed with minerals like copper and hence her economy is driven by mining and exporting copper. Zambia can as well do better in other sectors such as tourism and agriculture but not so much attention has been paid in developing these sectors which also have great potential to earn foreign exchange for the country. The disadvantage of a mono-economy is that in case of an economic downswing, such countries as Zambia tend to suffer more than those countries that have diversified economies. This happened not too long ago when the economic global crunch hit the world economies in 2008. China which buys most of our copper reduced on the amount it was buying and this resulted into copper prices being reduced on the London Metal Exchange Market. This saw most of the mining industries and those companies which are linked to mining close down resulting into unemployment, loss of revenue through taxation, depreciation of the local currency and many other problems. Local manufacturing industries in most third world countries are not so developed to meet the challenges of this century. This results in exporting of their products in their raw form meaning no value addition to attract reasonable prices on the international market. With a well established manufacturing industry, the developing countries would produce finished products of high quality and reduce on importation of finished goods such as cars, electronic equipment such as computers, cellular phones et cetera. However, for these countries to attain such levels of technology, investment is needed and can only come from the same capitalist countries. Therefore, this makes it practically impossible for the developing countries to break away from the yoke of political, economical and social dependency of the developed countries and ultimately stand on their own (Sapru, 1994). The sizes of the populations in most developing countries are too small to offer effective markets for the products which are manufactured in these countries. A large population equals large consumers who can spend lots of money to buy products. Large population will aid economic growth because it is the most important element to stimulate economic growth and development through provision of the necessary labour force. A large workforce can lead to the establishment of factories which can be producing hand made products and in the end contribute to economic growth and development. However, the populations of most developing countries are too small to offer such hence, the perpetual dependency on the west to survive. Furthermore, all production depends on human labor. Specialized production is dependent on a highly skilled and educated workforce. However, most colonial governments spent very little money on educating their citizens. Consequently at independence, African countries faced a severe shortage of skilled people, an absolute necessity for economic growth and development. The new independent countries faced with this challenge of unskilled labour and uneducated people to run the industry, had to look to the West for help. With this kind of scenario, developing countries cannot break links with western societies (Carmody, 2004). Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economic: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import quotas. Globalization accompanied and allegedly contributed to economic growth in developed and developing countries through increased specialization and the principle of comparative advantage (Bhagwati, 2004). The term can also refer to the transnational circulation of ideas, languages, and popular culture. In a world orientated in such a manner, it will be extremely difficult for any one country to break ties with the rest of world and pursue a policy of isolations. If such a developing country takes such a path (isolating itself), then it will even be more underdeveloped than it is today. In short, co-existence between the developed and the developing countries should be encouraged but attention should be paid to those policies which seek to undermine the interests of the other in this case the poor countries. It can then be concluded that Dependency Model did manage to highlight those problems which were embedded in the relationship between the rich and the poor countries, but it has proved to be very difficult to find a lasting solution. Policies such as ISI were good but the poor countries lacked large internal markets to support economies of scale to keep prices of manufactured products low as is the case in richer countries. Developing countries also do not seem to have control of their primary products when it comes to sell on the international market. Developing countries have therefore found it difficult to break links with the developed western due these inadequacies and the way world economies are positioned. BIBILIOGRAPHY

Bhagwati Jagdish (2004). In Defense of Globalisation, Oxford University Press, Oxford

Carmody, B. (2004). The Evolution of Education in Zambia. Bookworld, Lusaka.

Ferraro Vincent (2008). "Dependency Theory: An Introduction," in The Development Economics Reader, Routledge, London.

Furtado Celso (1964). Development and Underdevelopment, University of Califonia Press, Califonia.

Sapru R.K. (1994). Development Administration.Sterlin Publishers Private Ltd, New Delhi. Swanepoel Hennie ( 1997). Introduction to Developmenmt Studies. Oxford University Press, Oxford. Todaro . M and Smith. S. (2005), Economic Development, Pearson Educators, Delhi.

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