Brazil & Dependency Theory

In the 1960-1970’s a kind of direction in world social thought arose. This is the dependence theory. Other variants of the name of this trend are the dependency theory of development, dependent capitalism, peripheral development, and peripheral capitalism.

Dependency Theory Definition

This direction took the origins from the work of the Argentinean economist Raul Prebisch. Prebisch noted that the terms of trade for the “periphery” of the world are worse than those for its “center.” He argued that the slow growth in such third world regions as Latin America is the result of a global capitalist economic order that supports these regions in a state of permanent “dependent development.” Therefore, the wealth of the North is directly related to the poverty of the South.

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Economic dependency theory is divided into three areas:

  • Dependent underdevelopment;
  • Dependent development;
  • Reproduction of dependence.

According to the classical theory of free trade, participation in an open system of world trade should give maximum benefits to everyone, even if one country sells coffee beans and the other sells computers.

Economically backward and late coming into this system, countries should even have some advantage in economic development, since they can import technology from those who have already developed it, and not create it themselves.

Dependency theory definition, on the contrary, asserts that later development dooms the country to permanent backwardness. Its starting point is a premise that the capitalist system on a global scale simultaneously generates economic amplification and underdevelopment at the international, national and local levels.

Adherents of the international dependence theory and underdevelopment argue that the capitalist system actively contributes to the underdevelopment of the developing countries and that true amplification is impossible as long as this system exists. The dependence theory emphasizes the fact that the developed industrial powers practically restrain the amplification of the more backward countries by their economic domination over them. So answering the question what is the dependency theory, it is necessary to say that dependence means a situation in which the state of the economy of a country is determined by the amplification and expansion of another economy, with which it directly interacts. The relationship of interdependence between two or more economies, as well as between them and world trade, assumes a form of dependence in which the economies of some countries (dominant) can grow successfully and be self-sufficient, while in other countries (dependent) the same processes can only take place as a reflection of such growth, which can have both positive and negative impact on their direct development. Considering the process of organizing the world economy, integrating the so-called national economies into the world market of consumption, capital and even labor, it turns out that the links created by this market are combined and are unequal because the amplification of some parts of this system occurs at the expense of its other parts.

Thus, the left radical economist Andre Gunder Frank pointed out that the metropolis appropriates the economic surplus of its satellites and uses it for its own development. The satellites remain underdeveloped, because they do not have access to their own surplus, and also because of the polarization of society and the exploitative contradictions introduced and supported by the metropolitan state within the satellite country.

The combination of these contradictions stimulates the development of metropolitan countries and determines the process of “sub-development” of satellites. The conditions of world trade are controlled by developed countries, and through their transnational corporations, they plunge the Third World countries into the so-called “unbalanced development” – that is, the export of raw materials and other goods with very little processing. The developed North closes the world market from complex industrial goods like cars and airplanes, leaving the countries of the third world with the virtual role of global “woodcutters and water carriers”. Many dependency theorists associated the world economic order with the existence of authoritarian regimes that came to power in Latin America in the wake of the Cuban revolution.

In their speeches and articles, they argued that the modernization theory vs dependency theory is not capable of leading the Third World countries out of backwardness. In particular, the countries of Latin America, despite the fact that they filled their institutions with American advisors and received colossal investments from the United States, were trapped in backwardness. The main reason for backwardness is the dependence of the Latin American economy on the US economy. Economically and intellectually dependent countries in principle can not become advanced powers.

The scheme of “satellization”, in fact, was built on the model of linear dependence, which led to the absolute dependence between countries. It closed the theoretical sphere to explain growth and development, even limited, that occurred in a number of developing countries. A definite way out of this was the concept of the reproduction or change of dependence, suggesting that some examples of periphery countries or sectors of their economy that were in strong dependence can get out of this state. In general, this concept considers amplification strategies as subsidized from abroad. The price that one or another sector of the economy (states) pays for overcoming dependence, in the long run is not worth it. For example, international assistance to a particular producer of a developing country can strengthen its position in world markets in the production of minerals or industrial products, but it can also exacerbate a country’s currency situation due to increased imports of machinery and technology, which will lead to greater dependence on its reproduction at a new level.  In the opinion of ideologists, in order to get advantages of dependency theory, the unequal division of labor and underdevelopment must be changed on the basis of a strategy of “integrated power” (integration between countries) and as a result of changes in the conditions of the international division of labor.

Dependency Theory Theorists

Andre Gunder Frank

Andre Gunder Frank (1966) proposed one of the early versions of the theory of dependence. He criticized the view that “economic amplification occurs in the form of successive stages in the formation of capitalism and that at present the underdeveloped countries are still at that stage of history (sometimes called the initial stage) through which the developed countries have long passed. He believed that, on the contrary, developed countries were “metropolises”, while the more backward ones were only dependent satellites that could not manage their own affairs completely. According to Frank, the whole world is run by a giant business center (Europe and the USA). This center exercises control over the less developed countries, extracting capital, surplus products and raw materials from them. Such a policy hinders the development of national industry there.

Fernando Henrique Cardoso

In Brazil, the theory of dependence was used by Fernando Henrique Cardoso and Enzo Fall (1979). The group of owners, representatives of the business circles of this country sought to destroy traditional commerce models, by virtue of which Brazil remained only a supplier of coffee, sugar, and fruit for industrial countries. They set a goal to create an industrial society, more independent of the advanced countries. However, for some time, large foreign corporations hampered the realization of this goal. Local business circles turned to international monopolies for assistance in the field of technology and capital. Gradually, the number of Brazilian companies that became dependent on other countries increased. As a result, local entrepreneurs again could not exert a proper influence on politics and economics.

According to Cardozo, such a model has become quite widespread among dependent countries. Since, for many reasons, local owners and entrepreneurs cannot sufficiently increase their capital at home, they turn to international banks and corporations that willingly lend them loans and other types of assistance. Local entrepreneurs and politicians should get the right to make decisions on a number of issues. These include taxation policies, defense spending, welfare, economic amplification and unemployment control. Thus, foreign firms and banks can become a kind of shadow government.

The analysis of Cardozo has a criticism of dependency theory in the fact that countries like Brazil cannot develop normally due to their cultural backwardness or the inability of local entrepreneurs. In fact, the reasons for the stagnation are that industry and finance are dependent on international sources.

Immanuel Wallerstein

Another attack against modernization researchers was undertaken by Immanuel Wallerstein (1976). Instead of the theory of modernization, he proposed a model, called the world systems theory vs dependency theory. Secondary importance is attached to the communities and national states in it, and global social changes are brought to the forefront. In the beginning, Wallerstein makes a distinction between world empires and world economic systems. World empires include several territories united by a single military and political power.

The Roman Empire is a classic example. World economic systems also represent integral associations, including different countries and territories, but they do not have a central political power. A vivid example of such an association is the system of payment of tribute in China during the period of the Empire. In return for the gold, grain, animals and other commodities they collected each year, the Chinese allowed small, relatively weak peoples to manage their affairs at their own discretion.

Historically, most of the world’s economic systems have been unstable. They collapsed or transformed into world empires. However, Wallerstein emphasizes that one of the world’s economic systems – modern capitalism has been preserved for 500 years, without turning into a world empire. In fact, modern capitalism has turned to great benefit the absence of central political power. The fact that transnational corporations are beyond the control of a single government allows them to freely transfer funds across state borders regardless of adverse national policies.

According to Wallerstein’s theory, world economic systems include central states, as well as peripheral and semi-peripheral regions. Central states largely govern peripheral regions, while semi-peripheral regions serve as a buffer in many complex aspects. At the same time, the central states are constantly fighting each other. The competition between them became possible precisely because of the absence of any central organization that leads the capitalist economy.

Examples

Although the dependence theory lives among the intellectuals of the left wing, it was undermined by one large-scale phenomenon, which it can hardly explain. This is the example of dependency theory when a phenomenal economic growth in South Korea, Taiwan, Hong Kong, Singapore, Malaysia, and Thailand was observed. After the war, almost all these countries consciously recoiled from the import substitution policy that swept the whole of Latin America, and instead focused on economic development on the basis of exports with a great sense of purpose, deliberately tying themselves to foreign markets and capital through relations with transnational corporations. Moreover, it can not be argued that these countries had an unfair advantage at the start because of the abundance of natural resources or the capital accumulated in the past: unlike the oil-rich countries of the Middle East or certain types of raw materials of the countries of South America, they entered into competition without having anything, except the human capital of its own population.

Thus, the dependence theory can trace its intellectual heritage to the lengthy debates about free trade, various forms of protectionism, economic nationalism, as well as the problems of imperialism and colonialism. Critics of the theory of dependence argue that it underestimates the factor of the elite and the specifics of the local economy, these criticisms mainly point to the role played by corruption or the lack of a culture of commercial competition as the chronic backwardness of these countries. Nevertheless, the importance of dependency theory lies in the fact that it allows researchers to look at the issue the two opposite perspectives and develop the most beneficial way of making improvements.

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