What is Dependency Theory?
Dependency theory explains that underdeveloped nations enrich advanced countries with resources at their own expense. This theory was formulated in 1960 to respond to a statistic by a researcher known as Raul Prebisch. In his research, Prebisch noted that the wealth of the advanced nations came from the developing ones. Therefore, Dependency Theory holds that developing nations are entirely dependent on advanced nations, and this limits them from becoming industrious. The dependence theories are explained in many forms, one of them being colonialism. Colonialism suggests that advanced nations took over new territories, and in the process, they used military and political influences in order to take control of the resources of the new regions.
However, colonialism did not last long, and Dependency Theory took the form of neocolonialism. According to neocolonialism, the advanced nations used capitalism to influence less developed countries into decisions that would lead to further dependence but also lead to wealth for the advanced nations. This increased the debt levels of underdeveloped countries with huge amounts owed to the developed nations.
The theorists behind the dependency theory can be organized into two categories: the liberal reformist and the neo-Marxists. The neo-Marxist category establishes that the economic system creates wealthy business people and a low working class of employees. On the other hand, liberal reformists indicate that policies can control a free market and it is possible to reform the system and try to make it equal.
Propositions of Dependency Theory
The dependency theory highlights various propositions. They are:
- Poor economic growth in developing nations results from the difference in unequal exchange with advanced countries. These poor economic nations act as suppliers of raw materials and cheap labor to developed nations, but they are in turn given assistance in the form of huge debts that they are left paying for years.
- Undeveloped and underdeveloped countries are highly dependent on advanced nations. Undeveloped nations involve those countries that have not begun developing, while underdeveloped ones involve those that have started developing but have not reached the developed state yet. The dependency theory then suggests that most undeveloped and underdeveloped countries go to the developed nations for help.
- The dependency theory also explains that underdeveloped countries could use their resources to advance themselves. However, these resources are sold to advanced countries, refined, and then resold to underdeveloped countries at high prices. This process causes underdeveloped nations to deplete their resources which would have otherwise assisted them in their growth.
- The dependency theory also indicates that the national economic interest of countries also plays a vital role in determining what a government does to improve its financial status. The developed countries will continue to take resources from the underdeveloped nations as long as they benefit from them.
The characteristics of dependency theory include the existence of advanced and poor nations, the interference of advanced nations in the wealth of the poor nations, control of the resources of the poor nations leading to more dependence, and control of a nation's economic choices. The idea is to cause dependence and ensure it continues that way.
Dependency Theory Problems
There are problems associated with the dependency theory. One of the main issues is the different theoretical frameworks associated with it. The dependency theory has two categories of theorists, the neo-Marxist and liberal reformists, both of who have different approaches. In the first approach by the neo-Marxists, there is an established understanding that there must be an unequal distribution of wealth for a capitalistic system to function. This approach favors the way undeveloped economies provide their resources to developed economies.
On the other hand, the liberal reformists find this approach inappropriate and even restricts governments' involvement in any country's business activities. The idea behind these reformists is a free economy where capitalism is created between companies that are not monopolies. These contradictions between the theorists and frameworks then raise issues with the Dependency Theory.
Consequently, the involvement of governments in controlling businesses is another problem associated with Dependency Theory. Governments can influence interest rates causing a ripple effect like low consumer spending.
Lastly, the development of other theories disputes the Dependency Theory. When different approaches with better premises are created, they make the dependency theory lack its ground in the economic sphere.
Dependency Theory Examples
- One of the significant examples of dependency theory today is how African countries received huge loans from advanced countries starting in 1970. Many of the countries have tried to repay the loans, but there is still lots of interest that has been accrued. Africa is still suffering from these interest loans as a continent since most of its capital is used to repay the loans. As a consequence, the concerns of this continent are ignored, and they are oppressed economically. Besides, some countries in Africa are still dependent on advanced economies for assistance. They sell their resources to them to acquire refined products at very high prices. This situation continues to enrich the developed countries and impoverishes the dependent countries of Africa.
- China is currently flourishing as an advanced country that exploits underdeveloped countries. China takes up raw materials from other countries, especially the underdeveloped countries, refines their products, and sells them at very high prices. Also, they give loans to underdeveloped economies and expect huge interest back. This condition has made China flourish indefinitely, portraying the situation of dependency theory.
- Brazilian Favelas are slum areas in Brazilian cities that can be found on the outskirts or within the city. People living in these slums construct shanties using salvaged or stolen materials. These slums show the disconnect between the very rich and poor in Brazil.
- In North and South Korea, government control is less favorable because it often leads to corruption, and political and military influence was used during colonialism in these countries. Too much government control leads to citizens depending on their governments and rules out their ability to make decisions.
Lesson Summary
Dependency theory explains how advanced nations continue to flourish at the expense of underdeveloped nations. These dominant economies take resources from dependent countries, refine them, and resell the resources at very high prices. This situation has resulted in the depletion of underdeveloped countries' resources, which has, in turn, caused the economies of these countries to remain stagnant.
The categories of dependency are the liberal reformist and the neo-Marxists. Some of the problems associated with the dependency theory is countries' control over economies and different theories from economist theorists. A relatable example of dependency theory is how Africa is still paying its loans to former colonial powers and depicted as a third-world continent while enriching wealthy nations.
Definition
Dependency theory is a sociological theory which holds that economic events in history have encouraged developing countries to depend upon the support of more advanced nations. This dependence prevents developing nations from fully creating institutions and infrastructure necessary for their full transition into industrial nations. This process can take many forms for the developing country. However, it might be better to talk about dependency theories, as there are a variety of different theories with similar themes.
In a historical sense, dependency theory looks at the unequal power relations that have developed as a result of colonialism. In the colonial period, newly industrialized colonial nations expanded into areas that were unclaimed by other colonial powers. The result was that the natural resources of less-developed nations were used to fuel the colonial nations' factories. The methods used by imperial powers often involved direct military and political control.
Colonialism collapsed after the Second World War, but its legacy continued in the form of neocolonialism. International finance and capitalism became the preferred methods of control over developing nations. As a result, many underdeveloped countries now owe developed nations a significant amount of money and cannot shake that debt. Others suffer from a reliance on importing finished goods and exporting natural resources.
Example: Brazil
Brazil would seem to be a typical case of dependency. Settled by colonial Portuguese, its native population was oppressed by the newcomers, and African slaves were brought in to harvest sugarcane. Most people currently living in Brazil are descendants of the Portuguese and the Africans. Modern Brazil is one of the world's fastest-growing economies, but it has taken some massive infusions of money and government intervention to make it that way. Despite the economic growth, many Brazilians (roughly a third) still live in impoverished conditions in the favelas (slums) connected to most modern metropolitan areas.
One of the best examples of this can be seen in the vibrant city of Teresina. Unfortunately, Brazil has had record growth of its economy, but the money doesn't seem to be reaching the people who would most benefit from it, which leaves credence to some of the structuralist theories of the ECLA.
Example: North and South Korea
North and South Korea are an interesting, if unique, case. Both are former possessions of the Japanese Empire with similar resources and populations. South Korea is essentially a modern industrialized nation while North Korea hasn't kept up. North Korea is one of the cases economists point to in order to assert that tighter government control over business causes problems. The main difference between North and South Korea has been in terms of government involvement in the economy. North Korea's economy is closely monitored by its government, while South Korea has a more market-driven economy. However, South Korea is far from a clear-cut case against government intervention as the government has taken control-based actions to protect its industries, such as offering monetary incentives to its electronics and auto manufacturing industries during a period of global-based economic growth.
On the surface, South Korea's economic boom when compared to North Korea's slump seems to support the notion that too much government can ruin business though the Korean case may be more about how government intervention can be helpful as opposed to harmful.
Lesson Summary
Many parts of the world have difficulty living up to modern industrial standards. Among the variety of interpretations, dependency theory focuses upon how the relationships between developed and developing countries foster inequality. Different versions of dependency theory exist, and they explain this inequality in different ways. Some of the problems with dependency theory include these different approaches, which may or may not explain a situation well. Another set of problems involves questions concerning how to solve the issues of dependency. Brazil and North and South Korea offer different examples of dependency and possible solutions to it.
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Source: study.com
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