The Dustbin of History: Dependency Theory

According to Darwinism, species that adapt to their environment thrive; those that fail to evolve face extinction. The same is true for ideas. Marxism evolved from the primordial swamp of the Industrial Revolution but lies gasping for relevance after the collapse of the Soviet Union. Asian values — fashionable when South Korea and Thailand were economic success stories and the West was mired in recession — lost their luster following the 1997 Asian financial crisis. Mutual assured destruction kept the two Cold War superpowers in check but offers little assurance to nations threatened by suicide terrorists. The Club of Rome’s doomsday prophecies of global starvation are now starved for credibility. The threat of the military-industrial complex is taken seriously only in Hollywood films and on conspiracy newsgroups. Dependency theory thrived amidst a backlash against economic imperialism yet withered in a globalized era of free trade and foreign investment.

Are these ideas really doomed to oblivion? Or, for all their flaws, do they still have some relevance? Can they make a comeback? FOREIGN POLICY has invited six notable minds to sort through the dustbin of history and share what they found.

The scene is fresh in my mind. It was the early 1980s, and the Reagan administration’s antics in Central America and Grenada were reviving the campus left. The crowd filling a Yale University common room sat in anticipation, fingering through dog-eared copies of Dependency and Development in Latin America, the magnum opus of dependency theory. One of its authors, Brazilian sociologist Fernando Henrique Cardoso (later president of his country), was about to arrive. His attire was the first shock. Cardoso, then a senator from São Paulo, showed up wearing an impeccable blue suit, not the fatigues half the attendees were expecting. After he gave a short speech on Brazilian political tactics, not the ills of imperialism, a woman in a poncho fired the first question: Did democracy mean anything in Brazil without socialism? Yes it did, replied Cardoso. And building socialism was no longer the issue; perfecting capitalism was. Students sitting at his feet stared in disbelief and soon began milling out.

Dependency was a theory of underdevelopment: Poor countries exiled to the periphery of the world economy could not develop as long as they remained enslaved by the rich nations of the center. Dependency was also a religion that shaped the cosmology of a generation of Latin American leftists in the 1960s and 1970s and of leaders from Chilean President Salvador Allende to the Nicaraguan Sandinistas. As would happen again with other half-digested foreign theories — deconstruction is the best example — U.S. college campuses embraced dependency with evangelical fervor. Mixed with Vietnam-era rhetoric, dependency theory became a potent brew, which placed all blame for Third World problems on the hegemonic center, particularly the United States. Cardoso himself worried about this tendency. In a 1977 article published in the Latin American Research Review titled "The Consumption of Dependency Theory in the United States," he warned against oversimplifications and against assuming that all of Latin America’s problems were foreign made.

Dependency came in two flavors: The radical one, cooked up by economists André Gunder Frank and Amir Samin, claimed that the center grew at the expense of the periphery. The only solution was to delink completely from the world economy. From the start, however, radical dependency faced its share of troubles. Armies of graduate students tried to find a positive correlation between expansion in the North and recession in the South, but failed. (Then, as now, a boom in the United States and Europe often meant growth for developing countries.) Much less did they manage to prove a causal relationship between Northern wealth and Southern poverty. Only Albania and North Korea tried the practical prescription of completely breaking away from the world economy, with predictable consequences. Gunder Frank himself, now a senior fellow at the World History Center at Northeastern University, recently admitted delinking "has not been a very viable or fruitful policy."

The milder version of dependency, pioneered by Cardoso and his co-author Enzo Faletto, and by others like Chile’s Osvaldo Sunkel and Mexico’s Pedro Paz, was more useful. It maintained that under capitalism both rich and poor could grow but would not benefit equally. The practical incarnation of this view fell far short of revolution. As preached from the U.N. Economic Commission for Latin America (ECLAC), it was a mixture of protectionism and Keynesianism that became known as import-substituting industrialization. Behind a tariff wall, with generous state subsidies, an active fiscal policy, and a drop of central planning here and there, poor countries could hope to lessen their dependency on the center and develop autonomously.

Why was the global economy considered such a threat? Because, as Argentine economist Raul Prebisch had earlier taught, the price of primary commodities tends to fall relative to the price of manufactures. If a country is stuck producing copper or cotton, then the purchasing power of its exports will fall (or at least stagnate), and so will its ability to import, invest, and grow. Producers of primary commodities will become relatively poorer over time.

This view shaped development thinking for half a century at least. It also turned out to be wrong. Harvard economic historian Jeff Williamson has recently argued that between 1870 and World War I (the period Prebisch had studied) the terms of trade (the prices of exports relative to that of imports) did not deteriorate for producers of commodities. A number of other studies have looked at the evidence for the 20th century and likewise concluded that primary products did not systematically become cheaper relative to manufactures.

If dependency theory had its failings, so too did the policies it engendered. Turning away from the world economy was a good idea during the Great Depression, when the world was truly hostile. Latin American countries that abandoned the gold standard, devalued their currencies, and granted their local industries some degree of protection did better, as the eminent Cuban economist Carlos Díaz-Alejandro showed long ago. But protection made less sense as world trade expanded after World War II. It also led to inefficiency and stifled technological progress. There were some periods of fast growth in countries such as Mexico and Brazil. But over time even the most ardent advocates of import-substituting industrialization came to recognize the policy was not the panacea they had claimed it to be.

The rest of the story is well known. Latin America embarked on a course of drastic trade liberalization and opened itself to the world. Some sectors (such as Mexican maquiladoras and Chilean fruit and wine) boomed; others lagged behind. For every growth miracle like Chile’s (and more recently the Dominican Republic’s), there have been two growth disasters. Integration is no panacea either — no policy is.

Yet Latin American governments are persevering with integration, as they cut tariffs and sign regional agreements in spite of the global recession. Those policies are not simply born out of the conviction that open economies have fared better than those that have remained closed. Liberalization of trade and investment is also here to stay by popular demand: No Latin American politicians would want to deny their constituents the imported consumer goods they have become accustomed to, or the much-improved phone service provided by privatized (and often foreign-owned) telecom companies.

So popularly elected Latin American presidents attend World Trade Organization meetings calling for more globalization, not less. They line up for a free trade agreement with the United States as they duck the stones thrown by U.S. and European college students who claim to be acting on behalf of the world’s poor. Those Latin American politicians are not naive: They understand that globalization needs safeguards and regulations if it is to benefit the poor. Their position is pragmatic. The evangelical fervor, this time against globalization, once again comes from the North. Little has changed since the early 1980s.