This was an essay for a paper on Development Theory, as part of the Master of Development Studies course at Victoria University of Wellington, semester 1 2008.

In 1533, Spanish conquistadores sacked the imperial Incan palace of Coricancha in Cuzco, stripping its sumptuous ornamentation and melting down the gold. The treasure that didn't become personal booty was sent to Spain and used to pay off the Flemish and German bankers who had underwritten the royal family's expeditions of conquest¹.

As viewed by the ‘dependency theorists’ who emerged from the 1960s onwards, that was emblematic of Latin America's post-conquest history. The plunder which typified the Spanish and Portuguese empires continued into the post-independence age, as the rapidly industrializing countries in northern Europe exploited Latin America for its raw materials. Unequal exchange between the industrial ‘core’ and dependent ‘periphery’ was perpetuated in the twentieth century, as multinational companies sucked profit from Latin economies. It was this ongoing process of exploitation, argued the dependentistas, which explained the chronic underdevelopment of Latin American countries.

Dependency theories provided new and penetrating analyses of Latin America's pathway to underdevelopment. However, I will argue that the perspectives which recognised the importance of political processes within dependent countries have proved more insightful and enduring than those which gave an exaggerated role to external domination.

The foundations for dependency theories were laid by the group of economists associated with the Economic Commission for Latin America (ECLA) from around 1950. The ECLA economists maintained that Latin American countries' struggles for economic progress were hindered by their structural disadvantage as primary producers. Critiquing Ricardo's law of comparative advantage, they argued that loss of value of raw materials relative to sophisticated manufactured goods resulted in gradually declining terms of international trade².

The ECLA proposed that Latin America embark on a path to greater self-sufficiency through import-substituting industrialisation (ISI), a process that had already begun in some countries during the international capitalist crises of the 1930s and 1940s. However, after initial progress in countries with large internal markets like Argentina, Mexico and Brazil, industry stagnated and was forced to rely on foreign finance, making it easy pickings for the multinational companies that began to dominate Latin American domestic markets. Paradoxically, the push for development through local industrialisation left Latin American countries more dependent than ever.

In the face of this apparent impasse, dependency theorists moved beyond the ECLA's identification of structural inequalities between countries, to a more radical critique of the relations between core and periphery. Most agreed that the underdevelopment of Latin American countries had been part and parcel of the historical expansion of capitalism, and could not simply be overcome by cultural and social ‘modernization’. However, there was significant variation in the theoretical details. Following Vernengo³, we can recognise a ‘continuum’ of dependency theories, with the respective ends represented by Andre Gunder Frank and Fernando Henrique Cardoso.

In Gunder Frank's view, the underdevelopment of the periphery was an inevitable reflection of the development of the core. He argued that the industrial 'metropolis' extracts a surplus from its ‘satellites’ in order to sustain its own dynamic growth. Exploitative metropole-satellite relationships are reproduced between countries in the periphery, and even within countries (as the rich countries are to Brazil, so is Brazil to Paraguay, and the industrial-commercial centre of Sao Paulo to the impoverished Brazilian northeast). While internal political and social structures contribute to the process of underdevelopment, they can only be understood as a function of this external dominance. Given the ongoing extraction of locally-generated capital, Frank doubted whether development was possible in dependent countries.

Cardoso on the other hand, placed much more emphasis on the political dynamics within dependent countries. Historical economic changes, while driven by the technological and financial dominance of the core countries, offered the opportunity for a range of political responses in the periphery, including greater popular participation or resistance. Furthermore, he distinguished between the political situation of dependence, and the economic question of development. For Cardoso, development was possible in a situation of dependence, even if it were only ‘associate-dependent’ development.

How plausible were the dependency theorists' accounts of the historical underdevelopment of Latin America?

The arguments of the ECLA economists that underlie dependency theory have gained considerable currency⁴ . Not only do primary products risk declining terms of trade, but they are also prone to sudden collapses in value. Latin American history is littered with examples of boom and bust periods based on a single product, leaving little more than scars on the local environment, territorial disputes and bitterness⁵.

Yet dependence on primary products, and a few key markets, did not necessarily condemn countries to underdevelopment. Australia, New Zealand and Canada were all colonies built on exporting primary agricultural products back to the industrial core, but by the 1950s all were firmly established as part of the developed world. Even today, two of the world's three ‘most developed’ countries (Norway and Australia) export 70 to 80 percent primary products⁶.

While these countries are thoroughly different from most Latin America nations, it is difficult to avoid the parallels between Australia and Argentina – both countries where colonisers drove out small native populations and established an export economy based on extensive agricultural land use.

What was different about Australia and Argentina that saw them ultimately take divergent paths? Harrison⁷ provides a foil for dependency theory, blaming Latin American underdevelopment on the historical lack of social cohesion and economic dynamism due to fatalistic world views and authoritarian social structures inherited from Spain. Yet while his is an explicitly ‘culturalist’ thesis, Harrison’s actual analysis of Argentina's and Australia's differences looks not unlike the story of lost political opportunities told by Cardoso and Faletto⁸.

In Argentina, the post-independence period of the 19^th century was riven by internal conflict, while the large land-owners – Cardoso and Harrison agree – maintained a hegemonic grip on power. Despite considerable economic growth driven by agricultural export, it wasn't until 1912 that anything like democratic government was achieved, and then it was chaotic and faction-ridden. Peronist populism in the 1940s produced economic and political gains for some previously-excluded groups, but couldn't reconcile the conflicts between classes and between rural and urban sectors, and in fact exacerbated them by setting the unfortunate precedent of having the military act as arbiter.

By contrast, Australia saw political reforms more than 60 years before Argentina. There were forms of parliamentary government in place from 1850; land reform in Victoria from 1860; and some of the world's first social welfare programmes by 1910. Importantly, the large landholding interests had never maintained a grip on political power.

Differences in internal politics are again highlighted when we review a further challenge to dependency theory: the recent transformation of several East Asian countries from part of the poor periphery to members of the rich core. In 1950, the income per capita in Taiwan and South Korea was a third of that in Argentina and half that of Mexico. By 1990, both Asian countries were easily richer than any Latin American country, while also having some of the most equitable income distributions in the world.⁹

Among the direct comparisons with Latin America, Kay¹⁰ places emphasis on the much earlier and more thorough land reforms that took place in the Asian countries which ended the influence of landlords and allowed the agricultural surplus to be used to support industrialisation. While not downplaying the authoritarian nature of governments in South Korea and Taiwan, he notes that their reforms had significant redistributive effects and that they continued to promote productivity improvements in both agriculture and industry.

In contrast, land reform in Latin American countries was late, partial, and ineffective. In many cases, “landlords were able to block any attempts at reform in the countryside”¹¹. Attempts to use agricultural profit to finance industry mainly hurt peasants and the rural proletariat. Compared with East Asia, governments lacked authority and “statecraft”, partly due to the “polarised and entrenched class structure”¹². Industrialists sought ongoing protection and subsidies, and policy makers were never able to engineer a move to the next phase of competitive export-oriented industrialisation.

In both Australia and East Asia, internal reforms allowed the benefits of economic growth to be shared more widely, despite continued dependence on the international economy. The conflicts which undermined similar reforms in Latin America had their origin in the rigid hierarchies and exploitative social structures dating from colonial times. But these internal factors had a life of their own, and were not just the products of economic dependence. As Cardoso argues, and as the examples from elsewhere illustrate, failures to reach new political compromises were not inevitable.

While these counter-examples partly undermine the historical analyses of dependency theorists, a bigger problem for the dependentistas is summed up by Gunder Frank's own statement that: “if the policy is ineffective, it renders suspect the theory from which it is derived”.¹³

The policy recommendations of dependency theorists were, at best, rather vague. On the one hand, obsession with structure allowed little attention to the human details of underdevelopment such as the ethnic inequalities which even the most casual observer can see have been a major factor in many Latin American countries. On the other hand, while the ECLA produced detailed proposals for reform (by the 1970s seen to have failed), dependency theorists identified an impasse, beyond which they could only gesture. Frank sets the Cuban revolution as his unique and mostly unexamined model. Even Cardoso and Faletto only establish the rather nebulous challenge of building “paths towards socialism”¹⁴.

Given the lack of attention to detail, it is perhaps unsurprising that little was achieved by either revolutionary or reformist attempts to overcome dependence. External factors can share some of the blame, notably the US attempts to undermine socialist regimes in Cuba, Chile, and Nicaragua. But in Cuba, the relationship of dependence was hardly changed by socialist revolution, with sugar exports to the Soviet Union remaining a dominant part of the Cuban economy¹⁵.

Elsewhere, as argued by diverse contributors to Edwards and Dornbusch, heroic attempts to restructure Latin American economies almost invariably resulted in balance of payments crises, rampant inflation, and ultimately a decline in real wages¹⁶. Again, several analysts point to the political difficulties in implementing stable social and economic reforms. The need to provide short-term payoffs for members of fragile alliances resulted in unsustainable economic stimulation interspersed with destabilising reactions against internal or external antagonists.

For example, in Chile, the nationalisation of the copper industry by the Allende government (seen as essential for breaking relations of dependence) had bipartisan support. But the government inexplicably decided not to indemnify the mining companies, and then moved to also expropriate banks, industry, and all land holdings larger than 80 hectares. This was combined with large wage rises and price controls intended to bolster popular support, but producing shortages and inflation. Social unrest and economic crisis were undermining Allende well before the 1973 military coup¹⁷.

In a non-socialist setting, the catastrophic first government of Alan Garcia in Peru (1985—90) combined an expansionist bonanza of wage rises and price controls with quixotic thrusts against antagonists that were alternately external (a unilateral ceiling on debt payments) and internal (an attempt to nationalise the banks)¹⁸.

The failure of dependency theory to show the way forward was borne out by the events of the 1990s. While much of Latin America fell into the regressive grip of IMF-sponsored reforms, one nation achieved gradual social progress through 'associate-dependent' development. Under the cover of economic orthodoxy, Chile’s return to democracy saw poverty reduced from 40 to 20 percent in a decade through redistributive social spending¹⁹. As copper prices boomed²⁰, the government invested in infrastructure and research, aiming to steer Chile towards becoming a New Zealand-like exporter of value-added primary products²¹.

The same era saw continued evolution in the views of one of dependency's leading theorists. By 1993 Fernando Henrique Cardoso was finance minister of Brazil, and, from 1995—2002, president. As national leader, Cardoso allied himself with liberal macroeconomic reforms, arguing that “capitalism which is competitive under the new conditions of production is...socially progressive”²². Stability and growth under Cardoso paved the way for a focus on poverty under popular leftist leader Luis Ignacio da Silva²³.

While redistributive policies in an associate-dependent setting have proved more fruitful for the Latin American poor than grand attempts to overcome dependency, the insights of the dependency theorists about structural inequalities in the international economy remain valid.

Theorists such as Vernengo²⁴ accept that the original emphasis on technological dependence has been superseded by the East Asian examples cited in this essay and the emergence of Mexico and Brazil as industrial powers. However, financial dependence continues, creating cycles of debt and constraining the demand-led growth which Vernengo argues is the real engine of development. Likewise, Wibbels²⁵ argues that while rich countries can ride out storms in international markets by borrowing and counter-cyclical spending, the pressure to balance budgets in developing countries undermines Keynesian-style recovery policies when they are most needed.

Nevertheless, these difficulties are not restricted to Latin America, and most countries are challenged in some way by the shifting tides of international capitalism. As Cardoso has recently argued, stronger and more democratic international institutions, with a greater voice for peripheral countries, remain the best hope to mitigate the worst international economic power imbalances²⁶.

In conclusion, an evaluation of the historical evidence from Latin America and elsewhere reveals much greater variety in international economic relations than the mechanical reproduction of dominance and exploitation depicted by theorists like Gunder Frank. Rich industrial countries had – and still retain – advantages through their dominance of technology, finance, and political power. But as argued by Cardoso and Faletto, within these constraints, peripheral countries have “structural possibilities for...social and political movements” towards “historically viable goals”²⁷. Countries that took advantage of such “structural possibilities” to achieve stable redistributions of land, power and resources have in a number of cases made considerable economic and social progress.

The lesser success of Latin America owes a lot to deep social divisions that have fomented ongoing conflict and instability. These divisions might have their roots in external economic exploitation (which can hardly be separated from the very origins of these nations) but only internal political reform and reconciliation can overcome them. Indeed, even in the most economically successful countries such as Chile and Brazil, there is still a long way to go to reduce inequality and end the exclusion of groups such as indigenous people and the rural poor. It is these internal inequalities, more than the secondarily important external relations of dependence, which need to be addressed if Latin America is to overcome its historical underdevelopment.

References

Bresser-Pereira, Luiz Carlos. “De la Cepal y el Iseb a la Teoría de la Dependencia” [From the ECLA and the ISEB to Dependency Theory]. Desarrollo Económico 46, No. 183 (October – December 2006): 419—439.

Cardoso, Fernando Henrique and Faletto, Enzo. Dependency and Development in Latin America. Berkeley: University of California Press, 1979 [1967]. Translated by Marjory Mattingly Urquidi.

Chilcote, Ronald H. “Dependency Theory: A Reassessment”. Latin American Perspectives Vol. 1, No. 1 (1974): 4-29.

Edwards, Sebastian and Dornbusch, Rudiger [eds.]. The Macroeconomics of Populism. Chicago & London: University of Chicago Press, 1991.

Frieden, Jeffry A. Global Capitalism: Its Fall and Rise in the Twentieth Century. New York: WW Norton & Co, 2006.

Frank, Patrice. The Puzzle of Latin American Economic Development [2^nd ed.]. Lanham, MA: Rowman & Littlefield, 2003.

Galeano, Eduardo. The Open Veins of Latin America. New York: Monthly Review Press, 1997 [1973].

Gunder Frank, Andre. “Dependence Is Dead, Long Live Dependence and the Class Struggle: An Answer to Critics.” Latin American Perspectives 1, No. 1(1974): 87-106.

Gunder Frank, Andre et al. Dependence and Underdevelopment: Latin America's Political Economy. New York: Anchor, 1972.

Hidalgo, Cesar et al. “The Product Space Conditions the Development of Nations”. Science 317, No. 5837 (2007): 482—86.

Harrison, Lawrence E. Underdevelopment Is A State of Mind. Lanham, MA: Madison Books, 2000 [1985].

Jenkins, Rhys. “Learning from the Gang: Are There Lessons for Latin America from East Asia?” Bulletin of Latin American Research 10, No. 1 (1991): pp. 37-54.

Kay, Cristóbal. “Why East Asia Overtook Latin America: Agrarian Reform, Industrialisation and Development”. Third World Quarterly 23, No. 6 (2002):1073-1102.

Lall, Sanjaya. “Is ‘Dependence’ a Useful Concept in Analysing Underdevelopment?” World Development 3, No. 11&12 (1975): 799-810.

Mahon, James E Jr. “Was Latin America Too Rich to Prosper? Structural and Political Obstacles to Export-led Industrial Growth”. Journal of Development Studies 28, No. 2 (Jan. 1992).

Ray, D. 1973. “The Dependency Model of Latin American Underdevelopment: Three Basic Fallacies”. Journal of Interamerican Studies and World Affairs 15, No. 1 (Feb. 1973), p 4-20

Dos Santos, Theotonio. “The Structure of Dependence”. In Development and Underdevelopment: The Political Economy of Inequality, edited by Mitchell A Seligson, and John E Passé Smith, 190—202. London & Boulder, CO.: Lynne Rienner Publishers, 1993.

United Nations. World Development Report 2007/08. New York: Palgrave Macmillan, 2007.

Vernengo, Matias. “Technology, Finance, and Dependency: Latin American radical political economy in retrospect”. Review of Radical Political Economics 38, No. 51 (2006): 551-68.

Whitehead, Laurence. “Tigers in Latin America?” Annals of the American Academy of Political and Social Science 505, (Sep. 1989): 142-151

Wibbels, Erik. “Dependency Revisited: International Markets, Business Cycles, and Social Spending in the Developing World”. International Organization, 60, No. 2 (Spring 2006): 433—468.

World Bank. “Chile: successes and failures in poverty eradication”. Shanghai Poverty Conference: Case Study Summary (2004). Available here.