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The Second World War Economics Essay

This essay will examine the rise and intellectual dominance of dependency thinking during the 1970s. Although this theory’s popularity declined in the late 1980s (Dillon, 2010: 226), it is still accurate in explaining the contemporary situations. The essay is organized as follows: the first section presents the general ideas of dependency theory in the 1970s. The second section describes dependency thinking through the view of the dependency theorists, consisting of Andre Gunder Frank, Immanuel Wallerstein and Fernando Henrique Cardoso. The third section analyses the extensive legacies of 1970s dependency thinking today. The fourth section cites a case study in Thailand aimed at proving that this theory does not only affects post-colonial states, but it also includes non-colonial states, of which Thailand, Iran, Ethiopia, and Afghanistan are rare examples, before concluding.

Dependency theory can be analysed in various ways – the ECLA school (Cardoso), the neo-Marxist (Andre Gunder Frank), and the world systems theory (Wallerstein). There were three common features of the dependency school shared by most dependency theorists during 1970s. The first shared feature was that, many Dependency theorists in the 1960s and 1970s argued that the international system might be divided into two sets of states, variously described as dominant/dependent, centre/periphery, metropolitan/satellite, North/South or developed/underdeveloped. Dependency theorists claim that these two components originated from the capitalist world system. This view maintained that the circumstances of Third World economies resulted from their exploitation by the developed countries, especially in the Organization of Economic Co-operation and Development (OECD) (Randall and Theobald 1998, 120). The Third World countries, which have low per capita GNPs, are usually heavily dependent on the export of a single commodity for foreign exchange earnings. They are denied the opportunity to approach their market in any way so that the capitalist power can consistently dominate them from an evolving mixture of technology, finance, markets, and basic imports on the international economic system (Smith, 1979: 249). In other words, the processes can be as a capitalist progression; the explained capitalist world system has been created by the relations of unequal exchange between core and periphery countries. The core countries clearly extract surplus value from subordinate areas to imperialist centres. Periphery firms are heavily concentrated and centralized in the industrialized countries with economic and political power (Brewer, 1980: 159). This is the permanent cause of underdevelopment of the periphery. Consequently, dependency scholars suggest that development in ‘peripheral’ countries is possible only whenever they discontinue their involvement in the world capitalist system (Brewer, 1980: 159).

The second shared feature is that, Dependency theorists agreed that the problems of the periphery cannot solely be examined based on internal structures of a nation because these structures themselves proceed from external forces (Rosero and Erten, 2009: 228). These external forces include ‘multinational corporations, international commodity markets, Bretton Woods institutions, foreign assistance, media and communications, and other means by which the advanced industrialized countries can represent their economic interests abroad.’ (Sen, 2010: 4). An excellent example of this is the developed nations’ actively countering attempts made by Third World nations for a higher level of engagement by enforcing economic sanctions, including strict regulations of free trade policies attached by the World Bank or International Monetary Fund (Heller 2009).

Finally, Dependency theorists argue that power of elites in the dependent states is one of the grounds of underdevelopment. These elites ‘share similar values and culture with the elites in dominant states.’ (ibid). They operate everything that contributes to their own private interests by coexisting with the interests of the dominant states (Ferraro 1996).

The rise of the dependency theory during the 1970s can be traced from two variants – by Latin American intellectuals through the work of Fernando Cardoso, and by North American Marxists or neo-Marxists through the work of Andre Gunder Frank. This essay will also discuss the World System Theory of Immanuel Wallerstein, together with the neo-Marxist strand.

The concept of the dependency theory was developed by Fernando Cardoso of the Latin American school. His concept is concerned with the historical-structural context of dependency, and its interaction within domestic society and politics (Caporaso, 1980: 608). Cardoso notes that South country’s historical and structural context was affected by external forces, such as ‘western empires or superpowers, multinational corporations, foreign technology, international financial systems and policies, foreign embassies and armies’ (Cardoso and Faletto, 1979: xvi). The manufacturing sector is greatly expanding in many South countries; nonetheless, vital domestic sectors are evidently controlled by multinational corporations with headquarters in the North (Smith, 1979: 250). He also highlights that the underdevelopment of Latin American countries stems from causes within their domestic elites —business, technocrats, the military, and the middle-class (Sanchez 2003). These elites have historically allied themselves with foreign interests to their benefit. They dominate many major domestic economic sectors, particularly the production of raw materials like minerals and food, and export them for a cheaper price to wealthier nations (ibid.). Wealthier nations preserve their positions by keeping these processes in place so that they are available to further their economic development and industrialisation (Robert and Hite, 2000: 169). For Cardoso, the interaction of internal and external forces means that any processes of political and economic domination bring class inequality, and class conflict, within a developing country. The structural inequality of that country as a geopolitical-economic unit accordingly creates a sharp difference between developing and developed countries (Dillon, 2010: 228). The resolution of this school is that the international economic system should be reformed (Herath, 2008: 820).

In many respects, the dependency theory closely resembles many features of Marxism. Dependency theorists regard Marxism as a system of thought which has been often brought to bear on the problems of underdevelopment, rather than their solution (Blomstrom and Hettne, 1984: 28). Cueva (1976: 12); however, thought that dependency theory should be defined in terms of ‘neo-Marxism’. Andre Gunder Frank and Immanuel Wallerstein are the two most prominent theorists of this strand.

Andre Gunder Frank demonstrates a clearly Marxist-derived framework for thinking about development (Dillon, 2010: 229). Seers (1981: 13) argues that Frank is the most important thinker of dependency theory, since he has a myriad of works published in English. Hence, Western theorists have come to understand the dependency theory through the models and analyses in Frank’s publications. Most of Frank’s work during 1970s can be identified in two concepts. His idea thoroughly provides an explanation of world history, and the exploitation by rich colonial powers (metropolitan) to dependent power (satellite). Frank argues (1967, vii), with Paul Baran, that ‘it is capitalism, both world and national, which produced underdevelopment in the past and which still generates underdevelopment in the present’. It indicates that the historical evolution of the capitalist world-market is one of the constraints and obstacles to the development of underdeveloped countries (Rosero and Erten, 2009: 222). Frank believed that underdeveloped countries have very different historical stages from the now developed countries as a result of this imbalance (Robert and Hite, 2000: 159-60). ‘The now developed countries were never underdeveloped, though they may have been undeveloped’ (ibid). It is consequently considered that historical reasons alone have led to the underdevelopment of satellite states and the development of metropolitan countries seen at present. Frank argued that the pursuit of the accumulation of profit the capitalist system results in the unequal structure between developed and underdeveloped economies within the world economic system (Dillon, 2010: 230). Critics consider Frank as a neo-Marxist theorist because his concept has been related to differences in class. For him, international system can be divided into two class structures: the metropolis class (exploiters) and the satellite class (exploited) (Brewer, 1980: 171). The concept of class structure means that metropolitan powers always exploit satellite countries in order to acquire their wealth. According to this view, the metropolitan upholds the doctrine of comparative advantage by enforcing a rigid international division of labour in many underdeveloped areas of the world. Underdeveloped countries supply cheap minerals, cheap primary commodities, and cheap labour to the dominant states (Ferraro, 1996). The result of this mechanism is the extraction of surplus value (Potter et al. 1999). The satellite lacks access to its own surplus capital because all of their profits belong to the metropolis (Frank, 1967: 9). Thus, this process of exploitation has even prevented the potential surplus of underdeveloped countries. They can pursue their own developmental path only when the influence of the metropolis on the satellite becomes weak (Herath, 2008: 823). Furthermore, Frank’s argument about state policy is that it is the outcome of conflicts between classes, and factions within classes, in the monopoly of economic structure. Those local ruling classes and factions that attain their aims from the existing economic structure will perpetuate underdevelopment at the expense of the majority (Brewer, 1980: 164). Frank called these local ruling classes the ‘lumpenboursie’, who follow a ‘policy of underdevelopment’, or ‘lumpendevelopment’ (Brewer, 1980: 161). He also explained that the monopoly structure was visible at all levels of these societies: at the international, national and local levels. It can be infered that this is the cause of a series of chains of metropolis-satellite relations (Blomstrom and Hettne, 1984: 67). The process of exploitation, by the metropolis from the satellite, begins within underdeveloped countries. Satellite classes will be exploited step-by-step. This process will continue until it eventually reaches the interests of the world metropolis (Blomstrom and Hettne, 1984: 68). In Capitalism and Underdevelopment in Latin America, he concluded his analysis stating that ‘development and underdevelopment are two sides of the same coin’, and counts dependence as the primary root of underdevelopment (Blomstrom and Hettne, 1984: 64). Hence, the neo-Marxist view that the outbreak of a socialist revolution is the only possible approach for development within underdeveloped societies who wish to escape from the cycle of dependency in the capitalist world economic system (Kay 1989: 127; Rist 1997: 117).

Any dependency theory argument of world-economy development must necessarily engage, and perhaps refine, the theories of the neo-Marxist scholar, Immanuel Wallerstein, who created the influential model of a capitalist world-system (Dillon, 2010: 231). Brewer (1980: 165) points out that Wallerstein describes a ‘world’ system as a ‘unit with a single division of labour and multiple cultural system’. Wallerstein explains that the concept of world-economy can be divided into three levels or states: the core, the semi-periphery and the periphery (Wallerstein, 1974: 349). Every level has an economic relationship in production and capital accumulation. However, the peripheral and semi-peripheral areas are repeatedly dominated by the core with an unequal flow of capitalist resources (Wallerstein, 1974: 129). The unequal geographical distribution of economic production roles – industrialisation in the core and agriculture in the periphery – is such that core and peripheral areas develop “different class structures … [and] … different modes of labour control” (Wallerstein, 1974: 162). The core states ‘using political, military and economic power’ inevitably extract a surplus from the peripheral countries. (Sen, 2010: 2) In addition, Wallerstein differs from other dependency theorists in that he provides for the flexibility of the development process. It can be specifically acknowledged that the semi-peripheral state can develop to be a core one if it manages a site for change to its best advantage. A site for change is recognised stage when semi-periphery states act as third party. They import raw materials from the periphery and outstanding products from the core (Brewer, 1980: 166). Thus, Wallerstein argued that the emergence of new core states will be a destination for reducing a big gap – economic, social, and demographic – between the core and the periphery.

Despite the decline of the dependency theory in the late 1980s; however, its legacies still influence the apparent international political-economic field between a notion of asymmetric development, and underdevelopment. Sanchez (2003) claims that the world capitalist economy has been more unstable and uncertain than it ever was in the 1950s and 1960s. This can be seen in the way that the developing countries remain exploited by the hegemony of the developed countries. This reflects the problem of sharing manufacturing processes between industrialised and non-industrialised countries. Amsden (2003: 32) states that manufacturing remains at the central part of capitalist economic growth according to ‘its scale economies, principle of specialization, geographical accumulation, and high incidence of technological change’. Statistics from the United Nations Industrial Development Organization (UNIDO) show the differing proportions of manufacturing in GDP between the First World and the Third World. For example, the share of manufacturing in sub-Saharan Africa’s GDP was supposedly as much as 88 percent of that in the First World (ibid). Although the competitive industrial performance index and its component indices of Third World countries have gradually increased from 1998 to 2003, they still cannot compete with developed countries. The evidence of this is visible in the national industrial index; in 2003, Ethiopia (rank 120th) was just 0.005 while Japan (rank 4th) is more than 14 times Ethiopia’s industrial index (UNIDO, 2003). Wallerstein’s world system theory was centered on this problem. A developing country needs to develop its production capabilities and project execution skills in manufacturing processes to finance research and innovative institutions. Both research and development can alter the country’s status from that of underdevelopment (periphery), to developing (semi-periphery), and finally to developed (core). The success of Japan is a good example of this, and now Korea, Taiwan, China and India have implemented the same methods as Japan (Amsden, 2003: 35). It is not; however, a given that the North, the high income group, will remain in a core position; some countries can drop their positions to become semi-peripheral countries. Samson (2006) provides a case of Greece in his evidence of this process. Greece, which a part of the North, is actually just in the upper-middle-income level ($2,900-$10,999), rather than the high income level (more than $11,000) as other North countries are. Furthermore, Wallerstine argues that the capitalist world is exploiting the environment of Third World countries (Sen, 2010: 3), particularly that of their natural resources, such as timbers, minerals, rivers and streams. At the present, it will be noted that most of the domestic stock investment in third world countries is often owned by northern investors (Hein, 1992: 495). Many firms which are dominated by the Northern entrepreneurs might not restrict their manufacturing processes. They have polluted the environment with toxic waste, either in the rivers or in the air in the dependent states, so much so that they have been affected more adversely by pollution than the dominant states have been. Dependency theorists would also cite the fact that many South economies are facing much higher rates of malnutrition, while ironically producing great quantities of sustenance for export. Most of these exports are bound for the wealthy North countries, so the natural sustenance of dependent states is inadequate for the poorer people who inhabit them. To reduce the rates of malnutrition, they have declared that ‘those agricultural lands should be used for domestic food production’ (Sanchez 2003). Frank provides two policy alternatives for the underdeveloped countries. The first alternative is that those countries are further integrated into the world capitalist market by accepting the international division of labour, resource providers and cheap commodity exporters (Rosero and Erten, 2009: 241). The second alternative is a delinking from the inherent dynamics of international capitalism in order to constitute a policy for self-reliant and auto-centric development (Rosero and Erten, 2009: 222). Some South countries are more aware of the exploitation from the North. They might choose the latter alternative to be their economic policy. Underdeveloped southern countries can be dominated by such Western institutions as the International Monetary Fund (IMF) if they are confronted with a state of economic collapse. They necessarily require assistance for rebalancing their payments (Samson 2006). The Western institutions might hold the right to form and to influence measures in the domestic and foreign monetary policies of these dependent states, such as, in both South Korea and Thailand after the East Asian financial crisis in 1997. Hence, the regional finance institutions in East Asia and Latin America – the Chiang Mai Initiative (CMI), the Latin American Reserve Fund (FLAR) and the prominent Bank of the South – vividly illustrate Frank’s theory. Both East Asian and Latin American countries have cooperated among members of the same region so that they can delink from the north capitalist hegemony, and operate the outflows of surplus by themselves (Rosero and Erten, 2009: 229).

Although dependency theory has gradually declined since the mid-1980s, it can be seen that this theoretical model continues to hold relevance in the concrete situations of the present. The intellectual dominance of the dependency school in 1970s can be explained by the underdeveloped circumstances of the post-colonial countries, specifically in Latin America, Asia, and Africa. In this section; however, this section will show that the concept of the dependency theory still be manifested in non-colonial countries like Thailand. Thailand was never colonised like other countries in Asia, Latin America and Africa, but its status has also been at one time that of an underdeveloped country. Thailand’s Gross Domestic Product (GDP) per capita is around $4,115, which is almost ten times lower than that of OECD countries (IMF World Economic Outlook Database). For this reason, Thailand can be considered by dependency scholars as a peripheral state or satellite nation.

The previous section argued that Third World countries have increasingly tended to delink from the world economy by initiating their own regional organisation. Illustrating this shift, the Chiang Mai Initiative (CMI) had its first forum in Thailand. Nonetheless, Thailand also chooses the first of Frank’s options in that she remains to be integrated further into the alternative modes of world capitalism. Thai elites believe that capitalism is the path of sustainable development within their country. Thailand has gradually moved from an agricultural to an increasingly industrial economy in the modern era (Intarakumnerd et al. 2002: 1145). After the Second World War, the industrial estates have developed in many parts of Thailand, such as the Eastern seaboard industrial estate in Rayong province, and Bangkok, which is of now the central city for business, trade and investment in the Southeast Asia. Thailand experienced impressive and rapid economic growth in the late 1980s and early 1990s. She is regarded as one of four Asian pussy cats, along with Indonesia, Malaysia, and the Philippines (Dumont and Cuyvers, 2000: 3). The development of both Bangkok and these industrial estates has not brought greater riches to the other regions of Thailand. Frank’s dependency theory can be used to examine this condition in that it converts Thailand into an internal colonial satellite decapitalising her economy and consolidation, and even deepening her underdevelopment. Bangkok is just one city that experienced rapid economic growth, but this is not so for the rest of the nation. It has been argued that Thailand suffers from a duality in its society, which presents important obstacles to her economic development. As a result, many Thai provincial poor migrate into Bangkok. They believe they can have a better life, but they actually become the poor of this metropolis. And even though it has been over a decade, Thailand is now faced with a new financial crisis. Rosero and Erten (2009: 221) noted that the financial crisis of East Asia in 1997, in which Thailand’s economy was the first to explode, was the first visible indicator of a finance-based crisis in the capitalist world economy, which undermined the economic well-being of developing countries. Dependency theory can be explained this crisis. Most Thai export products are dependent on demand from the U.S., Europe, and Japan (the World Bank 2010). The United States is the number one partner of Thailand’s exports, while Thailand imports Japanese products, including cars, electronics and computers (Thailand Board of Investment, 2010). If both of nations withdrew their economic interests from Thailand, her economy would be severely reduced. Furthermore, Dependency models primarily assume that satellite countries are underdeveloped because their trade exports are primary products, not technologically sophisticated, and high-value-added components which more developed nations export (Frank, 1969: 162-63). For example, Thailand is currently the number one rice exporter to the world market, but she is still poor. This is due to the price of rice being flexible, depending on the world price mechanism. It is therefore prone to having its value exploited by the capitalist world economy. The strict import policies in Western European countries and the USA highlight this point. Thus, a case study of Thailand can be used to prove that the dependency legacies of underdevelopment was, and still are, still prevalent in many areas of the world especially, Third World countries.

In conclusion, dependency theory, specifically the intellectual concept of it in the 1970s, through the analysis of Cardoso, Frank and Wallerstein, attempted to explain the development and underdevelopment between wealthy and poorer countries in the capitalist world economy. This theory’s popularity has declined; however, since the late 1980s, because of the success of the newly industrializing countries (NICs) in East Asia: Hong Kong, Singapore, South Korea, and Taiwan (Shie and Meer, 2010: 81). This essay argues that although many scholars believe that the dependency theory fails to apply within the contemporary economic system, it has been argued here that this theory is still relevant. It can to demonstrate how every peripheral part of the world, including Thailand, are still exploited by the core countries, in some manner, including, terms of unequal surplus value, international division of labour, and monopoly over trade. This essay; nonetheless, does not agree with the whole concept of the dependency theory, particularly Frank’s idea of socialist revolution. It is difficult to apply in a practical manner because international economic development is very complex at present. Each country is necessarily politically and economically linked, but there remain serious inequalities in the global market. Consequently, it can be concluded that the North countries should compromise their economic policies by extending the role of South members into the political-economic forum further. Barriers should also be removed by expanding the freedom of choice for developing countries so that they can expect to have an opportunity to reduce their dependence on external factors (Herath, 2008: 832). These suggestions may just provide a better chance for the peaceful development of our world in the long run.

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