Is dependency over?

Short clip of part of an interview. I discussed that in an old paper here, and in another interview here.

Theotônio dos Santos (1936-2018)

Theotônio dos Santos, one of the main authors of the Latin American Dependency School, has passed away. I had some minimal contact with him, seeing some of his talks as an undergraduate, and then at a few conferences were we could talk a bit more, including after I had published this paper.

When I was a student, I might add, I was basically taught that there were two dependency school traditions, and often the Marxist one, in which Theotônio and André Gunder Frank were the key figures, was seen, at my alma mater (the Federal University of Rio de Janeiro) at least, as the lesser one, with the Structuralist school, of Fernando Henrique Cardoso, being the 'good' one. In retrospect, given the political views (and some of the economic views too) that Cardoso came to defend from the late 1980s onwards, with his adherence to Neoliberalism, I must conclude that my teachers might have been wrong.

An obituary in Portuguese here.

On dependency theory

New ebook downloadable for free, titled Dialogues on Development, that was co-edited by Ingrid Kvangraven of the Developing Economics blog, has been published (h/t David Fields of URPE blog). These are interviews on dependency theory with Samir Amin, Patrick Bond, Miguel Angel Centeno, Peter Evans, Ramón Grosfoguel, among many others.

My interview, that starts in page 86, begins with this question:

To start with the most basic question, what is dependency theory? 

There is no straightforward answer to this question, Vernengo notes. Although there are many studies that try to split the dependency tradition into specific schools, Vernengo tends not to regard these theoretical traditions as actual schools of thought. He prefers to broadly split them into Marxists and structuralists, and he believes that these traditions could be further split into four or five different approaches. However, Vernengo argues that also this categorisation is insufficient because even structuralists have roots in classical political economy, including Marx.

For Vernengo, dependency means understanding historical elements of development in the developing world. In his case, the object of study is Latin American economies, but he argues that the theory could as easily be applied to Asia or Africa. Vernengo admits that he might think of dependency in a slightly different way than most - as he works within a Sraffian theoretical framework. Vernengo praises the Italian economist for reviving classical political economy in a way that is both consistent and logical. To Vernengo, Sraffian economics includes the surplus approach, as well as effective demand in the long run. Within this framework, one can introduce elements of dependency in an analysis without necessarily being classified as a dependency scholar.

Thinking of himself as a Sraffian, Vernengo believes he is a classical economist with a touch of radical Keynesianism. One could say that the discussion of dependency tends to be missing among many Sraffians, but it is still perfectly compatible with the ideas of a surplus approach. Classical economics is a good starting point for understanding dependency because distribution is at the centre of the approach. Moreover, it allows for the recognition that there are extra-economic elements that impact the economy.

Read full interview here.

Eduardo Galeano (1940-2015)

Open Veins

Galeano, famous for The Open Veins of Latin America, among several other books, has passed away. He was a leading voice of the Latin American left, as The Guardian elegantly put it, which is a more accurate description than the 'anti-capitalist' epithet used by Reuters.

I inherited the copy of the book pictured above from my mom, who loved Galeano's books, in the 1980s, I guess, when I decided to study economics. I can't say that I was influenced by his book, even though Galeano thanks one of my teachers, Carlos Lessa.* He wasn't an economist, and I normally wouldn't post about it. But I decided to post something since, not long ago, a friend told me he had disavowed the book.

If one reads the accounts of his rejection of the book, it seems that it was the language, the vocabulary of the left in the early 1970s, which Galeano seemed to suggest that was heavy and dated, what led to his criticism of his work. Also, as he got older, and found mistakes in the book (sadly he doesn't specify which ones), his older self tended to be less satisfied with the result. Note, however, that in this discussion about what message he would like Obama to get from the book, after Chávez gave the US president a copy, he summarizes the basic point, which he seems to still uphold. In his words, he wanted Obama to get: "a certain idea about the fact that no richness is innocent. Richness in the world is a result of other people's poverty. We should begin to shorten the abyss between haves and have-nots."

A cursory look at the book might give you the not altogether incorrect sense that Open Veins provides a simplified version of Dependency Theory. Galeano was a popularizer of the kind of political economy that can be broadly defined as Structuralist. One not all together different from the one used for consumption in American universities, which simplifies and blames underdevelopment on developed countries, and that sees limited space for development in the periphery.** And, in that sense, it is a good thing that Galeano could say: "Reality has changed a lot, and I have changed a lot." But it is unclear that he threw the baby out with the bath water.

* If I had to say a book that influenced my choice to study economics, that I read in high school, it was Osvaldo Sunkel's El marco histórico del proceso de desarrollo y de subdesarrollo, which has a message that is not altogether different from Open Veins, namely that underdevelopment is part of the same process that caused development. Think of the Industrial Revolution in England, that goes hand in hand with deindustrialization in India. Industry and empire, as another historian would put it, are tied together.

** For alternative and more sophisticated versions see here.

More on The Sociology of Development - Reposted by Hampton Institute

More on The Sociology of Development: Towards A Re-articulation of Dependency Theory see here. For the original post see here.

More on The Sociology of Development: Towards A Re-articulation of Dependency Theory

The sociology of development as a field of study, a structure of knowledge, providing an interpretive grid through which to render impoverished regions of the world intelligible has its roots after the completion of Second World War with the crystallization of ‘Modernization theory', which constituted an ideation that societies are understood to move from social positions of tradition to modernity polar ends of an evolutionary continuum. At some point, incremental changes give way to a qualitative jump into modernity, marked by the essence of industrialism. In this sense, the Third world is perceived to be below the threshold of modernity, with a preponderance of traditional-like features such as an extended kinship social structure and, due to the lack of progress towards political differentiations, similar to that of Western forms of democratization, strict hierarchical sources of authority, altogether negating the possibilities to move beyond disintegrated autarkic primary economic activities (Parsons, 1964).

The development of a high extent of differentiation: the development of free resources which are not committed to any fixed, ascriptive groups; the development of wide non-traditional, “national,” or even super-national group identifications; and the concomitant development, in all major institutional spheres, of specialized roles and of special wider regulative or allocative mechanisms and organization, such as market mechanisms in economic life, voting and party activities in politics, and diverse bureaucratic organizations and mechanisms in most institutional spheres (Eisenstadt (1973: 23).

According to Rostow (1960), all societies can be placed along a linear continuum from undeveloped to developed along a ‘stages of economic growth’ path, derived from an extensive study of Western economic development. In ‘traditional society’, the first stage, it is deemed that economic output is limited because of inaccessibility to innovative technology. At the second stage, ‘the preconditions for take-off, modern science, attributed to “Western Europe of the late seventeenth and early eighteenth centuries” (Rostow, 1960, p. 6) ensues new innovations in production in agriculture and industry, fostering widespread education, entrepreneurship, and institutions capable of mobilizing industrial capital; capitalistic investments increase, especially in transport, communication and raw materials. Nevertheless, despite the development of some modern manufacturing, traditional social structures and production techniques remain:

In many cases, for example, the traditional society persisted side by side with modern economic activities, conducted for limited economic purposes by a colonial or quasi-colonial power (Rostow, 1960, p.7)

Rostow’s third stage is ‘the Take-off’, in which traditional barriers to economic growth, like the effect of a dual economy, are overcome. At this point, capital investment increases rapidly and new industries expand exponentially, as does an ‘entrepreneurial class’—economic growth becomes a normal condition” (Rostow, 1960, p. 36). At the fourth stage, ‘the Drive to Maturity’, technology becomes more complex and what produced is now less a matter of economic necessity, and more a question of consumer choice. This leads to the final fifth stage of high consumption, in which economic sectors specialize in the manufacturing of highly sought after consumer durables and basic life needs are mutually satisfied. In a play on Marx, Rostow’s analysis suggests that the West, which “is more developed industrially only shows, to the less developed, the image of its own future’ (Marx, 1954, p. 19). The assumption is that capitalism is a historically progressive system, which is transmitted from the privileged economically advanced countries to the rest of the world by a continual process of destruction and replacement of pre-capitalist social structures (Palma, 1978).

The problem with modernization theory is that it is quite ahistorical, with respect to the global capitalist exploitation. 'Modernization’ theory can, and has been, be interpreted as a ‘blame the victim’ approach to problems affecting the ‘Third World’. Rostow ignores the external influences like colonialism that contributed to social in the Third World. Rostow’s, and for most of ‘modernization’ theory, the unit of analysis is the nation-state of the ‘Third World’, emphasizing internal dynamics, sectors and sub-sectors, combined with the causal role of technology. As such, conclusions drawn from this approach are that all nations, regardless of the history of imperialism, colonialism, etc., should be able to modernize with emulation of more developed economies and their diffusing of highly advanced technology.

Paul Baran and Paul Sweezy, in Monopoly Capital (1960), building on the path-breaking work of Michel Kalecki and Joseph Steindl, assess the degree to which monopoly, as measured by the market concentration ratio of large capitalist firms (corporations) in economically advanced countries, ensues an inverse of Marx’s famous hypothesis that the ‘laws of motion’ of capitalist development in produces a ‘tendency for the surplus to fall. Rather, the economic surplus, defined as the gap, at any given level of economic activity—effective demand in Keynesian terminology—, between what is produced and the socially necessary costs of producing it, under monopoly capitalism has a tendency to rise (Baran & Sweezy,1966, pp. 9, 52-57).

Since aggregate levels of effective demand for total output determine the level of economic activity, crises of capital accumulation are inevitable if the monopoly sector cannot sustain its power via sufficient investment opportunities to absorb its accumulating share of the total surplus produced. Rather than let this insufficiency put downward pressures on potential profits as a whole, various stabilizing factors are set in motion, which include classical Keynesian government deficit spending, research & development (although risky without reliable forecasts potential spillover effects), waste (as evidenced by a sales effort, i.e. consumerism), or imperialism—the last of which provides the foundations for the dependency theoretical approach to economic development.

In this sense, for an understanding of the fundamental division between economically advanced countries and impoverished ones, it is requisite to place attention to the extent to which foreign investment acts as an outlet for investment-seeking surplus generation. Unlike Lenin’s theory of imperialism, foreign investment is a method of extracting wealth, not a channel through which surplus is directed, ensuing underdevelopment (Baran & Sweezy, pp. 104-105). Underdevelopment is a thus process by which monopoly capital in economically advanced nations exploit economically weaker countries by exporting capital to the extent that profits produced (from the production of cheaper consumer goods or raw materials via lower wages in these countries, for example) are repatriated. It is the process by which the expropriation of “foreign sources of supply and foreign markets, ena[ble] [the agents of] monopoly capital to buy and sell on specially privileged terms” (Baran & Sweezy 1966, p. 201), ensuring, caeteris paribus, their positions of power in the world are sustained. The result is that economically weaker countries suffer the retardation of the requisite forces to spawn autonomous and dynamic process of self-governance of the conditions that constitute independent social/political/economic coordination, planning and control.

The argument is that (Baran & Sweezy, pp. 9,178-179) monopoly capitalism is tantamount to the degree to which large capitalist firms in economically advanced countries have as their counterpart the “exploitation of much of the rest of the world” and, as a result, constitute international relations as a “hierarchical system with one or more leading metropolises, completely dependent colonies [even if not name, certainly in practice] at the bottom, and many degrees of superordinate and subordination in between […] [t]hese features are of crucial importance to the functioning of both the system as a whole and its individual components […] (Baran & Sweezy, 1966, pp. 178-179). As such, “we cannot hope to formulate adequate development theory and policy for the majority of the world’s population who suffer from [impoverishment] without first learning how their past economic and social history gave rise to their present underdevelopment” (Frank, [1966] 1969). Underdevelopment is neither an original nor traditional social position. Hence, it cannot be assumed that the contemporary position of the Third World can be understood as solely a reflections of its internal historically specific social, political, economic, and organizational characteristics. The process by which monopoly capital in economic advanced countries extract surplus from less-developed countries through capital exports limits the latter’s ability to achieve the status of the former. Thus, 'modernization theory' is utterly unsatisfactory, for such an approach

[…] in all its variations, ignores the historical and structural reality of the underdeveloped countries. This reality is the product of the very same historical process and systemic structure as is the development of the now developed countries’ (Frank 1969, p. 47).

To suggest that social, political, and economic advancement of the underdeveloped world can be generated by the diffusion of what is deemed modernizing institutions, values, etc. is fundamentally erroneous. If development fails to occur, it is not because within the Third World there are mere obstacles to diffusion because of innate poverty arising from some form Gerschenkronian ‘backwardness’, but due to the net outflow of vital resources, whether natural, monetary, human, technological etc. The implication is that underdevelopment is not because of the “the survival of archaic institutions”, or some inability to contract some ‘modern man’ (Inkles, 1969) syndrome; on the contrary, it is generated by the same capitalist development that led to the domination by economic advanced countries, that is, “the development of capitalism itself” (Frank, [1966] 1969). Capitalism, hence, is an operation that cements a peripheral latifundium system, via the constant forces of ‘primitive-accumulation', what Myrdal (1957) defined as international ‘backwash’ effects, that reproduces a cleavage between ‘town and country’, centre and periphery, on a tremendously enlarged basis (cf. Bukharin & Lenin, 1929).

Viewed from this standpoint, dependency theory is a manifestation of what David Harvey (1978, 2007) defines as ‘accumulation by dispossession’ by virtue of which dialectical forces of motion and contradiction generate vast disparities of wealth and power on a worldwide scale. The world economy is reproduced as a world-system (Wallerstein, 1979) of ‘unequal exchange’ (Emmanuel, 1972; Amin 1974, 1976), in which ‘underdevelopment’ ensues peripheral internal long-run stagnation (Bornschier & Chase-Dunn, 1985, pp. 39-40). The terms of trade for the periphery fall precipitously – this is the Prebisch-Singer hypothesis (Prebisch 1950). As Samir Amin (1976, p. 292) notes, “whereas at the center growth means development, making the economy more integral, in the periphery growth does not mean more development, for it dis-articulates the economy. Since the imbalance of international trade defines the mechanisms by which capital is drained from former colonized countries, there is no way for peripheral countries in the world economy to ‘catch up’ in Rostowian fashion (p. 383).

Nevertheless, the social facts that constitute the particular social conditions for the constant negation of a ‘just price’ in international trade ‘admits of varying interpretation’ (Frank, 1977). Case in point is the extent to which the periphery is in fact ‘peripheralized’. To suggest that the capitalist world economy simply, by definition, produces a centre-periphery polarity (Frank, 1967; Wallerstein, 1974), is to pay insufficient attention to understanding the extent to which economic development in the periphery is a convoluted association of varying social processes, rather than the mere result of a state’s homogenized world-systemic position (Gellert, 2010).

According to Cardoso and Faletto ([1967] 1970), for instance, development in the periphery, while controlling for socioeconomic income differentials, is likely if foreign capital penetration creates spillover effects. That is, partial economic growth is viable through what Peter Evans (1995) describes as the practice of an ‘embedded autonomy’-an apparent solidified social network between the state and civil society (which consists of economic elites from the centre) that creates the capacity for the state, as such, to engage in domestic Keynesian aggregate demand management. Whether this is manifested is the extent to which a peripheral country does not suffer the inability to borrow in its own currency, in which a country, most likely a developing one, supplements its domestic unit account of fiduciary reserve assets with a foreign currency. This is the exemplification of a country foregoing its national ‘monetary sovereignty’ (Mundell, 1961).

The essence of national 'monetary sovereignty' is the cartelist (or chartelist) (Goodhart, 1998) conception that emphasizes state power to establish a particular unit of account, a national currency, which allows economic calculations to take place (Ingham, 2004). In this sense, money is a means for accounting for and settling of financial debts, the most important of which are tax debts, which, in turn, regulate the level of aggregate demand, and thus determination of national income through the use of fiscal policy; it represents a [store of financial value] [...] [of which] general purchasing power is held [...] (Keynes, 1930, p. 3).

In the United States, for example, and in contrast to James O’Connor ([1973] 2002) and Erik Olin Wright’s (1979) fiscal sociological model for analyzing the intricacies of public finance, which narrowly centers on a hypothetical natural limit to fiscal policy (Wright 1979, p.157), the federal government, through open-market operations, sells government bonds, Treasury securities, which are either bought or foregone by the Federal Reserve (Fed). If the Fed commits to a policy of purchasing Treasury securities, the interest rate by which the Federal government is liable on Treasury securities held by the Fed is lowered. Symmetrically, if the Fed sells Treasury securities, the Federal Government’s interest burden, which is paid through taxes denominated in dollars, is raised. By providing a guarantee for State debt, the Fed delivers the capability for the federal government to use fiscal policy to regulate aggregate demand. Thus, the extent to which fiscal policy is an option is determined by the burden of the federal government's interest payments on Treasury securities to the Fed (cf. Lerner, 1943; Domar, 1944).

From this perspective, 'underdevelopment', or 'dependency', is the powerlessness a peripheral country to establish its own unit of account and thus is forced to variably peg its national currency to a foreign reference currency. What ensues is the inability to use monetary policy—central bank purchasing and selling of government bonds denominated in the domestic currency for purposes of controlling the money supply, and thus the cost of credit—, and fiscal policy, via deficit spending, for domestic economic needs. Since the central bank is forced to maintain a certain level reserves of the foreign reference currency such that the price of the domestic currency, in terms of the reference currency, does not change, this produces a negative money-multiplier that sets in motion an inherent deflationary bias, which, if not counteracted by capital inflows to spur aggregate demand, can lead to abrupt contraction of the monetary base, stinting any supposed progress towards economic sustainability (cf. Fields & Vernengo, 2012, 2013).

Thus, if any form of government spending is to be engaged, an 'underdeveloped' country has to issue bonds that are not denominated in its own currency. This amounts to the attraction of external commercial loans with the faith of the country's financial markets by foreign investors used as collateral. As such, country risk is most likely going to exist. If confidence is lost in the strength of the country's financial markets, leading to a spread over bonds like US treasury securities, if the foreign reference currency is the dollar, for example, interest rates on domestic foreign currency denominated bonds are likely to rise, making government spending very costly, which removes any form of domestic capacity to spur public investment as an effective countercyclical policy in the face of economic downturns. This has been essentially the case of Argentina before the 2001–2002 crisis, and of the European periphery since the intensification of the Greek crisis in 2011.

Balance of payments constraints can be quite unsupportable, spawning self-fulfilling financial collapses. Moreover, they altogether constitute an ideological mask that normalizes the advance of global cosmopolitan money-capitalist power to dictate the terms of domestic democratic politics (Ingham, 2008). As such, the extent to which a country is 'peripheralized', is the degree to which its creditworthiness is essentially evaluated in terms of the degree to which the state takes steps toward lowering the social wage for the benefit of multinational corporations from the centre (or core).

***This is a work in progress and I would like to thank Matias Vernengo, Brett Clark, & Al Campbell for their assistance.***

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South-South technological dependency

The increase in South-South trade noted here before is not necessarily symmetrical and there are winners and losers too with this type of integration.

When speaking of Argentina’s economic, cultural or technological dependency, it is usually seen as a matter of north-south relationships. Now then, are there south-south dependencies? In the field of industry and technology, the answer seems to be affirmative. 

Historically, Argentina has heavily depended on Brazil’s manufacturing development. “Argentina is a country characterized by an important level of technological dependence which in the last 10 years, far from reverting, deepened,” states Martín Schorr, researcher from CONICET in the Facultad Latinoamericana de Ciencias Sociales (FLACSO). “The trade surplus is kept basically by the agricultural sector, some agro-industries, and the mining sector. The rest of the industrial network produces losses.” 

Of the total of Argentina’s export to Brazil in 2011, products with industrial origin represented 67 percent. At first sight, that’s not bad. However, of those industrial products, only 6.7 percent are machinery and electrical appliances; that is, goods of higher technological development. On the other hand, that same year Argentina imported from Brazil 87 percent of products with industrial origin, of which 18.5 percent was machinery and electrical appliances. 

Thus, even though Brazil’s situation is not the best either, in both cases the balance is unfavorable towards Argentina. “Brazil is losing space in the rest of the world in matters of export of technological goods, but it compensated this with exports to Mercosur. In fact, the main destination of this type of exports is Argentina,” states Eduardo Crespo, economist and researcher from Universidade Federal do Rio de Janeiro (UFRJ).

Read the whole thing here.

A Brief Note on the Sociology of Development

Within the vast literature on the sociology of development, it has been theorized that recent reorganizations of capitalist development, specifically concerning a ‘new international division of labor,’ have reconstituted the global social cartography. What are the contours? & how should the be measured? These questions are difficult, especially given that ever-increasing cross-border linkages and exchanges-a time-space compression, so to speak-, seemingly represent a juggernaut for countries to achieve socially equitable economic path-dependencies.

Given the dynamic connective relationships of complex interdependency, specifically concerning the proliferation of financial capital mobility and the aggrandizement of transnational corporations (TNC’s), the capability for the developing world to achieve, to some degree, relative mobility that transcends the center-periphery divide is perceived to be implausible. As such, global capitalism proliferates ‘third worldization’ through the constant oppressive force of ‘primitive-accumulation', what Myrdal (1957) defined as international ‘backwash’ effects. Hence, the capitalist world economy is reproduced as a world-system (Wallerstein, 1979) of ‘unequal exchange’ (Emmanuel, 1972), in which ‘underdevelopment’ (Frank, 1969), namely, the inability to generate complex domestic patterns of effective demand, ensues peripheral long-run stagnation and monopoly rents, or competitive advantages, for the center; in the final instance, the terms of trade for the periphery fall precipitously - the Prebisch-Singer hypothesis.

Per Cardoso and Faletto ([1967] 1970), however, development in the periphery is possible if foreign capital creates spillover effects. Partial economic growth is viable through what Evans (1995) describes as ’dependent development’, in which there is a relatively strong tripartite relationship between the state, the local bourgeoisie, and foreing capital - an ‘embedded autonomy’ (Evans, 2002). Whether or not this is manifested is the extent to which, as Vernengo (2006) argues, a country does not suffer the inability to borrow in its own currency, especially in which the world economy is structured by the globalization of financial liberalization.

 For more on the topic see here.