Dependency Theory

Roots

Dependency theory was a Latin American response to North American modernization theory, a set of perspectives that had argued that all societies would eventually industrialize and develop economically to the level of the First World nations and that foreign investment and aid to the Third World would be necessary to bring this about. Partly it has roots in Marxist theories of imperialism, which extended Marx's model of a class struggle onto a worldwide scale: Just as rich and poor classes exist in a given country (Marx called these the bourgeoisie and the proletariat, or working class), so, by analogy, there are rich and poor nations in the world economy—the First and the Third worlds. Another precursor of dependency theory was a UN working [Page 386]group based in Latin America called the Economic Commission on Latin America (ECLA). ECLA used the terms center and periphery to characterize the dynamic economies of the advanced industrial nations (the center) and the dependent economies of the Third World (the periphery), together forming an international system in which center and periphery were linked together. They also produced historical studies of trade patterns in Latin America and concluded that, since 1870, the terms of trade had deteriorated for the Latin American economies. That is, the prices for Latin America's exports, which were mostly raw materials (food and minerals), had historically fallen, while the prices for what Latin America had to import, primarily finished manufactures, had gotten more expensive over time. This meant that Latin America had to constantly export more of its own products just to import the same amount of goods from abroad. One reason for this deterioration in the terms of trade was the low wages that Latin American workers were paid, while industrial workers in the West had seen their wages rise, as a result of union efforts and political gains, as well as higher productivity through the application of technology and machinery to industry and agriculture.

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