Dependency Theory After 50 Years: Development, United Nations, War in Ukraine and the Global Fragmentation

This book by the prominent Argentinian economist Claudio Katz explores the contemporary relevance of the dependency theory: to what extent does it explain today’s world?

Dependency theory: the fundamentals

Like the Marxist theory in general, the dependency theory saw a period of marginalization and obscurity in the 1990s and early 2000s with “the end of history” following the collapse of the socialist system in the world. It was discarded as obscurantism and replaced with unbridled neoliberal optimism. Yet, the subsequent global socioeconomic developments have caused serious disenchantment with the neoliberal project and raised doubts about its universal applicability as an explanatory framework. These developments included Western military interventions in different countries from Afghanistan to Yemen, the rise and fall of the Arab spring, the global financial crisis of 2007-08, growing inequality in developed countries (while global inequality between countries has reduced), the inability of global capitalism to deal with an impending ecological catastrophe due to the global warming, the rise of “illiberal” regimes (including “liberal autocracies”), the Russian invasion of Ukraine in 2022, and the forging fragmentation of the world into competing blocks.     

Although the author focuses mostly on the dependency theory explanations developed in the 1970s (hence the name, Dependency Theory After 50 years), his analysis goes back to the Marxist roots of the dependency theory (before it became known by this name) and covers the views of Marx, Lenin, Rosa Luxembourg, and Trotsky.

To remind, the foundation of the dependency theory as laid by the theorists analyzed in the book (Samir Amin, Mauro Marini, Dos Santos, Ernest Mandel, Immanuel Wallerstein and other prominent names) is the view that underdevelopment is an intrinsic feature of dependent capitalism. The global capitalist system reproduces dependency relationships between the developed center and the underdeveloped periphery. This view has critical implications for the theory and practice of development: it considers the convergency theory a fallacy. Globalist capitalism reproduces the relations of inequality between countries as a fundamental condition for its functioning: in the words of another theorist of dependency Andre Gunder Frank, whom the author quotes, capitalism “develops underdevelopment”. The placements and hierarchies of each world region are reproduced through a chain of products that connects all its participants into a single global circuit. Through unequal exchange and the polarized flow of commerce, that connection reinforces the predominance of certain central areas.

Implications for development and the role of the UN

Katz therefore emphasizes that underdevelopment cannot be eradicated with simple corrective policies, development policies or with higher doses of investment. Dependency theorists object to the depiction of the states as a driver of growth, free from the limitations of the dominant classes. From this position, Katz criticizes the concept of underdevelopment originally developed by the UN Economic Commission for Latin America in the 1950-60s. This concept attributed underdevelopment to the deterioration in the terms of trade and to the structural heterogeneity of economies with high unemployment, elite consumerism, and agricultural stagnation. This concept was later transformed into an intervention blueprint for the entire UN Development System (which includes multiple agencies, funds and programs). The blueprint has promoted import-substitution industrialization and greater public-sector investment, challenged the attachment to an agro-export model, and, ultimately, encouraged economic policies favorable to the national bourgeoisie. The dependency theory accepts the theory of inequal exchange and the deterioration in the terms of trade between the developing and developed worlds as suggested by According to the dependency theory, only a resolute revolutionary action can deliver the developing world (periphery) from its dependency on the center and interrupt the never-ending cycle of the growing gap between the developed and developing countries.

Before discussing the book’s approach and content in some more detail, I would like to dwell a little on the issue of the UN approach to development. In the past 20-30 years (roughly coinciding with the fall of socialism), this approach saw a decisive turn to development and strengthening of capitalist relations in the developing countries and their further suction into international value and financial chains. The buzz concepts in the UN development parlance these days are “private sector development,” “financial sector deepening,” “value chain development,” “promotion of export crops,” and such like. As the Addis Ababa Action Agenda (widely seen as the financial blueprint for the Sustainable Development Goals) moved finance for development and domestic resource mobilization to the forefront of the UN development agenda, the UN has intensified its efforts to expand personal and corporate credit finance in developing countries.

Whereas the justification for this action is to raise additional financial resources for development, such actions are obviously contributing to the continued underdevelopment and dependency of developing countries (the periphery) by fixing and hardening their subordinate position in the global capitalist system. In most cases, expansion of credit finance in developing countries results in the greater financial dependency: the increased domination of foreign capital, growing indebtedness of businesses and individuals, capital flight and outflows of capital (and hence surplus value) to the developed countries. Katz rightly points out that accumulation in developing countries required for breaking out of the cycle of dependency and underdeveloped is impeded by external factors, such as imperialism, not by lack of capital.The growing financial dependency of the developing world is one important issue, unfortunately not covered in Katz’s book, although few recent developments demonstrate the continuing relevance of the dependency theory better than the financialization of modern capitalism.   

Characteristics in this respect was a meeting with Justin Lin, the former World Bank Chief Economist in 2008-2012, in Uganda some 6 years ago. Meeting with UN and national government officials, Justin Lin spoke about the development path for Uganda. He insisted that, given its comparative advantage in agriculture and cheap labor, the country should develop its agricultural sector through value addition, focusing on hard currency-earning products that would allow Uganda to accumulate more capital for development. Ugandan officials were taken aback and indignantly protested: they expected some innovative strategy rather than a perpetuation of the status quo. Ugandan officials insisted on a transition away from agriculture to more technologically-advanced sectors (even though Uganda may not have any comparative advantage in those) to enable the country’s structural transformation and a change in its dependent position.    

The book’s approach is like this: it disassembles the dependency theory into its key concepts, analyzes them from today’s perspective, and then assembles them together into an updated version of the theory in the last chapter.   

International surplus value transfers

Katz reconfirms the relevance of some key principles of the dependency theory, such as surplus value transfers. This is the specific economic mechanism through which the relationship of dependency is produced and reproduced between the periphery and the center. This drainage is carried out through the prices prevailing in the world market. The concentration of activities that require complex labor, developed technologies, and significant investment in advanced economies determines that the prices of their production are higher than their values. For example, they exchange one day’s work for three from another country, while the inverse occurs with underdeveloped economies.   

Geopolitical-military relations of dependency

The book then moves to the other concepts first offered in the 1970s and 1980s: sub-imperialism, super-exploitation, classification by the dependency status, dependent cycle, and rent. Katz believes that subimperial forms have changed in a geopolitical context marked by the end of the Cold War when the ideological confrontation was replaced with economic competition. He defines “subempire” in the geopolitical-military sense: this category includes countries with the strong military and regional ambitions but excludes powerful economies with small armies (e.g., South Korea or Japan). But the major criteria for Katz is the alignment with, and commitment to, the dominant imperialist power, i.e. the US. Hence, Iran is not a subimperial power whereas Turkey and Saudi Arabia are.

Katz introduces two additional categories to give the concept of subimperialism a better discriminatory power. One is “co-imperial appendages” where he places the countries that operate as a direct prolongation of the centers, “external provinces of the US”, such as Israel, Canada, and Australia. In his opinion, these countries share “the same inheritance of racism, extermination of original peoples, land occupation, and Eurocentric ideological prejudices. The other additional category is “empire in formation” where he places Russia and China.

Russia’s behavior as an empire in formation is shaped by its opposition to the US but, as Katz rightly remarks, being an enemy of the United States does not make the Russian government the defender of the dispossessed. Russia is now governed by capitalists who prioritize their own welfare. In this respect, Katz sees the conflict in Ukraine as inter-imperialist rivalry rather than anti-imperialist struggle, which Russia is claiming to lead. Discussing Ukraine, Katz quotes the Russian Marxist Boris Kagarlitsky recently sentenced to 5 years in prison in Russia for his position on the war in Ukraine. The article Katz mentions describes how the Russian capitalist regime blocked the autonomous and radical action of the rebel movement in the East Ukraine. Apropos, in that article published in 2015, Kagarlitsky speaks about the dream of the Russian elites to have good relations with the West. He laments the West’s attitude which prefers to speak of a Russian threat instead of cooperation with Russia. I think it echoes well with Putin’s recent interview to Tucker Carlson, where Putin repeats several times how eager Russia was to integrate into Western structures, including NATO. Because of its animosity to the US, Russia cannot be qualified as a subempire, same as China because of the structural tension it maintains with the US. It is not a part of the current industrial order, but a rival of that structure. In this important respect, the two countries are different from Turkey and India which can be qualified as subempires.    

The book maintains that the concept of sub-imperialism (with the proposed variation) is still relevant: more than analyzing chains of surplus extraction among large, medium and small economies, subimperialism refers to the geopolitical role of the regional powers. It is thus an explanatory concept for the pyramidal structure of dominators, partners, and subordinates that sustains capitalism.

Economic relations of dependency

When it comes to the economic aspect of dependency, Katz reaffirms the categorization into the center, periphery and semi-periphery but introduces some additional categories: advanced and new centers as well as rising and declining semi-peripheries. The advanced centers, such as the US and Japan, for example, maintain this position because of their primacy in productive internationalization. New centers like China have risen to great power status because of their increasing protagonism in the global productive process. Semi-peripheries have achieved the rising status (South Korea, for example) through a leap from basic levels to more significant specialization whereas the declining semi-peripheries (like Brazil) have undergone industrial regression and a return to an agro-export profile.

Katz uses this framework to tackle the concept of super-exploitation suggested by Marini.  Marini held that the ruling classes of the periphery compensate for their subordinate place in the world market by remunerating labor power below its value. Through this additional suction of surplus value, capitalists sustain their profits and impose lower wages for longer and more intense workdays. Katz, however, believes that the principle of paying labor power below its value creates irresolvable theoretical problems. Hence, the concept of payment of labor power below its value should be replaced with low remuneration of this resource across all types of countries and that international surplus value transfers should be prioritized in explaining dependency. The valuation of labor power as high, medium, or low hinges on the level of internal development and the method of integration into the global market. The direction of surplus value transfers is dictated by the ultimate position of each economy. A nation that receives such inflows will sustain or attain a central status. Conversely, if it is a source of these resources, it will uphold or exacerbate a peripheral status.

“Where is exploitation greater?” asks Katz. His answer is that exploitation presents two meanings. If it is identified with the magnitude of appropriated labor, it is higher in the more productive economies of the center (because of the higher profit rate). If, on the other hand, it is associated with the misery of the wage-workers, the scale of this burden is greater in underdeveloped countries.  

The dimension of financial dependency and financial exploitation is not covered in the book. But the center keeps the semi-periphery and periphery on a short financial leash. An IMF analysis suggests that banks’ funding costs in low capital ratio economies (that is, periphery countries) jump by 55 basis points as the “geopolitical distance” with foreign lenders increases by one standard deviation. Geopolitical distance in this context is a euphemism to denote how much a country’s voting behavior in the UN General Assembly differs from the voting of the Collective West. Behave yourself or else…

Imperialist rent transfers

Katz reintroduces imperialist rent transfers as a key concept to explain dependency in addition to surplus value transfers. Together, they constitute international value transfers that lock the periphery in its subordinate status to the center. The concept of imperialist rent challenges the common disparagement of “rentier states” in the periphery, a label employed by neoliberals to undermine underdeveloped nations. Neoliberals use this label to justify the exploitation carried out by transnational corporations, while hypocritically criticizing the prevalent corruption in those regions. For example, the oil economies have endured trade deficits, financial decapitalizations, and transfers of funds through profit repatriation or payments for patents, while capital flight and indebtedness exacerbate those imbalances characteristic of dependency.

A framework of social struggles shapes the rent-seeking behavior of the ruling classes of the center and the periphery. These struggles determine whether the rents will eventually be captured by the popular sector. States play a role in how the resources are appropriated any whether the rent is retained, drained or absorbed. But, as the example of Argentina in the late 19^th century illustrates, even if the international rent was absorbed, it benefitted domestic large landowners as their rents went up and foreign firms as rents flowed back into the English storage plants, banks, and railroads.      

Those Ugandans who wholeheartedly (and at times aggressively) rooted for the new oil-producing project in the Albertine Region implemented by TotalEnergies might reconsider their enthusiasm in light of these considerations (https://deveconhub.com/6-myths-about-oil-projects-and-the-east-african-crude-oil-pipeline/(opens in a new tab).   

Elusive development: What are the options?

The book analyzes three aspects of (under)development: global stratification (center, semi-periphery or periphery); internal level of development (advanced, intermediate or backward economies); political independence (empires, appendages, semi-/sub-empires, semi-colonies, colonies).

The book concludes with this statement: “Capitalism is not an open field for the prosperity of the brightest, but a stratified order that inhibits collective welfare. Since there is no room for all, the development of some economies is realized at the expense of others. At each stage of the system, there are regions that are favored and others that are penalized by the dynamic of accumulation. That choice is not a menu at the disposition of the different countries.”

The counterfactual to the existing world order of dependent relations is rarely discussed. However, the ongoing geopolitical separation and fragmentation prompted some research about possible alternate arrangements. This fragmentation includes trade restrictions, technological decoupling, disrupted capital flows, and migration restrictions. One such research by the IMF estimates the impact of changes in trade due to geopolitical polarization on the GDP of different categories of countries. The overall impact is predicted to be negative—but not universally. For example, the forecast for Latin America and the Caribbean is positive (the chart shows the impact of geopolitical fragmentation on steady-state real GDP per worker). Why? Because these countries are expected to benefit not just from an increased volume of trade with the US, a major market in their vicinity, but also because of retaining a higher share of international transfers due to their improved bargaining position.

As the world reconfigures, it may produce other surprising developments. States of the semi-periphery and periphery are not entirely powerless but their capacity for change is severely limited by their position of subordination to the interest of the capitalist center. Katz’s book contributes to a systematic, informed and evidence-based critique of this situation from the perspective of the dependency theory.