NOTES ON DEVELOPMENT AND DEPENDENCY
   Róbinson Rojas Sandford. 27 February 1989

     If we are going to address the problem of development in Third World
societies some clarification is necessary:
     ---the environment is one where the capitalist system of production,
that is, a particular socio-economic system, is forced from outside into
largely rural economies, pre-capitalist economies (not that they were at
an "early" stage leading to capitalism, rather they "were not capitalist"
and, probably, wouldn't have developed capitalist relations of production
from within).
     ---Therefore, the historical event is one in which the capitalist
system collides with those non-capitalist systems of production(*).
This was true for Latin America during the XIX Century, and is true for
Africa and Asia today. Then the central issue takes this form: is the
introduction of capitalist relations of production into those economies
beneficial or not?
     ---Next, is necessary to define the concept. If beneficial means
the production of more goods and services, our approach is quantitative.
If we look at the social distribution of those goods and services, our
approach is qualitative. The first concept is known as economic growth,
the second as social development. Thence, a society can experience
economic growth without any significative social development, or, can
achieve social development with little economic growth, or, last but not
least, can achieve high economic growth and social development at the
same time. China until 1976 can be positioned in the last case, Brasil
can be located in the first.
          Since the early fifties, two approaches to the sociology of
development have prevailed.
          One point of view, the Western European one, is that Third
World societies are at a stage of development similar to that of the
Western European societies in the XIX century. Then, Less Developed
Countries' societies can foresee their future as the present of the
industrialized countries (capitalist industrialization), if the former
stick to the free market economy.
      One significative flaw in this argument is apparent: the building
of the capitalist system in Western Europe (including former colonies as
the United States, Canada and Australia) was based upon an international
trade dominated by the colonial powers (Japan industrialized also
colonizing its Asian neighbours until loosing the war in 1945) and
therefore everything that was needed by those industrializing economies
was within their reach at a very low economic cost: military conquest,
economic looting, even slave labour. If present non industrialized
societies were to pass through that stage, there is a completely different
international environment: they do not dominate the international market,
they are not colonizing the rest of the world, the industrialized
societies already control the world economic system.
     The international market today, like any capitalist market, works
to favour the stronger, this is part of the dynamics of the capitalist
system. The stronger and the richer, are the former and new imperial
powers, not Less Developed countries. Some among the latter, of
course, can occupy niches left by some weaknesses produced by the
business cycles and geo-political needs of the industrialized countries,
but those niches are not large enough to allow a significative number of
Third World countries profit from them, and their economies will be very
exposed to financial fluctuations (the so-called newly industrialized
countries are in this situation...they account for 5.5% of LDCs, while
42.5% are exporters of agricultural products, almost 16% account for
oil exporters, 15% are mineral exporters and the remaining 21.3 %
account for exporters of services -they are tax havens-and providers of
migrant labour).
      Therefore, it is apparent that LDCs are NOT at the early stages
of the Western European type of industrialization. The suspicion is that
they are in a different situation altogether.
   Consequently, is imperative to look closer. The first general feature
is that all currently less developed social formations, with few
exceptions (China, Ethiopia,etc), were colonies of the Western European
powers or Japan in the past. They passed through a long and painful
historical period of being submitted to direct foreign exploitation.
To maintain this foreign exploitation, their economies and societies
were distorted, fractured and handicapped to meet the economic needs
of the central powers: cheap supply of cash crops, raw materials and
even labour power. That fracture at the economic level had a reflection
at the social level, creating a fracture in the social structure of
the colonies and generating new social classes or section of classes
suitable to the functioning of that economic fracture.
Thus, an appropriate ( for maintaining the colonial status) social
structure appeared in the colonized countries.
---Because of the above, when colonies became nation-states, they
found themselves participating in the international market playing the
same role than before (suppliers of raw materials and cash crops
and cheap labour -economic slaves now-), but with an additional problem:
the problem of "modernizing" their economies within the capitalist
system (political reasons --the presence of the Soviet Union and the
rest of bureaucratic socialist countries--have the industrialized
countries fiercely opposing any attempt of Third World societies to
follow an alternative model of development. That opposition takes the
form of military invasion, conspiracy, subversion, economic sabotage,
etc., most of the time in partnership with the ruling classes in the
Third World societies, which were the outcome, as we saw, of the
colonial times, in the colonial fractured socio-economic system).
---Modernizing within the capitalist system means, for less developed
countries ruling classes, being the junior partners in the
"international market", which, like any capitalist market, is dominated
by huge corporations, the transnational corporations. In
this environment, latecomers to the modern world, less developed
economies must buy abroad modern machinery, modern technology and
modern know-how to prepare the basic conditions to compete. To finance
this buying, they export raw materials, cash crops, and human labour.
As with any free market, the international one will reach the
equilibrium prices in such a way that the relative prices of
manufactured products will increase faster than the prices of raw
materials. So, less developed economies face a structural handicap in
balance of payments: they must constantly borrow abroad. They find
themselves trapped in the international financial system. They end up
trapped in three ways: in trade, in investment and in financing.
     But Western European scholars (including those in the
United States) ignored the above in their development theory.
Western European theorists concluded that less developed economies
suffered form scarcity of capital, therefore the way to industrialize
had to be through imports of international capital (North American,
Western European and Japanese, today). With external finance, the
tiny industrial sectors in LDCs economies would expand...and the road
to modernization would grow easier and easier. The role of transnational
corporations, then, is to be engines of growth in less developed
economies. Around 20-25 per cent of all the capital invested abroad by
the TNCs flow to LDCs today, they dominate the production of
raw materials, energy, agricultural products for export and significative
sectors of the domestic industries in less developed societies...
but still, after almost one hundred ye!rs of doing that the economic
performance of less developed countries is quite
poor (100 years in Latin America, and around 40-50
years in Africa and Asia).
---One feature of this particular "engine of growth" is very important:
because the net balance between new investments and outflow of payments
on these investments have been always negative, their presence adds to
LDCs' structural deficit on balance of payments. Thus, unlike domestic
industries, part of the value added in the process of production goes
out of the host country and is not recycled in the domestic circular
flow of income. Therefore, those foreign investment are
"economically inefficient", and they are fracturing further
the host country's aggregate demand. This is a structural characteristic
normally ignored by development scholars in Western Europe.
---Consequently, foreign investment creates a sustained outflow of
resources towards industrialized countries from less developed
countries, which amount to a case of highly inefficient utilization
of resources... our countries are the rich man poor man (this is not
my idea, it was The Economist cover title some time ago, dealing with
the same subject). Therefore, even when that foreign investment in the
host country is going to create jobs for a number of workers and
produce goods that might not be produced there otherwise, the dynamic
of the economic exercise makes the original fracture of the host 
economic system even deeper.
          By and large, TNCs contribute to exasperate the social
effects of the necessary transit between traditional and "modern"
social formations in at least the following six instances of
contradiction:

        LOW PRODUCTIVITY OF LABOUR VS. HIGH PRODUCTIVITY OF LABOUR
            TRADITIONAL TECHNOLOGY VS. MODERN TECHNOLOGY
            SMALL-SCALE PRODUCTION VS. LARGE-SCALE PRODUCTION
            SUBSISTENCE PRODUCTION VS. PRODUCTION FOR EXCHANGE
                     FAMILY LABOUR VS. WAGE LABOUR
SIMPLE/UNDIFFERENTIATED PRODUCTION VS. COMPLEX/DIFFERENTIATED PRODUCTION

             Those six instances of contradiction constitute a complex
set of contradictory results with dramatic effects on the social
structure of LDCs.  Unemployment, underemployment, destitution (both
cultural and economic), even famines could be some of those results.

          Of course, all of this has been known to less developed
countries' scholars since the beginning of the forced inclusion (armed
inclusion, military inclusion) of our nations into their sphere of
influence by Western European industrialized nations. And in the
early fifties, in Latin America, a non-European theory began to
take shape. Its first appearance was in the Economic Commission for
Latin America (ECLA). Prebisch, Pinto et al were the ones who started
focusing their attention in the international environment, and ended up
with the centre-periphery approach to explain the (economic) plight
in which Latin American countries were trapped. The centre was the
industrialized countries, the periphery all the rest outside the
socialist camp. The periphery being economically exploited (drained)
by the centre, was the main tenet of the theory. Only if the 
periphery found better conditions of participating in the international
market it could find the way out of underdevelopment, was the second
main tenet of the theory (in the late seventies-early eighties, a
Western European politician unburied this theory: Willy Brandt's 
North-South dilemma).
          ECLA's theory supported what is known now as import-
substitution strategies for development. The main feature here was
the attempt to produce internally manufactured goods instead of
importing them from industrialized countries. Over time, the 
smallness of the domestic market (as direct result of an utterly
regressive distribution of income and the lack of land reforms), and
the direct participation of TNCs in this system of producing for the
national market, generated the bankruptcy of that strategy. From that
failure onwards (early seventies) an export-oriented strategy was
adopted. It was based on the thesis of comparative advantage or 
pure capitalist competition with industrialized countries in the
international market. To achieve that, better conditions for foreign
investments (TNCs) were necessary, accompanied by foreign financing of
domestic investment. In the eighties, the best performers ended up
with huge foreign indebtness, causing dramatic falling in their
economic growth and terrible social costs ( Chile, Brazil and Mexico
are very well known examples). Of course, in order to carry over 
export-oriented growth a free market approach was necessary at the
national level. Monetarist policies, as opposed to Keynesian ones,
were applied. The best example of monetarist policies imposed under
state of siege is Chile under Pinochet's dictatorship. Unemployment
and malnutrition became higher than in the early seventies.

             THE ALTERNATIVE READING

          Working on Prebisch's and Pinto's ideas, other scholars,
mainly in Santiago (University of Chile), developed a more complete
approach to the problem, they added politics to economics, and the
need to use political economy as a tool for analysing complex wholes.
(As a side-effect a simplistic theory about "the development of
underdevelopment" was concocted in the early sixties, with Gunder Frank
collecting ideas from the groups working in Santiago. The notion of
centre-periphery was converted into metropolis-satellite with the
additional concept that the economic development of industrialized
countries (metropolis) produced the underdevelopment of less developed
countries (satellites).) The other researchers (Cardoso, Faletto, Sunkel,
Quijano, Dos Santos, Marini, et al) were looking at the following
logical sequence:
if less developed countries attempt economic growth within the
capitalist system, they must welcome foreign investment, technology
and know-how which will strengthen the fractured economic system in
the host country as defined above: all the structural handicaps will
prevail even stronger---balance of payments, utilization of technology
adding to problems of unemployment and underemployment, and the host
economies being HIGHLY VULNERABLE to crisis generated in the
international market by the industrialized countries. The fracture will
grow deeper, shaped as follows: one sector of the economy at the same
level of technology than in USA or Western Europe ( THE MODERN SECTOR),
and another sector, THE TRADITIONAL, at a low level of technology,
strengthening the fractured social structure already created during
colonial times. Under those conditions, the traditional sector had an
evident economic purpose: serving as a survival device for the
unemployed and underemployed labour force, making possible the
existence of a huge reserve army of labour, which will maintain the
relative level of wages quite low and, consequently, high rates of
profits attracting foreign investment to those fertile lands,
completing the circle and regenerating the trade cycle. As a consequence,
social groups in Latin America will have the same interests than
social groups in the industrialized countries, creating a complex
whole were internal and external factor shape the conditions of
dependency.

Most of the research was done on Chile and Brasil. Chile was typical
of this idea of economic growth without development mentioned at the
beginning of my notes. In Chile, in the early sixties, the rural
population accounted for less than twenty per cent, and the
industrial labour force accounted for more than 35%, the manufacturing
sector accounted for almost 20 per cent of the labour force, Chile's
income per capita was one of the highest in Latin America. By any
statistical standard Chile was an industrializing country, but then,
because of a highly regressive distribution of income
(social development), two thirds of the population was living in 
poverty. Brazil was even in a worse situation. "Development of
underdevelopment" as an explanatory notion was tempting, and scholars
like Gunder Frank were blinded by the temptation.
          The main weakness of such theory was that it completely
ignored the internal causes for such an state of affairs. It didn't
deal with the obvious question: why is it that capitalist relations
of production encounter so many difficulties to develop in less
developed countries? Why in countries like Chile or Brasil, after one
hundred years of trying (by both foreign and national capitalist)
still was impossible to have the system taking off? In brief, the
theory of development of underdevelopment didn't address the issue
of what are the limits, if any, to the development of capitalist
relations of production in countries like Chile or Brasil? A second
look to the social structure, where the system of ownership of the
land and the composition of the ruling class created blockages to the
formation of a significative middle class, could have been of some
help. ( see R. Rojas, "Latin America: blockages to development",
            PhD dissertation, 1984, and
        E. Galeano, "Latin America and the Theory of Imperialism")

            The logical conclusion to draw from Gunder Frank's theory
was (like the logical conclusion drawn from ECLA's centre-periphery
theory) that there was a contradiction between the national capitalists
in less developed countries and the capitalists belonging to
industrialized countries because the latter were producing
underdevelopment. From this, the political side of it follows:
national capitalists could constitute the "progressive" sector in less
developed countries, the national bourgeoisie that will lead the rest of
the people to modernization walking the path of "nationalist" economic
policies: Nkrumah, Nyerere, Frei, Goulart, Sukarno et al,
were the political leaders of this political stream in the sixties.
      All of them were ousted by alliances of classes including the
so-called national bourgeoisie, except Frei, in Chile, who leaned to
the right side at the right time.

     In the late sixties, then, again working as
a team at the University of Chile, Santiago, several Latinamerican
scholars criticized the theory of development of underdevelopment and
produced different branches of what today is known as "dependency
theory". Dos Santos, Marini, Cardoso, Faletto, Sunkel, et al, began
working on the general idea that the condition of
underdevelopment was a condition of comprehensive dependency upon
the industrialized countries, that dependency has its roots at the
economic level, but manifests itself strongly at the cultural, social,
ideological and political level. In a simplistic way, dependentist
argued that less developed countries were a contemporary type of
colonies depending comprehensively upon the industrialized
countries and, among them, the United States...the latter, of course,
very well known in my continent by its military interventions,
conspiracies, briberies, subversion and brutal ruling of the Inter
American affairs since the American armies invaded Mexico early
this century trying to loot the natural resources of that country.

          By and large, dependency theory states that in Latin America
at least, there exist economies that are appendages to the world
capitalist system, consequently the capitalist classes in those less
developed countries are not progressive but foreign orientated
(United States orientated), and it is against the interests of those
domestic capitalist sectors to cut the links of dependency with the
world capitalist system. At the economic level, the conclusion is that
there is no possibility of getting rid of this dependency under
conditions of capitalist development (free market), and, at the
political level, that in order to liberate themselves from this
dependence less developed societies must reject the capitalist system,
and, of course, choose some alternative path to development...such
as socialism. Of course, this path implies the destruction of the
main blockage to development in less developed
countries: the prevailing social structure.
              Therefore, what dependency theory proposes is (mainly
in the work of Cardoso) that economic growth (modernization) can occur
in less developed countries, but due to their dependent character,
this economic growth will be erratic (following the ups and downs of
the industrialized countries through the linkages of dependency) and
will be accompanied by a fast process of cultural colonization wiping
out from less developed countries their cultural heritage, etc. Thus,
this type of "modernization" will not generate development similar to
the one prevailing in industrialized countries, because the dramatic
inequalities prevailing in the latter will be more extreme in less
developed countries, and this caused by the structural handicaps
already mentioned above (fractured societies). Within this conceptual
framework, the case of newly industrialized countries like
South Korea only reinforce the argument.
      
         During the last decade, technological innovations (synthetic
raw materials and labour-saving techniques) are making possible a
reverse flow of investment back to industrialized countries. By and
large, it is possible to forecast a long term trend leading to slow down
the share of foreign direct investment going to less developed countries,
with old industries like textiles, steel and shipyards saving in labour
to such an extent that the need of utilizing cheap less developed
countries labour for those industries will become less and less
necessary. Thence, those industries will probably start coming back
to industrialized countries, producing, of course, dramatic social
effects in less developed economies. In a word, a situation in which
production cycles in industrialized countries create terrible side-
effects on "dependent" economies. 
          The above argument illustrates the dependentist concept 
of "dependence" as different from the situation of "interdependence"
existing between industrialized countries. The latter's links of
interdependence are among equals, the former's links of dependence
with industrialized countries are among unequals, producing,
therefore, different effects.
Economic interdependence between United States and
Canada, for example, or between United States and
Britain, links equal partners of a relatively
equal strength. Completely different is the
connection between United States and Mexico, for
example, or any other less developed country,
because even when still is a capitalist
interdependence, now it occurs between unequal
partners, and the weaker is bound to be dominated
by the stronger...interdependence now becomes
dependency.

(*) See R. Rojas, "Latin America: blockages to development", 1984,
    in this databank.
rrloosenotes 28 February 1989 [notestal.dev]
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