The Depending Theory of Development was proposed during 1960s and initial years of 1970s. It was in the context of Latin American countries. The development of this theory happened under Structuralist/Marxist/Neo Marxist structure. According to this theory western capitalist countries are responsible for the backwardness of under developed countries. And most of them were powerful imperialist countries during 19th and 20th centuries.
The analysts of this theory argues, the main reason for the inadequate development of under developed countries is the colonialist policy of these imperialist countries. Apart from this they also have mentioned the historic, social and cultural factors which have been obstacles in the economic progress of these countries. They argue that these factors played an active role in economic development of Europe and North America. While they pushed back the development of Africa, Asia and Latin America. Earlier, these under developed nations were the colonies of developed imperialist countries and were subject to exploitation. They were the source of raw material and markets “periphery” for goods produced in ruler countries i.e. “core”.
This means that there was flow of resources from periphery of poor countries to core of developed countries. These colonists countries were intentionally following the policies of destroying the traditional industry of ruled countries. Hence they remained under developed and backward as the result of carefully thought exploitative policies of these developed countries.
Even at present, the under developed countries depend on western countries for finished products, machinery and technology. Thus, the development of under developed nations still depends on developed nations. In other words, the old exploitation is present in a new form.
Depending Theory of Development
Latin American economist Raul Prebisch in 1950 gave Depending Theory of Development. Later economist like A.G Frank etc refined this theory. According to him, the economic activities of rich countries usually lead to serious economic problems in poor countries. He believed that poor countries should initiate the program for import substitution so that they need not buy products produced in rich countries. As these developed countries want to sell their prime products to poor countries so that their foreign exchange reserve is always rich.
Many modern economists like Raul Prebisch, Miret etc have considered international trade as an obstacle in economic development of under developed countries. The reason for this are as follows:
1. Ignoring the economy other than imports
It cannot be denied that as the result of international trade, there has been growth in imports in under developed countries. But this has resulted in development of import sector only. It has not contributed in developing rest of the economy. As the result, even today, the under developed countries are direct examples of unbalanced development. The production technique utilized in import sector has not affected the rest of the economy.
2. Lack of equality in prices
The international trade has not established the equality in prices. But it has given birth to hoarding culture in which the balance point has gone far from equality in ratio of resources and from equality in prices. In reality, international trade has brought inequality in international distribution of income.
3. Formation of Dual Economies according to Depending theory
After indulging in international trade, there has been formation of Dual Economies. As the import zone has become the “Island of Development”, the rest of the economy has remained backward. The foreign capital is utilized for exploitation of natural resources of the country. The production methods are capital intensive and production factor is definite in developed import zones. While in backward areas production is labour intensive and means of production is not utilized in the same ratio.
4. Unfavourable nature of terms of business in long run
International powers have produced such unbalancing situations which have resulted in unfavourable terms of business in long run. The rich countries have monopoly over the market of raw materials and means. Also due to assistance from technological progress the income from means of production increases. While if productivity increases in the producing country then prices fall in those countries. Hence we can say that, if there is continuous trade between industrialised country and a primary product producing under developed country, then the terms of good trade are always in favour of industrialised countries.
5. Demonstration Effect
The international demonstration effect means that under developed countries follow the consumerist culture of developed countries. It results in increase in foreign imports. The reason being a craving for foreign good and luxury products. Which leads to growth in imports of foreign products which has unfavourable impact on the economic development.
Depending theory was seen as a method to understand the poverty in poor countries. Traditional neo-academic view always stresses on this point that in poor countries, there is delayed understanding of importance of strong economic measures. So they are not quick to adopt the techniques of modern economics.
Depending theory is explained as an international system. Advanced industrialised nations are far ahead in terms of economic development and cooperation. To a great extent there is a concept that the economic and political power is mostly centralised in industrial centres. If this concept is valid then the difference between economic and political power is not real. All the depending theorist accept, the fact that there should be differentiation between depending and imperialism. The depending theory brings up the theory of under development.
According to Depending theorist, this theory makes a possibility of many economic activities in sovereign countries.
The following central premises of the depending theory are notable
- Under development is different from original non-development. For example, non developed areas in European colonies in the North American continent were paid no attention. Under development is a condition in which there is active utilization of resources but its adequate result do not come to the fore.
- There is historical context for the difference between under development and non-development. They are poor because they provide their services for the production in European countries in the form of raw materials and labour.
- Depending theory says that there should be alternate use of resources. .