Development and Dependency | Sociology Optional for UPSC (Notes) PDF Download

Market-oriented Theories of Development

Market-oriented theories, primarily advanced by British and American economists and sociologists, propose that the best economic outcomes arise when individuals are free to make their own economic decisions without government constraints. These theories advocate for unrestricted capitalism as the path to economic growth, arguing that government intervention in low-income countries hinders development. Instead, local governments should step back to allow for economic progress.

Modernization Theory by W.W. Rostow

• Modernization theory contends that low-income societies can only develop economically by abandoning traditional practices in favor of modern economic institutions, technologies, and cultural values that prioritize savings and productive investment. W.W. Rostow, an economic advisor to former U.S. President John F. Kennedy, was a significant proponent of this theory. His ideas influenced U.S. foreign policy toward Latin America in the 1960s.
• Rostow argued that the cultural values and social institutions of low-income countries hinder their economic effectiveness. He believed that people in these countries often lack a strong work ethic, preferring immediate consumption over future investment. Large families were also seen as a barrier to economic progress because they limit the ability to save for investment. According to Rostow, the cultural traits of low-income countries support a sense of 'fatalism,' where hardship is viewed as an unavoidable part of life. This mindset discourages hard work and thriftiness needed to overcome poverty. He claimed that poverty is largely a result of these cultural shortcomings, which are exacerbated by government policies that interfere with economic operations.

Rostow outlined several stages of economic growth, likening the process to the journey of an airplane:

• The traditional stage: This stage is marked by low savings rates, a perceived lack of work ethic, and a fatalistic value system. At this point, the 'airplane' of economic growth is not yet off the ground.
• Takeoff to economic growth: Rostow believed that the traditional stage can transition to economic takeoff when countries begin to shed traditional values and start saving and investing for the future. He argued that wealthy countries, like the United States, could facilitate this growth by financing birth control programs and providing low-cost loans for infrastructure development and industrialization.
• Drive to technological maturity: With assistance from high-income countries, the 'airplane' of economic growth would gain speed and become airborne, approaching technological maturity. In this phase, countries would improve their technology, reinvest wealth into new industries, and adopt the institutions and values of high-income countries.
• High-mass consumption: Ultimately, countries would reach the phase of high mass consumption, where people enjoy a high standard of living and the benefits of their labor. At this point, the 'airplane' (country) cruises at cruising altitude, having joined the ranks of high-income countries.

Rostow's ideas remain influential, and the contemporary view among many economists, known as neo-liberalism, argues that free-market forces, achieved by minimizing government restrictions on business, are the only path to economic growth. Neo-liberalism promotes global free trade as a means for all countries to prosper and advocates for the elimination of government regulations, including those related to labor and the environment. Sociologists, however, focus on the cultural aspects of Rostow's theory, examining how certain beliefs and institutions may impede development.

Dependency Theory

• Dependency Theory focuses on the idea that the poverty experienced by low-income countries is a result of their exploitation by wealthy countries and multinational corporations. Proponents of this theory argue that global capitalism has trapped these nations in a cycle of exploitation and poverty.
• During the 1960s, several theorists began to challenge market-oriented explanations of global inequality, such as modernization theory. Many of these critics were sociologists and economists from low-income countries in Latin America and Africa. Drawing on Marxist ideas, they rejected the notion that their countries' economic underdevelopment was due to cultural or institutional shortcomings. Instead, they built upon Karl Marx's theories, which suggested that world capitalism would create a class of countries manipulated by more powerful nations, similar to how capitalism exploits workers.

Colonialism and Exploitation

• According to dependency theory, exploitation began with colonialism, a political-economic system where powerful countries established rule over weaker nations for their own profit. Colonial powers often sought to procure raw materials for their factories and control markets for the products manufactured in those factories.
• While colonialism involved European nations establishing colonies in the Americas, Africa, and Asia, some Asian countries, like Japan, also had colonies. Although colonialism largely ended after World War II, exploitation persisted as transnational corporations continued to profit from their operations in low-income countries.

Role of Global Corporations

• Dependency theory argues that global companies, often supported by powerful banks and governments in rich countries, established factories in poor nations. They exploited cheap labor and raw materials to maximize production while minimizing costs, often without governmental interference.
• This practice prevented poor countries from accumulating the profits necessary for self-industrialization. Local businesses that could potentially compete with foreign corporations were often sidelined. As a result, poor countries were compelled to borrow from rich nations, increasing their economic dependency.

Mis-Development

In this perspective, low-income countries are seen not as underdeveloped but as mis-developed. Only a small number of local politicians and business people benefit, while the majority of the population falls into poverty. Peasants face a grim choice between starvation and working for meager wages on foreign-controlled plantations, in mines, and factories.

Call for Revolutionary Changes

• Dependency theorists advocate for revolutionary changes to expel foreign corporations from their countries. They emphasize the role of political and military power in enforcing unequal economic relationships, a factor often overlooked by market-oriented theorists.
• When local leaders challenge these unequal arrangements, their voices are often suppressed. Unionization is typically prohibited, and labor organizers face imprisonment or even death. If a government opposing these policies is elected, it is at risk of being overthrown, often with support from the armed forces of industrialized nations.

Historical Examples

• Dependency theorists cite historical examples, such as the role of the CIA in overthrowing leftist governments in Guatemala (1954) and Chile (1973) and undermining support for the leftist government in Nicaragua during the 1980s. 
• In this framework, global economic inequality is maintained through force, with economic elites in poor countries, backed by their counterparts in wealthy nations, using police and military power to control the local population.

Dependent Development

• Enrique Fernando Cardoso, a Brazilian sociologist and former dependency theorist, argued that some degree of dependent development is possible under certain circumstances. 
• He suggested that poor countries could still achieve economic development, albeit shaped by their reliance on wealthier nations. In this context, governments in these countries could play a crucial role in navigating the balance between dependency and development.

World System Theory

Immanuel Wallerstein

• Sociologists increasingly view the world as a single, often conflict-ridden economic system. While dependency theories emphasize the economic ties between individual countries, world-systems theory, influenced by dependency theory, argues that the world capitalist economic system should be understood as a single unit rather than a collection of independent countries.
• Immanuel Wallerstein and his colleagues are closely associated with the world-system approach. Wallerstein demonstrated that capitalism has existed as a global economic system since the expansion of markets and trade in Europe during the fifteenth and sixteenth centuries.

Four Overlapping Elements

According to Wallerstein, the world system consists of four overlapping elements:

• A world market for goods and labor;
• The division of the population into different economic classes, particularly capitalists and workers;
• An international system of political relations among powerful countries, whose competition shapes the world economy;
• The division of the world into three unequal economic zones, with wealthier zones exploiting poorer ones.

Core, Periphery, and Semi-Periphery

World-system theorists categorize countries into three economic zones: core, periphery, and semi-periphery.

• Core countries are the most advanced industrial nations that take the largest share of profits in the global economic system. Examples include Japan, the United States, and Western European countries.
• Peripheral countries are low-income, predominantly agricultural nations often exploited by core countries for economic gain. Examples include various African nations, and to a lesser extent, countries in Latin America and Asia. Natural resources flow from the periphery to the core, which in turn sells finished goods back to the periphery at a profit.
• Semi-peripheral countries are semi-industrialized, middle-income nations that extract profits from peripheral countries while also yielding profits to core countries. Examples include Mexico in North America, Brazil, Argentina, Chile in South America, and newly industrializing economies in East Asia. The semi-periphery, while somewhat controlled by the core, also exploits the periphery and offers the promise of development to peripheral countries.

Historical Shift in Economic Power

• Though the world system changes slowly, once-powerful countries can lose their economic dominance, making way for others. For instance, over five centuries, the Italian city-states of Venice and Genoa were replaced by the Dutch, then the British, and currently, the United States. 
• Some world-systems theorists suggest that American dominance is giving way to a more multipolar world where economic power will be shared among the United States, Europe, and Asia.

State-Centered Theory

• Recent explanations of successful economic development highlight the significant role of state policy in fostering growth. Unlike market-oriented theories, state-centered theories argue that effective government policies do not hinder economic development but can be instrumental in facilitating it. Research indicates that in certain regions, such as East Asia, successful economic development has been driven by state-led initiatives. Even the World Bank, previously a strong advocate of free-market theories, has acknowledged the importance of the state in its 1997 report,'The State in a Changing World,' concluding that sustainable development, both economic and social, is impossible without an effective state.
• Strong governments played a crucial role in various aspects of economic growth in the East Asian Newly Independent Countries during the 1980s and 1990s.

East Asian Governments and Economic Growth

• Political Stability and Low Labor Costs: East Asian governments, particularly Taiwan, South Korea, and Singapore, have actively ensured political stability while maintaining low labor costs. This has sometimes involved repressive measures such as banning trade, strikes, and jailing labor leaders, effectively silencing worker voices.
• Guiding Economic Development: Governments in East Asia have often directed economic development through measures like offering cheap loans and tax breaks to businesses in favored industries. While this approach has sometimes led to bad loans and economic issues, such as during the late 1990s, it reflects a proactive stance in shaping economic growth.
• Investment Restrictions: Some governments have restricted businesses from investing profits abroad, compelling them to reinvest in domestic growth. Additionally, certain governments have owned and controlled key industries. For example, the Japanese government has owned railways, steel, and banks; South Korea has state-owned banks; and Singapore has state-owned airlines and defense-related industries.
• Social Programs: East Asian governments have been heavily involved in social programs like low-cost housing and universal education. Countries like Hong Kong and Singapore have established extensive public housing systems, keeping rents low and reducing the need for high wages. In Singapore, a strong central government ensures well-funded public education and training, equipping workers with necessary skills. The Singaporean government also mandates significant savings for investment in future growth.

Evaluating Theories of Development

Each of the four sets of theories on global inequality presents strengths and weaknesses, collectively enhancing our understanding of the causes and solutions for global inequality.

• Market-oriented theories advocate for adopting modern capitalist institutions to promote economic development, as evidenced by East Asia. They argue that countries can only develop economically by opening their borders to trade, citing supporting evidence. However, these theories often overlook the economic ties between poor and wealthy countries that can hinder growth. They tend to attribute poverty in low-income countries solely to internal factors, neglecting the influence of powerful nations. Moreover, market-oriented theories do not account for the collaboration between government and the private sector in fostering economic development. They also fail to explain why some countries experience economic success while others remain trapped in poverty and underdevelopment.
• Dependency theories address the oversight of market-oriented theories regarding the relationships between poor and wealthy countries. They focus on how wealthy nations have exploited poor ones economically. While dependency theories help explain much of the economic underdevelopment in Latin America and Africa, they struggle to account for occasional success stories among low-income countries like Brazil, Argentina, and Mexico, as well as the rapidly growing economies of East Asia. Some countries that were once low-income have risen economically despite the presence of multinational corporations. Even former colonies like Hong Kong and Singapore, once dependent on Great Britain, are now considered success stories.
• World-system theory aims to overcome the limitations of dependency theories by examining the global economy as a whole. Instead of focusing on individual countries, world-system theorists analyze the intricate global network of political and economic relationships that influence development and inequality in both poor and rich nations.
• State-centered theories emphasize the role of government in promoting economic growth. They provide a valuable alternative to market-oriented theories, which view states as obstacles to economic progress, and dependency theories, which see states as collaborators with global business elites in exploiting poor countries. When combined with other theories, particularly world-system theory, state-centered theories offer insights into the significant transformations occurring in the global economy.