Dependencia is a school of economics that emerged in the 1950s as an explanation for the underdevelopment of Latin America. The Dependencia School views Latin America’s dependence on foreign trade and technology, as causing its slow development. Theorists introduced as dichotomy between core and periphery. The dynamism of Latin America is limited to the development of capitalism at the center.
Marxian dependency argues that capitalism places insuperable barriers before the working class. Elite’s are unlikely to give the poor more power, without capital workers can not compete with dominant firms. Only a very dramatic, revolutionary shift in the structure of power will bring the working class equality. Paul Baran, one of the earliest Dependencistas believed that the dominant class in advanced countries formed pre-capitalistic elite in the developing countries to inhibit industrialization. The elites and developing country made a trmendous profit at the expense of its citizens. Foreign investors and the local elite, inhibiting the economy growth expropriate the surplus produced in the underdeveloped countries.
Raul Presbich developed the theory that the world is composed of two poles, center and periphery, the structure of production differs in each one. The economy is specialized in way that the exports consist of only a primary product. This type of economy does benefit the nation as whole, having limited slipover effects into other sectors of the economy. We see from Latin America that the periphery is characterized by unemployment in the labor force and the deterioration of the terms of trade.
Dependencia theorists are harsh opponents of multinational corporations. Neoclassical economists, see benefits in a policy of openness and capital flows. They believe that foreign capital increase investment and spurs production of the local economy, this will lead to an increase in welfare by adding to the economy’s productive capacity. Foreign firms will bring the country superior technology, thus increasing competition in the host economy. The entry of each additional firm leads to an increase in industrial output. A country can also obtain larger gains from trade if, rather than operating an export industry only, it draws on foreign firms for economies of scale. Staring in the 1950’s, a question was raised weather capital- importing developing countries actually benefited from capital imports. The Dependencia School believes that foreign investment has failed to improve substantially the technological base of the economy.
Multinational corporations may lower domestic savings and investments by stifling competition, failing to reinvest much of their profits, and by generating income for groups with a high propensity to import. In the long run this can lead to foreign exchange shortages. The eternal accounts can deteriorate as a result of substantial importation of intermediaries and capital goods. These corporations can contribute to the reduction of government revenues because of liberal tax concessions and protection provides by the host government. Income inequalities are exacerbated, because their arises a small minority of well-paid workers, going against the interests of low-skilled workers.
We must examine the history of Latin America, which led to the condition of dependency on foreign investment. Latin Colonization was very different from American colonization. The first people colonized America in order to escape religious persecution; America became their homeland. Latin American Colonization was based on exploitation of natural resources based on Mercantilist concepts. The Spanish used indigenous labor to extract silver and gold for the mines. They had no interst in colonizing the region, congquistadors arrive seeking wealth to repatriate to Spain. They were granted huge tracts of land called encomiendas, as well as right to use the indrginous people to work the land for a small portion of the output. The predominebce of mercantilistic ideas, based on the belief that a countries material wealth grows with the amount of gold and silver in its coffers. As an economic theory of development, mercantilism lost favor by the 1750’s . Econmists shifted their interest to more productive asets and to the benefits of commerce. Monopolies on essential goods reduced output and growth in industries, because of the prohebtion of industirs competing with the mother country. Limits on trade between colonies prevented Latin Americans from taking advantage of regional differences in resources, forcing inefficient local production.
Long after mercantilist control has ended, single commodity bubbles still exist in Latin American countries. Conquistadors viewed their stay temporary, only to accumulate material wealth for their return to Spain. Investment and consumption in the colonies were no where near equal to the amount of gold extracted. After Latin American independence, the countries stated exporting resources such as oil, coffee, and vegetables. This led to the growth of the economy for a short period of time, due to the dependence of the economies of Latin America on foreign countries. Fluctuations in forein economies, affected international trade and the output of the single commodity nations. Theorists believed that the only way to straighten the economy of Latin America was to reduce the dependence on foreign countries. We can see the roots of current Latin American crisis, in the Mercantilist policies of the colonization period and the dependence on foreign nations.