Dependency Theory Reconsidered
Almost fifty years after its publication, Andre Gunder Frank’s Capitalism and Underdevelopment in Latin America: Historical Studies of Chile and Brazil (1969) is still worth reading. It combines a compelling exposition of dependency theory with a wealth of factual information about Latin American history that even readers who disagree with Frank’s theoretical premises will find of interest. Of course the most notable parts of the book, though, are its theoretical interpretations, which have aroused controversy since their publication. Frank is not the sole founder of the dependency school, which has a lot in common with Immanuel Wallerstein’s world-systems theory; nevertheless, he is a particularly important proponent of the model, and his arguments are at times very convincing. In this paper I will summarize some of his ideas, give a critique of them, and explore whether they are still relevant.
Frank states his overarching thesis and its presuppositions as follows:
This essay contends that underdevelopment....is the necessary product of....capitalist development and of the internal contradictions of capitalism itself. These contradictions are the expropriation of economic surplus from the many and its appropriation by the few, the polarization of the capitalist system into metropolitan center and peripheral satellites, and the continuity of the fundamental structure of the capitalist system throughout the history of its expansion and transformation, due to the persistence or re-creation of these contradictions everywhere and at all times. My thesis is that these capitalist contradictions and the historical development of the capitalist system have generated underdevelopment in the peripheral satellites whose economic surplus was expropriated, while generating economic development in the metropolitan centers which appropriate that surplus—and, further, that this process still continues.
The terms “metropolis” and “satellite” do not refer only to countries. According to Frank, their instantiations appear at all levels of the capitalist system, from the international to the intra-firm. For example, for most or all of its history Brazil could be considered a satellite of the world metropolis Britain (or London) or, later, the U.S. (or New York City); São Paulo, however, was and is the national metropolis that appropriates surplus from more underdeveloped regions of Brazil; within these regions are large towns that appropriate surplus from smaller ones and the countryside; on the level of the enterprise, too, the owner can be considered the “metropolis” who extracts surplus from, and thereby underdevelops, his “satellites” the workers, who are dependent on him as Brazil used to be utterly dependent on the U.S. The entire world is enmeshed in a billion webs of these metropolis-satellite dependency relations. The only difference between, say, a national metropolis like São Paulo and a world metropolis like New York is that the former is a satellite of the latter, and is therefore underdeveloped in relation to it.
Frank suggests that a metropolis has various mechanisms by which to keep its satellites in their dependent state and continue extracting their surplus, among them brute force (military or police), the enforcement of tariff policies (in the case of international relations) that benefit the metropole, the possible existence of powerful groups in the satellite whose interest lies in maintaining the status quo, and so forth. Underlying all these mechanisms, however, is the fact that the metropolis has so-called monopoly power over the satellite, due to its already-established access to greater resources and possession of more economic surplus (which it then uses to extract even more). Once a country is already in a dependent relationship with another, Frank thinks it is impossible for it to break out of that underdevelopment-generating relationship unless it separates itself from the world capitalist system as a whole, in the manner of Communist Russia and China. The only possible solution, in other words, is a “socialist” revolution. The reason, it seems, is that, because the development of some places and the underdevelopment of others is an essential feature of capitalism, for a country to try to escape from a state of dependency by pursuing a “different kind” of capitalism than in the past—a more “independent” kind—is hopeless.
It is not difficult to criticize these ideas, however suggestive they may be. They are so abstract that their explanatory value is not clear. The metropolis/satellite opposition, while presented as a kind of explanation, is little more than a metaphorical description, albeit a suggestive and useful one. However, to compare the relationship between an employer and his employees with that between the global North and the South seems more confusing than helpful. In certain contexts, to invoke a metropolis/satellite relation can be useful as a way to guide one’s analysis; ultimately, though, it is the details of the analysis that matter, the mechanisms by which surplus is transferred from one entity to another.
The notion of surplus itself is obscure. Frank takes much of his theoretical framework from Paul Baran, who, in The Political Economy of Growth (1957), distinguished between actual and potential economic surplus, both of which are different from Marx’s concept of surplus-value. Given Frank’s cavalier attitude toward theoretical underpinnings—his rather naïve use of the notion of surplus without investigating it rigorously—it is easy for the reader to be confused as to what exactly “surplus” means. Can it be measured? How is it determined? What is the relation between Marx’s surplus-value and Frank’s “surplus”? Is it even theoretically possible to determine how much surplus is extracted from a particular satellite? Despite all these problems, some kind of conception of surplus, of a difference between total output and the portion of it that is directly consumed, seems useful. Baran’s and Frank’s point is, first, that in addition to consumption there is savings or accumulation—the “actual” surplus—“which finds its embodiment in assets of various kinds added to society’s wealth....[including] productive facilities, inventories, foreign balances, and gold hoards.” Second, much of the surplus from so-called satellite regions is siphoned to the metropolis, where it contributes to economic development; moreover, because consumption in satellites is often pushed down to subsistence levels, the surplus there, most of which goes to the metropolis, is large relative to total output. Intuitively these ideas seem plausible. What they amount to, after all, is simply that global centers of industrial capitalism have historically extracted a great deal of wealth from more “backward” areas (thereby helping to keep the latter backward)—which is a fact that Frank amply documents in his book.
In other words, the central intuition of dependency theory, expressed in the previous sentence, is perfectly defensible, in fact unquestionably true. The problems with the theory, at least as Frank propounds it, are in its theoretical framework (or lack thereof) for that intuition. Baran, Frank, and others are right to emphasize tariff policies, foreign direct investment, foreign lending at high interest rates, and old-fashioned gunboat diplomacy as mechanisms to ensure the North’s extraction of wealth from the South—mechanisms that have, perhaps, been made possible by the dominance in the South of landowning and merchant classes whose interests have tended to align with those of foreign capital—but Frank’s hypotheses in particular are under-theorized and over-abstract. He effectively equates capitalism with the market, arguing that the fact that satellites are integrated into a world market in itself makes them completely capitalist. Their only possible salvation, therefore, is to withdraw from the international market and become “socialist.” Robert Brenner counters by arguing that the necessary condition for modern cumulative development at a compound rate is that a country have a capitalist class structure, a structure relatively polarized between owners of capital and “free” wage laborers owning no means of production. Such a structure was largely absent in most of Latin America until recently; this fact, to which Frank apparently attributes little importance, was a major determinant—and manifestation—of the continent’s underdevelopment. “Socialism,” therefore, is not the only possible salvation; politically sponsored industrial capitalism, such as exists in South Korea, Taiwan, Singapore, and recently parts of Latin America, is equally a possibility. The point is that Frank’s emphasis on the international market and his relative inattention to production relations and class structures limits the explanatory power of his ideas, makes his analysis excessively “abstract” and “fatalist” (in that any country that has at one point been underdeveloped is supposed to be incapable of developing without totally withdrawing from the capitalist market), and leads him to incorrect conclusions about policy and revolutionary strategy.
The central contention of dependency theory, however, remains relevant even today. The North continues to expropriate wealth, or surplus, from the South, thus contributing to the latter’s underdevelopment. A particularly effective way of doing so, as Walden Bello argues in The Food Wars (2009), has been through structural adjustment programs imposed on developing states by the IMF and the World Bank. By conditioning loans on a country’s privatization of its economy, dismantling of its public sector, suppressing of labor unions, and opening up of its economy to international competition—all of which are designed to enable the country to pay off its existing debt—the IMF has facilitated the plundering of states’ wealth for the benefit of the global finance aristocracy. We can see these processes at work even now in Greece, which under the aegis of “austerity” is being forced to despoil its own citizens so as to transfer their wealth abroad. What will probably end up happening, as has happened in the past, is that foreign capital will come in to pick up the pieces of Greece’s economy, investing in enterprises that will serve to transfer more wealth to the international financial elite.
“Free trade” agreements are another means by which the North continues to exploit the South. NAFTA is the classic example. This agreement has resulted, for example, in the devastation of Mexican peasant agriculture due to the flooding of Mexico’s market by the products of subsidized U.S.-based corporations. Income is transferred from ordinary people in Mexico to corporate coffers in the U.S., as peasants lose their livelihood and seek employment up north in America—where they can be exploited again, this time as labor-power. It is essentially the same kind of thing that Frank analyzed in Capitalism and Underdevelopment in Latin America, whereby tariff policies and foreign investment obstruct the satellite’s development and benefit the metropolis (or at least its corporate sector).
Dependency theory is therefore still as relevant, or almost as relevant, as it was forty years ago. That is, its acknowledgement of the North’s exploitation of the South is just as relevant; whether its theoretical premises remain compelling is another question, to which the answer might well be “No.” With respect to much of Andre Gunder Frank’s early work, the answer is no, although the notion of an economic surplus being transferred abroad is surely worth keeping. Contrary to Frank’s proposed solution, however, the remedy for this injustice is either governmentally (semi-)directed capitalist development, as in Brazil under Lula da Silva, or an international anti-capitalist movement—because it is on the global stage that true socialism will have to be born.
 Andre Gunder Frank, Capitalism and Underdevelopment in Latin America: Historical Studies of Chile and Brazil (New York: Monthly Review Press, 1969), 3.
 Quotation from Baran in Charles A. Barone, Marxist Thought on Imperialism: Survey and Critique (New York: M. E. Sharpe, Inc., 1985), 60.
 Ibid., 88.
 Brenner goes on to argue that not only does the existence of a market and its “profit motive” not in itself cause the transformation of a pre-capitalist class structure to a capitalist one (as Frank’s position might lead one to expect); it can even entrench the former. Thus, the slavery-based and/or semi-feudal regimes of labor control in most of Latin America were intensified by production for the market: unfree workers were squeezed more and made even less free so that they would produce more. Their low income, in turn, limited the development of a domestic market, “while there arose significant demand for luxuries [produced abroad] by the ruling class.” Brenner continues: “Meanwhile, precisely the fact of forced labour in agriculture, either in pure form (slavery) or in correlation with peasant possession of subsistence plots, undermined the economies’ ability to develop a free wage labour force for industry.” Thus, the absence of a capitalist class structure was one cause of continued underdevelopment. Such a structure, moreover, can arise only through class struggle and political events, not “spontaneously” through market incentives. Robert Brenner, “The Origins of Capitalist Development: A Critique of Neo-Smithian Marxism,” New Left Review I/104, July-August 1977, 25-92.
 See Robin Hahnel, The ABCs of Political Economy: A Modern Approach (London: Pluto Press, 2002), chapter eight.