HIST363: Global Perspectives on Industrialization

Dependency theory, and its successor, world-systems theory, primarily came about as a result of the failure of its predecessor, modernisation theory, to enable poorer countries to develop in an economic sense – in other words, to grow, and improve the quality of life of their citizens.

Modernisation theory essentially states that all countries will follow a common path of development, and thus that all countries should be encouraged to adopt policies and trends that have proven successful in the Global North: trends like urbanisation, industrialisation, and trade liberalisation. Its demise as a ruling theory began in 1949, when two papers by Hans Singer and Raúl Prebisch observed declines in the 'terms of trade' of countries in the Global South: over time, these countries had become able to purchase fewer and fewer of the manufactured goods produced by the Global North for the same value of their primary sector economic exports.

Noting this trend, critics of modernisation theory pointed out that this decline in the terms of trade could be associated with the continuing impacts of imperialism and colonialism: that the institutions that European settlers had installed in many of these countries led to these countries lacking a fundamental driver of growth in the Global North – technological innovation. The result, they argued, these countries were stuck producing raw materials to sell to the Global North for use in manufacturing processes which they could not themselves develop.

Dependency theory developed out of this idea: because countries in the Global South could not develop the economic processes required to produce much higher-value manufactured products from the raw materials they extract, they were forced to sell these materials to richer countries, from whom they had to buy back manufactured goods – meaning that the value added in this process of specialisation and trade all occurred in the Global North, and that as such richer countries retained all of the benefits of the liberalised global economic system. Dependency theory thus coined the idea of ‘'underdeveloped countries': countries whose institutions had been so malformed by colonial practices that they became stuck in a low-growth state, focused on primary sector economic activity, and transferring resources to richer, developed countries, who they depend upon to continue buying their resources.