Globalization through the lens of dependency theory

 After the fall of the Berlin wall and the dissolution of the Soviet Union, capitalism and liberal democracy emerged as the ideological victors of the Cold War. Francis Fukuyama baptized this turning point as the end of history (Fukuyama, 1989). Neoliberalism became the mantra of the new world order. The elites in the developing world embrace it as the natural path to development (Rodrik, 2006, p. 974). Simultaneously, developed countries promoted financial and commercial liberalization as a panacea for all the problems in the Global South (Babb, 2013, p. 278). The result of this ongoing dynamic has been an increased dependency of the peripheries on the industrialized countries at the core of the global capitalist system.

 From a dependency perspective, countries at the periphery and semi-periphery are the producers of commodities and low added-value goods. Simultaneously, they depend on the capital and technology of developed countries. However, core countries are industrialized and producers of high added-value products and services (Cooper and Packard, 1997, p. 10). Semi-peripheral countries share characteristics of both regions, playing each role according to the circumstances. Exploitation, extraction of natural resources and the imposition of the terms of trade characterized the unequal relationship between the core and the periphery (Latham, 2011, pp. 165).

Based on the power asymmetries, developed countries perpetuate favourable comparative advantages to the detriment of the long-term interests of developing countries (Stiglitz, 2005). These dynamics characterized the prevalent notion of globalization. Developed countries spread free trade, free-markets orthodoxy, and western institutions in the Global South, reducing developing countries' capacity to catch up and reinforcing their dependency (Chang, 2013, p. 138). As a result, developing countries have less leeway to launch developmental programs without violating the current rules of international trade (Wade, 2010, p. 150).

This research paper focuses mainly on globalization from a dependency perspective. As a result, it analyzes the relationship and integration between the Global North and the Global South. It relies on concrete cases as examples and previous related studies in the field.

It addresses how power dynamics affect the relationship between developed countries and their peripheries in the first section. Particularly, it focuses on the Global North’s leverage over their peripheries to dictate the terms of their commercial and financial interaction.

The second section approaches agricultural subsidies in the Global North as a contradiction in the neoliberal rhetoric. It highlights how developed countries use their leverage on developing countries to protect the only sector in which peripheral countries could have more comparative advantage.

 Finally, the third section examines the role elites in the Global South play in strengthening economic dependency. In this regard, it points out the importance of comprador capitalism and cultural co-option as factors disconnecting elites from the development of their home countries. 

 Power asymmetries between the core and the periphery:

Thucydides (2000, p. 412) famously depicted the relationship between powerful polities and weak ones in the following terms:

The standard of justice depends on the equality of power to compel and that in fact, the strong do what they have the power to do and the weak accept what they have to accept.

The validity of this maxim applies to the capitalist relationship between strong developed countries and their periphery. This dynamic is perceptible in the constant interaction between states. In this regard, the decision-making process and the governance system of international institutions reflect this power asymmetry (Buira, 2005, p. 8). The Security Council and its five permanent seats and veto power for the greatest powers at the time of the UN Foundation is the epitome of this Thucydidean approach. Simultaneously, the World Bank and the International Monetary Fund’s voting system, based on contributions, allows the Global North to dominate both organizations (Naciri, 2018). It is worth mentioning that since the foundation of these two International Financial Institutions, (IFIs) the United States and Europe imposed their leverage in setting their agendas. Not surprisingly, there is a tacit agreement between the US and Europe in which they assign the chairmanship of the World Bank and the IMF to an American and a European respectively (Naciri, 2018, p. 4). How can institutions co-opted by core countries defend the interests of the periphery?

 In this regard, after the debt crisis of the ‘80s, many developing countries asked for financial assistance to IFIs; however, the latter conditioned their help to the implementation of structural adjustment programs (Babb, 2013, p. 275). These programs focused on the repayment of loans to the creditors, banks in the Global North, and the restructuring of defaulting nations’ economies under neoliberal guidelines (Stiglitz, 2002, p. 201). In the particular case of Africa, their implementation resulted in deindustrialization, deregulation of the financial sector, integration to the global economy as producers of low added value goods and less protected labour markets (Mkandawire, 2005). Financial conditionality facilitated the exploitation of developing countries, reinforcing their dependency on the exportation of raw materials, western technology and inflows of capital from the Global North (Cardoso, 1979, as cited by Tausch, 2018, p. 80-81).

 Simultaneously, now developed countries (henceforth NDC) had used their leverage to promote a neoliberal agenda at a regional and global level. Asymmetrical free trade agreements and the subsequent global elimination of barriers to trade and increased protection of property rights through the GATT and WTO reflect the position and interests of the core (Mastanduno, 2009, p. 122). During the Cold War, some American allies, Japan and the Asian tigers took advantage of the geopolitical divide to follow a developmental path; however, the current regulation of international trade and investments erodes that way for countries willing to emulate it (Wade, 2010, p. 150).

Sometimes the core recurs to unconventional methods to access commodities and expand markets for its excess production. NDC’s Intervention in the Global South has a long history, beginning with outright colonization and extraction of natural resources (Wallerstein, 2011). Nowadays, core states recur to more subtle methods like supporting collaborative governments in the Global South and mobilizing the international community against vilified uncooperative states (Mehta, 2012, p.3).

 The Global South reflected its aspiration for a fair global economic system in the proposals for a New International Economic Order (NIEO) during the ‘70s. A common aim in the efforts to adopt an NIEO is to rebalance the relationship with the Global North (Argawala, 1983). However, a series of defaults and the rise of the neoliberal boom of the ‘80s and ‘90s ended this dream, sharpening the dependency of the South on the northern technology, capital, and consumption of raw materials. 

 It is worth mentioning that states that try to keep their predominant position pursue a status quo policy, which focuses on keeping the state of affairs the closer it could be to the present situation (Morgenthau, 2004, p. 53). Not surprisingly, the current norms and practices that rule the global economic interactions among countries tend to perpetuate the status quo, benefiting developed countries to the detriment of the interests of developing ones.

The end of WWII marked the beginning of a global economic liberalization process, which the fall of the Berlin wall catalyzed. The Bretton Woods Institutions and the General Agreement on Tariffs and Trade (GATT) are the first and prominent institutions of the liberal economic order that emerged after the war and shaped globalization (Gardner, 2008). From 1948 until the member states replaced it for the World Trade Organization, the GATT led a meaningful reduction of tariffs and non-trade barriers to commerce at a global scale (Gardner, 2008). Simultaneously, the proliferation of regional and bilateral free trade agreements advanced, even more, the opening of economies in the Global South (Saavedra-Rivano, 2015). Like in the World Bank and the IMF, the Global North enjoyed a predominant position in setting the agenda of the GATT’s negotiation rounds (Von Molke, 1993, p. 529). 

During the 8th negotiation round of the GATT, better known as the Uruguay Round, states adopted the regulation of services, reduction of tariffs and non –trade barriers to commerce, the global protection of intellectual property rights, and the establishment of the World Trade Organization (Mastanduno, 2009). Joseph Stiglitz considers that the results of the round risk expanding the gap between North and South (Stiglitz, 2006, p. 47). The resulting hard global protection of intellectual property rights makes it more difficult for developing countries to replicate the technology of developed ones. Ironically, the now developed countries adopted protectionist policies and acquired foreign technology to foster their developmental process. However, nowadays, they recommend and impose indiscriminate neoliberal policies and institutions to the Global South (Chang, 2002; p. 63-64). The current approach to the global economy reduces the leeway of developing countries to protect their incipient domestic industries from intense foreign competition (Chang, 2013, p. 138).

 Contrary to the neoliberal orthodoxy, governments played an essential role in the Japanese economic miracle and the success of the Asian tigers. In this regard, these countries protected their infant industries through goal-oriented subsidies, bureaucratic protectionism, and foreign technology acquisition (Wide, 2010). The primacy of the geopolitical conflict between the United States and the Soviet Union allowed these Asian countries to circumvent a rigid application of the neoliberal approach to the international economy (Wide, 2004, p. xviii).

The prevalent neoliberal economic order perpetuates the status quo. Developing countries cannot catch up as long as they cannot follow the same practices that now developed countries applied during their industrialization (Wade, 2010). Without an active role of the state to protect infant industries and promote industrialization, developing countries will stay dependent on their export of low-added value goods and services in which they have comparative advantages.

Agricultural protectionism in the Global North: 

Despite the active role of the developed countries in promoting free-market economics, the American and European agricultural policies characterize for their protectionism (Stiglitz, 2006, p. 44). The European Common Agricultural Policy and the American Farm Commodity Programs funnel billions of dollars every year in subsidies to their farmers (Grossman, 2003, p. 28). It is worth mentioning that OECD countries spent USD 325 billion annually between 2016-18 to support farmers (OECD, 2019, p. 67). Consequently, the Global North displaces developing countries from areas where they could have a relative comparative advantage to satisfy domestic rural constituencies (Grant, 2003, p. 50).

 The asymmetries between the Global North and the South allowed the former to formalize its protectionist agro-policies in international trade. The Uruguay Round Agricultural Agreement laxly regulates protectionism, but, simultaneously, recognizes the members' right to support their farmers (Grossman, 2003). The problem with the World Trade Organization approach to agro-subsidies is that it does not pursue to liberalize the agro-market but to regulate it (Smith, 2009, p. 2).

 Annually, the United States alone spends more than 20 billion dollars on farming subsidies (Mosquera, 2018, p. 191). This deviation from the laissez-faire creed is due to lobbyism and politics. Farmers have organized themselves to influence policymakers through political actions committees (PACs) to fund donations to major political parties in the US (Spittler, 2011, p. 308).

 Simultaneously, the European Union spent 37.4 of its budget on the Common Agricultural Policy (Europan Comission, 2020). This amount is equivalent to 58.12 billion euros (European Parliament, 2020). Even though European farmers are not as organized as their American counterparts, they exert considerable influence on the CAP's definition and funding (Bednaríková, 2012).

Not surprisingly, 65% of global cereal exports come from the United States and Europe (Agarwal, 2014). This dynamic poses a challenge to food security in the developing countries (Agarwal, 2014, p. 1250). Given the situation, any unexpected disruption due in the supply could have pernicious effects in the Global South.

Agricultural subsidies in the Global North reflect the power asymmetries. In this particular sector, developed countries use their economic and political leverage to dictate commercial terms to developing countries to support their agro lobby and domestic constituencies.

Despite the unleveled playing field, sometimes developing countries manage to challenge some over-protectionist practices in the Global North. In this regard, Brazil suited the United States before the WTO Disputes Settlement Body for the dumping effect of its subsidies to cotton producers (Glauber, 2019, p. 17). Even though Brazil won the case, the ruling did not question the fairness of subsidies in agriculture.

The agricultural policies of developed countries disregard their lack of comparative advantage. Ironically, these very countries are the champions of free trade and capitalism in all sectors in which they are more competitive (Chang, 2002). This contradiction depicts the hypocrisy behind the Global North's laissez-faire rhetoric. As a result, free trade and neoliberal institutions raise suspicions in the Global South (Babb, 2013).

All in all, trade and non-trade barriers to agricultural products deprive developing countries of potential sources of revenues. Consequently, the Global North's protectionism reduces developing countries' economic capacity to launch expensive industrialization programs, keeping the Global South dependent on the North. Furthermore, agricultural subsidies in the Global North threaten food security in the South.

Elites in the Global South and Dependency:

Elites play an essential role in determining the political direction of their countries (Amsden, 2013). They can be obstacles or catalyzers for economic development. Developmental elites embrace economic growth and industrialization, aligning it with their financial interests as a group, contrasting with other elites that benefit from the status quo, which sometimes opposes the country's development (Khan, 2000).

On the one hand, the Asian Tigers depict this symbiotic relationship between political elites and economic elites. Governments led industrialization through subsidies, bureaucratic protectionism, and production coordination (Wade, 2010). The creation of rents in their industrial policies incentivized more investments from the private sector and strengthened the coalition of supporters indispensable for the economic transition (Wade, 2004, p. xviii). Simultaneously, developmental states take advantage of loopholes in international trade regulation to protect their incipient industries. In this regard, China, Korea, Taiwan, and India avoid compliance with WTO regulation based on international conventions to promote science and technology (Amsden, 2003, p. 37).  Economic elites take advantage of industrial policies to become more competitive in the international market. 

On the other hand, elites that rely on rents created by dependency have no incentive to change the status quo (Prebisch, 1978). This is particularly the case of many millionaires and billionaires in the Global South, whose wealth depends on their political contacts to function as middlemen in the exchange of commodities for manufactured goods (Hout, 1993). In contraposition to elites in developmental states, these elites favour neo-patrimonial states. In such states, clientelism, political power, and unproductive rents are ends in themselves (Cammack, 2007). 

Simultaneously, Chamber and Munemo found a negative correlation between natural resource rents in developing countries and entrepreneurship (Chamber and Munemo, 2018, p. 162). As a result, most natural resource well-endowed developing countries disproportionately rely only on selling their commodities in the international markets to fund their governments. As a result, governments' shortsighted neo-patrimonial goals do not allow them to invest in the future.

Concurrently, young students from developing countries, many of whom eventually will become part of the elite, attend Anglophone business school where prevail a neoliberal approach to economic development (Babb, 2013, p. 291). As a result, local elites in many developing countries encourage the adoption of indiscriminate liberalization, reinforcing the current state of affairs (Chang, 2011, p. 475).

Conclusion:

The prevalent neoliberal approach to globalization accelerates the dependency of the Global South. Developing countries cannot give the next step in the ladder as long as they stay dependent on foreign capital, technology, education, and markets for their commodities. Understanding the dependent nature of the relationship between North and South is essential to approach effectively the economic challenges in international trade that developing countries face on a regular basis.

The asymmetries between South and North allow the latter to dictate the terms of their economic and financial interaction. Developed countries use their predominant position in international financial institutions and trade negotiations to impose a neoliberal agenda that perpetuate their comparative advantages.

Developing countries should adopt protectionist policies that allow them to place themselves in a better position in the value chain. These policies contravene the current legal framework regulating international trade, which reduces the leeway of the Global South to launch developmental programs.

Despite the rhetoric about free trade, developed countries support their farmers through trade and non-trade barriers to agricultural products. As a result, developing countries are deprived of potential sources of revenues, which reduces their' economic capacity to launch expensive industrialization programs. Simultaneously, agricultural subsidies in the Global North threaten food security in the South.

Elites play an essential role in developing countries’ dependency. In this regard, many business people profit from their countries’ dependency, buying cheap high value-added products abroad to sell them in their domestic markets and functioning as middlemen in the exchange of commodities for manufacturers. Simultaneously, the academic dependency of the elites in the Global South hinders the adoption of a developmental path in their home countries. Future members of the elites attend Anglophone business schools where prevail a neoliberal approach to the economy.

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