1. Critical Theories of Underdevelopment
June 1, 2013

2. Critical theories
Critical theories of underdevelopment take issue with the liberal understanding of global economics.
Liberal arguments hold that underdevelopment is the result mostly of internal factors (untrained workforce, inability to accumulate capital, corruption). It also holds that the global south can catch up with the north under the current economic system, and that growth in the north does not come at the expense of the south.
Critical theories hold that it is importantly the current economic system, as well as past economic practices in the world system, that are mostly or totally to blame for the lack of development in the global south.

3. Key terms
Capital accumulation: the creation and continued development of standing wealth (factories, roads, machinery) that either directly or indirectly can be used to create more wealth.
Economic surplus: the part of the wealth that is created by an economy or a global economic system that is not consumed by maintaining or increasing a nation’s living standards. It can either be invested into the economy in the form of capital accumulation, or taken out of the economy (or nation) by those who control the means of production (i.e., the capital that creates wealth).

4. Critical theories: World systems theory
World systems theory holds that the reason why underdeveloped countries lag behind developed countries is because the world economy is set up such that the developed countries exploit underdeveloped countries:
International division of labor in which some countries engage in high value economic activities and others forced into low value activities
Interaction between those types of countries results in a transfer of wealth from the less wealthy to more wealthy countries.

5. World systems theory
World systems theory is a structural theory; that is, it explains what occurs in the world economy by pointing to the relationships among national economies. It does so by positing that there are three types of countries understood in terms of their relationship with one another (though the same relationships also occur within countries as well):
Core countries: countries that are engaged in high value economic activities, such as sophisticated manufacturing and service activities. These activities depend importantly on the input of cheap raw materials and the products of cheap labor, or the monopolization of a market (in the form of services). These activities result in high profit margins which are used to further accumulate capital and to raise the national standard of living

6. World systems theory
Semi-periphery: are countries in which there is some high value manufacturing and some capital concentration, but not as much as in the core. Periphery: countries which export raw materials, agricultural products and labor-intensive, low end manufactured and semi-manufactured goods. These are then processed in core countries for their own use or shipped back to peripheral countries in the form of manufactured goods. Thus core countries are able to extract surpluses from peripheral countries, leading to the continued lack of development in the latter and the widening gap between core and periphery in terms of standards of living and capital accumulation. Semi-periphery countries act as a buffer between core and periphery because they represent countries that have been able to climb out of a state of underdevelopment; thus, they represent an aspirational state that tempts peripheral countries to continue cooperating in the world economy rather than attempting to overturn it.

7. Critical Theories: Imperialism
Imperialist theories are similar to world systems theories in arguing that more developed countries are to blame for the backwardness of less developed countries. However, imperialist theories trace the exploitative relationship back further in time and add to economic dimensions those of politics, culture and society. The modern age of imperialism is understood as beginning around 1500, around the time of the beginning of the European colonization of North America and is intensive contact with Asia, Africa and the Middle East. The height of the imperial period was marked by the dominance of European powers throughout the world, in the form of their holdings of both formal and informal empires.

8. Imperialism
Formal empires are those in which one country physically controls another country. It puts its own citizens in positions of power over the colonized country, sets the policies of the country, attempts to reform its culture and society and controls its economy—India (Britain), Vietnam (France), Taiwan (Japan)
Informal empires are constituted by the various means by which a country can control another country without being officially in charge of it. The colonized country might have its own government or ruler, but those in power put in place by an outside force, are heavily influenced in policymaking by outside influences, and its economy is controlled by outside forces. Such outside forces may be another country, which uses its ambassador to control political and economic affairs (Egypt-Britain, South Vietnam– US, Afghanistan- Soviet Union)

9. Imperialism
The history of imperialism played out somewhat differently in terms of two types of formal colonies:
Colonies whose population now consists of a majority of immigrants from the colonial power: US, Canada, Australia, New Zealand: these have joined the ranks of developed countries, having gained independence or autonomy relatively early and before achieving that status were relatively successful in resisting exploitative economic relationships. US revolution: resistance to Britain treating North American colonies in the same way Spain treated its South American colonies.
Colonies whose population remained mostly indigenous: because not a major destination of emigration from colonial country, treated in a more exploitative fashion, policies more tightly controlled, ways of life molded by colonial power.

10. imperialism
Negative effects of imperialism on indigenous majority formal colonies:
Narrow development focused on exploitation of cheap labor and extraction of raw materials
Lack of political experience and training among locals
Often systems of racial and cultural discrimination
Infrastructure built using indigenous resources so as to benefit colonial country rather than colony (emphasis on military needs, for example, rather than economic development)
Policies that discouraged development of industries that would compete with those in colonizing country
Lack of expenditures on human capital, including education and healthcare. Education when provided narrow and promoted culture and language of colonizing country
Extraction of profit and taxes from the country, slowing or eliminating capital accumulation
Boundaries set for colonial convenience, often cutting apart ethnic groups and pushing together ethnic groups with a history of conflict.

11. Imperialism
Many nations that are now underdeveloped are former colonies that did not gain independence until after WWII, and many in Africa (where underdevelopment and poverty were the worst) did not gain independence until the 1960s.
Important problems of late independence:
Longer history of exploitation, underinvestment.
Often product of long struggle that also drained indigenous resources
Lacked of experienced leaders in the economic field, leading to dependence on outside expertise and the capital and leadership of multinational corporations.
Liberation movements often also produced political leaders who were good at mobilizing people, appealing to narrow identities, and putting forth messianic plans but not in governing well
Problems in transitions
Resistance to joining global economic given past experience.
Immediately caught up in struggles produced by a bipolar world and Cold War

12. Imperialism Later legacies of imperialism
History of strained relations
Path dependence in terms of types of economic activities pursued: easier to continue with colonial types of production because that is where the permanent capital is located. But these are generally associated with low level manufacturing and extractive enterprises.
Continued lack of capital for reinvestment
Resistance of developed countries in negotiating trade agreements, including through WTO, to help. Developed countries tend to use these agreements to continue the pattern developed by colonial countries: privilege import of manufactured goods into developing countries (preventing them from developing their own, indigenous industries) and refusing to open their markets completely to the agriculture goods that developing countries tend to export.

13. Critical theories: dependency theory as an explanation of post-colonial exploitation
Dependency theory differs from imperialist theory in that it does not address situations of either formal or informal colonization, but rather the dependency of indigenous economies on outside capital and expertise. As such, it also differs from world systems theory in that it does not place as much emphasis on world structure, but on the connection of indigenous economies with the outside world in terms of the that economy’s weakness.

14. Dependency
Types of dependency: Enclave dependency: use of foreign capital to develop a sector of a country’s economy (generally the extraction of raw materials), then sell the product on the world market. The profits of these activities go to the holders of the foreign capital, with only the wages (generally low) paid to workers and any minimal creation of permanent capital benefiting the host country. Others, such as government officials, might also benefit through bribes, kickbacks and other arrangements, but these do not benefit the nation as a whole and generally do not contribute to capital accumulation.

15. Dependency
Nationally controlled production: production is controlled by a small indigenous group of capitalists with ties to international markets and foreign capitalists. This group controls production, sell on international markets and keep the profits. This group generally:
Identifies economically and sometimes culturally with foreign capitalists through educational and business contacts and through interest in keeping access to international markets
Generally attempt to keep wages low to remain competitive
Only invest minimally in permanent capital because of the expense and because are afraid that it might be lost to unrest or revolution. Tend to keep accumulated capital in (in the form of liquid assets or investments) outside the country
Therefore tend again to concentrate on extractive enterprises or agriculture

16. Dependency
MNC-dominated local markets: MNC’s provide capital and manufacturing expertise to develop consumer goods for the nation’s market. Encourage policies that lead to the development of a middle class that can afford such goods, generally at the expense of a lower, working class. MNC’s then extract the profit from this economic activity. Leads to an increase in the standard of living of a small middle class, but no improvement for lower classes and no chance for the national accumulation of capital.