Examine the differences between Classical Economic Development Theory and Dependency theory?

Structure of the 12 marker

P1 - Relation to whether global capitalism is a positive force

P2 - Stance on the importance of state intervention to development

P3 - Whether poverty is caused by factors within countries that can be addressed by reforms

P1 - difference in view of capitalism

• One important difference is in relation to whether global capitalism is a positive force that is able to alleviate poverty, or whether it maintains the underdevelopment of the world’s poorest nations.

• Classical economic development theory is rooted in the thought of Adam Smith and posits that capitalism and free markets are the most effective ways to reduce poverty and foster growth.

  • It suggests that by integrating into the global economy, countries in the Global South can specialise in industries where they hold a comparative advantage, boosting productivity.

  • Vietnam is often cited by those who support this theory, as their embrace of free-market reforms and export-led growth from the 1980s significantly reduced poverty from 50% in 1993 to less than 6% in 2019.

• Dependency Theory strongly disagrees and sees global capitalism as a central cause of poverty and underdevelopment, rather than being a solution to it. They argue that multinational corporations exploit the labour of poorer countries and prevent development.

  • For example, the vast majority of Sub-Saharan African countries remain heavily reliant on the export of raw materials, such as oil and minerals, while much of the profit goes to richer nations.

  • This leaves these countries open to price fluctuations and much of their populations living in poverty; the average poverty rate is 41%.

P2 - difference on stance of state intervention

• Another difference is their stance on the importance of state intervention to development.

• Classical economic development theory supports minimal state intervention and argues that free markets and private enterprise are the most efficient way to promote economic growth.

• This viewpoint dominated the thinking of the IMF and World Bank in the 1980s and 1990s and they made the implementation of free market reforms conditions for receiving loans, in which were known as Structural Adjustment Programmes (SAPs)

  • For example, in the 1970s, Jamaica implemented an SAP in return for the IMFs economic assistance to help pay its ballooning debt bill. The SAP included cuts in public services and subsidies, along with trade liberalisation and privittisation of state-owned companies.

• Proponents of dependency theory disagree and argue that minimal state intervention only leaves poor countries more exposed to global capitalism, depending their poverty and underdevelopment

  • They point to the fact that the SAPs of the 1980s and 1990s were hugely damaging and in fact increased poverty. For example, in Zambia, an SAP led to the privatisation of its copper mines, which resulted in widespread job losses and increased poverty rates'; by 1996, 68% of Zambians were living in poverty, up from 49% in a decade earlier.

  • Instead, they argue that intentional, state-driven strategies that focus on self-reliance and decoupling from the global economy and central to economic development.

P3 - difference on whether poverty is caused by factors within countries or external

• A final key difference is whether they see poverty and underdevelopment as caused by factors within countries that can be addressed through economic reforms, or whether they highlight the structure of the international economy as the source of the problem,

• Classical economic development theory attributes poverty to internal factors such as inefficient governance, lack of infrastructure, and insufficient integration into global capitalism.

  • It believes that countries can achieve economic development by addressing these issues and learning from free-market capitalism countries such as the US and Western countries.

  • For example, the economic growth of the East Asian Tigers in the late 20th century is attributed to internal reforms that allowed foreign investments

• Dependency Theory strongly disagrees and argues that the poverty and underdevelopment of the Global South is a structural feature of global capitalism where the developed countries are rich because they exploit and benefit from the resources and labour of poorer nation,s which are prevented from achieving economic growth and alleviating poverty as a result.

  • For example, Nigeria is one of the worlds largest oil producers, yet over 40% of its population still lives in extreme poverty, with much of the oil benefiting foreign corporations who extract the wealth.

  • As a result, dependency theory believes that poverty cannot be addressed without fundamentally changing the structure of the global economy.