Post-­‐colonialism  and  the  dependency  school

Palma (1978, p. 895) argues that the Sixth International of the Communist International in 1928 marked a turning point in Marxist analysis of imperialism.

From this point forwards, the ability of capitalism to develop the social forces of production was understood to be limited by an alliance between imperial powers and traditional elites (land-owning, merchant and money-lending bourgeoisies). The possibilities of development therefore depended on the capacities of national bourgeoisies to overthrow the ‘feudal-imperial alliance’ to begin the process of industrialisation and autonomous development. This ‘simple analysis’, according to Palma, dominated Latin American left-wing thinking until the 1960s.

Independence struggles and social revolutions across the periphery saw the burgeoning of post-colonial analysis⁸, and provided the political context for a

8 This wave of independence struggles began with the ending of the second world war, gathering pace through the 1950s and 1960s: in Asia, independence was won in countries including India (1947), Indonesia (1949), Indochina (1954), and Malaya (1957); in the Middle East and North Africa, it was gained in Libya (1951), Tunisia, Morocco and Sudan (1956), Iraq (1958), and nominally-independent

119 growing split over the possibilities of development in the periphery. On one extreme were those dependency theorists, such as Andre Gunder Frank (1967), who saw development in the periphery as inimical to the interests of the core, and therefore only possible after a socialist revolution; at the other end of the spectrum were structuralists, such as Raul Prebisch (1963), who sought to apply more Keynesian and nationalist analysis in pursuit of autonomous development. Both currents were grappling with the implications of core corporations’ establishment of plants in the periphery, created to exploit domestic markets behind tariff barriers.

Two, often overlooked, points will be highlighted here. First, the view taken by the different schools reflected their understanding of the role to be played by financial capital: dependency theorists focused on its role serving the interests of core capitalists, variously extracting or absorbing surplus capital; conversely, structuralists entertained the possibility that finance could be managed⁹, offering the national bourgeoisie the opportunity to undertake autonomous development. This understanding would, in turn, be profoundly shaped by their analysis of the state in the political space opened up by, first, the transition between declining British and rising American imperial hegemony, and subsequently the Cold War. The changing status of world money is important in this regard.

Development  of  underdevelopment  

Paul Baran’s work provides the central building block for subsequent theories of the development of underdevelopment. In his seminal work with Paul Sweezy, Monopoly Capital (1968), Baran elaborates the implications of the expansion of an era of giant firms with oligopoly powers. Baran and Sweezy argue that monopolies invest less than competitive firms, and restrict their output to defend their profits.

This leads to a dual crisis of overaccumulation and underconsumption¹⁰. From this

Egypt fought a battle over the Suez Canal (1954-6); and in sub-Saharan Africa, numerous countries gained their independence, including Ghana (1957), Congo (1960), Nigeria (1960), Uganda (1961) and Kenya (1962).

9 Only later would this management of finance come to be pejoratively labeled as ‘financial repression’ (McKinnon, 1973; Shaw, 1973).

10 Brewer (1980) has argued that Baran and Sweezy failed to give Hobson, and his analysis of cartelisation, due credit for laying the groundwork for their theory of monopoly capital.

120 viewpoint, imperialism serves to open up new channels for the investment of accumulated surplus¹¹. However, since successful foreign investment serves to transfer surplus from abroad to the investing country, it “… aggravates rather than helps to solve the surplus absorption problem.” (1968, pp. 107–8)

Within the Monthly Review school, Harry Magdoff accepted the linkage between rising monopoly and overaccumulation, but not that between surplus capital and capital export (2003 [1968]). In Magdoff’s analysis, capital exports were associated with the classical age of imperialism due to a number of factors including:

the proliferation of states seeking to challenge British imperial supremacy; efforts to jump over protective tariff walls; the growth of industries requiring vast quantities of fixed investment; the growth of joint stock companies; and the expansion of financial markets which more efficiently mobilised capital. The ability and desire of giant corporations to control markets provides “… another major incentive for the expansion of capital abroad”. (2003, p. 95)

Baran’s earlier work had a major influence on the initial output of the dependency school. In his ‘On the political economy of backwardness’ (1952), which was immediately translated into Spanish, Baran argued that while it is possible for developing country states to overcome backwardness through a series of measures including fiscal policy, land reform and price, import and capital controls, it is implausible. This, he says, is because the alliance of property-owning classes can not be expected to implement a set of measures which runs counter to “… each and all of their immediate vested interests.” (1952, p. 80) He framed the choice of the capitalist middle-classes in so-called backward countries as that between overcoming their myopia, or facing a socialist revolution.

Frank’s theory of the ‘development of underdevelopment’, builds on Baran’s foundation of the rise of monopoly corporations (1967). Frank argues that after the Korean War, US monopoly investment finance sought to take over Latin American manufacturing and service industries, seeking high profits behind tariff walls, and creating a putting-out system to service raw material exports and the consumption of

11 In relation to both domestic and international means to absorb surplus, Baran and Sweezy came to view the financial sector as a critical outlet (1987; 1997). However, in earlier writings during the post-war era of restrained finance, finance was relegated to a means “… on an equal footing with the sales effort” by which a capitalist economy absorbs surplus (1968, p. 143).

121 the domestic elite in the periphery. Unlike the earlier Marxist theorists of imperialism who believed that post-colonial states could begin the process of late industrialisation, Frank argued that the new international division of labour, demanded by changing conditions in the core, required industrial development in the periphery. However, he insisted that import substitution strategies could not create an internal market since they depend on the export of raw materials and consumer manufactures.

On the role of financial institutions, Frank was critical of American banks which lent Latin American deposits to American corporations. He attempted to document the outflow of foreign exchange earnings through profit remittances, capital transfers and foreign debt servicing. Frank believed that this extraction of additional surplus forced local capitalists to exploit workers ‘ever more’ (1967, p.

314). This ensured that the domestic bourgeoisie would be unable to secure their political support. He also argued that this additional exploitation interfered with domestic savings for investment, obliging domestic capitalists to seek still further foreign finance. Frank’s analysis was politically in keeping with Baran’s implausibility thesis, but whereas Baran had recognised a tension between surplus moving to and from countries in the periphery, in Frank’s work imperialism had become primarily a channel of surplus value extraction. The only remedy against the causes of underdevelopment according to Frank was “… the revolutionary destruction of bourgeois capitalism and its replacement by socialist development”

(1972, p. 136).

World-­‐systems  analysis  

World-systems analysis attempted to move beyond the analysis of capitalism in a single nation-state or in that relationship between nation-states, to that of the international division of labour in a ‘world-system’. Cross-disciplinary in his approach, sociologist Immanuel Wallerstein (1974, 2007[1980], 1989, 2004)  argues that through the centuries-long history of colonialism, the Western imperial powers have been able to render the periphery dependent on the core. Imperialist powers have used economic, military, political and cultural systems to control and benefit

122 from an expanding sphere of influence. They have imposed a system of unequal exchange which has resulted in unequal development. In the contemporary period, Wallerstein introduces the notion of the semi-periphery as a zone which mixes core and peripheral production processes, and where therefore industrialisation is deemed possible. His work focuses on the organisation of industrial production, with relatively little attention given over to financial institutions.

Egyptian-born economist Samir Amin brings the role of finance into the centre of his analysis of a global system of accumulation. Historically, he writes, core states exported capital to peripheral ones, reinvesting profits during the prosperous periods of colonial development, and then subsequently repatriating them (1976, p. 250). This created a growing financial dependency. In the next stage, the monopolistic industrial enterprises of the core states penetrated underdeveloped countries with financing secured from either commercial banks in their home country, or local branches of the same.

Amin continues that the 'monetary problem' of underdevelopment lies in the working of the banking system in the periphery: "... it exists in order to facilitate the growth of a capitalism ultimately based on the external market, which is the essential element in underdevelopment." (1976, p. 484) The constitution of the network of commercial banks is critical; that is whether it serves what Amin calls ‘extraverted’

or ‘autocentric’ activities. In autocentric economies, financial institutions transform savings into long-term investment, while in underdeveloped countries these are used either for short-term financing of the economy or for financing state expenditure.

However, it is unclear in Amin’s writing what factors determine whether the banking network will be developed in one way or the other.

In his discussion of social formations in Latin America, Amin argues that after the Great Depression and through the Second World War, a new industrial bourgeoisie attempted to challenge the power of the landowners and traders. This represented a movement beyond Frank’s implausibility thesis to the analysis of the concrete conditions of social struggle which autocentric development required. The new industrial bourgeoisie gave support to populist regimes, such as that of President Lázaro Cárdenas in 1930s Mexico. But this was soon replaced with what Amin describes as the technocratic ideology of desarollismo (‘developmentalism’) and compromise with foreign capital. The new bourgeoisie, often from the same families

123 of the great landowners and traders, allied itself with foreign capital in order to defend its hegemonic position.

Giovanni Arrighi (1994),   following in the tradition of Ferdinand Braudel (1981), examines the rise and fall of hegemonic countries over the longue durée. In opposition to both the classical thesis of finance capital as the highest stage of capitalism and earlier world-systems writing which posited Western finance as the apex of colonial exploitation, Braudel had characterised finance as a sunset industry of imperialist powers. Within the world systems school, this understanding has come to predominate¹².

In Arrighi’s final book, Adam Smith in Beijing, he argues that the capitalist developmental path of Europe has been a “… sequence of endless accumulation of capital and power” (2007, p. 93)¹³. This has been achieved through the synergy of militarism, industrialism and capitalism, and sustained by ceaseless overseas expansion. Each time that accumulation stagnated in one centre of power, the financial system facilitated the migration of capital to a ‘larger container’ where expansion could resume on a greater scale¹⁴. Long periods of financial expansion which accompanied over-accumulation crises “… provided the means of payments necessary to force the economic system into new channels." (2007, p. 93) This rise and fall of finance implies that Lenin’s theory of inter-imperialist rivalry and Kautsky’s ‘ultra-imperialism’ may not have been mutually contradictory, but rather different cycles in capitalist development. Periods of imperial dominance may be marked by coordination, followed by increasing emphasis on finance in the ‘autumn’

of the hegemon, which, in turn, may be followed by increasing belligerence during the transition to a new imperial configuration. From this vantage point, the ‘decay’

of capitalism in one container may reflect the rude health of the system as a whole.

In his understanding of how imperial powers attempt to maintain their dominant position, Arrighi argues against a narrow focus on profitability in manufacturing, stressing the monetary foundations of the world capitalist order.

12 In his later work, for example, Wallerstein (2004, p. 86) argues that falling profits in production, linked to the post-1968 decline of western capitalism, led capitalists to seek profits in finance.

13 Arrighi’s distinction between European capitalism and Asian ‘market society’ has come in for heavy criticism. See, for example, Leo Panitch (2010) and the special issue of Historical Materialism in which his article19 appears.

14 Original credit for this concept should be given to Rosa Luxemburg (2003 [1913]).

124 Following a brief period in the 1970s of what he describes as ‘world monetary disorder’, the US used the Volcker interest rate shock of 1979 to 1982 in order to compete aggressively for global capital inflows. Arrighi argues that the dollar has not enjoyed the same privileges as sterling did during the British imperial epoch since the US lacks a territorial empire from which to extract tribute, or what he calls

‘hegemony without hegemoney’.

Autonomous  development  

Though they developed their ideas independently, Argentine economist Raul Prebisch (1950, 1963) and German economist Hans Singer (1969), are best known for the Singer-Prebisch theory, or the theory of unequal exchange. Both were influenced by the Keynesian response to the Great Depression and its impact on underdeveloped economies. They believed that, due to the higher income elasticity of primary as compared to manufactured goods, countries in the periphery faced declining terms of trade relative to those of the core. Prebisch advocated state intervention to advance industrialisation in the periphery, accompanied by tariff protection to shelter the development of domestic industry. In the interim before achieving industrialisation, protection of the prices of raw materials would also be needed. These ideas became the foundations of the work of the UN Economic Commission for Latin America (ECLA) and were influential on Latin American policymakers through the 1970s.

For Prebisch, and for many who would follow and extend the ECLA analysis¹⁵, emphasis was placed on production and particularly trade, with less attention given over to the role of finance. Placed in the context of a managed international currency system and widespread financial restraint, such a focus seems understandable. The central problems of unequal exchange were eventually seen to be aggravated by financial arrangements that brought with them increased volatility, particularly after the breakdown of the Bretton Woods system (see Chilcote, 1984, p.

26).

15 Important amongst these is Arghiri Emmanuel (1972).

125 Chilean economist Osvaldo Sunkel (1970, 1973a, 1973b) drew attention to the critical role of the multinational corporation. By introducing capital-intensive production techniques and promoting forms of conspicuous consumption which could only be accessible to the elites, multinationals would co-opt the domestic bourgeoisie, preventing autonomous development. Brazilian Celso Furtado shared much of the analysis of his sometimes co-author Sunkel (1976). His examination of the role of financial flows in external dependency focused on the penetration of American multinationals into Latin American manufacturing and service sectors.

Echoing the analysis of Frank, he found that some four-fifths of the expansion of US subsidiaries in Latin America in the 1960s was funded by local resources, and a similar percentage of profits were subsequently remitted to parent companies (1976, pp. 199–201). Examining the social structures of Brazil, Furtado concluded that the absence of a clearly formulated working-class ideology left national development plans to the conflict between intra-elite interest groups. This resulted in a form of imitative capitalism unable to innovate and dependent on external intervention, both economic and political. Overcoming this required central planning to promote autonomous development.

Fernando Henrique Cardoso and Enzo Faletto, in their classic Dependency and Development in Latin America (1979), share Furtado’s emphasis on examining the social structures of concrete situations of dependency. They argue that external forces, such as multinationals and international finance, may appear as internal forces where their interests coincide with those of local groups. Therefore, industrialisation in the periphery provides products not for mass consumption, as in the centre, but for consumption by the bourgeoisie. Distinct from Prebisch, Cardoso argued that what was possible in the periphery was only a form of ‘associated dependent development’, where industrial firms, owned by domestic or foreign capital, respond to markets, investment and decisions outside the country. Unlike Furtado, Cardoso insisted that dependent states are subject to national class struggle and hegemonic crisis just as dominant states.

One of the few authors from this tradition who has focused on the role of the financial sector is Brazilian economist Maria da Conceição Tavares (1985). Her work, dating from after the breakdown of the Bretton Woods system and the beginnings of financial liberalisation, foreshadows the discussion in the next section.

126 Her argument points to the inability of peripheral countries to borrow in their own currency, or as it is known in the economics mainstream, ‘original sin’ (Eichengreen, Hausmann, & Panizza, 2003). The lack of finance, in particular foreign finance, and the limits imposed by the balance of payments constraint, lead to low growth rates.

This interpretation of dependency puts “… international money – and not technical progress – as the expression of financial capital domination over the periphery in the last 150 years.” (Tavares, 2000, pp. 131–2)

In summary, the dependency school, understood in its broadest terms, shifted attention from economic processes in the core, the focus of classical theories of imperialism, to social formations and impacts in the periphery. This reflects the shifting historical context from colonialism to post-colonialism, marked by the rise of Southern-based intellectuals. Within this framework, and as argued by Vernengo (2006), Marxist-inspired dependency theory emphasised the agency of external actors and the implausibility of development, while structuralists stressed internal agency and the possibility of autonomous development.

Differences in the understandings of the factors feeding imperial expansion are reflected in the various analyses of the role of finance. While classical theories of imperialism concentrated on the role of core banks as the ephor of finance capital, dependency theory began to examine the role of banks in the periphery, first investigating the role of the branches of core banks, and then that of the peripheral banks themselves. In Amin’s arguments, the constitution of commercial banks is central to the question of whether or not autocentric development is possible.

It is not surprising that the earlier work in this tradition paid little attention to the role of world money. In the inter-war years, when the periphery did not play the role of a buffer absorbing adjustment costs, there were more crises in the core countries (Eichengreen & Bordo, 2002). During the post-war period of recovery under the gold-dollar standard, the periphery enjoyed a period of growth and relative stability. As a result, attention in the 1960s focused on the unequal terms in the growing economic activity driven by the multinational corporations of the north drawing in an exploited labour force in the south. However, the institutional and conjunctural specificity of world money as manageable policy construct was soon laid bare. After the collapse of the Bretton Woods system, the manipulation of the dollar as de facto world money, and the proliferation of crises in Latin America and

127 Asia, is rightly regarded in the later writings of authors such as Arrighi and Tavares as a central element to understanding imperialism under the neoliberal conjuncture.