The Entire Economic Situation For Dependency Theorists

After reading a few articles by Theotonio Dos Santos on the new form of dependence in post-colonial international relations, why should we think that at any point in the argument that something unfair has happened? Dos Santos is a Marxist who takes the entire economic situation, including the apparent exploitation of poor countries by rich countries through loans, and claims that inequalities in the system mean that something has gone terribly wrong with capitalism itself. For example, he cites the use of loans given by rich countries to poor countries as a way to exploit the surplus labor, by means of collecting their profits through interest payments. It is true that these loans have not helped development on a realistic level. Loans have in fact helped development, but not as quickly as the lenders predicted. Yet to engage in contracts with lenders is a choice made by the underdeveloped country. Many writers on development have said that there is hardly a legal system which deals with property rights in slowly developing countries. Hernando de Soto, for example, says that without such a legal structure, the assumptions of capitalist development are simply not valid in developing countries. His conclusion: all the more reason to have a functioning system of property rights, then!

Still, loan arrangements are based on the risk involved in the situation. Why should the lenders be to blame here? Or why should they be forced to ignore risk? Nothing Dos Santos cites is anything that can legitimately be complained about from a free market perspective without violating the right of free choice to engage in such agreements. From the point of view of national capitalist development in underdeveloped countries, the kinds of development policies Dos Santos recommends, like import-substitution and nationalization of industries, simply makes its industries less competitive with foreign industry and thus giving them no access to the benefits of international trade, such as cheaper commodities on international markets. How are capitalist industries supposed to obtain capital in the first place if they are given unfavorable trade conditions with foreigners? They are, of course, supposed to take on all industries themselves. Dependency theory thus leads to complete isolationism.

In the Marxian tradition, this is simply the effect of economic imperialism on underdeveloped nations. It is interesting that Dos Santos pits rich countries against poor countries, when in fact, there is a wide ranch of disparity within countries that doesn't seem to be addressed. A rich person in any country can arrange a loan with a poor person in any country. If the poor person finds the conditions of the loan unacceptable, it is their choice whether to accept it or not. Competition among lenders helps to make loans more favorable. And unless contracts are breached, there is nothing lenders are doing wrong. From an international social welfare point of view, I find Dos Santos arguments completely unacceptable.