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The political economy of development
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This text is an abridged version of  Theotonio Dos Santos' paper
"The Structure of Dependence", as printed in THE AMERICAN ECONOMIC
REVIEW, vol. 60 (May 1970).( With Theotonio's permission. Róbinson Rojas)

We attempt to demonstrate that the dependence of Latin American
countries on other countries cannot be overcome without a qualitative
change in their internal structures and external relations. We shall
attempt to show that the relations of dependence to which these
countries are subjected conform to a type of international and internal
structure which leads them to underdevelopment or more precisely to a
dependent structure that deepens and aggravates the fundamental problems
of their peoples.


By dependence we mean a situation in which the economy of certain
countries is conditioned by the development and expansion of another
economy to which the former is subjected. The relation of
interdependence between two or more economies, and between these and
world trade, assumes the form of dependence when some countries (the
dominant ones) can expand and can be self-sustaining, while other
countries (the dependent ones) can do this only as a reflection of that
expansion, which can have either a positive or a negative effect on
their immediate development (see T. Dos Santos, "La crisis de la teoria
del desarrollo y las relaciones de dependencia en America Latina",
Boletin del CESO, 3 -Santiago, Chile, 1968, p. 6).

The concept of dependence permits us to see the internal situation of
these countries as part of world economy. In the Marxist tradition, the
theory of imperialism has been developed as a study of the process of
expansion of the imperialist centers and of their world domination.

In the epoch of the revolutionary movement of the Third World, we have
to develop the theory of laws of internal development in those countries
that are the object of such expansion and are governed by them. This
theoretical step transcends the theory of development which seeks to
explain the situation of the underdeveloped countries as a product of
their slowness or failure to adopt the patterns of efficiency
characteristic of developed countries (or to "modernize" or "develop"

Although capitalist development theory admits the existence on an
"external" dependence, it is unable to perceive underdevelopment in the
way our present theory perceives it, as a consequence and part of the
process of the world expansion of capitalism -a part that is necessary
to and integrally linked with.

In analyzing the process of constituting a world economy that integrates
the so-called "national economies" in a world market of commodities,
capital, and even of labour power, we see that the relations produced by
this market are unequal and combined -unequal because development of
parts of the system occurs at the expense of other parts.

Trade relations are based on monopolistic control of the market, which
leads to the transfer of surplus generated in the dependent countries to
the dominant countries; financial relations are, from the viewpoint of
the dominant powers, based on loans and the export of capital, which
permit them to receive interest and profits, thus increasing their
domestic surplus and strengthening their control over the economies of
the other countries.

For the dependent countries these relations represent an export of
profits and interest which carries off part of the surplus generated
domestically and lead to a loss of control over their productive

In order to permit these disadvantageous relations, the dependent
countries must generate large surpluses, not in such a way as to create
higher levels of technology but rather creating superexploited manpower.
The result is to limit the development of their internal market and
their technical and cultural capacity, as well as the moral and physical
health of their people. We call this combined development because it is
the combination of these inequalities and the transfer of resources from
the most backward and dependent sectors to the most advanced and
dominant ones which explains the inequality, deepens it, and transforms
it into a necessary and structural element of the world economy.


Historic forms of dependence are conditioned by:

(1) the basic forms of this world economy which has its own laws of
(2) the type of economic relations dominant in the capitalist centers
    and the ways in which the latter expand outward; and
(3) the types of economic relations existing inside the peripheral
    countries which are incorporated into the situation of dependence
    within the network of international economic relations generated by
    capitalist expansion.
It is not within the purview of this chapter to study these forms in
detail but only to distinguish broad characteristics of development.

Drawing on an earlier study, we may distinguish:

(1) Colonial dependence, trade export in nature, in which commercial
    and financial capital in alliance with the colonialist state
    dominated the economic relations of the Europeans and the colonies
    by means of a trade monopoly, complemented by a colonial monopoly of
    land, mines, and manpower (serf or slave) in the colonized

(2) Financial-industrial dependence, which consolidated itself at the
    end of the nineteenth century, characterized by the domination of
    big capital in the hegemonic centers, and its expansion abroad
    through investment in the production of raw materials and
    agricultural products for consumption in the hegemonic centers.
    A productive structure grew up in the dependent countries devoted
    to the export of these products (which I.V. Lenin labeled export
    economies [I.V. Lenin, "The Export Economies", Harvard University
    Press, 1964]; other analysis in other regions [Gunnar Myrdal, "Asian
    Drama", Pantheon, 1968][N. Nkrumah, "Neocolonialismo, ultima etapa
    del imperialismo", Siglo XXI, Mexico, 1966]), producing what the
    Economic Commission for Latin America (ECLA) has called
    "foreign-oriented development" (desarrollo hacia afuera)[CEPAL, "La
    CEPAL y el Analisis del Desarrollo Latinoamericano, Santiago,
    Chile, 1968].

(3) In the postwar period a new type of dependence has been
    consolidated, based on multinational corporations which began to
    invest in industries geared to the internal market of underdeveloped
    countries. This form of dependence is basically technological-
    industrial dependence [Theotonio Dos Santos, "El nuevo caracter de
    la dependencia", CESO, Santiago, Chile, 1968].

Each of these forms of dependence corresponds to a situation which
conditioned not only the international relations of these countries but
also their internal structures: the orientation of production, the
forms of capital accumulation, the reproduction of the economy, and,
simultaneously, their social and political structure.

(For a complete analysis of how the above process developed in Latin
 America from the colonial times see R. Rojas, "Latin America: blockages
 to development", London, 1984. R.R.)


In forms (1) and (2) of dependence, production is geared to those
products destined for export (gold, silver, and tropical products in the
colonial epoch; raw materials and agricultural products in the epoch of
industrial-financial dependence); i.e., production is determined by
demand from the hegemonic centers.

The internal productive structure is characterized by rigid
specialization and monoculture in entire regions (the Caribbean, the
Brazilian Northeast, etc.). Alongside these export sectors there grew
up certain complementary economic activities (cattle-raising and some
manufacturing, for example) which were dependent, in general, on the
export sector to which they sell their products. There was a third,
subsistence economy which provided manpower for the export sector under
favourable conditions and toward which excess population shifted during
periods unfavorable to international trade.

Under these conditions, the existing internal market was restricted by
four factors:

(1) Most of the national income was derived from export, which was used
    to purchase the inputs required  by export production (slaves, for
    example) or luxury goods consumed by the hacienda- and mine-owners,
    and by the more prosperous employees.

(2) The available manpower was subject to very ardous forms of
    superexploitation, which limited its consumption.

(3) Part of the consumption of these workers was provided by the
    subsistence economy, which served as a complement to their income
    and as a refuge during periods of depression.

(4) A fourth factor was to be found in those countries in which land and
    mines were in the hands of foreigners (cases of an enclave economy):
    a great part of the accumulated surplus was destined to be sent
    abroad in the form of profits, limiting not only internal
    consumption but also possibilities of reinvestment [Paul Baran,
    "Political Economy of Growth", Monthly Review Press, 1967). In the
    case of enclave economies the relations of the foreign companies
    with the hegemonic center were even more exploitative and were
    complemented by the fact that purchases by the enclave were made
    directly abroad.


The new form of dependence, (3) above, is in process of developing and
is conditioned by the exigencies of the international commodity and
capital markets. The possibility of generating new investments depends
on the existence of financial resources in foreign currency for the
purchase of machinery and processed raw materials not produced
domestically. Such purchases are subject to two limitations: the limit
of resources generated by the export sector (reflected in the balance
of payments, which includes not only trade but also service relations);
and the limitations of monopoly on patents which leads monopolistic
firms to prefer to transfer their machines in the form of capital rather
than as commodities for sale. It is necessary to analyze these relations
of dependence if we are to understand the fundamental structural limits
they place on the development of these economies.

1. Industrial development is dependent on an export sector for the
   foreign currency to buy the inputs utilized by the industrial sector.
   The first consequence of this dependence is the need to preserve the
   traditional export sector, which limits economically the development
   of the internal market by the conservation of backward relations of
   production and signifies, politically, the maintenance of power by
   traditional decadent oligarchies.
   In the countries where these sectors are controlled by foreign
   capital, it signifies the remittance abroad of high profits, and
   political dependence on those interests.
   Only in rare instances does foreign capital not control at least the
   marketing of these products.
   In response to these limitations, dependent countries in the 1930s
   and 1940s developed a policy of exchange restrictions and taxes on
   the national and foreign export sector; today they tend toward the
   gradual nationalization of production and toward the imposition of
   certain timid limitations on foreign control of the marketing of
   exported products. Furthermore, they seek, still somewhat timidly,
   to obtain better terms for the sale of their products. In recent
   decades, they have created mechanism for international price
   agreements, and today the United Nations Conference on Trade and
   Development (UNCTAD) and ECLA press to obtain more favourable tariff
   conditions for these products on the part of the hegemonic centers.
   It is important to point out that the industrial development of these
   countries is dependent on the situation of the export sector, the
   continued existence of which they are obliged to accept.

2. Industrial development is, then, strongly conditioned by fluctuations
   in the balance of payments. This leads toward deficit due to the
   relations of dependence themselves. The causes of the deficit are
        a) trade relations take place in a highly monopolized
           international market, which tends to lower the price of raw
           materials and to raise the prices of industrial products,
           particularly inputs. In the second place, there is a tendency
           in modern technology to replace various primary products with
           synthetic raw materials. Consequently, the balance of trade
           in these countries tends to be less favourable (even though
           they show a general surplus). The overall Latin American
           balance of trade from 1946 to 1968 shows a surplus for each
           of those years. The same thing happens in almost every
           underdeveloped country. However, the losses due to
           deterioration of the terms of trade (on the basis of data
           from ECLA and the International Monetary Fund), excluding
           Cuba, were $26,383 million for the 1951-66 period, taking
           1950 prices as a base. If Cuba and Venezuela are excluded,
           the total is $15,925 million.

        b) for the reasons already given, foreign capital retains
           control over the most dynamic sectors of the economy and
           repatriates a high volume of profit; consequently, capital
           accounts are highly unfavourable to dependent countries. The
           data show that the amount of capital leaving the country is
           much greater than the amount entering; this produces an
           enslaving deficit in capital accounts. To this must be added
           the deficit in certain services which are virtually under
           total foreign control -such as freight transport, royalty
           payments, technical aid, etc. Consequently, an important
           deficit is produced in the total balance of payments; thus
           limiting the possibility of importation of inputs for

        c) The result is that "foreign financing" becomes necessary, in
           two forms:
               to cover the existing deficit, and
               to "finance" development by means of loans for the
               stimulation of investments and to "supply" an internal
               economic surplus which was decapitalized to a large
               extent by the remittance of part of the surplus
               generated domestically and sent abroad as profits.

   Foreign capital and foreign "aid" thus fill up the holes that they
   themselves created. The real value of this aid, however, is doubtful.
   If overcharges resulting from the restrictive terms of the aid are
   subtracted from the total amount of the grants, the average net
   flow, according to calculations of the Inter-American Economic and
   Social Council, is approximately 54 per cent of the gross flow
   [Consejo Interamericano Economico Social (CIES) O.A.S., Interamerican
    Economic and Social Council, External Financing for Development in
    Latin America, "El Financiamiento Externo para el Desarrollo de
    America Latina" (Pan-American Union, Washington, 1969).

   If we take account of certain further facts -that a high proportion
   of aid is paid in local currencies, that Latin American countries
   make contributions to international financial institutions, and that
   credits are often "tied" -we find a "real component of foreign aid"
   of 42.2 per cent on a very favourable hypothesis and of 38.3 per cent
   on a more realistic one [op. cit. II, p. 33] The gravity of the
   situation becomes even clearer if we consider that these credits are
   used in large part to finance North American investments, to
   subsidize foreign imports which compete with national products, to
   introduce technology not adapted to the needs of underdeveloped
   countries, and to invest in low-priority sectors of the national
   economies. The hard truth is that the underdeveloped countries have
   to pay for all of the "aid" they receive. This situation is
   generating  an enormous protest movement by Latin American
   governments seeking at least partial relief from such negative

3. Finally, industrial development is strongly conditioned by the
   technological monopoly exercised by imperialist centers. We have seen
   that the underdeveloped countries depend on the importation of
   machinery and raw materials for the development of their industries.
   However, these goods are not freely available in the international
   market; they are patented and usually belong to the big companies.
   The big companies do not sell machinery and processed raw materials
   as simple merchandise: they demand either the payment of royalties,
   etc., for their utilization or, in most cases, they convert these
   goods into capital and introduce them in the form of their own
   investments. This is how machinery which is replaced in the hegemonic
   centers by more advanced technology is sent to dependent countries
   as capital for the installation of affiliates. Let us pause and
   examine these relations in order to understand their oppressive and
   exploitative character.

The dependent countries do not have sufficient foreign currency, for the
reasons given. Local businessmen have financing difficulties, and they
must pay for the utilization of certain patented techniques. These
factors oblige the national bourgeois governments to facilitate the
entry of foreign capital in order to supply the restricted national
market, which is strongly protected by high tariffs in order to promote

Thus, foreign capital enters with all the advantages: in many cases, it
is given exemption from exchange controls for the importation of
machinery; financing of sites for installation of industries is
provided; government financing agencies facilitate industrialization;
loans are available from foreign and domestic banks, which prefer such
clients; foreign aid often subsidizes such investments and finances
complementary public investments; after installation, high profits
obtained in such favourable circumstances can be reinvested freely.

Thus it is not surprising that the data of the U.S. Department of
Commerce reveal that the percentage of capital brought in from abroad by
these companies is but a part of the total amount of invested capital.
These data show that in the period from 1946 to 1967 the new entries
of capital into Latin America for direct investment amounted to $5,415
million, while the sum of reinvested profits was $4,424 million. On the
other hand, the transfers of profits from Latin America to the United
States amounted to $14,775 million. If we estimate total profits as
approximately equal to transfers plus reinvestments we have the sum of
$18,983 million.

In spite of enormous transfers of profits to the United States, the book
value of the United States' direct investment in Latin America went from
$3,045 million in 1946 to $10, 213 million in 1967. From these data it
is clear that:
(1) of the new investments made by U.S. companies in Latin America for
the period 1946-67, 55 per cent corresponds to new entries of capital
and 45 per cent to reinvestment of profits; in recent years, the trend
is more marked, with reinvestments between 1960 and 1966 representing
more than 60 per cent of new investments.

(2) remittances remained at about 10 per cent of book value throughout
the period.

(3) the ratio of remitted capital to new flow is around 2.7 for the
period 1946-67; that is, for each dollar that enters $2.70 leaves. In
the 1960s this ratio roughly doubled, and in some years was considerably

(For the case of Chile, see R. Rojas, "El imperialismo yanqui en Chile",
Ediciones ML, Santiago, Chile, 1971)(R.R.)

The SURVEY OF CURRENT BUSINESS data on sources and uses of funds for
direct North American investment in Latin America in the period 1957-64
show that, of the total sources of direct investment in Latin America,
only 11.8 per cent came from the United States. The remainder is, in
large part, the result of the activities of North American firms in
Latin America (46.4 per cent net income, 27.7 per cent under the heading
of depreciation), and from "sources located abroad" (14.1 per cent). It
is significant that the funds obtained abroad that are external to the
companies are greater than the funds originating in the United States.


It is easy to grasp, even if only superficially, the effects that this
dependent structure has on the productive system itself in these
countries and the role of this structure in determining a specified type
of development, characterized by its dependent nature.

The productive system in the underdeveloped countries is essentially
determined by these international relations.

In the first place, the need to conserve the agrarian or mining export
structure generates a combination between more advanced economic centers
that extract surplus value from the more backward sectors and internal
"metropolitan" centers on the one hand, and internal interdependent
"colonial" centers on the other [Andre G. Frank, "Development and
Underdevelopment in Latin America", Monthly Review Press, 1968]. The
unequal and combined character of capitalist development at the
international level is reproduced internally in an acute form.

In the second place the industrial and technological structure responds
more closely to the interests of the multinational corporations than to
internal developmental needs (conceived of not only in terms of the
overall interests of the population, but also from the point of view of
the interests of a national capitalist development).

In the third place, the same technological and economic-financial
concentration of the hegemonic economies is transferred without
substantial alteration to very different economies and societies,
giving rise to a highly unequal productive structure, a high
concentration of incomes, underutilization of installed capacity,
intensive exploitation of existing markets concentrated in large
cities, etc.

The accumulation of capital in such circumstances assumes its own
characteristics. In the first place, it is characterized by profound
differences among domestic wage-levels, in the context of a local cheap
labour market, combined with a capital-intensive technology. The result,
from the point of view of relative surplus value, is a high rate of
exploitation of labour power. (On measurements of forms of exploitation,
see Pablo Gonzalez Casanova, "Sociologia de la explotacion", Siglo XXI,
Mexico, 1969).

This exploitation is further aggravated by the high prices of industrial
products enforced by protectionism, exemptions and subsidies given by
the national governments, and "aid" from hegemonic centers. Furthermore,
since dependent accumulation is necessarily tied into the international
economy, it is profoundly conditioned by the unequal and combined
character of international capitalist economic relations, by the
technological and financial control of the imperialist centers by the
realities of the balance of payments, by the economic policies of the
state, etc. The role of the state in the growth of national and foreign
capital merits a much fuller analysis than can be made here.

Using the analysis offered here as a point of departure, it is possible
to understand the limits that this productive system imposes on the
growth of the internal markets of these countries. The survival of
traditional relations in the countryside is a serious limitation on
the size of the market, since industrialization does not offer hopeful
prospects. The productive structure created by dependent
industrialization limits the growth of the internal market.

First, it subjects the labour force to highly exploitative relations
which limit its purchasing power. Second, in adopting a technology of
intensive capital use, it creates very few jobs in comparison with
population growth, and limits the generation of new sources of income.
These two limitations affect the growth of consumer goods market. Third,
the remittance abroad of profits carries away part of the economic
surplus generated within the country. In all these ways limits are put
on the possible creation of basic national industries which could
provide a market for the capital goods this surplus would make possible
if it were not remitted abroad.

From this cursory analysis we see that the alleged backwardness of these
economies is not due to a lack of integration with capitalism but that,
to the contrary, the most powerful obstacles to their full development
come from the way in which they are joined to this international system
and its laws of development.

( for a more elaborated analysis on the main features of dependent
development as originated in colonial times and evolved further after
political independence, see
   R.Rojas: Latin America: a failed industrial revolution 
   R.Rojas: Latin America: the making of a fractured society
   R.Rojas: Latin America: a dependent mode of production
   R.Rojas: Latin America: on the effects of colonization )(R.R.)


In order to understand the system of dependent reproduction and the
socio-economic institutions created by it, we must see it as part of a
system of world economic relations based on monopolistic control of
large-scale capital, on control of certain economic and financial
centers over others, on a monopoly of complex technology that leads to
unequal and combined development  at a national and international level.

Attempts to analyze backwardness as a failure to assimilate more
advanced models of production or to modernize are nothing more than
ideology disguised as science. The same is true of the attempts to
analyze this international economy in terms of relations among elements
in free competition, such as the theory of comparative costs which seeks
to justify the inequalities of the world economic system and to conceal
the relations of exploitation on which it is based [Cristian Palloix,
"Problemes de la Croissance en Economic Ouverte", Maspero, Paris, 1969].

In reality we can understand what is happening in the underdeveloped
countries only when we see that they develop within the framework of a
process of dependent production and reproduction. This system is a
dependent one because it reproduces a productive system whose
development is limited by those world relations which necessarily lead

the development of only certain economic sectors, to trade under unequal
conditions [A. Emmanuel, "L'Echange Inegal", Maspero, Paris, 1969],
to domestic competition with international capital under unequal
to the imposition of relations of superexploitation of the domestic
labour force with a view to dividing the economic surplus thus generated
between internal and external forces of domination. (On economic surplus
and its utilisation in the dependent countries, see Paul Baran,
"Political Economy of Growth", Monthly Review Press, 1967).

In reproducing such a productive system and such international
relations, the development of dependent capitalism reproduces the
factors that prevent it from reaching a nationally and internationally
advantageous situation; and it thus reproduces backwardness, misery, and
social marginalization within its borders. The development that it
produces benefits very narrow sectors, encounters unyielding domestic
obstacles to its continued economic growth (with respect to both
internal and foreign markets), and leads to the progressive accumulation
of balance-of-payments deficits, which in turn generate more dependence
and more superexploitation.

The political measures proposed by the developmentists of ECLA, UNCTAD,
Inter-American Development Bank (BID), etc., do not appear to permit
destruction of these terrible chains imposed by dependent development.
We have examined the alternative forms of development presented for
Latin America and the dependent countries under such conditions
elsewhere [Theotonio Dos Santos, "La dependencia economica y las
alternativas de cambio en America Latina", Ponencia al IX Congreso
Latinoamericano de Sociologia, Mexico, Noviembre, 1969]. Everything now
indicates that what can be expected is a long process of sharp political
and military confrontations and of profound social radicalization which
will lead these countries to a dilemma: government of force, which open
the way to fascism, or popular revolutionary governments, which open the
way to socialism. Intermediate solutions have proved to be, in such a
contradictory reality, empty and utopian.
----end Dos Santos 1970---RR-----------------