Newsletter #30: Dependency Theory Is Essential to Understanding Our World, with Margarita Fajardo

By Michal Schatz

In February, the head of the United Nations’ World Food Program warned of imminent mass famine precipitated by a Covid-induced decline in global wages and disrupted supply chains, alongside rising energy prices. Global grain stocks were high but hoarded by wealthy importing nations like the United States. Then Russia, the world’s largest grain exporter, invaded the world’s fifth-largest grain exporter, Ukraine. Ukraine’s entire wheat industry is destroyed — crops can be neither sown nor harvested, and Russia’s army has either destroyed existing stocks or left them to rot at blockaded ports. Meanwhile, US-led sanctions against Russia are further preventing wheat distribution while also preventing the export of crucial agricultural products like pesticides.

The food crisis is no longer a threatening possibility. It’s a certain disaster. The hardest-hit countries will be the food-importing countries of the Global South. This is the most recent example of how the international trade system insulates wealthy countries from severe market fluctuations by forcing poor countries to absorb the shock.

After World War II, economists from Latin America formed the United Nations Economic Commission for Latin America (in Spanish, the Comisión Económica para América Latina [CEPAL]) to address and rectify these unequal terms of trade between core and periphery countries, eventually leading to the development of Dependency Theory — the topic of this week’s Dig interview with Margarita Fajardo.

Listen to this week’s interview here.

Early members of CEPAL, cepalinos, recognized a practical, structural problem for Latin American countries’ economic development: the world’s “peripheral” countries were producing raw materials and agricultural and mining products for the industrial “core” countries, who would then use those materials to produce capital goods, which they would then sell back to the periphery. This global division of labor created a structural trade imbalance that perpetuated the periphery’s dependency on the core, while prices for raw materials were declining relative to the cost of manufactured goods.

Far from revolutionary Marxists, cepalinos sought simply to overcome the development paradox through technocratic mechanisms like trade agreements, price stabilizations, and aid — all of which assumed that core countries would cooperate to create more equal terms of trade. Of course, as dependency theorists later pointed out, developed countries had no interest in recalibrating the trade imbalances from which they benefited. Today’s global trade system is organized differently from the one to which the cepalinos were responding sixty years ago, but the structural inequality that defined the relationship between core and periphery remains today.

Global South countries have highly specialized economies, making them heavily dependent on international imports and commodity markets. In the event of exogenous shocks — for example, Russia invading Ukraine and derailing the global wheat market — these countries cannot buy up supplies as wealthy countries do. Instead, they are left to the whims of the core.

The severe trade disruptions we’ve witnessed over the last half decade are only going to become more acute as the climate crisis advances. Dependency theory offers a necessary jumping-off point for reimagining a Left internationalist vision for global trade.

Further reading For more on this topic, check out Margarita Fajardo’s excellent new book, The World that Latin America Created. There is a vast body of literature by thinkers like Paul Baran, Paul Sweezy, and Andre Gunder Frank theorizing dependency theory. To learn more about world systems analysis, you can go straight to the source and read Immanuel Wallerstein’s introductory book. If you want to better understand today’s trade and pricing system, I highly recommend Dan’s recent conversation with Rupert Russell and Isabella Weber.