Dependency theory is a theory of how developing and developed nations interact. It can be seen as an opposition theory to the popular free market theory of interaction. Dependency theory was first formulated in the 1950s, drawing on a Marxian analysis of the global economy, and as a direct challenge to the free market economic policies of the post-War era.
The free market ideology holds, at its most basic, that open markets and free trade benefit developing nations, helping them eventually to join the global economy as equal players. The belief is that although some of the methods of market liberalization and opening may be painful for a time, in the long run they help to firmly establish the economy and make the nation competitive at the global level.
Dependency theory, in contrast, holds that there are a small number of established nations that are continually fed by developing nations, at the expense of the developing nations’ own health. These developing nations are essentially acting as colonial dependencies, sending their wealth to the developed nations with minimal compensation. In dependency theory, the developed nations actively keep developing nations in a subservient position, often through economic force by instituting sanctions, or by proscribing free trade policies attached to loans granted by the World Bank or International Monetary Fund.
Dependency theory was incredibly popular during the 1960s and 1970s, when the free market policies of development theory seemed to have led much of the developing world to the brink of economic collapse. In the 1990s, with the rising success of countries such as India and Thailand, dependency theory lost some support, as it appeared development theory may indeed have been working. These days, although not as popular as in its heyday, dependency theory is nonetheless widespread in progressive circles, particular among groups working on alternative modes of capitalism in the developing world.
The critiques of dependency theory can be leveled within a nation as well as internationally. In fact, dependency theory tends to trace its roots to back before the emergence of modern post-colonialism. On an internal level, dependency theory can be seen applying to regions within a country. In the United States, for example, historically the industrial Northeast can be seen drawing wealth from the agricultural south in a pattern reflected in the modern world by the industrial northern hemisphere and the productive southern hemisphere.
Dependency theory also posits that the degree of dependency increases as time goes on. Wealthy countries are able to use their wealth to further influence developing nations into adopting policies that increase the wealth of the wealthy nations, even at their own expense. At the same time, they are able to protect themselves from being turned on by the developing nations, making their system more and more secure as time passes. Capital continues to migrate from the developing nations to the developed nations, causing the developing nations to experience a lack of wealth, which forces them to take out larger loans from the developed nations, further indebting them.