Samuel Gregg on Dependency Theory

From his response to the Pope’s new encyclical:

Then there is the encyclical’s use of “global north and south” language to describe some of the global economy’s dynamics (51). This terminology has been used occasionally by popes in the recent past. But it also reflects the conceptual apparatus of what was called dependency theory: the notion that resources—especially natural resources—flow from a “periphery” of poor countries to a “core” of rich states, thereby benefiting the wealthy at the poor’s expense. This meant, according to dependency theory economists, that peripheral nations should restrict trade with developed countries and limit foreign investment. The point was to reduce their reliance on exports of raw minerals and agricultural products, consequently promoting the emergence of domestic industrial sectors.

This understanding of the global economy, much of which was formulated by Latin American economists in the 1950s, has long been discredited. Not even many center-left economists are willing to defend it. There are, for instance, countries in the “south”—such as Chile and Australia—that are formally classified as developed economies. Furthermore, they have become wealthy partly because of (a) mineral and agricultural exports and (b) conscious choices to integrate themselves into the global economy rather than remain cowering behind protectionist barriers while trying to prop up uncompetitive industries through subsidies.

And where, one might ask, do “northern” hemisphere economies such as Russia’s crony-corporatist arrangements or the Middle East’s petroleum economies fit into this “north-south” global economic schema? The answer is that they don’t. In short, if the “north-south” paradigm is how the Holy See understands the global geopolitical scene, it’s effectively clinging to a perspective of the world economy whose profound limitations were already apparent by the early 1970s.

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