Economic Development Models Essay

Different economic development models have been the product of theorizing from various economic and political contexts. With regards to underdevelopment, the dependency model was chosen for discussion in this paper because the model itself was developed from the experience of underdeveloped countries. The experiences of the Philippines and Venezuela were selected for comparison and contrast because of their relationship to one developed country – the United States where the former is a loyal ally and the latter is presently an ally turned critique. The Dependency Model The Dependency Model as a theory of economic development is based on the premise that in the world today, there exists an unequal relationship between satellite and metropolitan countries. This relationship is based on the evolution of an international division of labor under the world capitalist system which dictates that the role of underdeveloped satellite countries is to provide cheap raw materials and labor necessary for industries in the metropolitan or capitalist countries (Todaro 2006: 25). This is based on the assumption that economic and political dominance is held by capitalist countries and leads to the phenomena of neo-colonization that is the existence of dummy governments subservient to the economic interests of developed countries. Dummy governments are perpetuated by an elite class whose economic interests lie in the raw material export-finished products import orientation of domestic economy and whose political interests lie in protecting these class interests (Perkins, Radelet and Lindauer 2006:24). Some Marxist-leaning dependency theorists attribute these relationships to the occurrence of the crisis of overproduction evident in imperialism where the economic survival of metropolitan states largely depends on the additional role of satellites as markets for finished products (Perkins, Radelet and Lindauer 2006:24). The dependency theory was developed to mirror the underdevelopment and widespread poverty in Latin America which was a vastly contrasting experience to the trickle-down effect of economic wealth from capitalist countries as proposed in neoclassical models of economic growth. The dependency theory further opens alternative roads in attaining development. One is through local development of industries for domestic needs in order that resources would serve the interest of the general population which at the same time reduces the need to import (Todaro 2006: 401). This takes into account that genuine economic development is not only based on actual domestic production but more importantly in how resources and the gains in production actually benefit the people. However, this depends in part on the political will of third-world governments to effect necessary political and economic changes not for the elite but for the population living in poverty (Ferraro 2006). In general, the dependency model predicts a worsening and continued poverty in satellite states as long as the dependency relationship exists. Although there have been no actual third world experience proving the viability of certain methods undertaken to effect domestic economic development, the historical and prevailing circumstances of underdeveloped countries show that the only way out of dependency is through a change in the structural context in which it is rooted. Dependency in the Philippine Context The Philippines, located in Southeast Asia, has a population that is expected to hit 90. 4 million this year and is currently experiencing political turmoil as evidenced in coup-de-etat attempts, allegations of large-scale corruption in government and extrajudicial killings allegedy perpetuated by military forces. The Philippines traces its history to Spanish colonization which profoundly changed the historical direction of the feudal states, semi-slave and semi-communal societies that prevailed during that time. The primarily trading and subsistence based economy that co-existed in the archipelago were transformed into feudal kingdoms ruled by the Catholic Church and the Spanish bureaucracy (Agoncillo 1980:11-16). Economic resources were used to finance Spanish wars, the galleon trade and the excessive lifestyle of the Spanish while the native elite were co-opted into the bureaucracy to consolidate political control over the populace (Agoncillo 1980: 18). The defeat of Spain led to the handover of the Philippines to U. S. auspices through the Treaty of Paris in 1898. The U. S. , then a capitalist state, set up its own bureaucracy under the concept of benevolence assimilation and transformed the feudal remnants of Spanish rule into raw-material extraction for export and promoted the importation of finished products (Eviota 1992:8-9). Large-scale mines and logging operations were opened as well as semi-processing in the textile and electronics industries by multinational companies. A mix of export based agricultural production and semi-processing industry under colonial political conditions was created. The locals were educated and evangelized along Protestant religions which promoted an individualistic and highly consumerist culture, the origin of the Filipino’s propensity at emulating the American lifestyle. The members of the middle class were given Fullbright scholarships which provided the necessary training for their participation in the various levels of colonial economy, politics and culture. The social upheavals after the second world-war fueled movements for independence in U. S. colonies. This was the context in which Philippine independence was granted in 1946. However, economic structures essentially remained intact with the exception that the elite land-owners and big businessmen now made up the bulk of the political bureaucracy (Eviota 1992: 12). Economic and political pressure from the United States ensured the subservience of past and present Philippine governments and cooperation is to a certain extent a primary determinant for a president to stay in power (Agoncillo 1980: 65-68). Although Japan and the members of the EU also have stakes in Philippine import and export, it is largely dominated by U. S. economic interests. At present, the tenets of globalization are firmly enshrined in economic policies of recent and current governments. The large-scale privatization of public utilities involved in energy production and distribution, education and others are already underway. The deregulation of the prices of basic commodities such as oil and gas has been instituted since 1995. The liberalization of trade and agriculture has opened up these crucial aspects of the domestic economy to unfair competition from developing countries and the first world (Ibon 2008). Looking at present economic indicators, the Philippine gross national product for the past year stands at P7,274,660 million, GDP is at P6,651,320 million and balance of trade for 2007 is at $-114 million (NSCB 2008). Of the GDP, 14% is attributed to the agriculture sector, 31% to the industry sector and almost 55% to the service sector. Labor force accounts for 35% in agriculture, 49. 3% in the service sector and 15. 1 in the industry sector (NSCB 2008). The latter involves workers in mining and quarrying, construction, electricity/gas/water and manufacturing. The service sector also includes the growing number of Filipinos employed in call centers sprouting all over the country. In addition, overseas workers contribute about 10% to the total GDP and economic figures do not accurately reflect the cushioning effect of dollar remittances from these workers who leave the country because of the absence of meaningful employment in the country (Jimenez-David 2007). Top 10 Philippine exports include gold, petroleum products, coconut oil, woodcrafts and furniture, ignition wiring sets, other products manufactured from materials imported on consignment basis, cathodes and section of cathodes of refined copper, articles of apparel and clothing accessories, electronic products, metal components (NSCB 2008). Manufactured goods are mainly from export processing zones in various parts of the country. This reflects the semi-processed and raw material nature of Philippine production. Its top 10 imports on the other hand include cereal and cereal preparations, iron and steel, organic and inorganic chemicals, mineral fuels/lubricants and related materials, plastics in primary and non-primary forms, electronic products, textile yarn/fabrics/made-up articles and related products, telecommunication equipment and electrical machinery and electrical machinery/transport equipment (NSCB 2008). The imports reflect the absence of basic manufacturing industries in the country. Although, economic growth has been posted for the 4th quarter of 2007 other indicators should be taken into account to determine the state of economic development especially with regards to the poor. Simple literacy (2000) is 92. 3% and functional literacy (2003) is 84% (NSCB 2008). The top 10 causes of deaths include respiratory infections, tuberculosis, diarrhoeal diseases, chronic obstructive pulmonary disease, perinatal conditions and heart diseases, ailments that are easily curable and preventable in the first world (NSCB 2008). In terms of income, the annual income for a family of 6 in 2006 was P173,000. 00, but unemployment and remains high with 6. 3% and 18. 1% respectively in 2007 (NSCB 2008). This translates to around 21 million people. In addition, inflation has most probably decreased purchasing power vis a vis the rising costs of petroleum products in the world market that affects the prices of basic commodities. If the daily cost of living is P680. 00, the annual income per family would only yield P254. 00 per day. Finally, the Philippines has a current $54. 4 billion foreign debt and continues to borrow for payment of debt interests and pad its annual budget deficits (Dumlao 2007). Loans usually come with corresponding Structural Adjustment Programs while loans for public sector projects are usually funded through a build-operate and transfer scheme in favor of companies from the funding country (Ibon 2008). In the realm of politics, the Philippines has the longest running communist insurgency in the world implying that there is a general discontent among a portion of its population (Ibon 2008). The Philippine government has responded by increased military spending and military equipment acquisition. It has also supported the war on Iraq by actually sending members of her military for combat and allowed the entry of U. S. visiting forces despite local calls sovereignty. Although â€Å"democratic† is generally used to describe local politics, elections are characterized by patronage politics, violence, massive vote buying and manipulation so that only the elite have the capacity to run for office (Eviota 1992:12). On a cursory view, current data seems to reinforce the historical developments outlined above and presents how the Philippines has come to be part of a continuing dependency relationship that is far from changing. Dependency in the Context of the Bolivarian Republic of Venezuela Venezuela, with a population of 26. 7 million in 2005, shares the same historical experience as the Philippines in that both have been subjected to successful Spanish colonization efforts. Exports were primarily cacao, cotton, beef and coffee until the early 1900’s (Salazar-Carillo and Cruz 1994:33). After Spain lost in the series of local uprisings against her, the political landscape was dominated by successive civil wars that served to oust an existing government and install another. In 1908 emerged a dictator, Juan Vicente Gomez who was elected by Congress under questionable circumstances and ruled unchallenged until 1935 with solid control over the military and presumably foreign support (Lieuwen 1969:50). The discovery of oil around that time drastically changed Venezuela’s economy, politics and culture. Necessary technology to develop oil as an industry was undertaken largely with the involvement of the foreign oil companies, notably Shell from Britain and later the Creole Petroleum Company from the United States (Salazar-Carillo and Cruz 1994:42). Both countries had friendly relationships with the Gomez dictatorship because of oil interests. Two decades later, Venezuela has established itself as one of the important sources of oil in the world. Royalty sharing between government and foreign oil companies was through a 50-50 scheme and as foreign revenue increased, it enabled the country to pay its foreign debt (Lieuwen 1969:46). However, much of the wealth created was accumulated by the dictatorship with its policy of well-arming the military to quell dissent. The focus given on the oil industry and overdependence on its revenues resulted in the neglect of other productive sectors such as agriculture such that Venezuela started food importation in the 1920’s (Tinker-Salas 2005:1). Foreign control over the oil industry was entrenched through the promotion of a culture among the intelligentsia that equated prosperity with the oil industry and that foreign oil companies are essential to economic development (Tinker-Salas 2005:1). This was despite the fact that a substantial portion of society, especially those in the agricultural sector who still comprised the bulk of labor force and the displaced peoples from the construction of the oil industry infrastructure, were poor. It is in these aspects that a form of dependency relationship between Venezuela and primarily the U. S. , who had greater control over oil concessions after the Great Depression, was developed. A different turn of events to the contrary occurred with the privatization of the oil industry in the 1970’s. The Petroleos de Venezuela, S. A. (PdVSA) was established as a state-owned company that undertook the sole extraction, processing and exportation of domestic oil (Tinker-Salas 2005:1). However, privatization created a business enterprise out of the oil industry that was virtually untouchable. Because they held (and misused) the bulk of the country’s revenue, the officicials of PdVSA had almost the same political powers as the president and created a sector of managerial personnel that constituted the elite in society (Tinker-Salas 2005:1). Thus, the general view that the oil industry never improved the standards of living of most brought to fore the smoldering class tensions that have been existent in Venezuelan society. The opening up once again of oil concessions to foreign oil companies in 1992 through the Apertura Petrolera policy fueled public perception that the PdVSA worked more for foreign interest than domestic advantages (Tinker-Salas 2005:1). This was the context in which Hugo Chavez found himself when he was elected president in 1998. Contrary to existing PdVSA practice, he instituted reforms in the oil industry, putting more government control in its operations, drafting new laws with regards to oil resources and allocating funds from oil revenue for social programs (Alvarez 2006). In 2001, Venezuela had a crude oil production rate of 3. 6 million barrels a day where about 60% of this is exported to the U. S. conversely supplying an estimated 11% of total U. S. imports of the product (EIA 2008). Though still largely dependent on income from the oil industry, Venezuela is starting to diversify in order to lessen the economic impacts of oil price fluctuations in the world market and decrease importation of basic food stuffs (Alvarez 2006). There are also efforts to decrease reliance on the U. S. oil market through market expansion to other countries in Latin America, China, Iran and India (Alvarez 2006). In addition, Venezuela has started providing foreign aid from its oil revenues to its Latin American neighbors and initiated agreements for a joint venture in natural gas extraction and the refining of crude oil produced in neighboring countries, solidifying its economic and political ties in the region (Alvarez 2006). These developments have earned both commendations and criticisms from the international community but generally seem to point to a nation’s attempt to remove first world control on local resources and industry and effect the delivery of social services from the wealth created as benefits for the people. With regards to how these reforms will significantly and reliably raise the current standard of living of Venezuelans and the Latin American region remains a subject for study by social scientists in the coming years. Its success will provide dependency theorists with empirical evidence of how a satellite state can break away from dependency. List of References Agoncillo, T. H. (1980) The History of the Filipino People. Philippines: Garotech Publishing Alvarez, C. (2006) Venezuela’s Oil-Based Economy [online] Available from [17 February 2008] Dumlao, D. (2007) Foreign debt stock up to $54. 4B [online] Available from [16 February 2008] Energy Information Administration (2008) Available from [17 February 2008] Eviota, E. U. (1992) The Political Economy of Gender: Women and the Sexual Division of Labour in the Philippines. New Jersey: Zed Books Lieuwen, E. (1969) Venezuela. London, New York and Toronto: Oxford University Press Ibon E-Media (2008) The Philippines and Globalization [online] Available from < http://info. ibon. org/index. php? option=com_content&task=blogsection&id=5&Itemid=27> February 2008] Jimenez-David, R. (2007) At Large Migrant Nation [online] Available from [16 February 2008] National Statistics Coordination Board-Philippines (2008). General Reference [online] Available from [17 February 2008] Perkins, D. , Radelet, S. and Lindauer D. (2006) Economics of Development (6th ed). New York and London: Norton Salazar-Carino, J, Cruz, R. (1994) Oil Development in Venezuela. London: Praeger Publishers Tinker-Salas, M. (2005) ‘Fueling Concern: The Role of Oil in Venezuela’. Harvard International Review 26: 5-10 Available from [16 February 2008] Todaro, M. P. , Smith S. (2006) cc Economic Development in the Third World (6th ed). New York and London: Longman Vincent Ferraro-Mt. Holyoke College (2006). Dependency Theory: An Introduction [online] Available from [16 February 2008]