BIG BUSINESS AND "DEPENDENCIA
A LATIN AMERICAN VIEW
By Osvaldo Sunkel
winds of economic nationalism are blowing strong in
1 Latin America. This is evident in the nationalist and pro-
gressive regime in Peru, the rise and fall of the leftist gov-
ernment in Bolivia, the changes of policy in conservative coun-
tries like Colombia and Argentina and the spectacular election
of a socialist government in Chile. There are also the numerous
acts of nationalization in various countries, most of wbich have
gone largely unnoticed, while others like the nationalization of
petroleum in Peru and Bolivia, natural gas in Venezuela, alumi-
num in Guyana and copper in Chile have reached the headlines.
Furthermore, there are restrictive foreign investment statutes
unanimously endorsed by the Andean Pact nations, the limita-
tions of various kinds imposed on foreign subsidiaries even in
countries, like Mexico, otherwise favorable to foreign invest-
ment, tbe unaccustomed incisiveness of the Latin American pro-
test against President Nixon's New Economic Policy voiced in
the meetings of the Special Co-ordination Commission of Latin
America, the Inter-American Economic and Social Council of
the Organization of American States and the World Bank-In-
ternational Monetary Fund Annual Conference, as well as tbe
formal withdrawal of Argentina from tbe Inter-American Com-
mittee of the Alliance for Progress.
This last act, which does not come from a socialist Allende or
a nationalist General Velasco Alvarado but from tbe conserva-
tive General Lanusse, marks tbe final collapse of tbe Alliance for
Progress. Based on the assumption of cold-war confrontation,
the Alliance was designed ten years ago to stop Castro's influence
and win friends in Latin America. Now botb the Alliance and
the cold war are over, and there have been neither communist
nor capitalist victors. The politico-ideological confrontation bas
been replaced to a large extent by an economic confrontation
between the national interests of Latin America and those of tbe
United States. Tbe recent burst of nationalism is in fact a reac-
tion to long-term and increasingly intolerable dependence on
foreigners. The development strategy of industrialization as a
5i8 FOREIGN AFFAIRS
substitute for imports was supposed to free tbe economy from its
heavy reliance on primary exports, foreign capital and technol-
ogy. It has not only failed to achieve these aims, but bas in fact
aggravated the situation and nature of "dependencia."
In its initial period, from 1930 to around 1955, the strategy
stimulated the growth of a significant manufacturing industry
and of the corresponding national entrepreneurial class. But
subsequently industry was taken over to a large extent by foreign
subsidiaries, with the result tbat mucb of the benefit expected
from industrialization has gone abroad in payment for capital
equipment and in a transfer of profits, royalties and other finan-
cial payments. Tbis has effectively denationalized and eroded tbe
local entrepreneurial class. Although the massive penetration of
foreign firms has accelerated growth rates, especially industrial,
it has also accentuated tbe uneven nature of development: on the
one hand, a partial process of modernization and expansion of
capital-intensive activities; on the otber, a process of disruption,
contraction and disorganization of traditional labor-intensive ac-
tivities.
Disguised and open unemployment—that process of internal
polarization and segregation whicb bas been termed "marginal-
ization"—has therefore been rising; together tbey account for
levels estimated at over 25 percent, and tbey are still increasing.
Owing to this and to tbe fact that the development strategies
pursued aimed at the formation and strengthening of a reliable
middle class, income seems at least as heavily concentrated in the
hands of the wealthy as it was 20 years ago, allowing them con-
sumption levels and patterns similar to those of the middle
classes of developed countries, wbile tbe gap between high and
low incomes in towns and in the countryside appears in most
cases to bave widened.
Things obviously went wrong with tbe development policies
and strategy pursued after tbe Second World War. In a nutshell,
the essence of its logic was tbat rapid economic growth could be
achieved by protecting and stimulating industry, whicb even-
tually, and witb tbe aid of appropriate government action, would
induce tbe modernization of other sectors of the economy. Tbis,
in turn, would improve tbe social conditions of tbe people, more
or less following the pattern of tbe industrial revolution in West-
ern Europe and North America.
Apparently something important bad been overlooked wbich
BIG BUSINESS AND "DEPENDENCIA" 519
hindered both tbe implementation and even an adequate under-
standing of the process. In the conventional approach to under-
development, the unit of analysis has always been tbe national
economy in isolation, treated as if it existed in an international
vacuum. Myrdal, Singer, Nurkse,
as
well as Prebisch and numer-
ous economists from underdeveloped countries and U.N. agen-
cies such as the Economic Commission for Latin America and
the United Nations Conference on Trade and Development
(UNCTAD) have emphasized the significance of the foreign
trade structure of these countries—raw material exports and
manufactured imports—as causing instability, stagnation, de-
teriorating terms of trade and balance-of-payments difficulties.
They have also pointed to foreign financing and technical aid
as having a significant influence on the rate of growth and tbe
equilibrium of the underdeveloped economy.
New studies of "dependencia" in industry and related sectors
have led to a greater recognition of its nature and efifects. To be-
gin with, local development and modernization are seen not in
isolation but as part of the development of an international cap-
italist system, whose dynamic has a determining influence on the
local processes. Therefore, foreign factors are seen not as ex-
ternal but as intrinsic to the system, with manifold and sometimes
bidden or subtle political, financial, economic, technical and
cultural effects inside tbe underdeveloped country. Tbese con-
tribute significantly to shaping tbe nature and operation of tbe
economy, society and polity, a kind of "fifth column" as it were.
Tbus,
the concept of "dependencia" links the postwar evolution
of capitalism internationally to the discriminatory nature of the
local process of development, as we know it. Access to the means
and benefits of development is selective; ratber than spreading
them tbe process tends to ensure a self-reinforcing accumulation
of privilege for special groups as well as the continued existence
of a marginal class.
In otber words, this approach considers the capitalist system
as a whole, as a global international system, within whicb na-
tional economies—nation-states—constitute sub-systems. These
are not completely separated from each other but partially over-
lapping, owing to the fact that national economies interpenetrate
each other to some extent in terms of productive facilities, tech-
nologies, consumption patterns, ideologies, political parties, cul-
tural activities, private and government institutions. According
52O FOREIGN AFFAIRS
to this approach, it is no longer possible to assume that under-
development is a moment in the evolution of a society wbicb has
been economically, politically and culturally autonomous and
isolated.
The present international panorama of countries at different
levels of development is not simply an aggregate of individual
historical performances; the development process is not simply
a race wbicb started somewhere before the industrial revolution
and in wbicb some countries reached advanced stages wbile
others stagnated or moved slower. The "dependencia" analysis
maintains that one of the essential elements of the development
of capitalism has been, from the outset, the creation of an inter-
national system which brought the world economy under the in-
fluence of a few European countries, plus the United States from
the late nineteenth century onwards. Development and under-
development, in this view, are simultaneous processes: the two
faces of the historical evolution of the capitalist system.
II
During the colonial period, in order to extract the precious
metals and obtain the tropical products needed by the metropolis,
Europeans interfered with existing social relationships and re-
organized local economies on the basis of slavery and otber
forms of forced labor. This created the basis for agrarian struc-
tures and institutions wbich have survived in some form until
today. During the nineteenth and first half of tbe twentieth
century, the industrial revolution in Europe and later in tbe
United States created a world economic system where Europe
and the United States invested heavily in the production of food
and raw materials in the rest of tbe world, while specializing at
bome in the production of manufactures. In Latin America, to
the agrarian colonial heritage was added specialization in tbe
export of staples and raw materials and witb it another set of
socio-economic and political structures and institutions, including
the new dominant elites.
The breakdown of the nineteenth-century model of interna-
tional economic relations during the two World Wars and the
Great Depression opened for Latin American economies tbe
period of import-substituting industrialization. This meant, in
tbe larger countries of the region, the formation by the middle
of the 1950s of a significant manufacturing sector, complete witb
BIG BUSINESS AND "DEPENDENCIA" 521
its entrepreneurial class, professional and technical groups and
industrial proletariat, as well as the necessary and ancillary gov-
ernment and private financial, marketing and educational agen-
cies.
But during this period, while Europe was being ravaged by
war and economic crisis, the U.S. economy developed into tbe
most powerful center in the capitalist world and expanded into
the economies of both developed and underdeveloped countries,
bringing about very substantial changes, particularly in the latter.
At the same time the U.S. economy experienced important
changes in its internal structure. Government intervention ex-
panded considerably within the United States, accelerating
growth, reducing cyclical fluctuations and contributing to a fan-
tastic development of science and technology; all this helped
produce large business conglomerates. Vast economic, techno-
logical and therefore political power has enabled the multina-
tional corporation, through the control of the marketing and
communication processes, to induce consumers and governments
to buy the products which it is technologically able to produce in
ever-growing quantities. Within certain limits it is thus able to
plan the development of consumption.
These institutional developments in tbe United States are re-
flected abroad as the new multinational corporations spread
throughout the international economy. Their activities follow a
fairly definite pattern: first, they export their finished products;
then they establish sales organizations abroad; they then proceed
to allow foreign producers to use their licenses and patents to
manufacture the product locally; finally, they buy off the local
producer and establish a partially or wholly owned subsidiary.
In the process a new structure of international economic rela-
tions is emerging, where trade between national firm Z of coun-
try A and national firm Y of country B is replaced by the internal
transfers of firm Z to countries A and B, while firm Y vanishes
from the picture.
As a consequence, free-market forces and/or national policies
are gradually superseded by tbe multinational firm's plan. It is
estimated that for the decade 1960-70 around a fourth of all
manufacturing exports from the United States were intra-firm
transfers, and this proportion is rising quickly. Moreover, while
previously only the international primary product market was
an oligopoly, this is now also becoming true of the international