St Comp Int Dev (2009) 44:441–449 DOI 10.1007/s12116-009-9044-1 Cores, Peripheries, and Contemporary Political Economy Erik Wibbels Published online: 22 July 2009 # Springer Science + Business Media, LLC 2009 Abstract This note underscores the need for more precise causal theories linking the international division of labor, national economies, and public policies. To that end, the author recommends two literatures upon which a revised dependency theory might build, namely, those on economic geography and the political economy of redistribution. Keywords Economy . Capital . Dependency . Economic geography . Redistribution There could not be a better time to revisit Cardoso and Falleto's seminal contribution. As mortgage defaults in Los Vegas and Miami reverberate through complex financial ties to the centers of global finance, a global depression looms. And, as usual, this downturn will affect the developing world more severely. Thanks to declining demand in core economies and retrenched investments by capital in those same economies, developing economies will shrink more and suffer greater volatility than their rich counterparts. If you think stock markets in New York and Frankfurt have fallen sharply, you might consider looking at Russia, India, and China where values have fallen twice as severely. So we see, yet again, that the economies of developing nations are, in fact, dependent on their rich counterparts. Whether or not that translates into dependency, as originally articulated in Dependency and Development or as envisioned in these more recent contributions is a whole different matter. There is much to like in this collection of papers. I agree with several common themes that appear across the contributions—that the manner of international economic integration varies across countries, that reliance on external markets can be consistent with advanced forms of production and development, that the operation of international markets constrains choices, and that different forms of integration, therefore, produce different kinds of constraints. I also agree with the widely argued E. Wibbels (*) Department of Political Science, Duke University, 306 Perkins Library, Durham, NC 27708, USA e-mail: [email protected] 442 St Comp Int Dev (2009) 44:441–449 notion that there is some, albeit varying, scope for political choices. What I remain puzzled by is how any of this relates to dependency, a concept that relies on a notion of asymmetric political and economic power in the international system. To my mind, the fundamental problem in the original dependency literature was a failure to clearly define dependency. Yes, Dependency and Development provided a great advance by linking international structure with national actors and institutions, and its historically informed account of country experiences provides a compelling view of dependency. At the same time, key concepts such as “enclaves” and “unequal exchange” lacked the kind of rigor that would allow for the clear articulation of causal arguments. In the absence of clear causal arguments, convincing empirical tests of the theory's implications were elusive. To my mind, it was this looseness of argument rather than any overwhelming evidence against the spirit of the argument that contributed to the theory's declining status in the 1980s and 1990s. On this point, I find the contributors to this volume to have replicated the key weakness of the original work. On the whole, the authors have diverse and vague notions of what defines dependency. For Evans, it is reliance on a set of international rules and institutions that are biased against developing nations. Kohli suggests that dependency is created by political elites who pursue insufficiently nationalist and state-led development. In his piece, Cardoso emphasizes the growing importance of international financial capital and the ongoing reliance of developing countries on technological innovations in the core. Conning and Robinson, though keenly aware of the limitations of the original formulation of dependency, choose to emphasize the importance of production in enclaves. Bruszt and Greskovits emphasize “diverse international influences,” and the concept of dependency expands to include countries that export human capital-intensive manufactured goods that historically have been the purview of “core” economies. In most of these cases, dependency is defined in terms too vague to know exactly how it operates—the reader just cannot quite figure out what it is. It is also the case that when reading across the pieces, it is hard to know what dependency is not, since the key characteristics of dependency are so different from one contribution to the next. The frequent reliance in these pages on typologies and types of development does not help very much. The basic problem is that the political and economic mechanisms through which dependency might work remain poorly articulated three decades after the touchstone work was published. I do not think a theory of dependency can be compelling unless it has reasonably rigorous micro-foundations. By that I mean that both the systemic properties of the international economy and the local manifestations of political power that complement participation in the global economy should be linked to the selfinterest of the individuals who make up those economies. A micro-foundational approach to dependency would work toward identifying the key actors—MNC managers, international financiers, politicians, labor market participants, etc.—their preferences, and the constraints under which they operate such that dependency results. Well-developed micro-foundations would provide the basis for a systematic exploration of the conditions under which markets and politics interact to produce dysfunctional development outcomes. Such an approach would require the methodical study of how international markets operate in everything from natural St Comp Int Dev (2009) 44:441–449 443 resources to primary products to manufactured goods to financial instruments. Only a reborn dependency that is rooted in an understanding of individual incentives and reflective of a deep understanding of how specific markets operate will be able to answer key questions: What kinds of markets are associated with dependency? Agricultural markets? Natural resource markets? Financial markets? When and why is foreign ownership a problem? Under what conditions do politicians have incentives to align with foreign capital, domestic capital, labor, or some combination thereof? What are the individual-level preferences of investors, labor market participants, and the like that underpin the development of enclaves? In short, what kinds of comparative advantage are most likely to produce dependency? Economic Geography as Precursor to a Reinvigorated Dependency Theory What makes the lack of micro-foundations particularly glaring in the contributions to this volume is that there has been important work in economics and political science over the last several decades that is of direct relevance to the intellectual agenda of dependency theory. As Herman Schwartz (2007) noted in the pages of this journal 3 years ago, one of the most important would seem to be the “new economic geography” inspired by Krugman's (1991) work on trade and geography. Motivated by the simple observation that production is highly concentrated in space, Krugman develops a simple model of economic cores and peripheries in which small initial differences in endowments between two locations result in radically different developmental outcomes. The key insight of the literature is that local economies can be subject to increasing returns to scale. When increasing returns are present, each additional investment attracts more investments, local job growth promotes migration, and large markets beget larger markets. In such cases, the self-interest of market participants can produce economic asymmetries that closely mirror those between dependency theory's core, periphery, and semi-periphery. In explaining when such dynamics are likely to be present, Krugman emphasizes three factors: the size of the local market, transportation costs, and externalities. As local market size increases, incentives mount for other producers to locate nearby. When combined with positive externalities between firms— externalities that emerge from labor market pooling, knowledge spillovers, or input sharing—agglomeration effects redound to the benefit of the local economy as productivity gains cumulate and growth explodes. Transportation costs work in a parallel manner. As economies of scale mount, the incentives to produce in any given location increase as its transportation networks improve—only thus will initial investments be recouped by serving a broader market through trade. This is true up to the point at which trade is nearly costless, in which case the benefits of spillovers among firms are not mediated by proximity and the forces for agglomeration begin to decline. It is easy to see the relevance of Krugman's insights for the international distribution of production, and subsequent work has emphasized the importance of increasing returns for country specialization, the international division of labor, and development. Related work provides a rigorous modeling of the conditions under which domestically oriented big bangs produce development (Murphy et al. 1989) 444 St Comp Int Dev (2009) 44:441–449 and when production is likely to split off from cores, relocate to peripheries and result in economic convergence between cores and peripheries (Venables 2007). The key difference between these works of economic geography and dependency theory, at least as articulated in the pieces for this volume, is that they have much more precise accounts of the underlying dynamics that produce uneven development. The economic geographers' account of cores and peripheries leaves little room for politics. In Krugman's model, cores emerge for random reasons; initial advantages are often minimal, but once increasing returns set in, cores and peripheries emerge and only rarely do such dynamics break down. But even a cursory understanding of the historical emergence of global capitalism suggests that today's international distribution of wealth is the result of a deeply political process. It does not require a great deal of imagination to marry Krugman's discussion of economic geography with, for instance, Pomerantz's (2000) account of the nineteenth century divergence of European wealth from the rest of the world. Carefully reconstructing price data over the course of centuries, Pomerantz suggests that Western Europe became rich thanks to the increasing returns that set in once the British discovered coal and subsequently used their initial advantages to extract wealth from the rest of the world through colonialism. In this account, the increasing returns that promoted early British industrialization also provided the resources and incentives to politically construct the first truly global capitalist economy. Here, modern-day dependency theorists could bring much to the table by analyzing the political causes and consequences of increasing returns. While economists have done a nice job of identifying the key ingredients of increasing returns, other social sciences have done a poor job of identifying the political correlates, causes, or consequences of increasing returns.1 One promising avenue lies with ongoing attempts to understand “path dependency,” a concept closely related to that of increasing returns, but analyses of path dependency oftentimes lack general mechanisms whereby political dynamics in the past inform the present and future and, therefore, do not lend themselves easily to causal inference. By building more rigorous analytical models of politics onto economic geography's intellectual infrastructure, a reborn dependency theory might provide an empirically compelling and analytically rigorous characterization of today's cores and peripheries. Such an approach to the study of development, to my mind, would represent a stark departure from the current conventional wisdom's emphasis on domestic institutions and provide a reinvigorated dependency theory with some much-needed analytical rigor. Economic Geography and Enclaves One area where research on economic geography might speak very precisely to the concerns of a reinvigorated dependency theory would be with regards to economic enclaves. In this collection of essays, Cardoso revisits the concept and Conning and Robinson focus on dependency qua foreign ownership. It is worth emphasizing that The literature on the “developmental state” in East Asia probably comes closest to fitting the bill, but with few exceptions (see Evans 1995 and Kohli 2004, for instance); it has been disinterested in generalizing beyond outcomes in a single region. 1 St Comp Int Dev (2009) 44:441–449 445 a slightly different approach to enclaves, that inspired by Hirschman's (1958) emphasis on natural resource production, has seen a boom over the last decade. Broadly consistent with the instincts of dependency theory, research on the “resource curse” suggests that oil wealth produces poor developmental and political outcomes.2 It is worth reflecting for a moment on how profound and heterodox the implications of these finding are: under predictable circumstances, countries will worsen developmental outcomes by relying on their comparative advantage and engaging in trade. The problem, however, is that the resource curse literature has suffered from much the same problems as dependency theory—a lack of theoretical precision has promoted the proliferation of hypotheses to explain the empirical findings. The main problem is that the arguments provide limited insight into why natural resources provided the foundation for broad-based economic growth in the USA, Canada, Australia, and Norway (Wright 2001), but seem to produce enclave economies in Nigeria, Venezuela, and Bolivia. In the former cases, democracy, development, and natural resources have gone together. In the latter cases, enclave production has promoted rent-seeking, clientelism, and waves of populism and authoritarianism. So why are natural resources produced in enclaves, with all of their political and economic dysfunctions in some cases while in others they seem consistent with development and stable democracy? Given that production of natural resources in enclaves is just a special case of economic geography, it seems likely that the general theoretical insights from that literature might help answer some of these questions. The simplest hypothesis that would emerge from the economic geography literature is that the local income boom associated with natural resource production will produce positive externalities as the size of the local market increases. Where populations are smaller, less dense, and poorer, local demand will be lower. The returns to natural resources will ensure extractive investments, but the paucity of local demand will militate against positive spillovers to other economic activities. Particularly when transportation costs are high, investments will likely be concentrated only in the high return resource sector—the value to weight ratio of other products will simply be too low to warrant producing them for outside markets, and mineral production will not be associated with increasing returns. It would not be hard to generalize these insights into an account of the international political economy of natural resources that was consistent with diverse national experiences with mineral wealth over the last several hundred years. Of course, such an account would abstract away from important issues of international power—the influence of international oil companies and their home governments in developing international oil markets, for instance—but it is on these more political aspects of economic geography that a reinvigorated dependency theory would have much to add. Indeed, a renewed dependency theory might try to generalize these insights from the economic geography of natural resource production to enclave production more generally and develop systematic arguments as to how different types of economic enclaves encourage politicians to pursue governance strategies that vary in their use of political exclusion and coercion. 2 For a critical look at the resource curse literature, see the essays in Lederman and Maloney (2007). 446 St Comp Int Dev (2009) 44:441–449 Redistribution, Insurance, and Social Democracy in the Periphery If the economic geography literature would provide a reinvigorated dependency theory with more systematic tools for analyzing the international distribution of production and income, two decades worth of research on redistribution would provide it with more rigorous models of how and when politicians deploy the fiscal powers of the state to mediate the domestic distributive effects of participating in international markets. On this point, Cardoso's discussion of “globalized social democracy” is quite optimistic, and the point is picked up in the Evans and Munck contributions. The hope is that, as in Western Europe, participation in international markets can be consistent with redistributive fiscal policy and domestic equity. That hope conflicts with Dependency and Developments more pessimistic diagnosis, which implied that dependent development implied coercive labor practices and pronounced social inequities. The optimistic tone does accord with the dominant account of the relationship between trade, production, and social policy. That account suggests that social policy emerges as a mean to compensate various labor market participants for the risks they face and reflects the electoral power of the left. A key assumption of this story is that the dynamics that underpin the emergence of social policy are common across the developing and developed world. This assumption is most explicit in the work of Lindert (2004), Rodrik (1998), and Adserá and Boix (2002), though a large body of related literature implies as much. Yet, such work fails to consider the fundamental importance of countries' diverse positions in the global economy and how the changing dynamics of global capitalism have altered the incentives for social provision through time. Evans makes a similar point in his contribution to this volume when he suggests that the contemporary international rules of the game militate against globalized social democracy. My point is different, namely, that the nature of production and the underlying features of the global economy that facilitated the rise of the welfare state in the 1950s and 1960s in Europe are wholly gone. Indeed, the literature on redistribution and insurance suggests that individuals' preferences for redistribution and social insurance are a function of their position in the income distribution and their exposure to risk (Moene and Wallerstein 2001), and related research (built largely on the experience of the OECD) emphasizes the importance of electoral systems and collective wage bargaining for fiscal policy and distributive outcomes. While these insights are not directly related to economic openness, it is the case that the operation of the global economy has important implications for national income and risk distributions. Post-war Europe benefited from an ideal set of conditions for the emergence of its version of globalized social democracy. First, the European countries that developed the large welfare states had comparative advantages in labor-intensive manufacturing. External demand for OECD goods in the 1950s was concentrated in metal working and other sectors dominated by Fordist modes of production. This comparative advantage produced large urban working classes that, along with some smallholding rural sectors, provided the political foundations for the growth of the welfare state. Thanks to their votes, parties of the left were consistently able to form governments and implement redistributive policies. Second, manufacturing in the St Comp Int Dev (2009) 44:441–449 447 OECD of the 1950s was a sector heavily dependent on trade and with high profit margins. Given the centrality of trade, the key unions in most European countries were in favor of trade. That these were high margin sectors meant that capital could at least plausibly afford the tax burdens that funded the welfare state. Third and finally, the most industrialized societies were small, trade-dependent ones where the welfare state served to insure against the risks associated with heady levels of external exposure. In these societies, coordinated wage bargaining, which was so central to the insurance-laden systems of the OECD, emerged, in part, as an attempt by cross-class coalitions to mediate the risks of international competition. As Mares (2003) notes, organized employers played a central role in pushing for collective bargaining and risk-sharing policies that provided the political backbone for the insurance component of OECD welfare states. In short, Europe's position in the global economy produced large, free-trading union movements that supported left parties and redistributive spending while capital and labor coordinated risk-sharing policies of social insurance to promote competitiveness and stability in open economies. The changed nature of the global economy in 2009 makes those ideal conditions very difficult to replicate. The single most important difference between the 1950s and the 2000s is the nature of manufacturing. While it is true that much manufacturing has relocated to the developing world, technological innovations allow for much higher levels of productivity with many fewer employees (Krugman 2000). Thus, while globalization has greatly increased global demand for manufacturing, that demand can be satisfied with far fewer workers per unit produced than in the heyday of European welfare state growth. One important political implication is that manufacturing working classes, even in the most industrialized developing nations, are far smaller than those in 1950s Norway, for instance. Indeed, the most industrialized developing countries have manufacturing workforces 25% smaller than Sweden or Germany in 1960.3 So while Chinese and Malaysian working classes might be as free-trading as their counterparts 50 years ago in much of Europe, they form a much smaller share of the working population and have scarce the voice of their predecessors. Second, while manufacturing today is a highly competitive, internationally oriented sector much as it was in 1950s Europe, it is now typically a low-skill, lowvalue added sector with small profit margins. As a result, employers are much more sensitive to the economic costs of social policy than they were in the 1950s in Norway, and one is hard-pressed to find evidence of employers in the developing world leading the charge on the benefits of wage coordination and social insurance. It is also the case that the manufacturing production that has splintered off from the OECD and relocated to the developing world has responded to agglomeration economies. That means that it is the largest economies in the developing world that are attracting the lion's share of industrial production—Brazil, Mexico, China, etc.— whereas it was the smallest countries that became the most industrialized in the OECD. In these large economies, the interests of workers and employers are more heterogeneous and the high levels of political coordination that promoted the welfare 3 Data for developing countries is from the World Development Indicators 2008. The data for the West European countries comes from Iversen and Cusack (2000) and is for the year1960. 448 St Comp Int Dev (2009) 44:441–449 state in Sweden are harder to pull off. When combined with the fact that capital owners typically are much more mobile than 50 years ago, it is hard to imagine employer–labor coordination playing the central role in the development of risksharing policies that provide the backbone for the European welfare states. This all suggests that we need to pay attention to dependency theory's core insight, namely, that there is an international division of labor and that division of labor matters. To that I would add that the international division of labor is dynamic and, therefore, the global economy that made the European welfare state possible in the 1950s and 1960s is dead and gone. That said, the challenge for a new generation of dependency theorists will be to take the micro-logic of the literature on insurance and redistribution seriously, combine it with an understanding of how international markets work, and produce predictions about redistributive politics that reflect contemporary realities in the developing world. Inspired by the literature on risk and redistribution (Moene and Wallerstein 2001; Iversen 2005), dependistas might revisit Przeworski and Wallerstein's (1988) work on the dynamics of capital taxation in contexts of class conflict and extend Mosley's (2003) work on the policy preferences of international capital managers to examine how the network structure of international economic competition conditions domestic conflicts over fiscal policy. Conclusion We are all just beginning to sort through the lessons of the current global economic crisis. As bailout follows bailout in New York, London, and elsewhere, it certainly seems to be the case that the state is structurally dependent on capital. But at a more nuanced level, structural dependence has not precluded the failure of even very big, powerful firms, and the location of national economies vis-à-vis the global financial centers has had important implications for the depth of their crises. To my mind, the most important contribution of Dependency and Development was the way in which it unified analysis at the international level with analysis of the domestic politics that sustained particular positions in the international division of labor. Above, I have recommended two broad bodies of literature in political economy—that on the new economic geography and that on risk and redistribution—upon which a reinvigorated dependency theory might rebuild. While the former literature provides insight into the emergence of cores and peripheries within and between nations, the latter emphasizes the ways in which taxing and spending policies help construct governing coalitions. Both literatures are built on clear micro-foundations, something that the contributions to this volume lack. Aligning those two literatures is no easy task, and it will be a serious challenge to take the further step of linking their micro-logics to the broad macro-political and macroeconomic outcomes that inspire thinkers in the dependency tradition. But the payoffs could very well be high—together, they might just bring dependency theory back to intellectual center stage at a time when much of the world is questioning its dependency on the likes of AIG and Bank of America. Acknowledgment Erik Wibbels would like to thank Rich Snyder and Patrick Heller for their critical engagement with an earlier draft of these pages. St Comp Int Dev (2009) 44:441–449 449 References Adserá A, Boix C. Trade, democracy, and the size of the public sector: the political underpinnings of openness. Int Organ. 2002;56:229–62. Evans P. Embedded autonomy: states and industrial transformation. Princeton: Princeton University Press; 1995. Hirschman A. The strategy of economic development. 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Erik Wibbels is an Associate Professor of Political Science. His research focuses on development, decentralized governance and other areas of comparative political economy.
