cores, peripheries, and contemporary political economy

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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, andChina 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 contributionsthat 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 ofinternational markets constrains choices, and that different forms of integration,

therefore, produce different kinds of constraints. I also agree with the widely argued

St Comp Int Dev (2009) 44:441449

DOI 10.1007/s12116-009-9044-1

E. Wibbels (*)

Department of Political Science, Duke University, 306 Perkins Library, Durham, NC 27708, USA

e-mail: [email protected]


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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 agreat 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 theimportance 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 operatesthe 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 self-

interest of the individuals who make up those economies. A micro-foundational

approach to dependency would work toward identifying the key actorsMNC

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

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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 whyis 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 differentdevelopmental 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 sharingagglomeration 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 improveonly 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)

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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 dataover 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 increasingreturns, 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

1 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.

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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 out-

comes.2

It is worth reflecting for a moment on how profound and heterodox theimplications 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 theorya 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 inNigeria, 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 thatwould 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 sectorthe 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

powerthe influence of international oil companies and their home governments in

developing international oil markets, for instancebut 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).

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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 wouldprovide 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 Adser and Boix (2002), though a large body of

related literature implies as much.

Yet, such work fails to consider the fundamental importance of countries' diversepositions 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 manufactur-

ing. 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

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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 thewelfare 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-sharingpolicies 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 unitproduced 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, low-

value 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 productionBrazil, 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.

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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

employerlabor coordination playing the central role in the development of risk-

sharing policies that provide the backbone for the European welfare states.

This all suggests that we need to pay attention to dependency theory's coreinsight, 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 revisitPrzeworski 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 globaleconomic 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--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 economythat on the new economic geography and that on

risk and redistributionupon 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 hightogether, 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.

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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.

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