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Essay Writing in Political Economy

Three Theories of Underdevelopment

by Bill Lucarelli on April 15, 2018

There are numerous, competing theories that inform the study of development economics. We will examine three major theories. The approach will be eclectic in the sense that each theory will be examined in terms of its insights into the development process as well as its major weaknesses.


Although there does not exist a systematic Marxian theory of development, the theory is implicit in Marx’s study of the laws of motion of the capitalist mode of production in his 3 volumes of Capital. Marx traces the development of the capitalist mode of production from the pre-capitalist era of feudalism. Capitalism first emerged in Europe and was imposed, often violently, on other regions of the world. Earlier mercantilist forms of outright plunder and violent expropriation of land gave rise to the process of “primitive accumulation”. However, Marx argues that the prospects for the development of capitalism crucially depend upon the pre-existing modes of production. He supports this thesis by comparing feudalism with what he describes as the “Asiatic” societies. Whereas the dissolution of feudalism was favourable for the expansion of capitalism in Europe, the opposite is the case in Asia. The reason for this contrast was that feudalism had already developed forms of private ownership, while the Asiatic societies were principally based upon the communal ownership of land.

In Europe, the process of primitive accumulation involved the creation of wage labour, which migrated from the rural hinterland to the industrial regions. The eventual triumph of capitalism will depend largely on the historical conditions, which either promote or retard the development of a market economy. Marx also stressed other factors: the influx of precious metals from the “new world”, the slave trade and the growth of merchant capital (Braudel, 1984). The original Marxian theory had envisaged that capitalism would eventually become the dominant economic system on a world scale. The dynamic “inner laws” of capital, driven by the profit motive and accumulation, attracts into the ambit of world trade, all other pre-capitalist societies.

Marx’s earlier writings on colonialism focused on British colonial policy in India. By the nineteenth century, the British East India company had ceased to be profitable as a solely mercantilist enterprise and became a publicly-listed company. As merchant capital, its role in India was wholly destructive because it failed to create the conditions for the growth of capitalism. As soon as it became a capitalist enterprise, however, it acquired the role of industrial capital and began to sow the seeds of capitalist enterprise in India itself.

In other words, Marx argued that the introduction of capitalism in India was a necessary evil. Even though the initial impact of colonial trade was destructive for India, the growth of capitalism would eventually benefit the Indian colony. Furthermore, Marx considers the “Asiatic” mode of production as “pre-historical” in the sense that it had remained in a state of primordial animation and stagnation until contact with European capitalism.

The other major classical Marxian source on the theory of imperialism and underdevelopment is V.I Lenin’s Imperialism: The Highest Stage of Capitalism. Lenin was influenced by the British historian, J.A. Hobson, Nikolai Bukharin’s Imperialism and the World Economy, and Rudolf Hilferding’s Finance Capital. Imperialism is simply defined as the “monopoly stage of capitalism” in which finance capital plays a dominant role as it merges with industrial capital. Furthermore, Lenin highlighted the crucial importance of the export of capital, the escalation of rivalries between competing monopolies and the territorial division of the world between the major imperialist powers.


The failure of capitalism to encourage economic development in the former colonial regions as Marx had envisaged, gave rise to the neo-Marxian theories of underdevelopment. Despite the diversity of views within the neo-Marxian paradigm, there is a consensus that the modern capitalist system can be divided into an advanced “centre” or metropolis, and an underdeveloped “periphery”. The causes of this underdevelopment become the central focus of analysis. Lenin and Bukharin’s theories of imperialism provide the initial inspiration for this revival of interest. Another important source has been Rosa Luxemburg’s The Accumulation of Capital, in which she poses the problem of the “realisation” of surplus value from Marx’s reproduction schemes in volume 2 of Capital. Luxemburg posed the problem in terms of the relationship between the capitalist and non-capitalist sectors of the economy and argued that capitalism required the non-capitalist sector as an outlet for its surplus in order to expand.

Perhaps the most influential of the neo-Marxian current has been Paul Baran’s seminal work, The Political Economy of Growth. In Paul Baran’s analysis, the causes of underdevelopment are attributed to the legacy of imperialism. To highlight this hypothesis, Baran compares the Indian economy, which had been dominated by British colonialism, with the Japanese experience, which had been relatively free from foreign domination. He then analyses the “distortions” caused by colonialism and argues that foreign outlets for investment were essentially governed by the problem of “surplus absorption” within the imperialist centres. Baran’s analysis also prefigured the “dependency” theorists by asserting that these former colonies are condemned as suppliers of commodities for the world market. The failure to develop a domestic market and the growth of luxury consumption by the privileged oligarchy or the “comprador class,” merely perpetuates this underdevelopment. Baran’s central argument was that economic development was not possible under these conditions of neo-colonialism


Dependency theorists assign a modernising role for post-colonial states to induce the process of development. Underdevelopment is viewed as an externally-induced process which is perpetuated by a small but powerful domestic elite who form an alliance with the international capitalist system. The “development of underdevelopment” is therefore systemic and path-dependent.

In the study of international political economy, the concept of “hegemony” has acquired a strategic meaning. Whether implicitly or explicitly, the term applies to one country or a group of nation-states, which form a dominant power bloc within a definite hierarchy of nation-states. In the “world system” literature this configuration is viewed as a zero-sum game between the dominant core, satellite and peripheral states (Wallerstein, 1979 & 2003). A more sophisticated theory of Unequal Exchange was developed by Arghiri Emmanuel (1972), who argued that the international division of labour dictates that the poorer countries produce mostly commodities but high-wage countries produce manufactured goods. Unequal exchange is not so much a consequence of differences in productivity between countries but by the fact that wages are lower precisely because these countries have been designated by the international division of labour to specialise in the production of commodities.

From a historical perspective, capital accumulation has been governed by the law of uneven development. The spatial dimension of economic development has been characterised by a core/periphery configuration (Lewis, 1956). One of the seminal theories of this process of circular and cumulative causation was developed by Gunnar Myrdal who argued that capital movements tend to increase regional inequality by concentrating in the more developed regions (Myrdal, 1957). These are identified as the centrifugal, “spread effects” caused by economic expansion in the core regions which diffuse technology, capital investment and a modern infrastructure to the outlying, less developed hinterlands: “In the centres of expansion, increased demand will spur investment, which in turn will increase incomes and demand and cause a second round of investment and so on. Saving will increase as a result of higher incomes but will tend to lag behind investment in the sense that the supply of capital will steadily meet the brisk demand for it” (Myrdal, 1957, p.28). However, the opposite logic of cumulative causation is evident in the less developed regions. These are identified as the “backwash effects” which merely reinforce the structural and socio-economic disadvantages of these regions.


Baran P.A. (1973), The Political Economy of Growth, Penguin, London.

Baran P.A., & Sweezy P. (1975), Monopoly Capital, Penguin, London.

Braudel F. (1984), Perspective of the World, Vol. 1, 2 & 3, W. Collins, London.

Bukharin N. (1978), Imperialism and World Economy, Monthly Review Press, New York.

Emmanuel A., (1972), Unequal Exchange: A Study of the Imperialism of Trade, Monthly Review Press, New York.

Hilferding R. (1981), Finance Capital, Routledge & Keagan Paul, London.

Hobson J.A. (1902), Imperialism: A Study, James Pott & Co., New York.

Lenin V.I. (1996 [1916], Imperialism: The Highest Stage of Capitalism, Pluto Press, London.

Lewis W.A. (1956), “Economic Development with Unlimited Supplies of Labour”, Manchester School, No.22.

Luxemburg R. (1971), The Accumulation of Capital, Routledge & Keagan Paul, London.

Marx K. (1853), “The British Rule in India”, in Marx and Engels: Selected Works, Progress Publishers, Moscow (1977), pp. 488-94.

Myrdal G. (1957) Economic Theory and Underdeveloped Regions, Gerald Duckworth & Co., Ltd., London.

Wallerstein I. (1979) The Capitalist World Economy, Cambridge University Press, London.

______ (2003) The Decline of American Power, The New Press, New York.

Bill Lucarelli
Dr. Bill Lucarelli is a Senior Lecturer in Economics at the Western Sydney University in Australia. He is an inaugural member of the Society of Heterodox Economists (SHE) and has published 4 books and over 20 articles in peer-reviewed journals.

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