How Indonesia’s President Joko Widodo Rejuvenated Dependency Theory 

During the sixth session of the G-7 Summit in Hiroshima, Japan on May 21, Indonesian President Joko “Jokowi” Widodo underlined the right of every country to development, which must be respected. As part of that, countries in the Global South should be able to export more than just raw materials, moving away from colonial-era practices.

While Indonesia is gradually reducing its dependence on commodity exports, it remains open to fair and mutually beneficial cooperation in other ways. Jokowi hoped that the G-7 countries could become partners in Indonesia’s downstream industry.

In fact, Indonesia has made an effort to industrialize downstream by banning exports and requiring internal processing of certain raw materials, starting with nickel ore. the policy was disputed by the European Union. In addition to France, Germany and Italy as EU member states, the other G-7 countries – Canada, Japan, the UK and the US – are among the 15 third parties supporting the EU in its lawsuit.

Last year, the World Trade Organization (WTO) ruled that Indonesia’s export ban and domestic processing requirement violated multilateral trade agreements. Indonesia subsequently appealed the decision to the Appellate Body of the WTO. Meanwhile, Jokowi announced Indonesia’s plan to ban exports of other raw materials such as tin, bauxite and copper.

Through export bans and domestic prosecution obligations, Indonesia under the Jokowi regime seems to be rejuvenating the “dependency theory” that emerged in the 1950s and 1960s. Pioneered by Argentine economist Raúl Prebisch, the theory studied the underdevelopment by emphasizing how the restrictions imposed by the global political and economic system initiated the flows of resources from the poorest to the richest countries.

Do you enjoy this article? Click here to subscribe for full access. Just $5 a month.

Prebisch’s work, “The economic development of Latin America and its main problems”, explored how Latin America’s economic development was hampered by its reliance on commodity exports, which were vulnerable to price fluctuations. He advised Latin American countries to industrialize and diversify their economies to reduce dependency and promote growth.

The theory assumes that underdevelopment arises from the peripheral position of the countries of the Global South within the global system, created predominantly by the “core countries” in the Global North. The countries classified as “periphery” employed unskilled labor and supplied raw materials to the “core” countries to facilitate the production of higher value-added goods. Such a system resulted in the dependence of the Global South on the Global North, creating a structural imbalance that perpetuates the underdevelopment of the former while enriching the latter.

The theory presented empirical evidence from the Latin American region to validate its assumption of the periphery-centre dichotomy. By contrast, in the 1980s, some Asian countries, such as South Korea, Taiwan, Hong Kong, and Singapore, were able to break out of the dichotomy and become newly industrialized countries. They succeeded by harnessing skilled labor and entrepreneurship in the absence of abundant natural resources.

Since then, the relevance of dependency theory has been fading with the wave of globalization. Countries on the periphery have greater access to foreign capital, technology transfer, and participation in global value chains, which can potentially help them break out of the cycle of dependency.

Although globalization has challenged the central assumptions of dependency theory, certain aspects of the theory remain useful for understanding global inequalities and the dynamics between developed and developing countries. In particular, the theory remains relevant to the development trajectory of resource-rich countries such as Indonesia.

The theory suggests that underdeveloped countries rich in natural resources may be trapped in a cycle of exporting low-value raw materials. They face challenges in accumulating capital and investing in industrialization due to the low income generated by commodity exports, leading to persistent underdevelopment.

From 1950 to 2020, Indonesia was highly dependent on exports of low-value-added commodities, including raw minerals. It made the country vulnerable to price fluctuations in the global market and prevented the Indonesian economy from unleashing its potential for better growth. Dependence on natural resources limited the country’s ability to move up value chains and industrialize, trapping Indonesia in persistent underdevelopment.

Jokowi’s comments at the G-7 Summit align to some extent with the principles espoused by dependency theory. He referred to the Global South and emphasized the right to development and the need to add value to natural resources, echoing the basic tenets of dependency theory.

Jokowi addressed Indonesia’s persistent underdevelopment by rejecting the outdated model of relying heavily on exports of raw materials and shifting to exporting higher value-added mineral products. To that end, he stressed the importance of fair and mutually beneficial cooperation, which echoes the critique of unequal exchanges theory.

To address the structural imbalances described by dependency theory, Jokowi invited the G-7 countries to become development partners and bring capital to invest in Indonesia’s downstream industry. However, those countries in the Global North might still be wary of responding to the invitation if Indonesia insists on a policy that disrupts global value chains. This is a vicious circle in the rejuvenation of dependency theory.

Source link

Leave a Reply

Your email address will not be published.