The dependency theory is based upon a model of world economics with a center and a periphery. At the center are the developed countries of the United States and Western Europe; on the periphery are the developing countries of the Third World. Basically, the dependency theory argues that: 1) the interest of the multinationals lies in inequality in the periphery states, where the demand of the elite is the only effective market for the corporate goods, but equality in the central states, where the masses can afford the corporations' goods; 2) the peripheral states are powerless to control the behavior of the multinationals; and 3) inequality is in the interest of the dominant social class formation of the periphery.
The multinational corporations, headquartered in the center (developed) countries, foster dependence on the part of the countries on the periphery both indirectly and directly. Indirect dependence results from the net outflow of capital from the periphery to the center, an outflow caused by the corporations. This, in turn, creates balance of payments deficits which must be financed by foreign loans; this lending situation, in turn, causes the developing countries to lose national political autonomy, since the lending institutions gain the right to participate in the policymaking process of the debtor countries. Direct dependency results from the corporations using their advantages of capital and technology to acquire a position of dominance within the most dynamic sectors of private economic activity; the corporations thus end up in control of the most important positions within the economy.
Ultimately, argue the dependency theorists, foreign investment, or other economic contact between the developed and developing countries, has had uniformly disastrous effects on the economic and political fortunes of the poor countries. Multinational corporations tend to take more money out of the developing countries than ...