from typical developing country bureaucracies in their real power, authority,
technical competence, and insulation from short-term political pressures in
shaping development policy.
The fourth factor was that state power and autonomy was consolidated early
in the development process. In East Asia large landlords were destroyed
through programmes of land reform, especially in Taiwan and Korea. In
Singapore the initially politically powerful Chinese business class was weak-
ened by relying on foreign investment through MNCs. In Latin America devel-
opment was hindered by powerful agricultural landlords, an emerging middle
class and deeply entrenched foreign business. Chapter 9 discusses the argu-
ment that certain colonial countries (particularly the Japanese in South Korea
between 1910 and 1945) made a much greater effort than others (such as the
Belgians in the Congo) to construct a strong state and bureaucracy.
A fifth factor has been the widely perceived legitimacy of even non-demo-
cratic developmental states. This has supported government policies for long-
term economic growth,even though it implied the population would not
benefit in the short run through higher consumption and wages. Some authors
have explained this as a sort of culturally ingrained respect for the government
and its leaders. Others have argued that government legitimacy was hard won,
based on promises to promote the rapid economic growth and industrialization
that would make certain countries more secure in the dangerous world of the
Cold War. In the 1950s Japan felt threatened by Russia, South Korea by North
Korea and Taiwan by China.
Foreign direct investment
There is a longstanding presumption among dependency writers (see Chapter
13) that the most important consequence of FDI is not the initial investment it
brings to a developing country, but rather its longer term drain on resources.
This argument is known as the ‘drain of surplus theory’. In the long term FDI
will cause profits, royalties, expatriate wages and various license fees to flow
back from the developing country host to developed countries. In recent years
MNCs have often been accused of enhancing this process by paying low wages
to developing-country staff and manipulating accounts and prices to avoid
paying taxes. Even developed countries are not immune to this process.
The internet firm Google, for example, despite having revenue in the UK of
£2.6 billion in 2011, paid only £6 million in tax.
There is little evidence to suggest that FDI in general is a mechanism by
which the richest countries target the poorest developing countries. Most FDI
occurs between developed countries. Eighty percent of US investment goes to
other high income countries. The EU in the late 1990s held 39 per cent of the
world stock of FDI, the US 19 per cent,Hong Kong 6.6 per cent, China 5.8 per
cent, and Singapore 1.5 per cent. By comparison all of Sub-Saharan Africa
held only 1.7 per cent of the total (Wolf, 2004). A common contemporary
Domestic and Foreign Direct Investment 75