Academic journal article International Social Science Review

Multinational Corporations and Economic Development: The Lessons of Singapore

Academic journal article International Social Science Review

Multinational Corporations and Economic Development: The Lessons of Singapore

Article excerpt


Today, multinational corporations (MNCs) comprise a central place in the world economy. Before World War II, terms such as "multinational" or "transnational" were seldom used to describe international economic relations. Although transnational entities like the British East India Company and joint-stock enterprises existed in the past, the expansion and proliferation of multinational agents is a recent phenomenon. The hyperbolic spread of transnational activity has spawned a spirited debate and the concomitant development of theoretical models that seek to explain their causes and effects.

This study examines why MNCs gravitate toward certain economies and not others. The cause for this is to be found primarily at the state level and governmental policies designed to reduce market risks (i.e., political instability, inadequate infrastructure, and a poor regulatory environment) for prospective investors. Two competing paradigms seek to explain state policies and foreign investment decisions. The neoclassical model is predicated on the self-sufficiency of the market and prescribes a reduced role for the state. Dependency theory, which is far more skeptical of multinational activity, asserts that state institutions become hostage to foreign capital. Both paradigms, however, fail to explain the rise of multinational corporations and economic development in Singapore. Recognizing that Singapore is poorly endowed in natural resources, state leaders adopted a series of measures that reduced market risks and created a host country climate attractive to foreign investment. The process of modernization in Singapore was inextricably tied to liberal foreign investment policies that sought integration into the world economy. The state was an instrumental agent that spearheaded growth and was not controlled by powerful multinationals centered in more developed countries.

Alternative Explanations

A. The Neoclassical School and State Involvement

In the neoclassical conceptualization of a world economy composed of small, decentralized, and unitary agents, state intervention in the economy is discouraged. (1) The collective interplay of self-interested rational actors produces an equilibrium outcome that is socially optimal. According to the Ricardian principle, not every country can produce every good it needs. Consequently, nations sell those goods and services in which they have a comparative advantage. It is understood that certain countries can produce some goods more efficiently than others. (2) For instance, Patrick J. Buchanan, a prominent conservative commentator, once lamented the fact that he had purchased two dozen roses imported from South America for his wife for Valentine's Day. A vocal critic of free trade, he recommended that the United States should try to cultivate its own rose industry rather than be dependent on imports. (3) In so doing, Buchanan failed to realize that South America can produce roses more efficiently than the United States because its climate is much more conducive to growing roses in February. In order for Americans to produce roses during winter, green houses would have to be established everywhere, and as such, resources would have to be diverted from the efficient production of other goods such as cars or computers. This would deviate from the principle of comparative advantage which asserts that states need to take advantage of their differences and create those goods which they can produce most efficiently and sell them in international markets unencumbered by trade and investment barriers.

Since the neo-classical model is predicated on the self-sufficiency of the market, the policy recommendation is that states should play a minimal role in the economy. According to Adam Smith, the father of laissez-faire economic theory, state intervention should be restricted to three areas: ensuring domestic security (i.e., the establishment of rule of law); providing national security; and, the provisioning of public goods (e. …

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