An Economy of One’s Own: Foreign Capital
and the Making of Productive Independence
and the Making of Productive Independence
By: Lualhati Madlangawa-Guererro
The opposition between attracting foreign investment and undertaking self-industrialization rests on a confusion about the meaning of development. Foreign direct investment describes a relationship of ownership and control across borders. Industrialization describes the acquisition and organization of productive capabilities. The first may contribute to the second, but neither its presence nor its volume establishes that the second has occurred. To announce a preference for foreign investment “rather than” self-industrialization is therefore to place an instrument and an objective on opposite sides of an argument. Before choosing between them, one must explain why a country’s effort to develop its own productive competence should exclude the use of foreign capital.
Self-industrialization, in the defensible sense of the term, means that a society assumes responsibility for building and reproducing that competence. It need not manufacture every machine it employs, prohibit foreign ownership, or finance every undertaking from domestic savings. It may import equipment, purchase licenses, borrow abroad, welcome foreign enterprises and enter international production networks. What makes the process its own is the deliberate cultivation of institutions, workers, suppliers and technical knowledge through which these external resources enlarge domestic possibilities. The criterion is the capacity increasingly to shape economic participation, rather than the geographical purity of every input.
Autarky addresses a different question. It seeks economic self-sufficiency through the exclusion or drastic reduction of external exchange. Productive self-reliance can instead increase a country’s ability to trade because it gives that country more to offer, more partners to approach and more activities in which to compete. A country that learns to manufacture components may import more sophisticated machinery than before; one that develops engineering competence may enter more international partnerships. Greater external exchange and greater domestic capability can develop together. Dependence is consequently not measured by trade alone, but also by the availability of alternatives and the distribution of knowledge and decision-making power within the relationship.
This distinction should govern the reply to the unnamed argument under consideration. Favoring foreign investment does not, by itself, constitute an admission that industrialization is unnecessary. Foreign investment can establish factories and support substantial industrial learning. The objection becomes justified when investment attraction is presented as sufficient, when domestic capability-building is dismissed as obsolete, or when existing comparative advantages are treated as a permanent national assignment. It is this stronger proposition that deserves criticism. Attributing it to every advocate of foreign investment would weaken the argument by making an enemy of people who may agree that investment must support domestic transformation.
A government’s investment statistics cannot settle the matter. The acquisition of an existing enterprise, the construction of a new factory and the establishment of an engineering center may all appear under the broad heading of foreign investment, although their developmental consequences differ. Even a new factory can vary greatly in its contribution: it may cultivate local suppliers and technical management, or perform a narrow operation whose equipment, inputs and principal decisions remain external. Neither arrangement is necessarily worthless. The question is whether the country has a strategy for moving beyond the capabilities it initially possesses, and whether public concessions purchase benefits that would otherwise be unlikely to occur.
The distinction becomes clearer when South Korea is invoked. Its early industrial ascent cannot accurately be reduced to a policy of making itself attractive to foreign equity. KDI’s account of Korean investment policy describes an early preference for foreign loans over direct investment, partly to preserve domestic control over industrial development, followed by greater openness to FDI and later extensive liberalization. That history demonstrates both the importance of external resources and the inadequacy of treating all forms of external capital as interchangeable. It also cautions against romanticizing borrowing: debt creates repayment obligations and financial vulnerabilities of its own.[1]
The inference is not that the Philippines should reproduce Korea’s historical financing arrangements. It is that a development strategy must decide how different financial arrangements serve industrial objectives. Foreign equity may be preferable where it brings expertise, access to customers and a willingness to bear commercial risk. Borrowing may preserve ownership while imposing risks that the borrower cannot safely absorb. Licensing may transfer particular knowledge without transferring an entire enterprise. The choice requires appraisal of the activity, institutional competence and bargaining position involved. Declaring a universal preference for attracting capital evades these differences.
Nor does Korea establish that industrial policy requires authoritarian government. That claim confuses a feature of a particular historical regime with a necessary condition of productive development. The relevant question is whether institutions can coordinate investment, acquire information, enforce performance and revise unsuccessful policies. Repression does not supply those capacities merely by suppressing opposition. It can also conceal failure, protect favored interests and deprive government of information. An industrial policy should be judged on the competence and accountability of its administration; the ability to silence criticism is no substitute for either.
France supplies an important corrective, provided its example is stated with historical care. France was already an industrial country before its postwar planning institutions were created. Its experience concerns modernization and reconstruction as well as the much longer history of industrial development; it should not be presented as though a single plan created French industry from nothing. Nevertheless, the Commissariat général du Plan, established in January 1946 under Jean Monnet, preceded Korea’s principal industrial drive and coordinated priorities that included electricity, steel, transport and agricultural machinery. Its methods brought public officials, engineers, academics and social partners into organized deliberation.[2]
Postwar French planning operated within a parliamentary republic, and subsequently within the institutions of the Fifth Republic. It therefore defeats the categorical assertion that deliberate industrial coordination belongs exclusively to extreme authoritarianism. This observation does not certify every French policy as efficient or every exercise of French state power as democratic. The narrower conclusion is sufficient: public direction of modernization and political dictatorship are not identical concepts. One can debate the scale, instruments and results of planning without pretending that the only alternatives are political liberty without industrial purpose or industrial purpose without political liberty.
France also exposes the artificial opposition between industry and the knowledge economy. In presenting France 2030 in October 2021, Emmanuel Macron connected innovation with the capacity to turn prototypes into industrial production in France. The policy’s stated ambition was not to substitute knowledge for productive activity, but to connect research, demonstration and production.[3] This is evidence of an official objective, not proof that every funded project succeeded. Yet the objective itself is instructive: an advanced economy can seek greater technological sophistication precisely by developing its industrial base.
The expression “knowledge economy” becomes misleading when it suggests that the material organization of production has ceased to matter. Software requires computing equipment and reliable electricity; medical research requires laboratories and the capacity to manufacture under exacting standards; sophisticated agriculture depends on machinery, storage, measurement and transport. Some of these requirements can sensibly be imported. The mistake is to infer from the possibility of importing them that no domestic competence is worth developing. Knowledge has economic force partly because institutions can embody it in reliable products, processes and services.
Services should consequently be treated with seriousness rather than contempt. Engineering, logistics, design, finance and software can contribute directly to industrial productivity, while internationally traded services can sustain valuable employment in their own right. There is no need to diminish Philippine achievements in services to argue for industrial development. The developmental problem is the weakness of connections among activities and the uneven distribution of opportunities to learn. A World Bank discussion of the Philippine economy identified precisely the missing connections between services, manufacturing and agriculture, while arguing for greater innovation and services content in production.[4]
The Philippines therefore need not retrace every stage of nineteenth-century industrialization. It can adopt newer technologies, combine services and manufacturing, and avoid investments whose environmental or commercial costs exceed their prospective benefits. What it cannot do is dispense with the acquisition of competence and describe the omission as advancement. A country may leap over a superseded technology; it cannot leap over the need to understand, maintain, adapt and organize the technologies on which its prosperity depends. The necessary developmental phase is a process of learning and institution-building, not a compulsory inventory of smokestacks.
Comparative advantage remains relevant to this process. Resources are scarce, and an economy that attempts everything simultaneously may dissipate its strength. But a comparison of present costs does not by itself answer which capabilities can profitably be acquired over time. Training, infrastructure, accumulated experience and coordinated investment can change the terms of that comparison. The argument for development begins where an existing pattern of specialization is mistakenly converted into a prohibition against changing it. Present advantage is information for judgment; it is not a constitutional settlement governing the occupations of future generations.
This does not give governments permission to disregard costs indefinitely. A prospective industry must have a plausible route toward improved productivity or supply a clearly specified public benefit that justifies its continuing expense. Support should be revisable, and failure must remain an admissible finding. An enterprise cannot prove its developmental value by attaching the word “national” to a demand for assistance. The case for building productive capabilities is strongest when it incorporates this discipline, because indefinite protection of poor performance consumes the resources that other learning opportunities require.
China and Vietnam enter the discussion at this point, although neither should be treated as an uncomplicated model. Their use of foreign investment demonstrates that market participation and external capital can be incorporated into a political project that retains objectives beyond the attraction of investors. The relationship between these instruments and the proclaimed socialist destination remains open to criticism. What cannot reasonably be inferred is that the presence of foreign enterprises establishes an official abandonment of developmental purpose in favor of the unrestricted authority of international capital.
China’s official position states the compatibility directly. In June 2023, Xi Jinping linked self-reliance to stronger connections between domestic and international markets and declared, “Only by opening up can China realize modernization.”[5] The statement should be read as evidence of the government’s declared approach, not as an independent verdict on its conduct. It nevertheless contradicts the suggestion that self-reliance must mean a closed economy. In that formulation, international participation is meant to contribute to national modernization, while domestic strength provides the basis for sustaining the relationship.
Vietnamese official political-economic discussion makes a related connection. A 2026 article published under the Ho Chi Minh National Academy of Politics describes the relationship between an independent, self-reliant economy and extensive international integration as a problem to be resolved in the process of building socialism.[6] The significance is conceptual: integration and self-reliance are presented as objectives requiring reconciliation, not as mutually exclusive choices. Whether particular policies actually strengthen domestic enterprises, improve working lives and reduce vulnerability requires further evidence; the declared relationship does not settle those empirical questions.
Here the idea of necessary conditions deserves careful treatment. Foreign investment, infrastructure, export access and industrial employment may create conditions for further transformation without constituting that transformation in full. In an officially socialist account, such conditions are justified partly through the material possibilities they are expected to open. A government with a different political philosophy might justify similar instruments through employment, national independence or regional development. The instruments do not determine the ultimate purpose by themselves. Their meaning depends on what institutions are expected to do with the capacities and resources they create.
Neither necessity nor sequence guarantees an eventual destination. An export enclave does not automatically become an integrated industrial system; a growing productive economy does not automatically become socialist; a successful factory does not automatically generate effective social provision. The word “transitional” can conceal permanent arrangements if there is no mechanism for moving beyond them. Anyone defending foreign investment as a necessary condition must therefore explain the connection to the next stage: how suppliers improve, how workers acquire transferable skills, how public revenue supports wider development and how domestic institutions gain the ability to undertake more demanding activities.
That requirement sharpens the criticism of a certain globalist political economy. The difficulty is not its recognition that international cooperation can be beneficial. It is its tendency, where that tendency occurs, to judge national policy chiefly by the convenience it offers mobile capital. Public purposes then become permissible insofar as they attract investors, while investors’ requirements acquire the standing of public purposes. It would be inaccurate to attribute this position to every liberal economist or supporter of open trade. It is nevertheless a coherent position, and one that can be identified whenever a government is encouraged to surrender developmental judgment while remaining energetic in providing concessions.
Such a government is not necessarily a small government. Preparing investment locations, financing infrastructure, administering incentives and protecting commercial arrangements can require extensive public action. The issue is the direction of that action. A state may be highly active in making a country usable by investors while remaining passive about the capacities its population acquires. Calling this arrangement neutral obscures a substantive choice: the allocation of public effort toward securing investment, with the broader developmental outcome entrusted to effects that may or may not materialize.
The pandemic made the consequences of fragile supply arrangements harder to ignore. OECD research on the COVID-19 shock found that foreign supply disruptions had particularly large effects where supplying countries and firms were highly concentrated. Its simulations also found substantial benefits from supplier diversification, with only limited additional benefits from partial onshoring.[7] This evidence supports neither complacency nor a universal retreat behind national borders. It requires a more discriminating discussion of resilience, in which the distribution of suppliers matters alongside the location of production.
The charge of autarky is therefore misplaced when directed indiscriminately at domestic capacity-building. A proposal to develop selected capabilities, maintain essential inventories or reduce dependence on a single source must be evaluated on its actual design. It is not equivalent to a proposal to abolish foreign trade. Conversely, the experience of disruption cannot justify every demand for domestic production. A locally concentrated supply chain can also fail, and attempting to internalize an entire international production system may introduce costs and vulnerabilities greater than those it removes. The objective should be credible alternatives under stress.
The post-pandemic debate has also exposed the weakness of portraying domestic industrial ambition as an anachronism reserved for poorer countries to outgrow. France’s contemporary efforts to link innovation and production illustrate that advanced economies continue to regard productive capacity as a matter of policy. The appropriate inference is not that every French subsidy should be copied, but that the substantive question cannot be dismissed by announcing the arrival of a knowledge economy. A developing country is entitled to inquire which capacities it should acquire even when established economies already possess them.
For the Philippines, that inquiry should begin with identifiable constraints and opportunities. Reliable power, workable freight connections, technical education, testing facilities and access to finance can make existing enterprises more productive while allowing new ones to emerge. Public policy should examine how these provisions connect agriculture, manufacturing and services across regions. Their value should not depend solely on whether they serve a celebrated foreign investment. Infrastructure that local producers cannot effectively use may improve an enclave without sufficiently improving the economy surrounding it.
Foreign investors can participate constructively in such a program. Supplier development, technical training, research partnerships and opportunities for local managers can be supported where they make commercial and developmental sense. The state must recognize that investment involves negotiation: demands unsupported by local capabilities may deter useful activity, while concessions without scrutiny may subsidize activity that would have occurred anyway. A realistic policy builds the host economy’s competence and bargaining position rather than assuming that either generosity or severity invariably produces the desired result.
Domestic ownership requires equally careful judgment. A locally owned enterprise may innovate, train workers and reinvest, or it may preserve a protected position while relying on imported equipment and seeking rents. A foreign-owned enterprise may make a substantial contribution to domestic competence. Ownership matters because it affects control, income and strategic choices, but it cannot substitute for an examination of conduct. Self-industrialization should enlarge the productive abilities available within the country, rather than merely distribute privileges to citizens who happen to own firms.
Education belongs at the center of this undertaking. A development policy cannot be satisfied with adapting successive generations to the immediate requirements of whichever employers arrive. It must cultivate literacy, numeracy, scientific understanding and the capacity for further learning. Specialized training has its place, but a population whose knowledge is confined to a narrow task remains vulnerable when that task changes. The purpose of education extends to citizenship and personal development; even in economic terms, its value exceeds the production of compliant labor for present vacancies.
A democratic industrial policy must also make its commitments answerable to those who bear their costs. Workers, consumers, taxpayers and affected communities should be able to question the terms of assistance and the distribution of its benefits. That scrutiny can improve the information available to government and expose arrangements that survive through patronage rather than performance. The response to the authoritarian objection is therefore not to promise that national purpose will excuse arbitrary power, but to make the acquisition of productive capacity compatible with public examination and correction.
Self-industrialization is best understood as the assumption of responsibility for this continuing work. It permits foreign capital because foreign capital can help. It permits imports because imports can make domestic production more capable. It permits specialization because resources must be used intelligently. What it refuses is the conversion of these practical arrangements into an argument that the country need not develop the ability to choose, adapt and undertake more for itself. The distinction concerns who accepts responsibility for development and what evidence will establish that development is occurring.
The proper answer to the preference for investment attraction “rather than” self-industrialization is consequently a demand for a fuller account of purpose. Investment should be welcomed where it contributes to employment, learning and an expanding range of productive possibilities. Its success should be assessed through those contributions, not presumed from its arrival. A country becomes more self-reliant when participation in the world economy enlarges its alternatives and strengthens its institutions. That achievement may require extensive international cooperation. It also requires a domestic developmental undertaking that no foreign investor can be expected to conduct on the nation’s behalf.
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References and source notes
[1] SaKong, I., & Koh, Y. (2026, August 26). Evolution and strategic impact of South Korea’s foreign direct investment (FDI) policy. K-Developedia. https://www.kdevelopedia.org/k-db-originals/evolution-and-strategic-impact-of-south-koreas-foreign-direct-investment-fdi-policy
[2] France Stratégie. (2016, January 7; updated 2025, September 8). Du Plan à France Stratégie. Haut-commissariat à la stratégie et au plan. https://www.strategie-plan.gouv.fr/du-plan-france-strategie
[3] Macron, E. (2021, October 12). Présentation du plan France 2030 [Speech]. Élysée. https://www.elysee.fr/emmanuel-macron/2021/10/12/presentation-du-plan-france-2030
[4] World Bank. (2017). The Philippines: Resurrecting manufacturing in a services economy. https://blogs.worldbank.org/en/eastasiapacific/philippines-resurrecting-manufacturing-services-economy
[5] Xinhua. (2023, June 28). China’s self-reliance is not a closed-door policy, Xi says. State Council of the People’s Republic of China. https://english.www.gov.cn/news/202306/28/content_WS649b6b4ac6d0868f4e8dd46f.html
[6] Ho Thanh Thuy. (2026, August 27). Ensuring and maintaining an independent and self-reliant economy in the new era of national development. Political Theory, Ho Chi Minh National Academy of Politics. https://politicaltheory.hcma.vn/ensuring-and-maintaining-an-independent-and-self-reliant-economy-in-the-new-era-of-national-development-13765.html
[7] Schwellnus, C., Haramboure, A., & Samek, L. (2023). Policies to strengthen the resilience of global value chains: Empirical evidence from the COVID-19 shock. OECD Science, Technology and Industry Policy Papers, 141. https://doi.org/10.1787/fd82abd4-en