The Effects of Foreign Investment Upon Political Protest and Violence in Underdeveloped Societies

• Author: John M. Rothgeb
• DOI: 10.1177/106591299104400102
• Published date: 01 March 1991
• Date: 01 March 1991
• Subject Matter: Articles

THE EFFECTS OF FOREIGN INVESTMENT UPON
POLITICAL PROTEST AND
VIOLENCE IN
UNDERDEVELOPED SOCIETIES
JOHN M. ROTHGEB, JR.
Miami Uniaersity
n
recent years, scholarly attention increasingly has centered upon
the political implications of the many economic linkages that have
evolved rapidly and multiplied since World War II. Keohane and
Nye (1977) argue that these linkages have created an interdependent
world that structures: (1) the conduct of foreign policy and the exer-
cise of power in international politics, and (2) the domestic political
environment and the incidence of local political conflict. A consider-
able body of empirical research has developed to concentrate upon the
first of these problems, with a number of scholars devoting their atten-
tion to the constraints that dependence places upon foreign policy
behavior. For
example, Armstrong ( 1981 ) and Richardson ( 1978) have
examined the relationship between trade linkages and foreign policy
conflict, Dolan et al. (1982) and Dolan and Tomlin (1984) have stud-
ied the effects of dependence upon relations between dominant and
subordinant states, Moon (1983, 1985) has focused upon the effects of
foreign aid upon the recipient’s behavior toward donor nations, and
Rothgeb (1987) has investigated the role played by direct foreign invest-
ments in foreign policy making.
The issues surrounding how dependence structures domestic poli-
tics have been explored less and have not led to much empirical research.
This especially has been true of the study of the impact of dependence
on domestic political conflict (Snyder 1978; Rogowski 1987). As Zim-
mermann (1983: 204-205) notes, external linkages &dquo;have only begun
to gain close attention as predictors of [domestic] political violence and
instability.&dquo; Stohl (1980: 325) and Gurr and Lichbach (1986: 32) con-
1 Interdependence is defined as a situation in which two or more actors have a mutual
need for one another that is based on an exchange of goods and/or services. As
Caporaso (1978: 18) notes, dependence refers to the degree to which any one
actor needs its partners in this ongoing relationship. It is often argued that extreme
dependence leads to the loss both of autonomy and of the ability to make policy.

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10
cur, stating that considerable research is required to determine what
types of conflict are produced by dependence and what sorts of states
are most affected.
The purpose of this research is to explore the effect of interna-
tional dependence upon political instability by investigating the rela-
tionship between direct foreign investment from advanced industrial
societies and political conflict in underdeveloped societies.2 Political
conflict is defined as overt public action by non-governmental actors
that protests governmental policy and that is designed to induce a
change either in the policy or in the composition of the government.
As will be discussed later, political conflict may be separated into
several distinct conceptual and empirical dimensions, including polit-
ical protest, political turmoil, and internal war, depending upon whether
the action taken is non-violent or violent and upon the level of
violence.3
3
The focus upon direct foreign investment stems from Vernon’s (1976:
41) argument that such investments are a key to dependence in the
contemporary international system and Rothgeb’s (1986a: 1987) descrip-
tion of the vast literature that depicts foreign investment as having a
substantial influence upon the political climate of host states. Atten-
tion centers on developing countries for several reasons. The first is
the theoretical consensus found in the international political economy
literature that dependence most affects political conflict in Third World
societies. Krasner (1976: 319), Holsti (1975: 833-34), Gasiorowski (1985:
2
Stock of direct foreign investment is defined as the total value of the holdings of
non-nationals in the host state, with the foreigners retaining managerial control
of their assets. Stocks often are distinguished from flows, which are the total
value of new capital that is introduced into a country during a specific period of
time.
3
Rummel (1966: 66-67), Tanter (1966: 49), and Hibbs (1973: 9) note that domestic
political strife is multidimensional, including such analytically and empirically
distinct elements as protest behavior, political turmoil, and internal war. Gurr
and Lichbach (1986: 5-6, 34) concur, but distinguish in their work between pro-
test, which involves conflict about the content of governmental policies, and rebel-
lion, which centers on attempts to violently overthrow the government. These
authors note, however, the value of differentiating between non-violent and vio-
lent protests, as is done here, where protests and turmoil reflect this difference.
One important point should be noted regarding these differing types of conflict:
they are both conceptually and empirically distinct from one another. That is,
previous empirical research indicates both that the various forms of behavior that
serve as indicators for these types of conflict form empirically separate dimensions
when factor analyzed (Rummel 1966; Tanter 1966) and that different types of
social forces appear to produce each of these forms of conflict (see Hibbs 1973;
Gurr and Lichbach 1986).

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11
341), and Clark (1989: 173) explain that poorer states have fewer
resources and therefore are more influenced by international penetra-
tion. A second reason is that diplomats and policy-makers tend to see
foreign investments as a panacea for Third World problems ranging
from promoting economic growth to handling the debt crisis. Finally,
it is generally agreed that domestic conflict in underdeveloped coun-
tries is a key source of international tension.
Thus, it would seem that there is a need for research to investigate
the association between investment dependence and domestic conflict
in underdeveloped societies. Such research may be especially impor-
tant because the very strategies that are promoted as a means for achiev-
ing growth and development may lead to internal conflict.
The following pages begin by briefly outlining the discussion in
the international political economy literature regarding the association
between dependence and political conflict. Three basic views of this
relationship are described. The first treats dependence as leading to
more conflict by reinforcing the deprivation found in poor societies.
The second sees dependence as creating conflict by inducing group
mobilization to secure political benefits. The third takes a classic lib-
eral view, arguing that international linkages facilitate the transfer
and the efficient use of resources, and that this reduces the probability
of conflict because it satisfies some of the demands placed upon soci-
ety. After these views are outlined, systematic empirical analysis based
upon the use of a cross-national research design is employed to test
their validity.
FOREIGN INVESTMENT AND POLITICAL CONFLICT
The Deprivation View
The argument undergirding the deprivation view is that a large
foreign presence undermines the legitimacy of the ruling elite and
accentuates class differences so that the masses become enraged and
resort to violence. These contentions have much in common with the
arguments made by scholars who have analyzed domestic conflict as a
product of severe deprivation. In general, such scholars treat a climate
of resource scarcity (which, by definition, is present in all Third World
states) as a basic ingredient in the formula that leads to conflict (see
Weede 1981: 651; Midlarsky 1982: 3-4; Midlarsky and Roberts 1985:
165-67). Midlarsky (1988: 492) argues that within the context of such
scarcity an important condition needed to spark problems is the &dquo;dif-
ference principle,&dquo; which refers to the existence of a privileged group

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12
that does far better than most members of society. When such a group
exists, resentment centers upon it, and when this group also is per-
ceived as lacking in legitimacy, then the probability of a social explo-
sion is seen as increasing substantially (see Gurr 1968: 1106).
Two views are found regarding the means by which investment
dependence creates social differences and undermines the legitimacy
of the ruling elite. The first sees dependence as having its greatest
effects in very poor societies, where it exacerbates the problems asso-
ciated with a dearth of resources and contributes to the development of
a favored class. This happens because of the asymmetrical nature of
the relationship between rich and very poor actors, which favors wealth-
ier actors to such an extent that they are able to dominate the poorer
partner. Dolan et al. (1982: 389) maintain that asymmetries result
when one actor has substantially more resources than does its partner
and when it is more intensely involved in the relationship.
Rothgeb (1987: 237) contends that poorer countries face just this
situation when they are host to a high level of foreign investment in
manufacturing. The poverty of such countries means that resources
are scarce, especially when compared to the financial might of multi-
national corporations (see Rothgeb 1989: 1-10). Poverty also leads to a
greater intensity of involvement by increasing the government’s per-
ceived need for foreign support to help with its development programs
(see Duvall and Freeman 1981: 112; Rothgeb 1986b: 133). Govern-
mental reliance is especially acute when the investments are in manu-
facturing because this...