Export-led growth and increased autonomy have proved elusive goals for most developing countries. Most are constrained by limited resources and by intractable domestic agendas that impede their capability to implement policy. The grinding together of internationally mobile capital and intellectual resources against immobile labour has produced acute dilemmas for choosing policy and reconciling conflicting objectives. Where some have attempted to ignore international structural changes, others, perhaps grudgingly, have accepted the need for change and grasped the nettle of internal adjustment. Few have rivalled Singapore's enthusiasm for harnessing the multinationals as agents of growth and economic transformation.

In chapters 1 and 2, we laid out some of the broad lines of argument about how national choices are conditioned by the international political economy. Chapter 3 described how multinationals' strategies are similarly being shaped by the combination of external and internal forces. In this chapter we begin to assess how the changes can both bring together states and firms in partnership and also pull them apart. Figure 4.1 suggests one way of looking at the emerging relationships. National resources, combined with policy choice, affect both the appropriateness of various forms of firm strategy and the nation's attractiveness to existing and potential investors. Multinationals' resources and ambitions shape both their global strategies and choices of location. The lines of causality and interaction go both ways, affecting the performance of both players.

The focus of this chapter is on the government side of the equations. We aim to illuminate the nature of their dilemmas and to show how they affect the bargaining relationships with foreign investors.