Book Reviews

The reality of globalization

Theodore H. Moran

Beyond Sweatshops

Foreign Direct Investment and Globalization in Developing Countries

Brookings Institution Press, Washington, 2002, v + 196 pp., $46.95/£34.75 (cloth), $18.95/£13.95 (paper).

Attitudes toward foreign direct investment (FDI) have vacillated considerably over time. By and large, outside the communist world, the public favored FDI until the 1960s, when multinational corporations began to draw public criticism for earning their profits at the expense of host countries and dictating their policy agenda to local governments. This change in attitude was followed by the nationalization of foreign assets in many developing countries. After the 1980s debt crisis, FDI regained favor as a more stable alternative to often volatile short-term debt. In recent years, multinational corporations have once again become the targets of vociferous attacks, especially on social and environmental grounds.

Theodore H. Moran focuses on the social impact of foreign companies and their contribution to the development of host countries. The great strength of his book is its large quantity of solid, detailed, and up-to-date empirical evidence. In fewer than 200 pages, the author covers a large field, ranging from the quality of jobs offered by foreign firms operating in developing countries, to concrete strategies for attracting FDI and industrial activity in general, and core labor standards and the institutional mechanisms through which they may be applied.

Moran dispels the notion that most FDI is concentrated in low-wage activities. He presents industry-specific stock, flow, and wage statistics that show that relatively high wage activities outnumber low-wage investment by more than 10 to 1. In host countries whose governments provide suitable educational and physical infrastructure and encourage national and international competition, foreign firms tend to move into increasingly high wage and high value-added production. While many factories do have deplorable labor conditions, Moran shows that it is largely a matter of financial self-interest for firms to take the steps necessary to attract and maintain a more contented and better-trained labor force. Indeed, one of the pillars of successful development is the subcontracting and local purchases by multilateral corporations, which lead to the expansion of dynamic industrial clusters. For its part, the host government must liberalize imports and provide good macroeconomic policies, the necessary infrastructure, and training opportunities-which Moran calls a "building up" rather than a "trickling down" approach to incorporating foreign direct investment into national development. Such a strategy also benefits local firms-whose social and environmental standards are generally lower than those of foreign companies-by eventually creating incentives for them to improve their performance.

In the countries that export capital, the author shows that the complementarity between outward investment and exports is strong. These countries' interests are best served by policies supporting investment, accompanied by programs designed to compensate individuals who lose as a result of FDI abroad. The book will be of interest to readers concerned with the pros and cons of core labor standard enforcement in developing and transition countries. On balance, Moran favors voluntary mechanisms over enforcement through the World Trade Organization to bring about such changes.

Beyond Sweatshops...