Beyond Sweatshops: Foreign Direct Investment and Globalization in Developing Countries

Critics often charge Western firms with exploiting workers in poor countries through low pay and dire conditions. Here Moran evaluates these claims and appraises the arguments for an international agreement on minimum labor standards and on the mechanisms that would enforce them. He is pessimistic about the prospects for reaching agreement with developing countries beyond the International Labor Organization's four core labor standards, and he doubts formal mechanisms could help the workers they targeted even if they were agreed upon. He argues that foreign direct investment (FDI), in contrast, is highly beneficial to host countries, especially if it is closely integrated with parent firms. He also finds that FDI generally improves conditions of local workers, especially skilled workers. Although instances of harsh labor conditions can be found, senior management officials will correct them once they (and the public) become aware of them. The author concludes that the best approach to improving labor conditions in foreign firms in poor countries is a voluntary one, in which firms publicly state their policies and are held to them through transparency and public accountability.