In This Review

Making Foreign Investment Safe: Property Rights and National Sovereignty
Making Foreign Investment Safe: Property Rights and National Sovereignty
By Louis T. Wells, Rafiq Ahmed
Oxford University Press, 2007, 392 pp

This book offers a detailed account of the strained relationship between the government of Indonesia and foreign investors in the telephone and electric power industries, suggesting that many of the same general issues arise in other developing countries. Such natural monopolies lend themselves to exploitative overpricing of services and invite massive rent seeking and corruption. A change in government is likely to provoke claims of malfeasance, sometimes justified, in these politically sensitive industries. The authors -- a Harvard Business School professor and a former Exxon manager -- examine the factors that led to the nationalization of the telephone company in the 1970s and the extended controversies, renegotiations, and arbitration associated with several private power projects in the 1990s, including the intercession by the U.S. government. These case studies will be informative to anyone considering investing in politically sensitive industries in developing countries, as well as to insuring agencies such as the Overseas Private Investment Corporation, which insures U.S. investments in emerging markets. The authors contend that the "new international property rights" brought about through arbitration clauses and official investment guarantees are not durable; they will need to be softened in the interests of development if they are to survive.