World Investment Report 1999 flawed on many fronts

Prof. Alejandro Nadal takes issue with some of the main
findings and conclusions of UNCTAD's WIR-99, in particular its
claim that foreign direct investment has played a positive
role in technological enhancement and employment generation
for developing countries.

THE United Nations Conference on Trade and Development's
(UNCTAD) World Investment Report 1999 (WIR-99), on the most
recent trends and main characteristics of foreign direct
investment (FDI) as it evolved during 1998, examines this year
the trends, and the impact of FDI on financial resources,
technological capabilities, employment and the environment.
Unfortunately, the report is flawed on several fronts. In the
first place, it continues the tradition of previous reports in
which FDI is presented as an autonomous or independent entity
evolving in an economic and institutional vacuum. In doing
this, the report fails to even look at the main determinants
of FDI flows between and amongst developed and developing

The report makes many references to the globalisation of
production and finance, but takes this phenomenon as something
which befell humankind from the skies - as if deregulation of
capital accounts, or trade liberalisation, or inter-capitalist
competition, or massive deregulation and embarrassment, all
the result of policy choices (enforced by conditionalities or
voluntary), are not of consequence. In this sense, it follows
a sad tradition of studies which present FDI as an autonomous
engine bringing about the benefits and calamities of

WIR-99 fails to recognise that FDI moves in a macroeconomic
environment where deregulation and privatisation, reduced
State intervention and balanced budgets, restrictive monetary
policies and wage repression (under policies for inflation
control), are the dominating lines. The key actors of FDI, the
transnational corporations (TNCs), thrive in this environment.
This macroeconomic climate, and policy objectives, are more
related to stability of the general price level and thus
restrictive monetary policies, as well as to fiscal policies
resulting (at least in Latin America) in massive cuts in
public investment in health, education, housing, and
infrastructure. The alleged purpose has been to avoid public
indebtedness and thus prevent hikes in interest rates and
crowding out of private investment.

The truth is that in several very important cases, such as in
Argentina, Brazil and Mexico, the resources liberated have
thus far been allocated to rescuing bankers and corporate
groups from the harshness of market discipline.

Conservative stance

FDI takes place today under the aegis of market-determined
flexible exchange rates and deregulated markets for
international capital movements. This macroeconomic atmosphere
is also closely related to the notion that there is little or
no autonomy for macroeconomic policy- making. The phenomenal
volume of financial capital as well as its great mobility have
encouraged national governments to adopt a conservative stance
designed to avoid disturbing financial markets that could
trigger capital flight. This explains why macroeconomic
policies have become more restrictive, why monetary and fiscal
policy decision-making is designed to reduce or eliminate
budget deficits and aim more at reducing inflation even in the
context of high unemployment and low growth - abandoning any
pretence to foster development through growth-promoting

The question of degree of autonomy for macroeconomic policies
is quite relevant to the analysis of FDI. It also finds a
mirror reflection at the sector level due to what WIR-99 calls
the 'new rules of trade liberalisation'. This is examined
below in the context of policy recommendations of the report
which run counter to this macroeconomic posture which is
adopted in many developing countries, and is peddled by the
World Bank, the International Monetary Fund (IMF) and the
Organisation for Economic Cooperation and Development (OECD).

Unfortunately, WIR-99 fails to establish a connection between
trends in FDI flows and events in the sphere of financial and
capital market interdependencies. The year 1998 was a
particularly important year from this perspective, as the
effects of financial crisis that began in Asia ricocheted
through the world economy, and the unilateral debt
restructuring in Russia sent shockwaves through the financial
markets. These events bolstered the so-called mature financial
markets as a 'flight to quality' took place, with investors
shifting funds away from Asia and other emerging markets.
Thus, the search for large-scale portfolio balancing in the
light of drastic changes in risk assessment and the search for
short-term financial gains, are as important as strategic
repositioning of firms looking for better and more reliable
partners in foreign markets in the bulk of mergers and
acquisitions. But WIR-99 ignores these and other events, such
as the successful launch of the European Monetary Union, and
fails to analyse the linkages between productive foreign
direct investment and developments in the world's financial
markets. This is a major omission as growth of FDI in 1998 is
explained by operations called mergers and acquisitions (M&As)
which are essentially different from new greenfield
investments (i.e., new plant and productive installations).

M&As are simple ownership transfers and do not add new
physical production capacity. They are more related to events
in highly securitised financial and capital markets than to
the expansion of global production facilities.
Besides, M&As in 1998 were also fuelled by financial
integration between major banking systems (an important
element considering that M&As in banking frequently rely on
cross-exchanges of equity and do not involve financial flows).
Because of this failure to set the analysis in a more general
context, FDI is once again portrayed as an autonomous force
emanating as a consequence of unexplainable imperatives. From
here to a mystified view of FDI, there is only one small step.

And WIR-99 takes it.

The WIR examines general and regional trends, as well as the
impact of FDI on technological development, export
competitiveness, employment, and the environment. But the
failure to set FDI in the context of the more general economic
model (the old Washington consensus) leads to inexact and, all
too frequently, naive policy conclusions and recommendations.
All of this tends to deliver an over-arching general message
that FDI is, essentially, commendable for all the right and
proper things it generates and brings along.

The WIR also maintains the tradition of previous reports,
where the diplomatic tone of UN documents becomes more
apologetic, and in some cases frankly turns to advocacy for
the TNCs which are the main actors in foreign direct
investments. The rhetoric of UN Secretary-General, Mr Kofi
Annan, in the preface betrays something important which marks
the WIR at every turn of the road. This rhetoric delivers the
comfortable message that FDI has a basically positive role on
technology ('enhancement' of technological capabilities),
trade balance ('boosting export competitiveness'), employment
('upgrading of employment'), and the environment ('protecting
the environment').

The corollary of this general message is that all economies in
the world will benefit if they 'create the conditions that
attract FDI'. To promote development, governments need to
maximise the positive contribution of FDI, and to minimise any
negative effects. But, as WIR-99 does not analyse the role of
FDI in the context of deep structural reforms which include,
among other things, the central policy objective of less State
intervention in economic life, it is hard to understand how
Annan conceives attempts to minimise negative effects in the
context of a State that has its hands tied behind its back,
or, even worse, one in which special interests and corporate
groups have hijacked the springs of power mechanisms, and are
able to commandeer the power of State agencies and use them
for their own benefit.

WIR-99 thus sets the stage for its discourse of advocacy,
instead of analytical rigour.

General global and regional trends

FDI in 1998 reached $644 billion, up from $464 billion in
1997. This 39% increase represents the highest growth rate
since 1987. How did this growth occur in a bad year which
showed a growth rate for world gross domestic product (GDP) of

The increase in FDI indeed appears impressive. But there are
two key elements behind this spectacular growth. One is the
role of M&As: FDI was not so much, then, the mythical engine
of globalisation of production, but rather of restructuring of
assets, speculation, and oligopolistic reorganisation. M&As
are closely related to generation of significant rent
transfers among countries.

Decomposing total FDI flows by host country reveals that most
of the increase is due to flows between developed countries.
In fact, developed countries were responsible for $460 billion
or 71%, while developing countries received only $166 billion,
or 25% of total FDI inflows.

Growth in M&As

According to the WIR-99 data itself, FDI in developing
countries dropped from $173 billion in 1997, and remained
stable at $19 billion in transition economies. At the same
time, it increased by 68% in developed countries.

FDI growth is also explained by the burst of growth of M&As.
These operations accounted for $544 billion, or more than 84%
of the total flows identified as FDI in 1998. As already
mentioned, M&A operations do not really represent a new
productive investment, but simple changes in ownership. M&As
are more related to huge reorganisation of rent flows at the
international level Ð a far cry from the popular notion that
huge flows of new and fresh capital are constantly adding to
new productive capacity and reorganising production at a
global scale.

Finally, FDI growth is also explained in part by a significant
amount of reinvested profits, which more appropriately should
be considered domestic savings if we use the lieu de residence
economic criterion. Instead, WIR-99 adopts the conventional
view which sees in reinvested profits a phenomenon akin in
nature to FDI. The report offers very little by way of data on
reinvested profits by categories of economies. It does appear
that reinvested earnings have dropped as a share of total FDI
in the case of developing countries from a high 40% in the
early 1990s to 17% of total FDI flows in 1997.

On the other hand, WIR-99 fails to analyse the full
implications of FDI from a balance-of-payments perspective for
developing countries. UNCTAD's report considers that FDI flows
help stabilise capital inflows into developing countries, but
it should be noted that there are multiple explicit and
implicit costs which are associated with this. On the cost
side of the equation we have to include repatriated earnings
and profits from the accumulated stock of FDI in host
countries. WIR-99 provides little data on repatriated profits,
but they appear to add up to more than $33 billion in 1997.
Thus, on average according to WIR-99 data, for every dollar of
repatriated profits, there were three dollars of FDI inflow
during the period 1991-1997.

UNCTAD's report on FDI does not offer this information for
1998, but if the decade's trends are used to estimate 1998
levels of repatriated profits, it is likely that the figure is
$30 billion. If one subtracts this and considers the net
inflow of FDI, we are left with $130 billion to developing
countries. A significant amount of this figure corresponds to
M&As, and another chunk comes from loans and other funds
raised in the host countries' own money and capital markets.
So the net contribution to all developing countries of new and
fresh (so-called greenfield) investments is significantly
lower than what the ritual incantations on FDI suggest. And if
we take into account that FDI is intensely concentrated in a
small number of countries, the rest of the developing world is
merely receiving a trickle of total foreign direct

Repatriated profits should be considered when analysing the
full balance-of-payments implications of FDI. But, in
addition, there are other costs involved, as affiliates of
TNCs can be parties to intra-firm operations where over-
and/or underpricing of intermediate and capital goods can lead
to inter-country transfers of profits. WIR-99 considers that
possibly these transactions are less important today in the
light of trade liberalisation and taxation agreements. This
view is incorrect, for taxation agreements do not mean
homogeneous tax rates on profits, intra-firm transactions or
royalty receipts. On the other hand, the importance of
intra-firm transactions is a clear indication that the avenues
for inter-country transfers of profitability are greater today
than at any other time. In fact, the WIR-99 itself mentions a
study in which 84% of developing countries participating in an
UNCTAD survey estimated that the affiliates they hosted
shifted income to their parent companies through some of the
channels mentioned above in order to avoid tax liabilities.
The study also quotes data on income adjustments made by the
United States tax authorities to reflect these transfers in
the year 1994 for a total of $3.5 billion. That figure
probably reflects the tip of a huge iceberg that UNCTAD and
other agencies should examine carefully.

Technological enhancement

WIR-99 seems to embrace the idea that FDI is a critical tool
for enhancement of technological capabilities. The title of
Chapter VII implies this. But how do we know FDI is enhancing
technological capabilities in host countries?

The basic criterion used by WIR-99 is that technology flows
can be measured by the amount of technology payments. One of
the most unfortunate statements of WIR-99 upholds the notion
that since technology payments worldwide have risen steadily
since the mid-1980s, they reflect 'the growing importance of
technology for international production.' This is ridiculous.
Although in licensing agreements between firms in developed
countries there may be some ground for the view that royalty
payments are related to technology flows, this may or may not
be so in cases where big information and technological
asymmetries exist. In the case of licensing agreements between
a licensor in a developed country with a strong technological
and scientific base, and a licensee in a developing country,
royalty payments do not necessarily reflect a substantive flow
of technology.

Royalty payments and licence fees can reflect all sorts of
things other than a real flow of technology. Firstly, when
inserted inside a TNC system (as an intra-firm transaction)
these payments become channels for transfers of profits (this
applies to both developing and developed countries). In fact,
these payments are frequently unjustified when relating to
licensing agreements between a 100% wholly owned subsidiary
and a parent company. In those cases, the costs of replicating
that technology are marginal, and more often than not, total
indirect and capital costs for generating that technology have
been completely amortised. There is no economic justification
for these royalty payments within a TNC system except that
they may serve as channels for transfer of profits.

When technology transfer takes place between non-affiliated
firms, the 'steadily growing' licensing fees and royalties may
also reveal greater market asymmetries between licensor and
licensee. This loss of bargaining power is an alarming truth
which says much of the disadvantageous position of developing
countries. This is a consequence of the fact that at the world
level, research and development (R&D) expenditures are
predominantly taking place in developed countries. In fact,
WIR-99 clearly reveals there is very little R&D carried out by
TNC affiliates in developing countries. And as many scholars
pointed out 20 years ago, most of this inventive activity is
related to adaptation of processes to local conditions or
simply to technical support and trouble-shooting.

In addition, royalties are also paid for trademarks and brand
names, items which are far from being process or product
technology. WIR-99 does not even mention this important fact.
But any licensing executive of a TNC will acknowledge the
well-known fact that trademarks have traditionally been as
important as patented and unpatented technology in so far as
royalty payments are concerned. In many business surveys,
trademarks are even more important than patents. For obvious
reasons, in transactions with developing countries, it is
highly probable that royalties associated with trademarks may
be even more important than royalties on patents.

WIR-99 also considers patents taken up by affiliates of TNCs
as yet another indicator of technology flows. By making this
extravagant claim, the report's authors reveal they are more
interested in advocating the cause of TNCs than in monitoring
their activities. They also disclose their deep ignorance of
how the international patent system operates. The fact is that
patents by TNC affiliates do not by any stretch of the
imagination allow one to consider patents taken by affiliates
as 'attributable to research in foreign locations,' as WIR-99

First, this naive view of patenting by TNCs ignores the
importance of cross-licensing strategies of TNCs in market
segmentation. Second, it shows ignorance of the operations of
the international patent system where a belt of protective
patents helps preserve the core industrial property rights
against infringement. This tactic of protective patenting
explains why most patents are never used in commercial
applications and why they are not a good indicator of
technological innovation, especially in the case of patents
taken in developing countries.

Centrally controlled

Contrary to what WIR-99 suggests, technology is more centrally
controlled today than it was 20 years ago. And contrary to the
notions transmitted by the report, patents taken by affiliates
are more closely related to strategies aimed at strengthening
oligopoly configurations than to inventive activity in host
countries. Patents taken by subsidiaries and affiliates of
TNCs have very little to do with, and certainly does not show,
an alleged trend towards the 'globalisation of technological

The analysis of the Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) is yet another serious
omission in WIR-99. TRIPS is a big factor in strengthening the
trend towards greater central control of technology by
promoting longer patent life and expansion of the list of
sectors eligible for patent protection and other forms of
intellectual property protection. Aside from the use of
shoddy indicators, WIR-99 does not have anything else to show
in relation to this important point. In fact, the authors of
WIR-99 ignore the statistics in front of them. The
overwhelming majority of patents granted by industrial
property authorities in developing countries has traditionally
gone and continues to go to TNC affiliates, but the level of
R&D carried out by these same affiliates in those developing
countries is insignificant.

The apologetic rhetoric in parts of WIR-99 about how 'TNC R&D
is clearly globalising' has to be taken with a big dose of
caution. Although there are important exchanges between TNCs
in developed countries, the same cannot be said for developing
countries. In fact, WIR-99 itself has a revealing story about
downgrading of innovation capacity in an important example
from Brazil, where a number of TNCs acquired several large
domestic auto parts producers. Subsequently, the R&D
activities of the local firms were downgraded and their
frontier research was relocated to the parent firms' R&D
centres in the home countries.

The examples are also present in the telecommunications
equipment (electronic switching systems) industry where
affiliates exposed to increasing international competition are
scaling down local R&D activities and centralising them in
parent firms as a cost-reducing strategy. By some estimates
from studies in Brazil, R&D expenditures in the
telecommunications industry may have dropped by as much as

In these examples, and in similar studies in Argentina, R&D
activities geared towards development of new products were
discontinued in several cases and efforts shifted to the
simple adaptation of imported processes to local conditions
(inputs, specifications, etc.). In most cases, this has meant
that highly qualified engineers engaged in R&D are transferred
to other less specialised functions such as production,
technical trouble-shooting, maintenance, quality control,
sales or marketing.

The analysis is faulty and thus it is not surprising that the
policy recommendations regarding technological development and
FDI are naive and, in some cases, impractical. This important
section acknowledges that developing countries cannot expect
that by opening their doors to FDI, TNCs will transform their
technological base. It also states that 'deficiencies in
technological learning and transfer' can mean that markets
alone do not create technological dynamism. And this in turn
signals the fact that there is an important role for
government and public policy to 'upgrade capabilities to
optimise the transfer of TNC technologies and encourage its

Three fundamental issues

But what kind of policy intervention is possible and
desirable? Therein lies the rub. And WIR-99 shies away from
this by delivering a single paragraph on how 'the new rules of
the game' have banned the use of many policy instruments which
were critical in transfer of technological capabilities and in
the success stories of newly industrialising countries (NICs).
WIR-99 skirts around this, perhaps the most crucial problem
area. It tells us (page 223) that there is some scope for
technology policy, on the 'supply side,' and in the area of
additional financial resources and 'technology support
services'. It is most unfortunate that WIR-99 is unable to
provide anything more on this vital issue beyond citing the
'new rules of the game'.

There are at least three fundamental issues here. The first is
the inability of UNCTAD to look at these 'new rules' in
critical terms, that is, posing the following questions: Do
these new rules make sense? Where did they come from? Are
they benefiting everyone on equal terms? Does the
macroeconomic stance mentioned in our introduction make
sense? Is it really true that there is no alternative for
macroeconomic policy-making?

The second fundamental issue concerns the compatibility
between the timid policy recommendations that WIR-99 does
advance and the 'new rules' the report mentions at different
stages. The point is that these new rules are not restricted
simply to trade and investment liberalisation, and they are
more and more frequently associated with macroeconomic
policies which impose a very restrictive posture on public
expenditures. For example, investing on the 'supply side' (one
of the policies recommended by WIR-99) is difficult in the
context of fiscal policies where the priority is to eliminate
deficits. Policy recommendations such as those proposed to
increase public investment to upgrade 'all factor inputs' that
TNCs need (infrastructure, skills, information, and so on)
simply are not compatible with macroeconomic policies which
are based on a restrictive fiscal stance.

Export competitiveness

A important item in WIR-99 concerns the relation between FDI
and the strengthening of high-technology (hitech) exports from
developing countries. It is true that in many cases, TNCs have
restructured their activities in such a way that hi-technology
exports are an end result. This is more obvious in the case of
FDI flows between developed countries, where the scientific
and technological base is stronger.

However, in the case of developing countries, the situation is
much more complex and more careful attention to data is

Take the example of Mexico. According to the most recent
official data on technology contents of exports (in 'Science
and Technology Indicators 1997', published by Mexico's Science
and Technology Council, CONACYT), the share of hi-technology
goods in total exports is already 15% (and 18% in the
manufacturing industry). This is a figure presented as a
promising sign that the benefits from TNC activities are
starting to roll in. But how robust is this figure? Not very.
The data is biased in two different ways. First, a
classification of goods according to technological complexity
is adopted from several sources. (Typically, R&D expenditures
at the branch level from various sources are used to prepare
this classification.) Then exports are classified as hi,
medium or low technological content.

But the import contents of exports are not taken into account.
In the case of Mexico, where exports from in-bond plants
accounted for 45% of total exports in 1998, the hi-technology
contents indicator can be quite misleading. The most important
industries here are auto parts, machinery, electrical and
electronic machinery and equipment, all of them with a strong
presence in the maquiladora (in-bond) plants. Computers and TV
sets are typical individual items. But the actual value added
from Mexico's economy is less than 4% (closer to 2%, according
to several studies). Thus, goods eligible for the hi-tech
classification appear artificially to make up a significant
share of Mexico's total exports but are, in fact, exports in
disguise. And this example is applicable to other countries
where TNCs play a dominant role in exports from in-bond

In fact, the example from Mexico's automotive industries
points in the direction of technological downgrading. This is
clearly the message from the study quoted in WIR-99 (page 249)
on Mexico's automobile sector. TNCs were responsible for a
massive restructuring of the sector, and now this industry is
responsible for 21% of total Mexican exports to North America.
However, the three big US producers took advantage of the
maquiladora regime, and local content dropped and imports of
parts and components rose. This resulted in a contraction of
the supplier industry. The full implications of this
contraction are not mentioned in WIR-99 but they do include
technological downgrading. Although exports of auto parts
increased as the Big Three took advantage of the Mexican
regime, in many instances the technological capacity of the
local suppliers shifted from transmissions and braking systems
to windows and seats.

It is also worth mentioning here that, in the Mexican case,
performance requirements which are critical for the building
of backward linkages are completely excluded due to the North
American Free Trade Agreement's (NAFTA) rules on investment.
Can we expect market forces alone to build the backward
linkages required by Mexico's economy? It takes a lot of faith
to consider that this will be the final outcome. This faith is
not based on historical experience or on economic theory.

Employment generation

The chapter on employment oscillates between very broad or
general statements and references to case studies on very
specific points. The end result is an unhappy one because the
report fails to present adequate data on employment generated
by FDI in different sectors and regions, skill enhancement or
upgrading, and on the quality of jobs. The tables in the
statistical annex cover only a tiny fraction of the issues
involved and there is plenty of room for improvement of the
report's coverage.

Perhaps the main omission in WIR-99 is that wages have been on
a downward trend in many developing countries for more than a
decade. This is certainly the case with Mexico, where minimum
wages dropped in real terms by more than 80% since 1981.
Between 1994 and 1998, average wages dropped by more than 25%.
It is also the experience of much of Latin America (with few
exceptions). This is why the share of the total wage bill in
GDP for many developing countries has been reduced by a
significant amount in the past years. It is of vital
importance to take into account the fact that wage repression
is central to stabilisation policies, where the control and
reduction of inflation is a high priority. This is totally
ignored in WIR-99 at great cost to the report's quality and

But the report 's omission does not stop here. It is also
well known that stabilisation policies have required a
restrictive stance in monetary and fiscal policies which has
resulted in sluggish growth (or even downright recessions) in
many countries. This has added more unemployment to the
already existing structural unemployment, and this has
contributed to putting more downward pressure on wages. This
is the general framework for the analysis of the labour market
in which FDI is operating today in much of the developing
world, and it is also applicable to some degree in economies
in transition.

WIR-99 presents precious little data on open unemployment in
its introduction to the chapter, and fails to mention that the
open unemployment figures are almost totally meaningless in
the context of developing countries where there are no
provisions for unemployment insurance and where members of the
labour force cannot have access to the luxury of being
unemployed. Statistics on open unemployment have to be
supplemented with data on the share of the labour force that
is earning incomes below minimum wages (if there is a
guaranteed minimum wage), or on data on the share of the
population living below the poverty line.

Wage differential

A critical issue to which WIR-99 devotes insufficient
attention is on wage differentials between workers hired by
TNC affiliates and workers in domestic firms. The report
states that although comprehensive data are lacking, studies
for some countries suggest that in general the workforce
directly employed in foreign affiliates enjoys higher
remuneration and more favourable conditions of work than that
employed in domestic firms in host countries. (The study
quoted here is an in-house study by UNCTAD dating back to
1994, something quite amazing considering that the mandate to
the authors of WIR-99 is to analyse and discuss recent data.)
The report then goes on to present as an exception the cases
of affiliates in labour-intensive assembly operations in
export promotion zones (EPZs).

But this may be quite misleading and the report should handle
these figures with caution. In the case of Mexico, wages of
the workforce in the maquiladora industries are significantly
lower than wages for workers hired by domestic firms in the
same branches of the manufacturing industries. Even if the
question of comparability arises, the wage differential is so
important (between 80% and 50%) that the conclusion of WIR-99
seems shaky. And to this we have to add the fact that
employment in the maquiladora industries is precarious and has
involved more unfavourable working conditions. This is a fact
that speaks louder than the rhetoric of the pro-NAFTA

In relation to the issues of labour productivity and wages,
WIR- 99 carries another misstatement. According to it,
productivity differentials explain the fact that real wages
paid by TNCs in developing countries are lower than those paid
in developed countries. Quoting from a 1998 United Nations
Industrial Development Organisation (UNIDO) study, the report
states that productivity differentials between developing and
developed countries may be as high as 50%. These figures are
given a prominent position in the report, and it is important
that UNCTAD staff recognise that there are many other studies
with different results and a different perspective. An
important example is provided by Harley Shaiken's studies on
Mexico's automobile industry which show that productivity
differences between Mexican and (comparable) US plants are at
most 15%. The same studies reveal that in those same plants
the wage differentials correspond to a factor of 10.

One of the difficulties with this chapter of WIR-99 is that
many of the boxes carrying comments on studies for specific
countries and/or issues are misleading. An example is Box IX.2
on home work and TNC distribution channels. The report carries
information on outsourcing by TNC affiliates and bad working
conditions. The note could have mentioned (but chose to
ignore) the more telling examples of Nike and GAP stores. (One
important publication ignored by the report is Ross, Andrew
(ed.), No Sweat. Fashion, Free Trade and the Rights of Garment
Workers. London: Verso, 1998.) The report does state that
there are abuses, and that outsourcing often leads to
remunerations which are below minimum wage standards, and that
those informally employed do not receive adequate legal

However, the important point here is that the remedies
suggested by WIR-99 are related to more reliance on
International Labour Organisation (ILO) conventions (which are
more often than not violated), consumer movements and
self-regulating codes of conduct (usually drafted by the TNCs
themselves). Thus, WIR-99 seems to embrace the generally
accepted attitude of complacency in which the State abandons
its role as a mediator and corrector of the great imbalances
which free-market relations frequently engender. Apparently,
the report suggests the idea that it is up to civil society to
attempt to redress the imbalances and asymmetries, and that
the good faith of TNC executives will do the rest through
codes of conduct which are not legally binding.

The few comments on industrial relations at the end of the
chapter skirt around the central issue of how labour law,
unions and working conditions are evolving in the world in
which TNCs operate today. It is no secret that a fierce system
of 'hire and fire' is being sought (perhaps above all other
priorities now) by TNCs and their business councils. The case
of Mexico once again is relevant in this respect. A de facto
deregulation of the labour market has been taking place during
the past decade. The structures regulating industrial
relations have been systematically under attack, although the
neoliberal reforms have stopped short of reforming the Federal
Constitution. Flexibilisation is the magic word, and every
dirty trick in the book is a valid tool in the pursuit of this
goal. The scene from the ground is quite different from what
WIR-99 presents in its final section. - (Oct/Nov 99)

The above article first appeared in the South-North
Development Monitor (SUNS-issue no. 4517) of which
Chakravarthi Raghavan is the Chief Editor.

Prof. Alejandro Nadal is a Mexican academic and economist
at the Centre for Economic Studies and Science and Technology
Programme at El Colegio de Mexico, and is heading a
multi-disciplinary project for alternative development
strategies. He contributed this review to the SUNS.