FDI – Exploitation of Labour

 

 

Foreign investors are exploiting workers in poor countries and initiating a “race to the bottom” in environmental and labor standards. The experience comes from countries like Singapore, China, Chile and Ireland which demonstrate how foreign direct investment (FDI) – with its transfer of technical and organizational innovations and best practices stimulate rapid growth in incomes for all members of society. When international flows of capital falter there’s evidence that the poor in developing countries suffer the most. In this context World Bank President James D. Wolfensohn predicted that between 20,000 and 40,000 more children may die worldwide and some 10 million more people may be condemned to live below the poverty line of one dollar a day because of the global economic aftershocks.

The extent to which foreign investment can help or harm the poor largely depend upon what governments and firms choose to do. Many multinational companies voluntarily adopt environmental, social, and governance practices designed precisely to guard against abuse of the environment and the workforce when they invest in developing countries. But governments in developing countries should facilitate and encourage the transfer of this social and environmental practice and maximize the benefits from FDI. A Government keen to ensure FDI is truly pro-poor should follow the following points.

• Clear the way for free entry and exit in domestic markets by creating competition in product and labor markets and incentives to upgrade productivity and to prevent exploitation of consumers and workers.
• Promote education, worker training, and infrastructure to increase domestic capacity to absorb and diffuse good new practices introduced by foreign investors.
• Create a policy framework that encourages the adoption of appropriate social and environmental standards in corporate practices.