Foreign Investment Highlight
Foreign Investment as defined by Harford is the building or buying of companies abroad; and cross border investments in financial assets like shares and bonds. Harford concentrates on a common trend which is for rich countries to build factories in poor countries. Foreign Investment, especially in this respect is important to remember, since I do not believe that all people have a clear understanding of this practice.
One example Harford gives is of factories that are opened by a rich country in a poor county and commonly referred to as “sweatshops.” Most people are familiar with the negative connotation of the word sweatshop itself. This is largely due to the generalization that factories, which are operated in developing countries but owned by developed countries, pay next to nothing and force its laborers to work in dreadful working conditions earning the label of “sweatshop”. Another widespread belief is that these “sweatshops” produce many products we purchase and use daily such as clothing and shoes. Some people will even criticize you for wearing something like Nike shoes, stating that you are endorsing these “sweatshops”. I have read various articles reporting the horrendous working conditions the laborers endure. So naturally I have always wanted to know what the real story is.
During my reading of the last 6 chapters of Undercover Economist, I was able to grasp the concept and understand more about foreign investment and how it affects the lives of foreign laborers, the countries and their economies. Harford details how trade and foreign investment are closely related, and support economic growth, create jobs and provide opportunity for learning. A foreign owned factory is one way that a country can benefit from production without having to invest its own money. It makes sense that these developing countries are willing to produce products in their “sweatshops”, to ship back to rich countries, since this supports their local economy. Harford makes it easy to see the common misconception about “sweatshops” when he explains that even though the wages are low and the working conditions are bad they are still better than in the factories that are owned locally. This directly supports the statement that people willingly work in foreign owned factories; since they are willing to work in these, slightly better, conditions there are lower turnover rates.
I think that the term “sweatshop” could be better thought of as a “foreign factory” because this is a better description of the production work that takes place there. We do not buy products made in developing countries to support “sweatshops” we buy these products to support foreign investment and because we need them. These points are important to remember for the next time you hear someone complaining about the treatment of foreign laborers. If it were not for the foreign investment in the factories in developing countries and the trade of the products they produce, the workers would actually be forced to work in even worse conditions.