Global Political Economy and Its Discontents: Power, Politics and Investment Treaties in Developing Countries

There is a widely accepted opinion among a general public, policy makers and economists that investment treaties between the West and developing countries greatly benefit the latter. But is this view correct? Well, for sure the story is far more complex than it seems. An interesting and eye-opening book Bounded Rationality and Economic Diplomacy: The Politics of Investment Treaties in Developing Countries, by Lauge N. Skovgaard Poulsen (University College London), scrutinizes this topic and presents a comprehensive analysis of this frequently overlooked aspect of global political economy.
This book shows that governments in developing countries typically overestimated the economic benefits of investment treaties and practically ignored their risks. Focusing on various cases (Pakistan, Ghana, the Czech Republic, Russia, Costa Rica, South Africa and more), the author highlights how local policy-makers often relied on inferential shortcuts when assessing the implications of the treaties. These investment treaties gave private arbitrators power to determine whether governments should pay compensation to foreign investors for a wide range of sovereign acts. World Bank, US and UN officials also promoted the treaties and so did Western lawyers and advisors.
During the 1990s and early 2000s, developing countries have incurred significant liabilities from investment treaty arbitration and paid billions of dollars to the Western corporations. The core questions of this research are why developing countries have signed largely identical treaties which significantly constrained their sovereignty, and why did they expose themselves to expensive claims and give a remarkable degree of flexibility to private lawyers to determine the scope of their regulatory autonomy? Only few developing country governments realized that by consenting to investment treaty arbitration, they agreed to offer international investors enforceable protections with the potential for costly and far-reaching implications.
The majority of developing countries however signed up to one of the most potent international legal regimes underwriting economic globalization without even realizing it at the time. As this thought-provoking and illuminate book implies, this state of affairs not only means that the international investment regime and its history have to be reexamined; it also provides more general lessons for our understanding of the nature of substantially uneven and unequal economic and power relations between the South and the North in the era of Neoliberal Globalization.
(An open access to the preface and the first chapter)