Phillip Stalley offers us a provocative and challenging consideration of the influence of multinational corporations on environmental regulation in China. With its wide purview and theoretically disciplined review of new and existing evidence, Stalley's study fills a large hole in the bookshelf of anyone seriously interested in globalization and the environment. The contentious debate over the role of foreign investment and environmental regulation in the developing world is usually filled with more heat than light. In contrast, Stalley takes all sides of the debate seriously; avoiding a simplistic characterization of views, he clearly lays out the reasoning behind each argument, offers useful clarification of logic and terminology, and subjects each claim to a careful review of the evidence.
The importance of foreign investment to China's economic growth is difficult to overstate. As Stalley notes, by 2002 one-third of China's industrial output came from foreign invested enterprises. While few developing countries are likely to depend to this extent on foreign investment to fuel growth, recent years have seen unprecedented flows of capital into emerging markets, implying that the role of MNCs in developing countries will continue to grow well into the new century. These trends raise a red flag for those who think green: has China's outsized reliance on foreign investment aided or hindered its attempts to deal with its similarly outsized environmental problems and does this mean the same is ahead for other host countries?
Stalley begins his survey with an analysis of the politics of China's environmental protection regime, finding that while China has steadily tightened and extended its environmental law, its decentralized system is unable to consistently enforce its legislated standards. He follows this regulatory overview with an examination of policies specifically targeting the behavior of foreign firms. Stalley's most valuable contribution is his close examination of how local governments actually implement and enforce these policies, finding ineffective environmental governance consistent with competition among localities for foreign capital. The details of his argument are useful guides to policy. He finds that local officials in areas without natural advantages to investors are the most likely to neglect environmental enforcement. Equally important, he finds that the response of foreign firms to this inter-jurisdictional competition depends on firm type: firms from low-standard source countries exhibit environmental compliance behavior that sometimes is worse than that of domestic firms.
Stalley is a clear thinker, able to marshal evidence from multiple disciplines and from both Western and Chinese sources. Despite the admirable research and synthesis on display in the book, however, Stalley seems unable to draw obvious conclusions at odds with dominant narratives of MNC exploitation. China's opening to foreign investment “has generally contributed constructively to environmental protection” (p. 15), yet only a sentence later he states that “China's reliance on foreign investment has indeed exerted a negative influence on China's environmental regulation, but only under a particular set of circumstances” (p. 16). Despite that last conditioning clause, these two statements seem at odds: have MNCs generally contributed constructively or are they typically a negative influence? He seems of two minds even when the evidence points toward a constructive role for MNCs in the context of weak governance and a host-country premium on growth over environment. Rather than focus on the lack of evidence for systematic neglect by foreign investors from high-standard source countries, Stalley emphasizes the behavior of firms from other developing countries. In places, this unwillingness to focus on what isn't happening blinds his reading of the evidence. For example, in his reference to my own work with Judith Dean, he fails to grasp the main finding, which is that most investors in most industries exhibit no attraction to weak environmental enforcement. He chooses instead to focus on that subset of investors who do show some response, but again fails to note that this response appears only in the most pollution intensive sectors. This difference in emphasis is critical, since narrowing our attention to the real problem is a necessary precondition for improving outcomes.
In the final chapter, where he draws policy conclusions, Stalley is tentative in places where a stronger stand is needed. For instance, most of the evidence suggests that foreign investment from high-standard countries does not drive environmental regulations down, and, indeed, there is compelling evidence that in many industries these firms exert upward pressure on standards. This evidence supports the approach taken by environmental NGOs working to strengthen domestic environmental enforcement while also promoting technology transfer and opening to greener capital goods imports. While Stalley clearly argues for the conditional nature of environmental performance, he seems reluctant to directly challenge the narrative of exploitive behavior that keeps many activists and researchers focused on policies to prevent investment and trade liberalization in developing countries. Despite this timidity, Stalley's book offers us a useful framework and a wealth of new evidence and deserves the attention of those seriously interested in the influence of foreign investment on environmental policy in China.
