Despite the occasional downturn, foreign direct investment (FDI) in Mexico continues to exhibit the upward trajectory begun more than 15 years ago, and remains one of the country's most important sources of foreign exchange. Such was the plan of the U.S.-trained policymakers who occupied the Mexican government during the watershed shift in economic development strategy initiated in the 1980s and consolidated in the 1990s. The logic was clear. Remove barriers to foreign investment; allow producers the world over to set up shop in Mexico in order to take advantage of the country's abundant labor supply, strategic location, and relatively stable political system; and thereby produce a “win-win” situation for all involved. Keven Gallagher and Lyuba Zarsky offer a compelling and altogether convincing account of why this strategy, as carried out in Mexico, ultimately failed to deliver sustainable development to the country.

Much like similar works on other features of the “Washington Consensus” that find the absence of politics a central obstacle to successful implementation of the neoliberal agenda, The Enclave Economy also sees the lack of “supportive public policies” (p. 54) as the critical missing piece in Mexico's “FDI-led development” strategy. The dominance of the “maquila mindset” among Mexican policymakers, where the only criterion for success was increased foreign investment, led to a series of consequences that continue to affect and shape the course of economic development in the country today. This work is a vitally important addition to the fuller understanding of the neoliberal era that is just now beginning to emerge in political economy scholarship as, after close to 30 years of the strategy, scholars now have an ample body of data with which to assess what has worked and what has not and to answer the question of why.

The first of several cracks in the FDI-led development approach highlighted by Gallagher and Zarsky is the tendency embedded within the strategy itself to conflate success in its initial policy objectives—increases in foreign investment levels—with success in the ultimate goals of the approach—“improv[ing] the lives of people” (p. 44). After first offering an overview of the success realized in the former, evidenced by the impressive growth of FDI and exports during the 1990s, the authors offer an even more compelling case for the strategy's failures with respect to its impact on long-term sustainable development. Here, the key indicators become not FDI itself, but rather what such investment has brought to Mexico's economy in such areas as domestic investment, backward and forward linkages, employment, and the environment. Across all of these areas, the authors find that the FDI-led development strategy fell woefully short in general and, more specifically, in the information technology (IT) sector, the industry that receives the bulk of attention in the remainder of the work.

Relying largely on data gathered from more than a hundred interviews with participants in the IT sector in Mexico's “Silicon Valley,” located in and around the central-western metropolitan area of Guadalajara, the authors explore the general question of the impact that foreign investment in the IT sector has had on the region's economic and human development prospects. Though certainly not without its unique characteristics, the IT sector is an ideal case for analyzing the development consequences of foreign investment. As they argue, the IT sector, which received special attention from the Mexican government during the 1990s as a “priority industry,” represents great theoretical potential for fully realizing many of the posited benefits of the FDI strategy. From this perspective, then, the authors' design offers ample opportunity for the FDI-development approach to shine. As already indicated, what they find is that “foreign direct investment is not a miracle drug,” that “relying on low wages to attract MNCs is risky,” and that “the benefits of FDI in the IT sector may be limited for developing countries” (p. 10). Certainly not a ringing endorsement for a central feature of the dominant development strategy throughout the world over the past 30 years.

The core theoretical insight from the work revolves around the role for government policy in shaping the outcome of an FDI-led development strategy. Though always susceptible to counterfactuals of government involvement gone awry, the authors offer a convincing case for the ways in which specific areas of macroeconomic policy and supporting educational and local development policies could have produced very distinct, and far more positive, outcomes with respect to Mexico's efforts to attract foreign investment as the foundation of its IT sector. Gallagher and Zarsky argue that government inattention to the foreign investment biases of monetary policy, the limited policy efforts to improve local human capital development, and a relative disregard for development of the domestic market all contributed to the overall failure of the strategy. In support of these contentions, they provide a brief but convincing comparative analysis of the IT sector in the “Asian success stories.” Perhaps even more supportive of their general argument are accounts of the challenges faced by “backward linkage survival stor[ies]” (p. 145), such as a Guadalajara-based cable and harness producer. Through these cases it becomes clear why so few domestic linkages emerged and survived during the expansion of the FDI strategy.

The Enclave Economy is generally a story of a failed development strategy, but the authors' focus on the potential role for government policy is in many ways encouraging, suggestive of the untapped potential for what remains a dominant trend in developing countries' economies. One area where they offer a reason for a “glass half full” perspective on a somewhat dismal record to date is in efforts to address and curtail the environmental footprints left by such industries as information technologies. While also largely reliant on proactive, and effective, government regulatory frameworks and responsible corporate governance (two factors they find in scarce supply in Mexico's IT sector during the 1990s), Gallagher and Zarsky also posit a significant role for nongovernmental organizations at both the domestic and international levels in addressing environmental “market failures.” And though just a beginning, they find recent signs of progress by such organizations in pushing “Guadalajara's IT sector to clean up its act” (p. 175). Such pressures are clearly insufficient without rapid and dramatic improvements in the regulatory regimes of developing countries and without similar attention to upgrading corporate standards in environmental laggards such as the United States (at least in comparison with stringent European Union corporate standards), but as opposed to some of the other areas examined in this work, the trend in the environmental impact of FDI seems to be pointing in the right direction.

In many respects, Gallagher and Zarsky's analysis of the development consequences of Mexico's FDI-driven IT sector, and their call for greater government involvement as a way to improve those outcomes, is a story that should be familiar in one form or another to many who have lived through the neoliberal era. Critics of the neoliberal, TINA (There Is No Alternative) approach to economic policy have noted since the early years of the Washington Consensus that its seemingly wholesale rejection of government involvement in the economy risked worsening the potential damage that the many imperfect and failed markets held for economies in transition. What this book offers is an evidence-rich account of why and how such a lack of government involvement in managing a market-based development strategy can exact such long-lasting damage on a developing country's economic and human development prospects. Regardless of the generalizability of its findings from the IT sector, the book convincingly answers its most central question. The authors provide a very systematic and readable account of what can go wrong with a singular focus on FDI as a development strategy and offer concrete policy suggestions on how to redeem the approach in the future. This work not only is essential reading for the development community writ large but also should be well received in both undergraduate and graduate classrooms as a case study of the larger problems that characterize much of the past three decades of development strategy across a large part of the world.