When Third World countries give in to the persistent insistence of the US and Western European countries and the Western media and install democracy, things almost always turn worse for foreign investors.
No, I do not want to talk about technical aspects such as currency regulations, central bank policies, interest rates, and the like. Anyway, such technical aspects are temporary, and there is a lot of variation between countries.
I rather want to focus on some mechanisms that are more predictable. This includes the then free local media and likely attitudes of local politicians, as well as a double standard in the application of laws.
Yes, in non-democratic countries, or in transitional countries that have had non-democratic leaderships for years and apparently move towards democracy, the Western media, especially the BBC, will always find foreign investors who blame the absence of democracy for their woes, whatever their woes are, without differentiating further. By blaming the lack of democracy for their woes, foreign investors can present themselves as politically responsible businessmen, and, basically, as good, honest people.
Not that their woes would be dissolved when democracy is installed. Rather, their will be many more new woes. It's just that under democracy, no foreign investor would say (especially not when talking to the BBC) that he now has problems because of the installation of democracy. That would be politically very, very incorrect. Therefore, their complaint will be more differentiated, publicly avoiding the conclusion that democracy, that holy cow, is the cause.
But as a matter of fact, when poor Third World countries turn to democracy, things almost always turn worse for foreign investors.
Take Indonesia, for example. When Suharto ruled, there always were some foreign investors who complained publicly that competition was distorted in favor of Suharto's protégées. But the more democratic Indonesia turned after the downfall of Suharto, the more did foreign direct investment decline. Doesn't that seem to indicate that foreign investors, while publicly acclaiming the installation of democracy, privately decided that democracy, after all, was not the better business climate?
In 2006, only half of the approved foreign investment actually pushed through. And at one point in 2005, the very democratically elected president SBY called on foreign investors to put their money where their mouths are. He accused the West to always talks democracy, but when it is installed, for example in Indonesia, to prefer to invest in other countries where there is no democracy. He obviously meant China.
By and large, foreign investors are right, to avoid newly installed democracies, and instead focus on China, which offers a much better business climate… for the benefit of the Chinese people.
I just want to concentrate on three aspects, touched above: the media, politicians, and the double standard when enforcing the law.
There is no doubt at all that for both the media and politicians, it is much easier to garner a following by addressing people's hatreds and envies, rather than anything constructive.
For politicians, playing the hatreds and envies of people translates into votes (which is why virtual unknowns with a fascist line can become political forces almost overnight), and for newspapers, it translates into sales.
Never underestimate human hatred and envy. People who are well educated and publicly subscribe to mature political opinions may vote on a basis of ethnic hatred because their neighbors often are loud, and happen to be of a different ethnicity.
Or a young man of ethnic background A may never forget that his girlfriend ran off with another man of ethnic background B. He may silently be on the side of ethnic cleansing even 20 years later.
Never underestimate the potential of hatred and envy. Once the opportunity arises, there will be an incredible temptation to settle the score.
Therefore, once you liberate the media in a poor Third World country, it's just a matter of time until certain publications will play the emotions of hatred and envy. For some publications it will be do or die, and they will do, and survive very well.
Rich Western foreigners (actually, just ordinary Western foreigners which are perceived rich because of their ethnic background), or rich Western foreign companies will be on the receiving side. Never mind that Western foreigner companies pay double salaries (in fact, this enhances the envy of those who have to work for local companies).
And most of the buyers of trash papers that play to the anti-Western sentiment don't work for foreigners. And definitely, they enjoy seeing foreigners in trouble, which is why they buy the papers. And the reporting will be vicious and relentless, and no opportunity will be missed to conduct foreigner-bashing on the front-page.
No, this is not plain theory. If was able to observe this mechanism in full swing twice over the past 25 years in Southeast Asia. First in the Philippines when Marcos was disposed, and a second time in Indonesia after the rule of Suharto ended.
In the Philippines, publications such as People's Journal would give coverage to any trouble of a foreigner. A household dispute of a foreigner with his Filipino wife? Excellent material. A good occasion to speculate about a brutal foreigner abusing a poor little Filipina. Never mind if there is no substance. Never mind if, for example, the conflict stemmed from the Filipina wife emptying the joined bank account. In newspaper reporting, the foreigner is always at the losing end.
More recently, in Indonesia a foreigner found with a few grams of marihuana could make national headlines and find his case, with photo and video footage, in the main evening news. And the arrest of a Western homosexual for allegedly having molested a 15-year old boy could linger in the local media for weeks and then even get reported extensively abroad (the BBC would carry it). But Indonesia is a country of some 250 million people, and by all statistical likelihood, there are thousands of drug violations and homosexual acts on the same scale every day. It's just that they aren't juicy if they don't involve Western foreigners.
It's potentially the same for any conflict between the management and the workers in a foreign Western-owned company. The freed local media will always find interest in the case, blow it totally out of proportion, and put the fault with the foreigner. It's foreigner-bashing that sells papers and attracts viewers in newly democratic poor Third World countries.
The attitude of some politicians in newly installed democracies is quite similar, only that they eye votes, not sales. And while in the media, those papers will address hatred and envy that otherwise would not survive, it's usually not the established politicians who turn to foreigner-bashing but career startups who would otherwise nor find enough attention.
In addition to the bashing of Western foreigners in the newly liberated press and by politicians who seek attention and fame, you have a situation where any law will be applied on Western foreigners much more strictly than on locals, and even non-Western foreigners.
In a newly installed democracy, you will typically see a fury of law-passing activity. Often, such new laws are outlandishly strict because politicians are in a competition not to appear soft on crime, soft on immorality, soft on corruption, soft on the rich, and soft on Western foreigners breaking the law.
But while the police and judicial infrastructure may not be anywhere near the level required to actually implement the strict new laws, be sure that when a Western foreigner is involved, the law will be enforced as a matter of principle. Thus, in many newly democratic Third World countries, you have a legal two-tier system in which all laws surely apply when a Western foreigner or a Western-owned company is involved, while for locals, and even non-Western foreigners, the same laws are applied only on a by-chance basis.
Now, when this two-tier system involves sex, the double standard even gets potentiated. Take for example Cambodia with an endemic sexual child abuse and child prostitution problem. Even though by far the majority of perpetrators are locals, and even though local johns are much more likely to be AIDS-infected and not wear condoms, both the media and law enforcement concentrate almost exclusively on foreign customers.
In the case of Cambodia, this is exacerbated by the presence of Western child protection agencies which are not victim-orientated but perpetrator-orientated. They only target Western sex tourists because anyway, they have little knowledge of the local language and local attitudes.
Thus, a Western foreigner may get busted with a 15-year old prostitute while 20 meters away, a local man beats a 10 year old into sexual submission. This could happen in front of the Western child protection agent, and he wouldn't be able to judge the case (maybe it's a family dispute), and anyway, the local police would be indifferent.
As I have outlined previously, it's not that poor Third World countries that have become democracies are poor choices just for Western foreigners with immoral and criminal intentions. Even if a Western foreign investor in a poor Third World democracy is as honest and law-abiding as ever possible, the potential still exists that he will get entangled in local laws and morality-related issues, simply because the local tabloid media needs such cases to boast sales.
A final note: please be aware that the above analysis applies mostly to private Western foreign direct investors. Chinese government-backed large companies are in a much better position. They are less promising targets for the media, and because these investments often involve government-to-government agreements, they are also much better shielded than Western private investments.
