Maquiladoras Established

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Maquiladoras Established

Mexico 1960s

Synopsis

Also known as "in-bond" plants or "twin" plants, maquiladoras are assembly plants in Mexico. Most of the maquiladoras are found along the border with the United States, although they are established throughout the country. Maquiladoras reflect shifts in global capitalism that emphasize production sharing. Increasingly, international corporations have divided the capital-intensive and technology-intensive aspects of production from those that are labor intensive. Unskilled assembly is done in developing countries, where wages are low, whereas skilled operations take place in developed countries that possess more skilled labor and technology.

In the maquiladora industry, firms from the United States and other foreign countries send component parts to Mexico. Mexican workers then assemble the product in the maquiladora plants. Once the product is assembled, it is exported back to the United States. Government regulations on both sides of the border help promote the industry. In Mexico, components, machinery, and supplies can be imported duty-free as long as the finished product is then reexported. In the United States, raw materials and components are not taxed when reentering the country. Tariffs apply only to the value added in Mexico.

The maquiladora industry began in the mid-1960s, when it concentrated along the border. The industry grew slowly at first. The economic collapse in Mexico during the 1980s and the devaluation of the peso greatly reduced the cost of labor in the country. This inexpensive labor force, in turn, made the maquiladora industry more competitive. By the 1990s there were more than 2,000 plants throughout Mexico, employing some 500,000 workers. These workers performed tasks that ranged from assembling electronic goods and automobiles to sorting grocery store coupons and shelling walnuts.

Timeline

1962: Publication of Rachel Carson's Silent Spring heightens Americans' awareness of environmental issues. A year later, The Feminine Mystique by Betty Friedan helps to usher in a feminist revolution.
1966: As a result of the Supreme Court's decision in Miranda v. Arizona, law officers are now required to inform arrestees of their rights.
1966: In August, Mao Zedong launches the "Great Proletarian Cultural Revolution," which rapidly plunges China into chaos as armed youths plunder the countryside, rooting out suspected foreign collaborators and anti-Chinese elements. Along with rifles and other weapons, these Red Guards are armed with copies of Mao's "Little Red Book."
1969: Assisted by pilot Michael Collins, astronauts Neil Armstrong and Edwin E. "Buzz" Aldrin become the first men to walk on the Moon on 20 July.
1970: President Nixon sends U.S. troops into Cambodia on 30 April. Four days later, National Guardsmen open fire on antiwar protesters at Kent State University in Ohio.
1973: Overthrow of Chile's Salvador Allende, the only freely elected Marxist leader in history, who dies in the presidential palace. According to supporters of the new leader, General Augusto Pinochet, Allende committed suicide, but Allende's supporters maintain that he was killed by Pinochet's troops.
1976: United States celebrates its bicentennial.
1978: U.S. Senate approves a measure presented by President Carter the year before, to turn the Panama Canal over to Panama by 2000.
1979: Nicaragua's president, General Anastasio Somoza Debayle, flees to Miami, and the Sandinista faction takes control of the government.
1982: Argentina invades the Falkland Islands, a British possession, and Great Britain strikes back in a ten-week war from which Britain emerges victorious.
1986: Seven astronauts die in the explosion of the U.S. Space Shuttle Challenger on 28 January.
1990: Though the Internet (originally the Arpanet) has existed for 21 years, it has not been very user-friendly and has remained the province of defense personnel and other specialists. This year, however, sees the beginnings of the World Wide Web, which will make the Net accessible to a broad range of users over the coming years.
1994: In a surprise upset, Republicans win control of both the House and the Senate, ending four decades of almost unbroken Democratic control. Georgia's Newt Gingrich becomes Speaker of the House.
1997: After 18 years out of power, the Labour Party, led by Prime Minister Tony Blair, wins control of the British government.
2001: On the morning of 11 September, terrorists hijack four jets, two of which ram the twin towers of the World Trade Center in New York City. A third plane slams into the Pentagon in Washington, D.C., and a fourth crashes in an empty field in Pennsylvania. The towers catch fire and collapse in a scene of horror witnessed by an audience of millions on live television. The death toll is approximately three thousand.

Event and Its Context

Origins of the Maquiladora Industry

The exact origins of the maquiladora industry are unclear. Before the 1960s, there already had been "free zones" along the Mexican-U.S. border, where laws regarding foreign investment were more relaxed. The establishment of maquiladoras grew out of a Mexican government program known as the Programa Nacional Fronterizo (PRONAF). The Mexican president Adolfo López Mateos established the program in 1961 to promote social and economic development along the border at the time that the Bracero Program, which had sent Mexican laborers to work in the United States, came to end. One of the key aspects of PRONAF was industrialization along the border. At first, PRONAF emphasized the production of goods for the Mexican market.

Later, Mexican government officials determined that the best course of action was to produce for the U.S. market. Sometimes credit for the ideas of maquiladoras is given to Richard Bolin, who conducted studies carried out by the industrial consulting firm Arthur D. Little de México. Further impetus came from Octaviano Campos Salas of the Mexican Ministry of Industry and Commerce. Campos Salas claimed that on a trip to Asia in 1964, he had observed the success of U.S. assembly plants, and he hoped that Mexico would become an alternative to Hong Kong and Taiwan. Mexico seemed uniquely qualified for such as role, with its 2,000-mile-long shared border and geographic proximity making transportation costs inexpensive.

Thus, in 1965 the Mexican government instituted the Border Industrialization Program (BIP) to create jobs by attracting foreign investment. This plan was to extend the "free zone" concept to the entire border region. The program allowed for the duty-free importation of machinery, equipment, and components to a zone within 20 kilometers of the border as long as these items were later reexported. The output of the assembly plants could not be sold in the Mexican market. The Mexican government hoped that the border would change from an under-developed region into a growth pole for the country.

Many Mexican workers also were hopeful when the government issued a new federal labor law on 1 May 1970. Maquiladora management was to implement the provisions of the new law within three years. It included paid vacations, mandatory Christmas bonuses, and employer-paid death, termination, and retirement compensation. The law was among the most progressive pieces of labor legislation in the developing world. Yet despite these potentially expensive mandated worker benefits, foreign firms continued to go to Mexico, and the number of assembly plants continued to increase.

In the United States, organized labor often opposed the maquiladoras, fearing that jobs would be lost. In part to dispel this fear, Bolin and others developed the concept of the twin plant, in which two facilities would exist, one on each side of the border. On the U.S. side, there would be a capital-intensive plant, while just across the border in Mexico there would be a plant for labor-intensive activities. Many envisioned that because they would be so close, the twin plants could share the same management, and transportation costs would be almost nonexistent. In reality, however, few true twin plants ever existed.

The early maquiladoras enjoyed some success. When the program began in the mid-1960s, Hong Kong assembled five times as many U.S. products as Mexico. By the end of the 1960s, Mexico processed twice as many goods that originated in the United States as Hong Kong. While wages in Mexico were, in fact, higher than in Asia, the low transport costs more than made up for the difference. By the end of the 1960s there were more than 100 maquiladora plants along the border, which employed more than 15,000 workers. While this figure was a small percentage of the workforce of the entire country, maquiladoras had become a major employer in the border region, where unemployment and underemployment were common.

The First Crisis in the Maquiladora Industry

The first crisis in the maquiladora industry came in 1974, resulting in the closure of plants and worker layoffs. Two factors caused the crisis. First, a recession in the United States in 1974 and 1975 hurt the maquiladoras, as demand decreased on the U.S. side of the border for many of the products assembled in Mexico. Second, maquiladora labor was becoming increasingly militant. Whereas at first the Mexican workers had been considered to be docile, they now were making more demands on management, including pay raises. If the cost of labor rose too high, Mexico would lose its competitive advantage. Indeed, some firms threatened to leave Mexico.

A series of steps ended this first crisis. First, the Mexican government and the maquiladora owners reached an agreement known as the Alliance for Production. Second, workers toned down their demands, fearing that if companies relocated, they would permanently lose their jobs. Third, in September 1976 the Mexican government devalued the peso, effectively lowering the cost of labor for foreign firms.

The Industry Recovers

A period of slow recovery followed until 1981. Between 1975 and 1981 the number of plants increased from about 450 to more than 600. In addition, the number of workers employed in the maquiladora industry nearly doubled, from about 67,000 to 131,000. This recovery was facilitated by a stronger U.S. economy and by the attitude of the new Mexican president, José López Portillo, who took office in 1976.

López Portillo's Alliance for Production was a new development strategy in which the government aided the maquiladora industry. The new president wanted to demonstrate that he would not follow the radical policies of his predecessor, Luís Echeverría Álavarez, but rather would help promote the industry. The government agreed to take such steps as financing industrial parks, and the plant owners promised to promote investment.

The government also changed its attitude toward labor. The previous administration had created the progressive 1970 labor code, but López Portillo slowly undid many of these reforms. The Mexican government now gave employers more freedom in their treatment of employees, making it easier to fire workers, extending the probationary period of employment from 30 to 90 days, and allowing room to alter wages and working conditions. Overall, in the late 1970s and early 1980s, labor was more disciplined by management, and the situation of laborers was made more difficult as the result of inflation and intensified production. Thus, they worked harder and earned less.

The Second Crisis in the Maquiladora Industry

A second crisis occurred in 1981-1982. There was another, though milder, recession in the United States that affected demand. Furthermore, in dollar terms the wages of Mexican maquiladora workers were rising once again. Indeed, they had surpassed those in Asian countries, such as Hong Kong, South Korea, and Taiwan. Many companies again threatened to pull out of Mexico. Once more the Mexican government decided that the solution was devaluation of the peso. This devaluation cut wages in dollar terms for the foreign companies. In addition, in a surprise move, López Portillo nationalized Mexico's banks and imposed exchange controls. Devaluations continued under the new president, Miguel de la Madrid Hurtado, who took office in 1982. These moves served to make the maquiladoras competitive once more.

Recovery and Expansion

The second crisis period was followed by another period of growth. The de la Madrid government continued to promote the industry, as seen in the August 1983 "Decree for the Promotion and Operation of the In-Bond Industry Export." Thus, by 1987 there were more than 1,000 plants employing more than 300,000 workers. By the late 1990s the maquiladora industry was booming. Between 1995 and 1999 employment in the industry grew by double-digit rates every year, reaching 1.1 million workers by 1999. The General Motors subsidiary Delphi, with plants in eight cities, had become Mexico's largest employer, with some 75,000 workers. Maquiladora workers sometimes earned as much as $1.90 an hour. While this wage was low compared with those in the United States, the Mexican average was about $3 per day.

Positive Aspects of the Maquiladoras

Proponents of the maquiladora industry point to a number of positive aspects. Some firms have been forced to close plants during hard economic times, but, in general, most of the companies have been stable. Such stability contributed to the creation of jobs in Mexico. Many advocates point to an overall high level of satisfaction among the maquiladora workers. Significant numbers of the workers are young women, who are able to secure regular paychecks and health insurance through their maquiladora jobs.

Originally a labor-intensive industry, maquiladoras have become increasingly capital intensive. Supporters also point to the transfer of skills and technology from industrialized countries to Mexico. In addition, the maquiladoras produce a significant amount of foreign exchange for Mexico. Moreover, recent changes have allowed the maquiladoras to sell their products in Mexico, thus contributing to the country's economic growth.

Negative Aspects of the Maquiladoras

While there is much support for the maquiladora industry, there are also numerous negative aspects. Opponents of the North American Free Trade Agreement (NAFTA), in particular, focus on various problems of the maquiladoras. A major criticism is that jobs are lost in the United States. Another significant concern is pollution in the border region, because Mexican environmental laws are not as strict as those in the Unites States. Other critics point to the treatment of the maquiladora labor force, claiming that the companies exploit the workers, especially the large female component of the workforce. In addition, companies often threaten to close or leave at the first sign of labor trouble, making workers hesitant to organize.

Yet another complaint is that the industry has remained isolated and has not become integrated into the larger Mexican economy. Some of these fears were borne out in the early years of the industry, because the maquiladoras did not create the backward linkages that Mexican officials had hoped for. It was only on a limited basis that Mexicans supplied goods and services to the plants. Instead, it was Mexicans involved in property development who prospered most, by providing land and factories to the foreign firms.

Furthermore, despite the claims of proponents, critics argue that there has been relatively little technology transfer from developing countries. Instead, developing countries such as Mexico become linked to an increasingly volatile world economy. It is the powerful international corporations that benefit, not the Mexican economy. Thus, some in Mexico have been concerned over what they see as U.S. economic imperialism.

Key Players

Bolin, Richard: Bolin played an important role in developing the maquiladora industry. While working for the industrial consulting firm Arthur D. Little de México, he carried out studies for the Mexican government. Bolin also was involved in the developing the twin plant concept for the border region.

Campos Salas, Octaviano: Campos Salas served as Mexico's commerce minister from 1964 to 1970 under President Gustavo Díaz Ordaz. Trained as an economist, he studied at the Universidad Nacional Autónoma de México as well as at the University of Chicago. During his term as commerce minister, Campos Salas was influential in setting the foundation for the maquiladora industry.

Echeverría Álvarez, Luís (1922-): Populist president of Mexico from 1970 to 1976, Echeverría Álvarez alienated many in the private sector because of his populist policies. Despite his emphasis on state-owned enterprises, he generally allowed the maquiladora industry to expand. The Echeverría administration implemented a labor code that greatly benefited the maquiladora workers.

López Mateos, Adolfo (1910-1969): After serving as secretary of labor, López Mateos was president of Mexico from 1958 to 1964. His administration was responsible for the implementation of an economic development program for the Mexico-U.S. border region that sparked the maquiladora industry. In general, López Mateos followed a moderate economic policy that contributed to the growth of Mexico's industrial infrastructure.

López Portillo, José (1920-): A Mexican lawyer who served as his country's president from 1976 to 1982, López Portillo took office at the start of an economic and political crisis, inheriting an unstable peso and high inflation. He attempted to reestablish a positive relationship with business interests in the wake of the Echeverría administration. To this end, he implemented the Alliance for Production, which had an important impact on the maquiladora industry.

See also: North American Free Trade Agreement.