A brief history: The Maquiladoras and Their Impact on Social Change By Patrick Osio In the 1960’s some substantial changes began occurring in Mexico. The cancellation of the US-Mexico bracero program (temporary agricultural workers program), led to the creation of the Maquiladora industry, first along the Mexico-US border, later expanded to the entire country. The Maquiladora industry was originally created to provide employment to workers it was felt, would be displaced by the cancellation of the temporary agricultural workers that had since the early 1940’s, entered the US to work for nine to ten months each year. The Maquiladora program allowed for complete foreign ownership of Mexican corporations specifically acting as a ‘back-room’ operation of a production facility in the company’s home country. Products processed in such plants could not be readily sold in Mexico, they had to be ‘exported’ to the country of origin. In the early days, most if not all such operations were U.S. owned and were set up as assembly plants with little actual manufacturing taking place. Typically what this allowed was for a foreign owned company to incorporate in Mexico, the foreign company owning 100 percent of the Mexican subsidiary. The Mexican corporation was governed by specific laws created for this purpose. The U.S. company would produce components that would be shipped in bond (free of import duties) to the Mexican plant, there undergoing assembly into either finished or semi-finished parts or products. The U.S. company would thus take advantage of the lower cost labor on the assembly of products. There were also specific Mexican laws allowing the foreign owners to transfer to the Mexican plant the equipment needed for the assembly production lines. In the early days of the maquiladora industry’s development, production management was also sent by the foreign owned maquiladora. To the surprise of some, when these operations first began (mid 1960s), it was not the displaced agricultural workers who began taking the jobs – it was the women. The farm workers continued to cross into the U.S, but now without a contract or visa documents, while the women needing work to supplement household income eagerly took the vast majority of the Maquiladora jobs. Along the border, this phenomenon in smaller scale can be compared to the U.S women that during WWII entered the manufacturing labor pool. Like in the U.S, this gave women a new status, and sense of independence they had not previously enjoyed. Maquiladora assembly line wages are not sufficient to support a family, but as added family income from other work, provided some relief. Typically, U.S and other foreign owned Maquiladoras wages and benefits are higher than those paid by Mexican national companies. So that work in such companies is preferred. Over the years the Maquiladora industry has evolved into a major source of employment, capital investment, export production and dollar revenues to Mexico. It has created a mid management level of supervisors, quality control, plant management, human resources, administrative management – many of these fields are now wide open to educated men and women. This vignette on the Maquiladora program and its social effects on Mexico is not intended to be a complete overview of the industry. Americans need to understand that the creation of the industry was not for the intent, at least by Mexico, to take ‘American jobs’ but rather to create ‘Mexican jobs.’ The model was in fact a copy of what was already in the 1960’s taking place in the Orient known in the U.S. as ‘off-shore production.’ The Mexican version simply adapted its labor and other needs and laws. Originally the maquiladoras were known in the U.S. as Twin Plants denoting one was a continuation of the other. Jobs had since the 1960’s been leaving the U.S. to countries like Japan and Taiwan, later Hong Kong, and Singapore that went on to become the Four Tigers. And in these cases, it was not ‘assembly’ jobs wherein the product components were manufactured in the U.S. then shipped to one of the four countries for assembly as in the case of Mexico. No, in such cases the entire production was transferred to one of the four – the manufacturing of components as well as the assembly, and packaging. Thus the U.S. began losing the manufacturing of whole industries – television, radio, shoes, clothing, and more - to the Four Tigers. If anything, Mexico’s maquiladora industry provided a respite to the complete loss of those industries, and saved a number of others as products with high percentages of labor inputs could stay competitive with lower cost Mexican labor – components manufactured in the U.S. and assembled in Mexico. But it was not thus when the maquiladora industry began. In the 1960’s through the early 1980’s, the industry’s growth was slow. Mexican wages, though low compared with the U.S.’s, were higher than those paid in the Orient. Additionally, in Japan, Taiwan and South Korea the U.S. had poured billions of dollars in aid rebuilding those countries infrastructure, which coupled to low wages, allowed those countries to successfully compete in attracting industries away from the U.S. Plus the U.S. gave them “preferred nation” status greatly lowering tariffs of products from those countries. Mexico’s maquiladora became highly competitive in low wage labor in 1981-82 when world oil prices plummeted. Though it was known that Mexico was rich in oil reserves, in the second half of the 1970’s it was discovered that along their Gulf of Mexico territorial waters, Mexico held billions of barrels of oil ready for tapping. In those days, OPEC countries led by Saudi Arabia had instituted an oil boycott driving oil prices to over $30 per barrel (good old days compared to today’s prices) – in the U.S. gasoline prices not only jumped, but worse, it was scarce and in many places rationed. The administration of the Mexican sitting president, (Jose Lopez Portillo – 1976-1982) went on a borrowing and spending binge (much to line his and his cronies pockets) reaching new levels of country mismanagement. Suddenly, oil prices stumbled, Mexico’s director of PEMEX, the Mexican government owned oil company, cut prices by $4 per barrel only to be fired by Lopez Portillo, who then ordered prices be increased by $2 from the $4 cut and threatened foreign clients that if they refused to pay those prices, Mexico would not sell them any oil in the future. It didn’t work. By then, Mexico was billions of dollars in debt – eventually with interest rising in excess of $85 billion. The peso plummeted against the dollar – from 22 pesos it quickly fell to 70 pesos to the dollar. Lopez Portillo froze it at this rate – only serving to give Mexicans and others an opportunity to get rid of their pesos by buying dollars with their overvalued pesos. It was financial chaos – the country was virtually in the state of bankruptcy. One of the first acts the new president, Miguel de la Madrid (1982-88) took was to further devalue the peso to 150 pesos to the dollar – but outside official circles, the peso continue to drop in value – no dollars were available to purchase from banks – in the street one could buy over 300 pesos per dollar (in time it reached over 3,000 pesos to the dollar before the next president, Carlos Salinas de Gortari, created the New Peso by moving the decimal three places to the left – 3,000 pesos became 3 pesos – so in 2014 terms an exchange of 12 pesos to the dollar is actually 12,000 old pesos – that’ how bad it got). But for the maquiladora industry the fall of the peso meant that a dollar could buy labor for less than half than what it cost before the dramatic devaluation. Mexican wages fell to under sixty-cents per hour included in this cost were benefits and employer mandated contributions. The gates opened – foreign companies began to pour into Mexico along its U.S. border states – more slowly into interior states. The industry’s rate of growth exceeded 20 percent each year until the end of the 1980s. From several hundred maquiladoras it went to several thousand – from a couple of hundred-thousand workers it went to over 2 million workers. The Maquiladora industry became a political controversial issue in the U.S. fueled by wanna-be presidents and U.S. labor union officials attempting to hold on to their dwindling memberships. Unable to do much about the high cost of U.S. labor and the loss of numerous mainstay U.S. industries to foreign companies operating in their lower cost labor countries, they took a stance against Mexico’s maquiladora industry. Their depictions of Mexicans stealing jobs from the U.S., a country, they said, with no labor laws for the protection of their workers, slave labor sweat shops – did an injustice to the majority of U.S. companies operating there, and to the Mexican people. Additionally, taking cue from the controversy, U.S. activists set up shop in Mexico probing and obviously finding discontented employees to voice the ‘evils’ of the industry. Many of the U.S. activists were funded by U.S. labor unions. The results have been both negative and positive in Mexico. On the negative side, it has done nothing to stop the flow of U.S. jobs to countries other than Mexico – as for instance China has now become the major competitor for low cost labor, and India for high skilled labor. So the anti- Mexico effort simply distracted attention to the real problems faced in the U.S. labor market. On the positive side, the attention cast on the needs and treatment of Mexican workers by some foreign owned companies has brought reform. Foreign owned companies that have historically provided better benefits and treated their workers with dignity and respect (the majority) became more aware of the importance and continuous need for such behavior. But it would be remiss to not point out that there were many abuses both to laborers and the environment involving U.S. companies and their American executives. The abuses were made possible because many (but not all) Mexican officials could be bought – this many times included operating permits for operations or processes forbidden by Mexican laws. It included avoidance of Mexican environmental laws on the books at the time that were lax in comparison to U.S. environmental laws to begin with. For instance, Mexican law mandated that chemicals imported to Mexico for use in the process or assembly that would be transformed into hazardous waste had to be returned to the country of origin. Instead, by ‘ignoring’ the law, and Mexico either not having trained inspectors, or ‘buying’ their ignorance – dumping of hazardous materials took place along highways, or dumped into creeks, rivers or lakes. During the production process, proper equipment to safeguard workers was not used, though labor laws mandated such equipment and safeguards be met. The result of this criminal behavior by both U.S. citizens and corrupt Mexican officials has created a major environmental problem in numerous areas and has left many Mexican workers either partially or fully incapacitated. Additionally, severe birth defects due to the indiscriminate dumping of hazardous materials have also bee a consequence of such criminal activity. So while as Americans we can say that Mexico was in charge, we cannot avoid that some of our own were part of the crime. Bu here again, it was the Mexican people that paid the greater price. The question today remains – Has Mexico benefited from the maquiladora industry? Has the U.S. suffered with the maquiladora presence? You be the judge.
Posted on: Fri, 08 Aug 2014 23:07:00 +0000