Thank god for maquiladora growth?

Diego writes*

In the 1960s, Mexico created a program to help northern Mexican states develop. The “Border Industrialization Program” (BIP) led to the birth of Mexican maquiladoras (Truett and Truett, 2007). Maquiladoras are foreign-owned firms exempt from import tariffs on (US) inputs that can therefore export finished manufactured goods more cheaply back to the US.

The BIP led to impressive employment growth — from 76,000 workers in 1974 to 1.3 million workers in 2000 (Truett and Truett, 2007). Carrada-Bravo (1988) argue that these jobs also pay more since they relate to international trade; Durand (1994) adds that the large share of women in these jobs empowers women and frees them from depending on their partners to survive.

So maquiladoras improved living standards for for Mexicans, right?

Maquiladora employment growth from 1975 until 1999 (Gruben, 2001)

Unfortunately, no. U.S. companies are exploiting the BIP in two ways:

First, maquiladora workers are paid less than they would be in the US, i.e., $4.01 per day rather than the US minimum wage of $16.17 per hour (Durand, 1994). Low wages limit improvements in workers’ standard of living. President Salinas de Gortari (1988-1994) did not want to increase and discourage  foreign investors (Durand, 1994).

Second, maquiladoras do not have a safe and clean working environment (Durand, 1994). The working conditions are comparable to sweatshops in the United States during the early stages of industrialization (Durand, 1994). The Mallory battery plant in Matamoros, for example, allowed pregnant women to handle highly toxic chemicals with only rubber gloves for protection.

Since American FDI comes with disadvantages, U.S. companies must decide if they want to ignore or improve the working conditions. DeGeorge (1997) explores two views on U.S. corporate responsibility:

  1. “When in Rome do as the Romans do.” A U.S. firm need only follow Mexican standards without worrying about corporate responsibility.
  2. “The Righteous American View.” U.S. firms should follow U.S. standards when abroad as part of their corporate responsibility.

Should U.S. companies follow the Roman or Righteous view? Personally, I think the Mexican government should recognize the detrimental conditions of workers in maquiladoras and enforce the Righteous view, especially since very few companies are doing so voluntarily.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

2 thoughts on “Thank god for maquiladora growth?”

  1. Hi, Diego! This is a super interesting post, in which you present the tension that the maquiladoras pose in the Mexican context. On the one hand, more FDI and more job positions have been created. On the other, the working conditions and the wages are shameful. Industry delocalization is very common in Europe as well, as Asian/Eastern European countries are cheaper in terms of wages, and fewer requirements need to be met. A suggestion is to follow the “Righteous” view. Do you think this is a viable option? From how I understand the maquiladoras, it seems that if US firms start following US standards in Mexico, then there would be no incentive to continue having these maquiladoras, right? (as it is currently cheaper for them to operate in Mexico). I think that it is also worth considering what would happen if, in fact, maquiladoras start following the US standards and they reallocate once again to the US – what would happen to the workers? Or also, if the hypothetical US standards-maquiladoras stay in Mexico, how would they compete with local firms?

    1. Hello Clara! Thank you for your comment. If I am completely honest with you, the “righteous” view is quite unrealistic from my point of view. As you correctly say, there would not be an incentive to manufacture in Mexico if the salaries are the same in Mexico and the United States, unless corporate tax is lower in Mexico than the US. However, Mexican corporate tax is still higher than the corporate tax in the United States.
      Moving onto the second question, if maquiladoras were to relocate again to the US, it would be a signal of the failure of the Border Industrialization Programme. The main idea of this programme was to provide jobs to workers that were laid off after the US ended the Bracero programme (a programme in which US legally allowed Mexican workers to migrate to the US for seasonal work), through opportunities to work in the maquiladora industry. Therefore, the workers would end up being unemployed again.
      Lastly, if the US standards were to come to Mexico, I guess they would compete with other Mexican companies through corporate branding. They would be able to label themselves as “fair” and attract customers that look for “fair” goods. Thus, slightly increasing the demand if they label themselves as such. But I am not entirely sure about this.

      Thanks again!

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