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?
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:
- “When in Rome do as the Romans do.” A U.S. firm need only follow Mexican standards without worrying about corporate responsibility.
- “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 :).