Inside Mexico: Make up in a mess

By IAN CAMPBELL, UPI Chief Economics Correspondent  |  June 3, 2002 at 9:10 PM
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QUERETARO, Mexico, June 3 (UPI) -- What does maquiladora mean? The word is related to "maquillaje" in Spanish, or "maquillage," in French, both of which mean "makeup," the sort women put on their face.

But it was a different type of making up that the maquiladoras on the Mexican side of the U.S. border were, and to a large extent, still are, about: assembly, the putting together by cheap Mexican workers of parts usually manufactured elsewhere and imported duty-free.

Now the makeup is in a mess. The number of jobs in Mexico's maquiladoras has dropped by 278,000, a fifth of the total, since October 2000.

But should we be concerned? Was the business ever pretty?

The maquiladora industry: How should we see it? Something ugly disguised as progress? Or as something genuinely attractive for Mexico?

Some economists have argued that maquila's value added is relatively small because it often uses inputs from abroad and does not provide "linkages" to the domestic economy by creating a web of domestic suppliers. There are also accusations that it is exploitative to use cheap Mexican labor to do what American workers would do more expensively. In San Antonio, Texas, an organization called Coalition for Justice in the Maquiladoras campaigns against abuses it perceives in the maquila industry. And no doubt abuses exist. But there is also evidence that the maquiladoras have benefited Mexico, the border area and their workers.

How so? Look at the industry.

It goes back to the mid-1960s and has moved ahead fast in the past 30 to 40 years, especially since the devaluation of the Mexican peso at the end of 1994, says John Castany, the former president of the Reynosa Asociación de Maquiladoras and now a board member.

Figures from the Mexican government's statistical body, INEGI, show that the number of maquiladoras more than doubled in the 1990s, from 1,703 companies in 1990 to 3,590 in 2000. Their production quadrupled between 1990 and 1999. Mexico's manufactured exports rose ten-fold between 1990 and 2000, from just $14.9 billion to $146 billion; the maquiladoras have been responsible for much of this increase. Meanwhile the number of people employed by maquiladoras has come close to tripling: from 446,000 in 1990 to 1,285,000 in 2000. No other segment of the Mexican economy has been as dynamic or as able to create jobs.

How good are those jobs? They do pay much less than similar employment would in the United States. The maquiladoras are in Mexico because Mexican workers can be hired for about $50 per week: about what would be paid to equivalent low-skilled U.S. workers in a day. But the treatment and benefits workers receive are good, executives in the industry say.

Keith Patridge, executive vice president of the McAllen Economic Development Corporation, which has worked hard and successfully to bring companies from all over the world to McAllen, Texas, to Reynosa, just over the border, and to other towns in Mexico, says that all the maquiladoras offer training to their workers, and not just on-the-job training, but schooling. Teachers are provided in the evenings and at weekends. Workers can complete the secondary education that many of them will have abandoned at a young age. Some have gone on to take a college degree and even a Ph.D.

Don King, the burly President of Am-Mex Products in McAllen corroborates this. "We have paid students to go to school to take degrees," he says; "some leave, but the loyalty you get from workers is worth much more than the cost."

King is positive on Mexican workers. He has worked in Asia, the Middle East and Europe and says "I would put the Mexican worker up against any in the world. The work ethic is there. It's instilled in them at birth."

Because workers have become more skilled in the border area in the past thirty to forty years Patridge says that the maquiladoras are taking on more sophisticated tasks than just assembly. Mexican workers are moving to more skilled tasks and the "whiskers of the company" are now coming to Reynosa and performing research and development. King, however, is less optimistic. "The problem," he says, "is still the skill sets."

Jobs, a wage, training, education: these are benefits brought by the maquilas. But what has gone wrong? Why are jobs being lost?

Of course the slowdown of the U.S. and global economy is a factor. But there are others. The business is more complex than the simple comparison of wage costs might make it appear. According to Mike Allen, President of the McAllen EDC, "everything except labor costs more in Mexico." And now the maquila industry has hit what Castany calls "some worrying bumps in the road."

Both the MEDC's Allen and Castany are concerned about the costs, other than labor, that tend to be higher in Mexico than in the United States. Regular readers of Inside Mexico will be familiar with some of them.

First, though, there is something specific to the maquiladora industry. The Mexican government has sought, not unreasonably in Castany's view, to increase the tax take from the maquilas. But the solution it has found seeks to tax maquila companies on earnings in both Mexico and the United States. "Nowhere in the world will you find this sort of double taxation," Allen says. And efforts to tackle the problem have proceeded frustratingly slowly. "I think President (Vicente) Fox is an excellent man," Allen says, "but cooperation from officials in the ministries has been poor."

Castany says that the cost of obtaining additional electricity supply from Mexico's state run Corporación Federal de Electricidad for plants in Reynosa is "outrageous." Castany says that plants complain, too, about the cost of services from Telmex, the formerly state-run, now privately-owned company that is close to enjoying a monopoly of telecoms in Mexico. And Castany points out the extent of traffic congestion in Reynosa. Money needs to be invested in infrastructure.

Allen says that money was designated for investment in infrastructure in Reynosa. The former mayor of the town, Gerardo Higareda of the Partido Revolucionario Institutional, which lost the presidency to Fox in 2000, was removed from office, allegedly for theft. He has made counter-accusations against the governor of Tamaulipas state, Tomás Yarrington. Reynosa's investments have not been made.

Another layer of increased cost is provided by a phenomenon examined previously by Inside Mexico: the appreciation of the peso. Its real value has risen by over a fifth against the U.S. dollar -- which itself has been strong against other currencies until recent weeks. The pursuit by Mexico's central bank of still lower inflation has helped to drive the peso up. Policy, as argued previously, might have been different and ought to be changed now.

Let us come back to our earlier question: how should we see the maquiladoras?

The conditions of employment offered by maquiladoras need to be monitored. But there can be little doubt that in Mexico they pay the going rate in a country where jobs are scarce and workers are untrained. In providing education to their workers maquiladoras make up for perhaps the biggest and most destructive weakness of Mexican society: the poor state education system.

Maquiladoras, like other foreign investment in Mexico, are the basis of capitalist development of the country. Their investments create jobs, raise productivity and skills and will eventually raise the wage rate and Mexico's standard of living. They should not be seen as a mask for exploitation. The problems they tackle -- lack of skills, poor roads, high costs for essential services, negligence and corruption on the part of public officials--are those that have dogged Mexicans for decades.

Inside Mexico is a weekly column in which our international economics correspondent reflects on the country in which he lives. Comments to

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