Are the Veins of Latin America Still Open? The Case of NAFTA and the Maquila Industry in Mexico

In 1971, Uruguayan writer Eduardo Galeano (1940-2015) published his most famous book, The Open Veins of Latin America. The main argument is that the Latin American sub-continent suffered hundreds of years of exploitation and dispossession, and remains at the margins of economic development. This approach echoes Raúl Prebisch’s (1962) dependency theory claiming that the underdevelopment of the periphery of the world is directly connected to the development of the metropole. In his book, Galeano provides an incredibly detailed account of how foreign powers (originally Spain and Portugal) deprived Latin America of its natural resources because of their military and technological superiority, paving the way for the systematic exploitation that would last for centuries. The dispossession of natural resources, however, is only one of the systems of exploitation that the sub-continent suffered (Galeano, 1971).

Some scholars claim that capitalist development, which necessarily involved colonialism and imperialism, granted the vast majority of the world population an increase in terms of living conditions. This is especially true with industrial capitalism (McCloskey, 2006). According to this view, Latin America and its people also benefited from the industrialization of the countries of the Global North (as opposed to the Global South or developing countries), as people are better off nowadays than 400 years ago and their condition is constantly improving (McCloskey, 2006). However, this piece will highlight one of the many cases in which the Global North establishes links with Latin America that advantages the former over the latter under the undisputed aegis of free market; The Maquiladora industry in Mexico. Hence the initial question: Are the veins of Latin America still open?

Image 1: Tute (2021). Illustration for the 50th anniversary of the publication of Eduardo Galeano's "Las Venas Abiertas de America Latina" (Illustration)

As centuries passed, the modality in which colonial powers exploited the periphery varied – from extractivism, to mercantilism and free market imperialism (Arrighi, 1994) – relegating Latin America to the role of commodity exporter and importer of industrial goods. Even after the political independence of most countries (by the end of the 19th century almost every country in the sub-continent was formally independent), this scheme remained unchanged.

The Lost Decade and NAFTA

After WWII, most Latin American countries, under the aegis of the Economic Commission for Latin America and the Caribbean and highly influenced by Prebisch’s theories, had implemented so-called inward-looking development strategies. In other words, they started to promote their internal markets to (I) be less reliant on foreign powers purchasing their primary goods, and (II) to initiate a process of industrialization, led by the internal purchasing power. This inclination inherently implied protectionist measures, to protect what Friedrich List would have defined “infant industry” (Selwyin, 2014). In other words, the nucleus of industrial development, if not protected sufficiently from competition in the world market, would succumb as it is not yet competitive. Even though Latin America’s mighty neighbour, the USA, did not appreciate such a government's model of development as shown by the numerous military interventions to promote regime changes and put in power free-market inclined governments (Galeano, 1971), the inward-looking model of development was the cornerstone of many governments’ economic policy in Latin America until the late ‘70s (Bértola & Ocampo, 2012).

The ‘70s, as argued by Harvey (2005) were characterized by an offensive of capital, seeking new markets to expand and increase revenues, as the late '60s were characterised by the combination of economic stagnation and inflation. The early '70s are known as the beginning of the phase often called neoliberalism. This trend was particularly significant in Latin America and Mexico, as it would lead to a period of dramatic historical transformation, labelled as structural adjustment, culminating to the opening of Latin American economies to the world market.

During the period of inward-looking development, Mexico had heavily relied on foreign credit to finance the effort of keeping a national industry alive and protecting it from external competition. The debt of the Mexican state was mainly owned by US banks. The “Volcker shock” of 1992, which meant the sudden increase of interest rates by the Federal Reserve, made the Mexican debt instantaneously unsustainable (Bértola & Ocampo, 2012). The only option for the Mexican government was to declare a default, and hence declare that the debt would not have been served. However, as argued by Bèrtola and Ocampo (2012), the international lenders coordinated by the US government, in order to avoid their own default, threatened Mexico with the inability to access credit in the future if the current debt was not served, and forced the government to access credit of the IMF, a US-led institution (Bértola & Ocampo, 2012). The IMF did concede Mexico the money to reschedule its debt, but in exchange for a structural reshaping of its economy directed towards international markets, no state intervention in the economy, and financialization. In the words of David Harvey (2005):

“In return for debt rescheduling, indebted countries (Mexico) were required to implement institutional reforms, such as cuts in welfare expenditures, more flexible labour market laws, and privatization. Thus was ‘structural adjustment’ invented. Mexico was one of the first states drawn into what was going to become a growing column of neoliberal state apparatuses worldwide” (p.29).

Image 2: Unknown (n.d). US Free Market Imperialism [Illustration].

This period of structural adjustment in Mexico entailed many structural reforms that among other things, would allow foreign capital to access the country and operate in the Mexican market in competition with Mexican capital. A manifestation of the forceful insertion of the Mexican economy into the world market is the North American Free Trade Agreement (NAFTA) of 1994 which tied together Mexico, the USA and Canada in a trade bloc, meaning the elimination of trade barriers for many export goods, and the facilitation of cross-border capital movement and investment. This agreement, part of the policies of structural adjustment that Mexico suffered, was in line with the aforementioned offensive of capital seeking new markets to increase profits, for US firms widely exploited the Mexican market to (I) sell industrial goods, and (II) relocate part of their production to exploit the less expensive Mexican labour force. One of the consequences of such an agreement was the formation, in cities close to the US border, of agglomerates of manufacturing plants providing US firms with cheap and flexible labour: the Maquila (Harvey, 2005).

Image 3: Unknown (n.d). The original rules of NAFTA disadvantaged Mexico (Illustration)

The Maquila Industry

The Maquila industry is a sector of the Mexican economy administrated under the maquila program, establishing the possibility for US firms to export their semi-manufactured products across the Mexican border for further manufacture, and then export them back to the US. This system has been existing since the ‘60s, with the objective of attracting foreign direct investment (FDI). However, after the signing of NAFTA, it suffered a dramatic growth in terms of the number of firms that relocated to Mexico considerable segments of production from across the border (could you rephrase this as I don't quite understand) (Gruben, 2001). In fact, in the border area, a large number of industrial clusters emerged, representing one of the main economic activities of the area and employing a large number of people. The transfer of industrial activities from the US to Mexico did represent a push for the latter’s economy, which was facing a deep crisis in the '90s, and provided numerous jobs for locals, who otherwise would have been unemployed. However, the Maquila industry and its dramatic increase were connected to some crucial issues. In the first place, US firms tended to relocate their production across the border due to the blander environmental regulation. Secondly, the availability of a cheap labour force, less protected and more flexible than in the US. encouraged enterprises to adhere to the maquila program.

Image 4: Unknown (n.d). Labour Exploitation of Women (Illustration).

The removal of trade barriers perpetrated by NAFTA allowed US firms to relocate segments of production to the other side of the Mexican border, without significant economic costs. An attractive factor for foreign firms was the fact that Mexican legislation, regarding the protection of the environment, was way less restrictive than the US one (Voigt, 1993). In the realm of the environmental injustice theoretical framework (Brown, 2005), which stresses the unequal distribution of environmental costs between the Global North and the Global South, the maquila regime acquires specific importance. In fact, the opening of the Mexican economy to indiscriminate FDI paved the way for the overexploitation of the cross-border areas mostly in terms of disposal of hazardous waste, and threatening of environmental integrity and preservation (Voigt, 1993). This phenomenon acquires more relevance if framed as a transfer of negative externalities from a country of the Global North (the US) to a country of the Global South (Mexico). The latter obtaining in exchange consistent FDI and low-skilled jobs, and the former seizing the revenues. The environmental injustice linked to the maquiladoras (the name of the firms engaging in the maquila program), can be framed as the perpetrators of the exploitation mechanisms of Latin American countries by Western powers historically described by Galeano (1971). Little gains, in terms of jobs, are exchanged for tremendous and perhaps irreversible damages to the environment, threatening the livelihood of the people in the border area, and endorsing practices that in the US would be banned.

Image 5: Spire Cartoons (2020). Environmental injustice (illustration).

Another aspect connected with the maquila industry is the exploitation of a cheap and flexible labour force. The signing of free trade agreements notoriously fosters a race to the bottom in terms of labour rights and wages (Olney, 2013). In the context of NAFTA, the existence of a relatively cheap and flexible labour force, if compared with the US and Canada (two members of NAFTA), was a consistent motivation for firms to engage in FDIs towards Mexico. Given the need for Mexico to remain competitive in terms of price of the labour force, governments hesitate to improve labour rights, using the competition discourse to drive down claims made by trade unions and labour unions (Clua-Losada, 2015). Furthermore, most of the workers employed in the maquiladoras are women, opening the gender gap debate. It is shown, in fact, that women are most likely to accept lower wages and more precarious conditions of labour in Mexico, given the cultural superstructure deeming women to be less valuable in the labour market (Charles, 2010). Jobs in the maquiladoras are often low-skilled and entail the execution of manual repetitive tasks, thus do not provide workers with professional growth, but rather relegating them to a marginal role in the labour market (Charles, 2010). Furthermore, the maquila regime does not entail the transfer of technology from the origin country to Mexico, for as mentioned above, jobs in the maquiladora are usually manual and labor-intensive, with little technology employed. This implies that they are jobs with low value-added. In other words, productivity is relatively low which leaves a narrow margin for wage increase (Harvey, 2005). The aspects of the maquila industry connected with labour exploitation are also in line with Galeano’s (1971) view of the exploitation of Latin America and Wallerstein’s (2000) world system theory. The NAFTA treaty, in fact, perpetrates the same mechanisms of exploitation historically put in place by Great Britain and the US during the era of free trade imperialism described in the open veins of Latin America. In other words, countries of the Global South (or peripheral countries) were relegated to the role of low-skilled manufacturers or producers of primary goods to be later processed by industries of the Global North which made the most of the profit (Wallerstein, 2000). The maquiladora regime closely resembles such a scheme, being US firms that take advantage of low wages, bad labour conditions and gender gap to increase their profits.

Image 6: Unknown (2015). Women and the maquila industry [Illustration].

Conclusion

Latin America has been drained for centuries of its natural resources, relegating the sub-continent to the role of primary goods producer and hence to a marginal role in the world economy. This thus led Galeano (1971) to title his famous book The Open Veins of Latin America. More than fifty years have passed and despite the growth of economic indicators all over the globe, the position of Latin American countries in the world economy is still marginal, as some of the dynamics of the past persist today. The offensive of neoliberalism and structural adjustment in the ‘80s put an end to a period in which, after WWII, Latin America seemed to be headed towards economic independence from the Global North. The opening of Latin American economies to the world market led to practices of economic exploitation; the case of the maquila regime is emblematic. The forceful opening of the Mexican economy culminating with the signing of NAFTA enabled US firms to (I) transfer negative (and even dangerous) environmental externalities across the border with Mexico, and (II) to exploit, and at the same time foster the bad labour conditions, low wages, and gender labour gap. All these practices are aimed at increasing profit in the name of competition of US-based companies, and thus at transferring the benefits of labour exploitation and environmental injustice to the Global North. Therefore, the veins of Latin America can still be claimed to be open.

Bibliographical References

Arrighi, G. (1994). The long twentieth century; Money, power, and the origins of our times. Verso.

Bértola, L., & Ocampo, J. A. (2012). The economic development of Latin America since independence. Oxford: Oxford University Press.

Brown, P. (2005). Race, class and environmental health: A review and systematization of the literature. Environmental Research.

Charles, A. (2010). Fairness and Wages in Mexico's Maquiladora Industry: An Empirical Analysis of Labor Demand and the Gender Wage Gap. Review of Social Economy.

Clua-Losada, M. (2015). Tracing the competitiveness discourse in Spain: Social dumping in disguise? In M. Bernaciack, Market Expansion and Social Dumping in Europe (p. 210-226). New York: Routledge.

Galeano, E. (1971). Las Venas Abiertas de America Latina. Buenos Aires: Siglo.

Gruben, W. (2001). Was NAFTA behind Mexico's high maquiladora growth? ECONOMIC AND FINANCIAL REVIEW-FEDERAL RESERVE BANK OF DALLAS , 11-21.

Harvey, D. (2005). A brief history of neoliberalism. Oxford: Oxford University Press.

McCloskey, D. (2006). The Industrial Revolution was a Great Tide. In D. McCloskey, Bourgeois dignity: Why economics can't explain the modern world (p. 3-11). Chicago: University of Chicago Press.

Olney, W. W. (2013). A race to the bottom? Employment protection and foreign investment. Journal of International Economics. 191-203.

Prebisch, R. (1962). The economic development of Latin America and its principal problems. Economic Bulletin for Latin America .

Selwyin, B. (2014). The global development crisis. John Wiley & Sons.

Voigt, D. (1993). The maquiladora problem in the age of NAFTA: Where will we find solutions. Minnesota Journal of International Law. 147.

Wallerstein, I. (2000). The essential wallerstein. The New York Press: New York.

Visual Sources

Image 1: Tute. (2021). Illustration for the 50th anniversary of the publication of Eduardo Galeano's "Las Venas Abiertas de America Latina" [Illustration]. Retrieved 20/08/2022 from: https://www.coolt.com/libros/venas-siempre-abiertas-america-latina-galeano_71_102.html

Image 2: Unknown. (n.d). US-led neoliberalism in Latin America [Illustration]. Retrieved 20/08/2022 from: https://bigbangmexico.com/la-maldicion-imperialista/

Image 3: Unknown. (n.d). The original rules of NAFTA disadvantaged Mexico [Illustration]. Retrieved 22/08/2022 from: https://monoaureo.com/2018/02/28/reglas-de-origen/

Image 4: Unknown. (n.d). Labour Exploitation of Women [Illustration]. Retrieved 22/08/2022 from: https://ilustraciones.otrosmundoschiapas.org/explotacion-laboral-femenina

Image 5: Spire Cartoons. (2020). Environmental injustice [illustration]. Retrieved 22/08/2022 from: https://www.facebook.com/244864906490/posts/inequality-and-the-environmentdecadeofthe99/10157243445061491/

Image 6: Unknown. (2015). Women and the maquila industry [Illustration]. Retrieved 20/08/2022 from: https://ilustraciones.otrosmundoschiapas.org/mujeres-y-maquiladoras