CHAPTER TWELVE
Mexico’s Ace in the Hole: The Maquiladora
FEW U.S. BUSINESSMEN WOULD name Mexico if asked who America’s main trading partners are. Yet last year it ranked number three, behind Canada and Japan. Every day the Mexican economy is becoming more closely integrated with that of the U.S. And the Mexican government, with strong popular support, has decided to speed up this process and to make it irreversible. It has proposed a U.S.-Mexico free-trade agreement that would create a North American Economic Community of Canada, the U.S. and Mexico—more populous than the European Economic Community and not too far behind the EEC in output and gross national product.
This is as startling a policy reversal as anything that has occurred in the Soviet Union and in Eastern Europe. For 130 years, Mexico had one overriding political objective—to put the greatest possible distance between itself and those big, restless, pushy gringos up north. “If only,” an old Mexican saying goes, “the Rio Grande were as wide and as deep as the Atlantic Ocean.” Benito Juarez, the president who first created a unified Mexico, tried, at the time of the U.S. Civil War, to keep out the gringos by building a nation of self-contained Indian peasant-farmers. His successor, Porfirio Diaz, hoped to accomplish the same objective by bringing in European bankers and industrialists as a countervailing force.
Failed Policies
Following Diaz’s ouster, and after 20 years of bloody civil wars, the PRI (Institutional Revolutionary Party) came to power in the early 1930s—it is still ruling. It immediately set to work to create an economically isolated Mexico of self-sustained industries—government-controlled if not government-owned—that were meant to produce for a tightly protected domestic market alone.
Each of these policies ended in failure. Each made Mexico poorer and even more dependent on the U.S.—in food, money and banking, machinery, technology. So even the PRI finally had to accept that if you can’t lick ’em you join ’em.
But this 180-degree turn would not have been possible but for Mexico’s one economic success: the maquiladoras, or industrial parks, that, started only 25 years ago, now crowd the border with the U.S., from Tijuana on the Pacific to Reynosa and Matamoros where the Rio Grande flows into the Gulf of Mexico.
Mexico, until this year, banned or severely restricted ownership of Mexican industries by foreigners. But foreigners can own 100 percent of a maquila—the plant in a maquiladora. Those importing industrial goods into Mexico pay exorbitant duties and face unremitting bureaucratic harassment. But parts and supplies for a maquila are waved through at the border and enter Mexico duty-free. In turn, the maquila’s products when exported to the U.S. are subject to American duty only on the value added in Mexico.
Practically all new jobs in Mexico created in the past decade are in maquiladoras; they now employ almost 500,000. Maquiladoras account for four-fifths of the country’s manufactured exports and for two-fifths of its total exports to its biggest customer, the U.S. They provide the bulk of Mexico’s foreign-exchange earnings.
Where at first maquilas mostly turned out simple parts, they increasingly turn out finished products. The maquilas in Ciudad Juarez, for instance—across the river from El Paso, Texas—will assemble nine million TV sets this year. The maquiladoras’ workers are now the most highly skilled labor in Mexico. And the maquiladoras have also trained large numbers of Mexican technicians, engineers, accountants and middle managers. The maquiladoras are the main—perhaps the only—reason Mexico, alone among Latin American countries, has experienced massive recovery after the collapse of its currency, trade and economy nine years ago.
They have also greatly benefited the U.S. Without them many small and medium-sized U.S. firms would have been driven out of business by foreign low-wage competition. Having their unskilled jobs done just across the border enabled these companies to preserve in the U.S. the jobs of their skilled and knowledgeable workers. And but for the maquiladoras, the 500,000 Mexicans they pay—and the 2.5 million to 3 million directly dependent on these paychecks—might all be north of the border as illegal immigrants.
Yet the maquiladora has been treated as Mexico’s ugly duckling rather than its swan. That it is unpopular in Mexico City is understandable. It flagrantly contradicts everything the Mexican intellectual holds sacred: his belief in statism and his deeply ingrained suspicion of the yanqui. But what is surprising is that the maquiladora has gone almost unnoticed in the U.S. And no one in the U.S. and Mexico seems ever to have wondered what explains the maquiladora’s startling success.
Industrial parks were by no means new when the Mexicans first changed their laws to permit them. They go back 200 years, and so do the laws under which they operate everywhere including Mexico. In fact, industrial parks can be found all over the globe. But none save the Mexican maquiladora has been nearly as successful or as important to its country’s economy.
This is because the maquiladora represents a seemingly small but crucial management innovation. It does what all industrial parks do: build the plant to the client’s specifications and build and maintain physical facilities, such as roads, sewers, and power lines. But the maquiladora is a comanager too. It recruits, trains, and pays all the Mexicans in the work force—including supervisors, engineers, accountants, and, often, middle managers. It manages the maquila’s relationships with the local community, with local governments, with the tax collector and so on. In the maquiladora the management job is split in two. The foreigner runs the business part: design, process, technology, quality, pricing, and marketing. The maquiladora runs the social tasks.
The big multinational may not need the maquiladora, though some very large ones use it to supply the U.S. market—GE, Sony, Matsushita, and Hitachi, for example. But for a small or medium-sized firm from abroad the maquiladora may be the only way in which it can do business in a different culture.
And the maquiladora promises to give Mexico the advantage of foreign investment, foreign technology, access to foreign markets, and competitive prices at home, while cushioning Mexican culture from foreign values and ways. (Indeed the traditional policy of keeping out the gringo was based far more on fear of being overwhelmed by U.S. culture than on fear of U.S. economic domination.) In a world in which economic growth depends increasingly on the ability to transfer modern technology and modern management to countries of different traditions and cultures, the maquiladora’s management innovation may be crucial.
It’s not going to be all roses, of course. In fact, its very success is already making the traditional maquiladora obsolete. The border cities have become badly overcrowded and are outgrowing their supply of clean air and water, schools and hospitals, roads and sewers. Maquiladoras can no longer expand much along the border. But the Mexican government has already changed the laws so that maquiladoras can now be established in the country’s interior. The biggest plant operating under maquiladora rules is now located some 175 miles south of the border, in Hermosillo: a brand-new Ford Motor Co. plant making the Escort model.
Maquilas had been allowed to produce only for the U.S. market. But Mexico is too big to rely entirely on export-led growth; it needs to develop its home market. The law has now been changed—despite strenuous opposition from the government-controlled companies that used to enjoy a domestic monopoly—to allow maquilas to sell everywhere, including the home market.
Of course, Mexico cannot grow if totally dependent on the foreign investment that the maquilas represent. It has to be able to bring back the billions of dollars in Mexican capital that have fled the country during the decades of misgovernment.
The present Mexican administration has moved further than any other Latin American government toward restoring investor confidence—by privatizing, by freeing markets, by removing the most restrictive controls on foreign exchange. And opening the country through a free-trade agreement with the U.S. might make Mexico the fastest-growing economy in the Western Hemisphere and one of the fastest-growing anywhere. But it will take a good deal of convincing before Mexicans in large numbers will bring their money back from Switzerland and Miami.
Unresolved Cleavage
The most serious problems for Mexico are, however, not economic but political and social. While there is a great deal of support for the government policy now, there may be growing resistance in the future—from an entrenched bureaucracy, from dictatorial and corrupt labor unions, from traditional manufacturers, from the long tradition of anti-Americanism among Mexico’s intellectuals. There is still the unresolved cleavage between the northern two-thirds of Mexicans who, while poor, are increasingly a part of “North America” and the one-third in the South who are “Central America,” with a great many people—a full third in some parts—not even knowing Spanish yet and still speaking their own Indian languages.
And there is the huge problem of Mexico’s political transition. After 60 years, the PRI monopoly on power—combining secretive and near-dictatorial one-party rule with almost unlimited individual and intellectual freedom—is crumbling fast. It no longer has the support of its own children: the educated middle and professional classes. But the transition to a new political integration has not even begun, and the present policy of freeing the Mexican economy and of integrating it with North America would be the first victim of a serious political upheaval.
But if the country makes it, a good deal of the credit will have to be given to the ugly duckling that no one loves: the management innovation of the maquiladora.
[1990]