Maquiladoras What role does maquiladora play in the development of a country? Why is this phenomenon seen as a new phase in capitalist development? Is this a reasonable claim? The role that the maquila plays in the development of a country is an interesting topic to discuss. To understand the role that maquiladoras play, one must first gain an understanding of the original purpose of the maquila. Then, by studying the evolution of the maquiladora to a big manufacturing base, one may have a better understanding of how this type of firm may lead to the development of the host country. In the first section, I will discuss the origination and development of the maquiladoras. In section two, I will provide the opinions of some economists and their insights as to how the maquiladora has affected developing countries.
The third section deals with capitalism and how maquiladoras play a role in the development of a capitalist economy. In section four, I will discuss my opinions on the arguments that I have presented. The final section will include some concluding remarks. Now, let us familiarize ourselves with the maquiladora. The word “maquiladora” is derived from the Spanish verb “maquilar”, which means to mill wheat into flour. Farmers would mill wheat into portions and then give a portion to the miller; this portion was called a maquila.
As time passed, the word maquila became associated with manufacturing, assembly and packaging processes that were carried out by someone that was not the original manufacturer. In todays economic world, the word”maquiladora” stands for a special type of company in Mexico (Maquila Overview 1). The component that makes the maquiladora different from any other manufacturing plant is that they are allowed to import raw materials, equipment, and parts needed for assembly, and export the finished good to the United States on a duty free basis (Maquilas 1). The first maquiladoras were built in 1966 in Baja California and Cuidad Juarez (United States firms established with the support of the Mexican government). The Border Industrialization Program created these companies in order to channel the abundant labor source in the border areas of Mexico and the United States free trade zone (Maquila Overview 1).
The original purpose of the maquiladoras was to employ all the unemployed people who resided on the Mexican side of the border and also to increase Mexican exports. The United States saw these companies as a chance to take advantage of the cheap cost of labor, the lack of Mexican labor and environmental rules and regulations, and few duties (Maquilas 1). The United States tariff schedules allow for the assembly of United States-made goods outside of the country and then, the return of the final product to the United States with duty only paid on the value added to the good. There are two sections under the tariff schedules that allow for industrial operations under the maquiladora program: Item # 9802.00.60 and 9802.00.80 (were 806.3 and 807.0) that states that the value of components made in the United States are not subject to duty when further processed or assembled abroad and returned to the United States. Item # 9802.00.60 deals with metal processing Item#9802.00.80 deals with assembly (Alvarez 1).
Now, maquiladoras are not only located on the border of Mexico and the United States, but all over the country. The maquiladora can now sell a portion of the goods produced in the domestic market on payment of import duties and taxes on the imported materials (Maquila Overview 1). The maquila industry would not be here today without foreign investment. Many foreign companies in the United States, Japan, and Canada have taken advantage of cheap Mexican labor and the location of the Export Processing Zones and built manufacturing companies in Mexico. These companies are usually fully owned by foreign investors.
These companies are probably the most successful part of Mexicos economy. The growth of this industry has been steadily increasing over the years, generating more foreign exchange than oil or tourism (Maquila Overview 2). Overall, the maquiladora industry seems to be a good way to increase productivity, employ the unemployed and create incentive for foreign investment. However, varying opinions exist among economists and some see the maquila industry as problematic, and ultimately hindering to the overall development of the host country. Chapter 1, The Maquilas in Global Perspective states that the reformation of capitalism marks the next step in the relations of dominant powers with Third World Countries. Capitalism is the separation of economy and state. It is the social system in which the means of production are privately owned, and the economy is uncontrolled and unregulated, and all land is owned privately.
Capitalism is a political/economic system that recognizes each and every person as an individual with individual rights (Capitalism 1). The author of chapter 1 argues that with the reformation of capitalism on a global scale with help the Third World countries achieve substantial development that will help their people live better lives. Since the status of industrial countries were not achieved in the third world, they made goals for themselves that proved to be inefficient. The Third World mainly exported raw materials. The big industrial nations saw opportunity to invest in these countries and build Maquilas in the export processing zones.
The primary goal was to create jobs and generate lots of foreign exchange. These goals were the benefits of the host country. The United States, being a global economic leader, saw opportunity to invest. The main goal of American Trade Policy is to have one world market without any trade barriers, discriminations or subsidies. The maquilas and foreign investment in the companies are the plans for the big economic leaders to create development in the third world. Do these investments help or hurt global capitalism? The maquilas role in the development of Mexico is being seriously considered.
Many argue that the existence of these “production” zones does increase economic growth in that economic activity increases. However, this growth is not necessarily development. The author of Chapter 1 argues that with capitalism comes opportunities to sustain development. He lists 6 factors that can determine the success of development: 1. Links: greater backward links, raw materials, and greater forward links, goods to US shows development 2.
Keeping in foreign exchange 3. Upgrading of personnel 4. Technology transfer 5. Good labor conditions 6. Fair distribution of costs and benefits between foreign investors, population, and government.
However, the author argues that the strongest capitalist effects can be seen near the border of Mexico and the US. Larison and Skidmore argue that the big nations will not contribute foreign direct investment unless they see maximum profit. The main objective of the Third World is to develop. Without the help from the industrial nations, this development would never take place. I believe that the development of the countries that host maqiladora factories are helped and hindered by these companies. Even though the industrialized countries claim to be capitalist and respect each individual, they are exploiting the Mexican people.
The investors are taking advantage of the cheap labor and the laz labor and environmental laws in Mexico. They are essentially going back on their word and taking advantage of the Mexican people. The United States also would like to see all boarders open and free to trade. However, since Mexico is still not fully developed and still maintains a strong sense of Nationalism, they may need to keep some projectionist policies in place. Essentially, the Unites States is using Mexico as a “middle-man”.
They are doing the hard part of the work, and we are enjoying their hard work and paying half the price that it would cost to produce these goods in the states. I think that everything has its limits and that the United States cannot fully call its intentions capitalistic until it changes its ways. The establishment of the Maquiladora industry by United States and other countries was initially a good idea. What the Mexicans did not realize was that the United States saw an opportunity to take full advantage of their people and laws. Even though many more Mexicans have jobs as maquila workers, they are making close to nothing and being exploited.
I think the system on which we run is totally one-way, with only our best interest in mind. The development of the Mexican maquila industry has definitely flourished, but then why has the economy stayed the same? The economy in Mexico is still stagnated and not considered a fully developed economy like that of the United States. The growth of the maquilas has stopped productivity by domestic producers. I think this industry has not helped the development of the country as much as it might be able to in the future if some policy reforms are made. Bibliography Alvarez, J. (2000).
The Maquiladora. (4-23-00) Larison, Thomas D. (1997). International Political Economy. New York: Harcourt Brace College Publishers. Chapter 1, The Maquilas in Global Perspective.
Maquilas/Export Processing Zones. (2000). Maquila Overview. (2000).