Mexico

ANTI-CHINESE PROPAGANDA HIDES A BORDER CAMPAIGN TO CUT WAGES
By David Bacon
Dollars and Sense

GOMEZ PALACIOS, DURANGO (7/14/03) -- For decades, US workers have been told their wages were too high -- that higher labor costs would force their employers to move to Mexico. Now Mexican workers, whose numbers on the border have mushroomed in the last three decades, are on the receiving end of the same threat. This time the bogeyman is China.

Beginning with the Asia Pacific Economic Conference, hosted by Mexico in Cabo San Lucas last November, employers have proclaimed that Mexico is losing a low-wage competition with China, and that plants have closed and moved as a result. "With the advances of the giant Asian power," says Rolando Gonzalez Barron, national president of the Maquila Export Industry Association, "all these companies are trying to compete with China with cheap labor." He advises factory owners to move to southern Mexico, where wages are much lower. "The border has no possibility of competing with China."

Gonzalez heads the organization for owners and managers of the maquiladoras, the foreign-owned factories which have proliferated on the US/Mexico border. Starting in 1964 under the Border Industrialization Program, the Mexican and US governments encouraged the building of plants there, and eliminated the restrictions on foreign ownership which limited the ability of US corporations to take advantage of low wages on the Mexican side of the border. The plants all produce for the US market. Until the current crisis hit two years ago, the maquiladora industry, almost all in north Mexico, employed over 1,300,000 workers in over 2000 factories, according to the association.

Rising use of the spectre of Chinese competition as a threat to job security in the maquiladora industry, however, is obscuring a basic fact. The border industry has tied the Mexican economy so tightly to the US market that when consumers in the north stop buying, workers from Tijuana to Matamoros lose their jobs by the thousands. When the US economy catches a cold, the saying goes, Mexico comes down with pneumonia. While the maquiladora industry would like workers to look east to China to find the source of their problems, and enter into a wage-cutting race to the bottom, "where we really need to look is north," says Nelly Benitez, a former worker at Sony Corp.'s huge plant in Nuevo Laredo.

But ignoring the problem of dependence on the US market, the US media often repeats the line coming from maquiladora operators. Mary Jordan, writing in the Washington Post on July 15 this year, says that “owners of maquiladora assembly plants who flocked to Mexico in recent decades to take advantage of cheap labor are now leaving for China, Malaysia and Guatemala. That has cost Mexico tens of thousands of jobs -- exacerbating the oversupply of workers that keeps wages down. So while Mexican wages are too low to alleviate poverty, they are too high to be competitive.”

There is no doubt about the extent of the sharp economic crisis now affecting border plants. Gonzalez announced a year ago that 300,000 workers had been laid off on the border in 2001 and the first months of 2002. Marco Antonio Tomas of Mexico City's Center for Labor Research (CILAS) puts the current number laid off at 400,000.

Only two actual plant closures have been cited as evidence, however. One, a factory making computer monitors for Phillips North America in Juarez, shut over the summer, costing about 600 jobs. Production moved to Suzhou, China. Phillips, however, has another twelve border plants, and increased investment in many of them last year. The other big television manufacturers also continued to produce in Mexican plants, including Sony, Samsung and Thomson. In another cited case, Canon closed an older facility making inkjet printers, moving production to southeast Asia.

Relocating much of maquiladora production to China wouldn't be practical or economical, however. Mattel, for instance, which produces many small toys in China, produces its "large cube" items, like jungle gyms and tricycles, in Mexico. Thomas Debrowski, Mattel vice-president for operations, told New York Times reporter Daniel Altman that "if you want to be competitive in large-cube products, and you want to source it in China, you're going to go broke pretty quick."

Rick Clancy, senior vice-president for corporate communications at Sony Electronics, said that while employment levels at plants in Nuevo Laredo, Mexicali, Tijuana and Pittsburgh, Pennsylvania, all vary from time to time, they produce products which the company isn’t likely to produce elsewhere. Size and transportation cost are the primary issues here also. The Mexican plants in Mexicali and Tijuana have begun producing digital flat panel displays and high definition televisions -- state-of-the-art products. In the Nuevo Laredo complex, which produces recording media, a new line makes lithium ion batteries for laptop computers. "While labor costs are lower in China," Clancy says, "Mexico is beneficial because of its highly-skilled labor, it location close to the US border, and the fact we can operate these facilities in integration with each other."

There is no question that corporations can and do move production of many items from country to country in search of low labor costs. If there were no credible threat of low-wage competition, employers on the border would not be able to use the current economic crisis to pressure workers into cutting wages. For labor-intensive products particularly, such as clothing, the low level of investment required to set up sewing sweatshops makes them easy to close and move.

In other industries, like semiconductor manufacturing, corporations such as Intel and National Semiconductor have not moved offshore those parts of their production process which require high levels of capital investment and ready access to a sophisticated industrial infrastructure, like wafer fabrication. They’ve remained in the US and other highly-industrialized countries. The more labor-intensive assembly and test operations, however, are moved to less-developed ones where wages are lower. Even those operations are being now being automated at breakneck speed, and the most modern plants are being built in China.

In their campaign to lower border wages, the maquiladora owners have been helped by media accounts which inflate the existing wage level. A New York Times article by Elizabeth Malkin in November, 2002, for instance, stated that "Mexico can no longer compete on low wages alone. Mexican wages for workers in the maquiladora sector range from about $2 to $2.50 an hour, including many benefits and labor taxes. Figures on Chinese labor costs are less reliable, but they range from 35 cents to as much as $1 an hour if all benefits and taxes are paid."

This would give maquiladora workers an average daily wage of $16-25, depending on hours worked. According to Martha Ojeda, director of the Coalition for Justice in the Maquiladoras, however, the government-mandated minimum wage for maquiladora workers on the border is 42 pesos daily, or about $4.20. She estimates that a majority of maquiladora workers earn close to this wage.

A 2001 survey made by SEDEPAC, a community organization of maquiladora workers in Torreon and Ciudad Acuña, found it takes 1500 pesos a week to provide food, housing and transportation for a family of four. A normal maquiladora worker, however, made 320-350 pesos a week ($32-35). "We asked people, ‘how do you survive when there’s such a huge gap?,’" says SEDEPAC director Betty Robles. "Many told us that two and three families share a couple of rooms, pooling income to cover rent and basic needs."

The Center for Reflection, Education and Action, a religious research group, conducted another study cosponsored by the Coalition for Justice in the Maquiladoras and the Interfaith Center for Corporate Responsibility. CREA found that at the minimum wage, it took a maquiladora worker in Juarez almost an hour to earn enough money to buy a kilo (2.2 pounds) of rice, and a worker in Tijuana an hour and a half. By comparison, a dockworker driving a container crane in the San Pedro harbor could buy the rice after 3 minutes at work. Even an undocumented worker at minimum wage only has to labor 12 minutes for it in Los Angeles.

And yet another study by the Economics Faculty of the National Autonomous University in Mexico City says Mexican wages have lost 81% of their buying power. Twenty years ago, UNAM researchers say, the minimum wage could pay for 93.5% of a family's basic necessities, while today it only buys 19.3%.

Alcoa Fujikura, Ltd. played the China card directly, after workers at its factory in Puebla sent a solidarity message to their coworkers at the Alcoa plant in Piedras Negras, who were involved in a bitter conflict with the company. Jake Siewart, company vice-president in Pittsburg, Pennsylvania, sent them a letter from Alcoa executive Alan Belda, which enthused that "all the automotive operations of Alcoa Fujikura Limited in Mexico offer attractive pay and benefits packages." Belda went on to warn, however, that the company's "Mexican workers earn approximately $3,300 dollars a year, not counting benefits...[while equivalent] Chinese workers make about $2,000."

The union at the Puebla plant, which supplies wire harnesses to the nearby Volkswagen assembly facility, analyzed the company's claims, with the help of Huberto Juarez, a professor at the Autonomous University of Puebla who's studied the auto industry in Mexico for two decades. First, they found that labor costs in Mexico only make up 7.4% of the total cost of sales. In other words, even if what Belda said was true, the actual difference in total cost was very small.

But they also found that the company's wage figures for its Mexican workforce just weren't true. The wage scale at Alcoa Fujikura in Puebla ranges from 58.46 to 121.71 pesos a day. At the rate of exchange in January, 2003, of a little over 10 pesos to the dollar, the average worker makes $43.10(US) a week, or $6.16 a day, or 89 cents an hour. That gives them a yearly average of $2241.20, or about 10% more than the company itself quoted for equivalent Chinese wages. Given that the company had as much an interest in underestimating Chinese wages as it did in overestimating Mexican ones, the difference could easily be even less.

In fact, the union said that 1000 AFL workers in Puebla (about 40% of the workforce in the plant) earn less than the average, bringing their wages even closer to the Chinese estimates. "We know that the companies are beating the drum about the 'wage race to the bottom,' using the Chinese as a threat to put downward pressure on wages in many parts of the world," the union study explained. "But the low salaries are here [in Mexico], earned by workers who without any doubt are producing at a world-class level. But they don't live, as the company pretends they do, in world-class conditions."

The study went on to document that the average company worker in Puebla is a young woman between 18 and 28 years old. Only about 30% of them are married. The rest are single, and many of them single mothers. Considering that about three-quarters of them earn less than 76 pesos a day, their wages "are not enough to offer a decent life," the study concluded. Ninety five percent of the workers the union surveyed were supporting at least one dependent, and said their earnings weren't enough to cover the basic necessities for their families. Their diet consisted of tortillas, beans, pasta soup, vegetables, bread and milk. Only 23% of the workers ate chicken three times a week, 9% twice a week, and 41% once a week.

Nevertheless, when the companies play the China card, maquiladora workers say they get the message.

Nelly Benitez, who worked at Sony's Nuevo Laredo plant, says "the company began threatening to move to China when they began lowering the wages and benefits in 2001. Weekly salaries were reduced from about 800 pesos to 600 pesos [for a six-day week, or from about $13 to $10 per day]. We used to get a ride to and from work on company busses, since almost no one owns a car, and often we get off work late at night. Now we can only get a ride one way, not both."

Benitez says that Sony is still bringing new machines into the plant to make batteries and microcassettes. But after starting production, the number of people working each machine is then cut. "For example, if they start with five on a machine, they'll eventually fire three, and the other two have to continue running it."

Sony has also transformed its workforce. Until the recession hit, each of its four plants employed about 2,600 people, who were permanent company employees. Now, say Benitez and Tomas, the number has been reduced to 1500 apiece. The majority are temporary hires, laid off right before they acquire permanent status under Mexican law, at the end of 90 days. "They never became permanent employees," Benitez says, and therefore have no right to severance pay, housing benefits, or status under labor law.

According to Martha Ojeda, the China threat is being used far beyond the maquiladora industry. The World Bank and the administration of President Vicente Fox have proposed modifying Mexican labor law to eliminate many of its historic protections for workers. "They're promoting a policy of fear, in which workers are told that it's better to see five pesos in wages cut to three, than to lose their jobs entirely," Ojeda explains. "This is combined now with an effort to change the labor law itself. If we don't accept their reform, the companies say they'll take their investment elsewhere."

The reforms under discussion include the kinds of things happening in the Sony plant. "Companies want the unlimited ability to hire temporary workers, who never acquire seniority, benefits or labor rights," Ojeda adds. "This is what already exists in the maquiladoras. They're using the maquiladoras as the model for what they want to do with workers in the rest of the economy."

The steady progression of economic reforms over the last two decades, of which maquiladora development was an important element, created the conditions for increased poverty. The rhetoric of reform says that a rising tide lifts all boats. In Mexico, however, while the number of billionaires multiplied, the income of working people fell.

Government businesses were sold to private investors, who cut labor costs by laying off thousands of workers. As a consequence, while three-quarters of the workforce in Mexico belonged to unions three decades ago, less than 30% do so today. U.S. companies were allowed to own land and factories anywhere in Mexico, without Mexican partners. Prices on basic goods were decontrolled, and government subsidies on food and services for workers and the poor were cut back or ended altogether. In 1998, the government dissolved CONASUPO, a system of state-run stores selling basic foodstuffs like tortillas and milk at subsidized low prices. At the same time, price supports for small corn growers were also ended.

Mexico was a laboratory for the economic reforms which have transformed the economies of developing countries, away from policies encouraging national development, towards ones opening up the economy for transnational investors. "For the Mexican government, the revenue from maquiladora production is pivotal," explains Harley Shaiken, head of the Center for Latin American Studies at the University of California in Berkeley. "Maquiladoras furnish the second-largest source of foreign exchange for the Mexican economy, after oil. This has created a culture in which anything favoring maquiladora production is emphasized, while the human cost is not addressed. The Mexican government has created an investment climate which depends on a vast number of low wage-earners. This climate gets all the government's attention, while the consumer climate - the ability of people to buy what they produce - is sacrificed."

The threat of relocation serves an important purpose, therefore, one consistent with the way in which low wages have been used as part of the economic reform process for decades. Its message to workers is: "Shut up and work harder -- you're already too expensive. If you ask for more, if you organize a union and strike, if you demand costly ventilation and pollution control equipment, factories will move offshore."

In the logic of reform is that no labor is cheap enough. If workers lose their jobs, it's not because of the economics of the system, and the increased dependence of the Mexican economy on production for the US market. Workers have no one to blame but themselves.

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