5th of 7 articles
Haitian factory owner Charles H. Baker admits that by trying to attract manufacturers to Haiti with the lowest salary in the Americas, the country is engaged in a “race to the bottom,” but he insists that low-wage, low-skilled assembly industries are a “stepping stone” to more complex industrial development.
“It will last ten to 15 years,” Baker told Haiti Grassroots Watch. “I count on it only as a stepping stone... It’s a step. We’re going up the stairs and it’s one of the steps.” [For details see Anti-union, pro-“race to the bottom” - Story #2]
Dozens of countries – and indeed, Haiti, on and off for the past thirty years – have already walked the walk, climbing onto the bottom of the “race to the bottom” steps.
What was the outcome around the region?
A Central American assembly
factory. Taken from a story
called "What is fashion worth?"
Haiti Grassroots Watch (HGW) reviewed reports on Dominican Republic, Mexico and Central America to see how those countries, economies and workers have done.
Resoundingly, the evidence on Free Trade Zone (FTZ) and low-wage assembly industries shows:
• Economy - Little evidence of “linkages” with the rest of the economy.
• Environment and Health - Assembly industry-led industrialization can have direct and indirect negative effects on the environment, and lax regulations or lax enforcement can mean that workers are exposed to hazardous materials.
• Society - While the employment of women does yield some positive effects (economic autonomy, etc.), assembly industries can also have negative effects on families and society.
In her study, Canadian researcher Yasmine Shamsie noted that
"The literature on [Export Processing Zones] is voluminous but there are a few findings that stand out when considering Haiti. First, countries that applied the EPZ model relatively successfully (such as Mauritius and Costa Rica for instance) employed it as one pillar of a broader plan to diversify their economies. This means that the model on its own will yield hardly any beneficial results."
What does the data say?
HGW cannot claim to have perused all of the literature, but a glance at some studies of countries similar to Haiti might shed some light…
Economy
In 2003, José G. Vargas Hernández of the University of Guadelajarai looked at literature related to Central America where, during the 1990s at least, “most of the maquiladoras are owned by Asian capital, mainly Korean capital investors.”
The researcher concluded that “[t]here is no evidence that maquiladora industry’s technological complexity has a direct impact both in economic development and generation of well remunerated employment.”
Vargas Hernández went on to discuss universal “non-observances of labor rights,” the fact that foreign investors can leave a host country on a moment’s notice, and the frequent failure of the sector to develop beyond simple low-skilled, and low-wage jobs.
“There is not a clear understanding about the role that this type of industry is playing in economic growth and national development,” the researcher wrote.
In an exhaustive 2008 literature review, two US-based professors concluded that even Foreign Direct Investment (FDI) and the creation of high-tech assembly industry don’t necessarily produce “spillover” into the local economy. In Comparative Studies in Comparative International Development, Eva A. Paus and Kevin P. Gallagher looked FDI in Mexico and Costa Rica.ii
For they latter, they found “some positive spillovers from FDI through the training, education… [but] spillovers via backward linkages [to the rest of the economy] have been small.” Hopes were very high for Mexico, which had an indigenous electronics and computer industries prior to the FDI boom. Rather than source parts in Mexico, however, the foreign companies got inputs wherever they were cheaper – usually from Asia.
“Under the Washington Consensus, governments in both countries had great faith in the power of liberalized markets to render economic stability and growth, and for FDI to generate technological and managerial spillovers,” the authors wrote. “Our article contributes to the growing body of evidence that the Washington Consensus does not constitute a viable development strategy.”
Along the Mexican-US border, home to the maquiladora boom, especially following the implementation of the North American Free Trade Agreement (NAFTA), income disparity is higher than at any other commercial border in the world, a 2007 article in the Golden Gate University Environmental Law Journal reports. Minimum wage in Tijuana buys one-fifth what it did in the early 1980s, and “67% of homes have dirt floors, and 52% of streets are unpaved,” researcher Amelia Simpson wrote.
A demonstration in Honduras. Photo: War on Want
Environment and Health
There are generally two types of environmental concerns associated with assembly industry plants – direct environmental damage due to waste, and indirect damage or effects, due to increased pressure on the water supply from both the industry and the typical population influx inspired by the hope of jobs.
Damage or benefits to the environment appear to be highly dependent on the ability of the host country to enforce laws and standards. Some studies claim that assembly industry factories are more careful about the environment because they know foreign consumers might boycott a polluting industry
A 2002 report on Mexico for the United Nations found that “the maquiladora industry performs better than the non- maquiladora industry with respect to direct environmental externalities.”
The case of the blue jeans water run-off in the Mexican state of Puebla is by now well-known. In order to “fade” jeans, they are usually beaten or chemically treated. Tehuacán means “Valley of the Gods,” but reporters call it “Valley of the Jeans.” A 2008 study from Ciencia y el Hombre journal in Veracruz reported blue dye run-off polluting rivers and irrigation ditches. Of equal or greater concern is the increased demand on water supply, Blanca Estela García y Julio A. Solís Fuentes wrote.
“Due to the intensive use of water, the water table is diminishing between 1 and 1.5 meters every year, at the same time the population is growing between 10,000 and 13,000 people per year,” they noted.
In some parts of Mexico, factories now buy “water rights” from local farmers in order to cover their needs, harming agriculture and driving up the cost of water. The 2002 study noted that:
The shortage of water, both in quantitative and qualitative terms, has already forced the industry to start to purchase water rights, temporarily or permanently, from surrounding agricultural water shareholders. These water rights are traded with high market prices. One example is Nissan’s automotive plant in Aguascalientes that purchased water rights required for its painting processes.
The North American Free Trade Agreement (NAFTA) has an environmental “side agreement” that calls for companies to clean up after themselves, but the 2007 Golden Gate article noted that the agreement is neither “enforceable” nor has it “brought adequate protections for workers or the environment.”
Surveys of Haitian factories attest to the lack of protections for workers from environmental hazards. Better Work Haiti found that almost all factories violated national and international laws and standards. “Average non-compliance rates are high also for Worker Protection (93%), Chemicals and Hazardous Substances (89%) and Emergency Preparedness (82%).”
According to the April, 2011, report, “factories initiated remediation efforts to improve the situation,” but as noted in a previous story [Salaries in the “new” Haiti, Story #1], Better Work does not have enforcement powers.
Society
As the record in Haiti shows, the installation of assembly industries and FTZs can have dramatic effects on population movement. According to Simpson, in Mexico, the maquiladora industry “triggered the largest migration since the 1960s.”
“Tijuana’s population increased more than sevenfold from 1960 to 2000,” she wrote.
Society is also impacted in another way. More than any other industry in poor countries, assembly plants employ women. In some countries, the workforce is up to 80 percent female, often young. Women are preferred because, according to Canadian researcher Yasmine Shamsie, quoting another researcher, “they are cheaper to employ, less likely to unionize and have greater patience for the tedious, monotonous work employed in assembly operations.” (In Haiti, the balance between women and men is more even. Women make up about 65 percent of the workforce.)
The impact on women can be both negative and positive. On the negative side, women are exposed to the toxic chemicals, injuries due to movement repetition and can develop respiratory illnesses. On the other hand, having an independent income – albeit insufficient – can be empowering.
Still, women are usually the primary caregivers for children. Writing about Mexico’s Cuidad Juarez in 2004 for the Houston Institute of Culture, Richard Vogel noted:
"Family life, the foundation of every community, has deteriorated under the influence of the maquiladoras. About half of the families that reside in the two and three room adobe houses in the working-class neighborhoods of Juárez are headed by single mothers, many of whom toil long hours in the maquiladoras for subsistence wages. The resulting stress on families has lead to chronic problems of poor health, family violence, and child labor exploitation. Children suffer the most. Because of the lack of child-care programs, kids are often left home alone all day and fall prey to the worst aspects of street culture, such as substance abuse and gang violence. Ciudad Juárez, by any measure of social progress, is moving backward rather than forward under the influence of the maquiladora industry."
A glimpse of the future?
Read The case of Caracol, Story #6
Return to the Introduction and to the video
i. “Central America Maquiladoras And Their Impact On Economic Growth And Employment” in Economics and Finance Review 1(1): 1-14, March 2011.
ii. “Missing Links: Foreign Investment and Industrial Development in Costa Rica and Mexico," Eva A. Paus and Kevin P. Gallagher,” Studies Comparative International Development (2008) 43:53–80.
