NAFTA and the Mexican Manufacturing Sector: Structural Change and Competitiveness

115 Pages·2020·1.732 MB·English

by  Raúl Vázquez-López

Raúl Vázquez-López
NAFTA and
the Mexican
Manufacturing
Sector
Structural Change and Competitiveness
NAFTA and the Mexican Manufacturing Sector
Raúl Vázquez-López
NAFTA and the Mexican
Manufacturing Sector
Structural Change and Competitiveness
Raúl Vázquez-López
Institute of Economic Research (IIEc.)
National Autonomous University of Mexico (UNAM)
Mexico City, Mexico
ISBN 978-3-030-55264-0 ISBN 978-3-030-55265-7 (eBook)
https://doi.org/10.1007/978-3-030-55265-7
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Contents
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Global Production Networks and Industrial Policy in Mexico . . . . 1
1.2 Structural Perspective and Mexican Manufacturing Sector . . . . . . . 6
1.3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.4 Book Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2 Structural Heterogeneity in Mexican Manufacturing Industry,
1994–2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1 Studies of Productivity Trends in Mexico and Latin America . . . . . 15
2.2 Trends of Structural Heterogeneity by Activity Classes
in Mexican Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3 Analysis of the Determinants of Productivity and Structural
Heterogeneity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3 Market Concentration and Structural Change: The Food,
Beverages, and Tobacco Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1 Concentration, Modernization, and Corporate Diversification
in the Food, Beverage, and Tobacco Sector . . . . . . . . . . . . . . . . . . . 29
3.2 The Evolution of the Structure and Productivity of the Sector
1994–2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.3 Technical Progress and Structural Change. . . . . . . . . . . . . . . . . . . . 36
4 The Transformation of the Textile and Apparel Sector
After NAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.1 Global Value Chains and the Sector’s International Context . . . . . . 43
4.2 Evolution of the Textile and Apparel Sector in Mexico,
1994–2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.3 Productive Upgrading and Structural Heterogeneity . . . . . . . . . . . . 50
4.4 Deindustrialization as a Determining Factor of Productivity . . . . . 53
4.5 Global Insertion and External Competitiveness . . . . . . . . . . . . . . . . 55
Appendix 1: Determining Factors Behind the Evolution of Labour
Productivity by Type of Activity, 1994–2008 . . . . . . . . . . . . . . . . 58
v
vi Contents
Appendix 2: Top 20 Products Exported by the Sector to International
Markets, 1994–2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Appendix 3: Typology of the top 20 Products Exported by the Sector
to International Markets, 1994–2005 . . . . . . . . . . . . . . . . . . . . . . . 63
5 The Chemical Industry and the Globalization Process . . . . . . . . . . . . 65
5.1 The Chemical Industry in Globalization . . . . . . . . . . . . . . . . . . . . . 65
5.2 Trade Liberalization and Business Concentration . . . . . . . . . . . . . . 68
5.3 The Evolution of Productivity, Heterogeneity, and Structural
Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Appendix 1: Evolution of Labour Productivity by Activity Class
in the Mexican Chemical Sector, 1994–2008 . . . . . . . . . . . . . . . . 77
Appendix 2: Determinants of Labour Productivity by Activity Class
in the Mexican Chemical Sector, 1994–2008 . . . . . . . . . . . . . . . . 80
6 Global Insertion and Dynamic Competitiveness in the Automotive
and Electromechanical Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
6.1 Concentration and Disarticulation in the Mexican Automotive
and Electromechanical Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
6.2 Trends of Labour Productivity and Structural Heterogeneity . . . . . 86
6.3 Deindustrialization and Structural Change . . . . . . . . . . . . . . . . . . . 90
6.4 Productive Specialization and Dynamic Competitiveness . . . . . . . . 93
Appendix 1: Characteristics of the Database on the Productive
Structure of the Mexican Automotive and Electromechanical
Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Appendix 2: Characteristics of the Database on the External
Performance of the Mexican Automotive and Electromechanical
Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Chapter 1
Introduction
1.1 Global Production Networks and Industrial Policy
in Mexico
In recent decades, the international economy has gone rapidly towards highly con-
centrated market structures. This trend apparently inherent of the economic system
has nevertheless been the result of various processes characterized by its complex-
ity. Until about the 1970s, increasing competition in the global arena resulted in a
wave of mergers and acquisitions (M&A) among large companies seeking to
increase their sales quotas. The logic behind these associations was to increase the
degree of vertical integration of large conglomerates thus extending their economies
of scale.
As a result of the changing geopolitical and technological conditions among
other factors, there was a change in patterns of consumption and production glob-
ally (Rae & Sollie, 2007). The emergence of new technological paradigms but
essentially the exacerbated competition brought a second productive and corporate
restructuring internationally. In several industries, large corporations rejected the
principle of vertical integration in favour of greater flexibility in both technical and
organizational processes. Similarly, business strategies put special emphasis on
investment in research and development (R&D), shifting the economies of scale
perspective to the technological field. The increasing importance of fixed costs as a
competitive factor for transnational corporations (TNCs) then resulted in a process
of geographic concentration of knowledge related capacities and on the contrary,
global relocation of manufacturing chain segments (Kentaro, 2002).
These changes, aimed at making more efficient the whole productive activity and
therefore maximize R&D spending, resulted in a global trend towards specialization
in different levels. At the corporate level, the parent or coordinating bodies of TNCs
circumscribed their tasks to higher-yielding and high barriers to entry activities
(Gereffi, 2000). By delegating lower content knowledge activities to associated
© The Editor(s) (if applicable) and The Author(s), under exclusive license to 1
Springer Nature Switzerland AG 2020
R. Vázquez-López, NAFTA and the Mexican Manufacturing Sector,
https://doi.org/10.1007/978-3-030-55265-7_1
2 1 Introduction
companies in less developed countries with growth strategies based on trade liber-
alization and economic deregulation following the guidelines of the Washington
Consensus such as Mexico, the trend towards productive specialization expanded to
the national level.
Arndt and Kierzkowski (2001) relate the international fragmentation of produc-
tion to the emergence of assembly or maquila activities in less developed countries;
and they characterize this phenomenon in terms of previously integrated productive
processes being split into one or more components, the manufacturing of which
migrates geographically, thereby giving rise to intra-industry and intra-product
trade. Yamashita (2008) makes clear that this cross-border division of the productive
process leads to activity segments that make intensive use of low-skill labour being
relocated towards developing countries, while tasks with a high knowledge content
or those involving sophisticated technologies are kept in advanced countries.
The above results in a highly hierarchical and rigid global form of organization,
in which the benefits are unequally distributed, entailing a twofold specialization of
the national economies. As capital-intensive productive segments would thus fall
outside the “specialization cone” of labour-abundant developing countries, tasks
that involve higher technology and knowledge content not only do not migrate
towards these countries, but actually disappear from them if they previously existed
(Deardoff, 1979). By testing the theory against empirical evidence for the Mexican
manufacturing sector, Puyana and Romero argue that this phenomenon would
explain the reduction in the national content of certain activities—in the automotive
sector for example—which occurred after the Mexican economy was liberalized in
the wake of the debt crisis (Puyana & Romero, 2006, p. 72).
By introducing elements of geographic political economy into the analysis of
global production networks, Mackinnon (2012) finds that the role of institutions has
been to ensure strategic coupling1 between locally existing potentials and the needs
posed by the firms that drive these international networks. Coe and others (2004)
also mention the role of these institutions in moulding those local capacities to
complement the strategies defined by transnational actors located within these
global production networks. In short, the transnationals condense a systemic power
which they exercise under profit-maximization criteria, so as to transform the
national and subnational regulatory frameworks and, definitively, the productive
structures they subordinate (Dawley, 2011). Some discussions of this even define
“corporate capture” as the potential for transnational enterprises to harness institu-
tional capacities to the detriment of the interests of national firms and workers
(Phelps, 2008).
This is particularly relevant, from the 1980s onwards, in Latin American coun-
tries, in terms of the role played by public institutions in establishing a growth
strategy based on open trade and deregulation of the economy. In the region, those
years, which followed the end of the import-substitution industrialization (ISI)
1 Yeung (2009, p. 213) defines strategic coupling as the dynamic process through which economic
agents in either cities or regions, or both, coordinate, mediate, and arbitrate strategic interests
between local stakeholders and their counterparts in the global economy.
1.1 Global Production Networks and Industrial Policy in Mexico 3
model, were known as “the lost decade”, due, among other things, to economic
stagnation and the high level of indebtedness of the region's governments as a result
of rising oil prices and international interest rates. Brazil, Mexico, and Argentina
were forced to suspend foreign debt service, and to renegotiate financial support
with the main international organizations.
In November 1989, a group of renowned economists and representatives of these
organizations reached a consensus on the ten economic policy instruments that the
governments of the region should implement in order to overcome the crisis and
receive the required assistance (fiscal discipline, reordering of public spending pri-
orities, fiscal reform, financial liberalization, competitive exchange rate, trade liber-
alization, foreign direct investment liberalization, privatizations, deregulation, and
respect of property rights). In essence, this emergency programme, the Washington
Consensus, was designed for Latin America, and then applied to other regions of the
world (Martinez & Soto, 2012).
In this historical context, the new development strategy for Latin America that
emanates from the programme was based on an orthodox view of “neoliberal” eco-
nomics, according to which the free market has the capacity to allocate resources
efficiently. This perspective held that the economic crisis of the 1980s and the press-
ing needs of the countries of the region were due to State intervention in the econ-
omy, and pointed out to the high levels of corruption and bureaucratization of public
institutions (Tello & Ibarra, 2012). Broadly speaking, the reforms included a rapid
and radical trade liberalization that would make firms more competitive and increase
productivity and the production of tradable goods for export (French-Davis, 2000).
In the view of international financial institutions, trade opening, by giving access
to a larger market, would allow the realization of economies of scale, increase
income per capita levels, particularly of low-skilled workers, and diversify con-
sumption options. By example, Berg and Krueger (IMF) (Berg & Krueger, 2002,
n/p) point out that:
…openness contributes greatly to higher productivity and income per capita and, similarly,
that opening to trade contributes to growth…Trade liberalization tends to reduce monopoly
rents and the value of connections to bureaucratic and political power. In developing coun-
tries, it may be expected to increase the relative wage of low-skilled workers, who are likely
to be scarcer in the more developed world economy than at home. Liberalization of agricul-
ture may increase (relatively low) rural incomes.
In Mexico, trade liberalization went through three different stages; the first, associ-
ated with the country’s entry into the General Agreement on Tariffs and Trade
(GATT) in 1985, was characterized by a unilateral reduction of tariffs mainly on
intermediate and capital goods. The second, initiated in 1988, extended the previous
strategy to most consumer goods, significantly reducing tariff dispersion and quan-
titative restrictions on imports. The third stage, and perhaps the one that generated
the most optimistic expectations, began with the entry into force of NAFTA in
January 1994, followed by the signing of similar agreements with other Latin
American countries. As a result of this process, not only were tariffs drastically
reduced, but also was their level of dispersion, going from an average tariff of 25.5%
4 1 Introduction
in 1985 to another of 13.1% in 1992, and from a maximum tariff of 100% to another
of 20% in the same years (Ocegueda, 2007).
Among the advantages of the Treaty, presented at the time by the Mexican execu-
tive power to the Senate of the Republic for its approval, Gazol (2004, p.10) high-
lights the following:
• “. . links us to one of the centers of the world economy” and this attracts interest
from other latitudes (Europe and the Asia Pacific countries in particular).
• Ensures “broad and permanent” access for Mexican products to a market of more
than 360 million of consumers.
• It opens up the opportunity to “specialize our production in what we have a com-
parative advantage”.
• Consumers will “benefit” because they will have more goods to choose from,
better quality and lower prices.
• “But, above all, the Treaty means more employment and better wages for
Mexicans (...) more capital will come, more investment (...)”.
Specifically, the new project of modernization, industrial restructuring, trade lib-
eralization, and structural change corresponded to the implementation of an export
specialization pattern, which consisted of the substitution of primary and oil exports,
by the export of manufactured products, such as textiles and electronics, among oth-
ers. This policy was and is based on benefiting from the static competitive advan-
tages of the national economy, i.e., the low cost of labour and the geographic
proximity to the United States. To this end, from the 1980s onwards, the change in
the economic development strategy meant the dismantling of the collective con-
tracts signed between large companies and the most important trade unions, reduced
wages, and the weakening of trade unions (De la Garza, 1990).
Under the argument that modernizing labour dynamics was necessary for main-
taining Mexico's competitive position in the world economy, the “labour flexibility”
policy eliminated clauses in collective contracts that set ceilings on the percentage
of temporary contracts in relation to permanent contracts and liberalized the dura-
tion of employment in many cases. As Mc. Donald points out (Mc. Donald,
2004, p.147):
Initially, neoliberal restructuring targeted Mexican workers’ wage levels. Negotiated
through the corporatist machinery of national pacts between the state and the official labour
movement, reductions in real wages proceeded rapidly. Between 1983 and 1994, no fewer
than nineteen wage reduction agreements—officially known as “national” or “economic
solidarity pacts”—were implemented. Throughout the 1980s, real wages declined by 60
percent. After a brief respite in the early 1990s, labour costs fell again 62 percent between
1993 and 1999, during which period productivity increased by 138 percent. While wage
reductions were being imposed by the state, employers seized the initiative to “flexibilize”
collective contracts or do away with them completely. Basing its demands on the new “post
Fordist” or “flexible” model of industrial relations operative in the northern maquiladora
sector, capital demanded and received unfettered managerial autonomy in hiring and firing,
in allocating tasks within the workplace, and in setting health and safety standards
and wages.