Economics Essays - Neoliberal Policies

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The Negative Effects of Neoliberal Policies: Exploitation of the Working Class

A new hegemonic regime brought about by the internationalization of capital has created an economic condition in which free trade zones are becoming the locus of exploitation and the oppression of workers (Cravey, 2002). The emerging regime is characterized by the dominance of international capital over domestic capital and the state. The new export-led factory regime created by free trade zoning is a regime in which manufacturing and production jobs have exited the First World and then relocated in either the Second or Third Worlds where labor is cheap and human capital plentiful (Kopinak, 2004).

Free trade zones, created by treaties such as the North American Free Trade Agreement (NAFTA) have been promoted by their supporters as capable of spurring economic development in poor countries, leading to greater employment opportunities for workers, and ultimately resulting in improvement in working conditions (Kopinak, 2004). Many of the factories, universally known as "maguiladoras," have been a study in worker exploitation, oppression, and even brutalization (Cravey, 2002). A maguiladora is defined as “an assembly plant in Mexico, especially one along the border between the United States and Mexico, to which foreign materials and parts are shipped and from which the finished product is returned to the original market” (Maguiladoras, 2006).

Some believe that a new industrial paradigm will gradually emerge and that maquiladoras will become flexible, with multi-skilled workforces, and less hierarchical management styles. Others, including Kopinak (2004) and Cravey (2002), maintain that if such a shift is to emerge, there are no signs that this is occurring. Wherever they are located, the maquiladoras have been seen as structuring labor and labor policies according to gender issues, offering limited economic opportunities to workers, and doing little to advance the rights of workers (Gruben, 2001).

In Sri Lanka, where a free trade zones has been established for some time, workers in export-oriented factories are routinely exploited. They receive low pay, are pressured to work overtime, and exposed to unsafe and difficult working conditions and subject to police violence and intimidation if they protest against their abusive employers (Ratnapriya, 1995). The same comments have been advanced by Raynolds (2000) with respect to maquiladora operations throughout the Caribbean and the Dominican Republic. In export processing, the concentration of firms in free trade zones stimulates the creation of a distinct new labor force. This labor force is largely comprised of women who are particularly vulnerable to exploitation and abuse (Raynolds, 2000).

Topik (1998) examined free trade zones from the perspective of dependency theory. Dependency theory opposes a universal theory of stages of growth and argues that not all countries go through the same stages (Bentele). Further, dependency theory suggests that capitalism may not necessarily develop the forces of production in countries of the periphery in the same way that it did in the center. Topik (1998) believes that dependency theory is a good vantage point from which one can understand the negative effects of free trade zones and the creation of export processing factory systems of economics.

One of the most pressing negative effects of this particular system, says Safa (1997), is that an economic emphasis on free trade zones often results in declining employment opportunities outside the zones. Few countries that rely on free trade zones for economic growth have created the regulatory environment needed to ensure that the rights of workers are protected. Safa (1997) points out, for example, that in the Dominican Republic, union activity has been permitted only since 1992 and then, only under carefully monitored conditions.

Maquiladora Program

In Mexico, Gruben (2001) states that the most striking industrial phenomenon in the wake of NAFTA, is the rapid growth of plants that operate under the maquiladora program. In its simplest organizational form, a maquiladora imports inputs, processes them, and then ships them back to the country of origin where they may be further processed. The maquiladora program permits the inputs and the machinery to process them to enter Mexico tariff-free. When the goods return to the country of origin, shippers pay duties only on the value added by manufacture in Mexico.

NAFTA, says Gruben (2001) did not create the maquiladoras in Mexico. These plants had been in existence since the 1960s. However, with the passage of NAFTA, the output and employment growth of the maquiladoras began to accelerate markedly. Over the first six years after the onset of NAFTA, maquiladora employment grew 110 percent as compared with 78 percent over the previous six years. The acceleration of foreign direct investment under NAFTA has contributed to the creation of more than one-half million new jobs in the United States -- Mexico border region.

Gruben (2001) considers maquiladoras to be highly controversial. Originally designed to provide an employment alternative in the manufacturing center for braceros (agricultural workers who lost their jobs when American policies permitting Mexican agricultural workers into the U.S. were eliminated). Most of the people working in the Mexican maquiladoras are women, who are typically paid less than their male counterparts in other manufacturing centers. The question of whether or not free trade agreements such as NAFTA have improved the maquiladora system is seen by Gruben (2001) as particularly important.

Wilson (1997) takes the position that the maquiladoras permit capitalists to move jobs and capital from more costly countries or locations to less costly countries. The maquiladoras in Mexico offer multinationals an opportunity to benefit from cheap labor, reduced levels of government scrutiny and oversight, limited unionization, and a rudimentary environmental protection system. Wilson (1997) also claims that the maquiladora phenomenon in Mexico cannot be separated from neoliberalism, or the practice of structural adjustments, privatizations, and free trade that the First World has been imposing on the Third World for more than 20 years. The neoliberal project provides various traditional imperialist ways for the world's elites to enrich themselves at the direct expense of underdeveloped countries and their people.

Wilson (1997, p. 29) states that "Mexico has been a sort of laboratory for the neoliberal experiment ever since the country's 1982 debt crisis." The maquiladora expansion that has taken place in the wake of NAFTA in Mexico has not offset the loss of jobs in the agricultural sector that resulted from the various debt crises the country experienced in the 1980s and 1990s. There are more than 750,000 Mexican maquiladora employees working in jobs for significantly lower wages than are paid to their counterparts in the United States.

Jim Sessions (1999) reported on an international delegation that examined the working and living conditions of maquiladora workers in Tehuacan, Mexico. This city has become a major production center of blue jeans that are sent to the United States for final processing. In the aftermath of NAFTA, the delegation fielded by the National Interfaith Committee for Worker Justice, found that working conditions had deteriorated dramatically in the Mexican maquiladoras. Most of the maquiladoras were found to be little more than sweatshops where cheap labor and worker exploitation were both commonplaces.

Sessions (1999) further stated that despite promises by the foreign firms that invested in the maquiladoras in this city, working conditions and wages for the largely female workforce have not improved. The beneficiaries of globalization, free trade, and the maquiladora system of Mexico and other poor nations are the capitalists, the multinational enterprises, and the investors who fund expansion of such plants and not the workers. Further, Sessions (1999) notes that where the Mexican maquiladoras were once located almost exclusively on the Mexican-U.S. border, the new trend is to place these plants in the southern regions of Mexico where scrutiny is even more lax than at the border. In Tehuacan, for example, the plants are far from the eyes of consumers, and religious, civic and human rights groups.

According to Ramirez (2000), the concentration of the maquiladoras near the U.S.-Mexican border has led to massive internal migration in Mexico itself. Though population distribution in the region is irregular, the maquiladora system has placed enormous strains on the resources of municipalities in areas such as housing, education, health, and welfare, and sanitation. The small cities that have become the home of maquiladoras have grown well beyond the capacity of their governors or administrators to provide adequate funding for necessary infrastructure improvements. This ensures that the quality of life available to maquiladora workers will be poor. Garrett Brown, coordinator of the Maquiladora Health & Safety Support Network, recently stated that legal protections for worker safety and health in the Mexican maquiladoras are, on a formal level, roughly equivalent to those in the United States. However, in the real world, there is little or no meaningful enforcement of these regulations in Mexico (Double standards, 2000).

Mexico is a heavily indebted country that is almost completely dependent on foreign investment to pay the interest on the debts owed primarily to U.S. Banks and international financial institutions. The Mexican government, says Brown, cannot afford to discourage the foreign firms that are willing to invest in the national economy. Consequently, enforcement of environmental or safety regulations is lax -- creating a situation in which maquiladora workers are vulnerable to a variety of negative health effects.

Brown also commented that while the Mexican government (like the governments of other countries with free trade zone maquiladoras) bears only part of the responsibility for enforcing environment and safety regulations (Double standardsa, 2000). The Fortune 500 and other multinational corporations based in the First World that own and operate the maquiladoras are themselves responsible for ensuring worker and workplace safety. Most such firms claim that they have a single standard for facility management that functions regardless of geographic location, but Brown and others who have investigated conditions at the maquiladoras contend that this is simply not the case (Double standards, 2000).

Absent in the maquiladoras of Mexico and other nations are such taken-for-granted items as: employee training and basic worker education about workplace hazards, standard workplace safety programs and activities, health insurance, opportunities for advancement, and adequate local service infrastructure (Double standards, 2000). As more and more Mexican workers pour into the cities where maquiladoras are located, living conditions tend to deteriorate at an accelerated pace. Bacon (1999) has argued that pollution and environmental degradation along the Mexican-U.S. border is increasing. Accompanying this increase in pollution is a rise in the rate of babies born with birth defects, an increase in life-threatening health conditions, and health effects impacting upon animal populations as well as humans. NAFTA has not succeeded in improving this situation and does not appear likely to do so in the future.

Shields (1995) believes that NAFTA did not produce a new era of labor rights in Mexico. Critics of NAFTA who argued that the ultimate impact of the agreement would be to shift jobs from the United States to Mexico and to increase worker exploitation in Mexico are convinced that these effects have occurred. Shields (1995) points to the fact that when unions are permitted in the maquiladoras, they tend to be company sponsored and controlled unions that give only lip service to representing workers. Workers are still compelled to work long hours for lower pay and without the benefits that are considered standard in the West or North. When workers attempt to protest their treatment, Shields (1995) asserts that hey are treated harshly, often discharged, and otherwise victimized.

Brouthers, McCray, and Wilkinson (1999) consider the maquiladoras as artifacts of entrepreneurial expansion, regional and multinational expansion, and NAFTA. The anticipated benefits to Mexican workers of the maquiladora system have not emerged. Workers who once moved across the Mexican-U.S. border to work in the North American agricultural sector are now forced to work for lower wages in Mexico's factories. Familial poverty has increased in the border towns where most of the maquiladoras are concentrated and little effort is made by the Mexican government at either the state or national level to force municipalities and foreign capitalists to take the steps that are indicated that would improve working conditions and the lives of workers.


Those who support free trade and the creation of free trade zones make reference to the fact that foreign direct investment is the primary key to local sustainable economic development (Kopinak, 2004). In theory, free trade zones are said to create job opportunities for indigenous people that would otherwise not be created. While it is certainly true that new jobs have been created in Mexico and other free trade zone areas, it is equally true that the promise of free trade zones has not been realized. Male and female workers in the maquiladoras are an exploited and victimized group with few meaningful opportunities for advancement or for the acquisition of an adequate quality of life. Globalization and multinationals, therefore, has tended to benefit the elites and to negatively impact upon the lives of workers across the world. As free trade continues to expand, it is likely that the situation experienced by Mexican maquiladora workers will not improve.

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