Latin America: Wheels, Deals and Class Struggle
Kronish, Rick & Mericle, Ken
As the economic crisis of the mid-70s heats up competition among the transnational corporations (TNCs), profitable foreign manufacturing operations as well as expanded foreign markets have...
...MEXICO: A NEW CONTENDER In the 1950s, the Mexican government also began to take steps to increase local vehicle production...
...The sale of these vehicles in a protected market with a substantial backlog of demand allowed for a very handsome profit that could then be repatriated free of restrictions...
...Brazil had a per capita income of only $194 in 1961...
...Ibid...
...SUCCESS" IN BRAZIL In 1978, the annual output of the Brazilian motor vehicle industry surpassed one million vehicles for the first time, making it the ninth largest producer in the world and the most important consumer durable manufacturing complex in the underdeveloped world...
...John Humphrey, "The State and Labour in Brazil" Accumulation of Capital and Class Struggle (mimeo, 1979...
...6, 1974...
...3 2 The events of 1959-1960 by no means implied a total defeat for the working class, as the subsequent upsurge in militancy soon indicated...
...Some contributions in this area include: Mericle, "Corporatist Control of the Working Class: Authoritarian Brazil Since 1964," in James Malloy, ed., Authoritarianism and Corporatism in Latin America (Pittsburgh: University of Pittsburgh Press, 1977...
...Indeed these conditions define the Latin American industries as low-volume, high-unit cost industries, despite relatively low labor costs...
...2 " Second, the Aramburu regime (1955-58) moved to create an attractive investment climate, affecting some decline in real wages and undermining the strength of the internal commission on the shop floor...
...They culminated in the 1962 automotive decree, a complex document that in essence required all assembly firms to begin manufacturing vehicles with 60% domestic content within three years...
...Fiat began operations in 1976 and produced 97,302 vehicles in 1978, but the firm has an installed capacity of about 190,000 vehicles...
...6 In addition to demands for wage increases, job security and improvements in working conditions, autoworkers were fighting for basic trade union rights and for a democratization of the political system...
...3 ' Slow growth defined the industry...
...216-218...
...dollars converted at average exchange rates for the year...
...Jenkins (1978), p. 5. 34...
...Jenkins (no date), op...
...4 3 In a country where per capita income was $345 in 1960, a market for such expensive goods might have been a problem...
...20, No...
...Strikes, demonstration and guerrilla activity mounted, overwhelming the military's "Argentine Revolution," and the economy fell into disarray...
...Likewise, expansion of the Brazilian state sector, often in joint ventures with foreign capital, relied heavily on imports...
...cit., p. 153...
...As these measures were eased in 1967, industrialists were then able to take advantage of the new labor climate and realize tremendous profits, unconstrained by trade union challenges or rank-and-file resistance...
...How effective this decree will be remains to be seen...
...3, p. 34...
...ANFAVEA, op...
...NACLA, Argentina in the Hour of the Furnaces (1975), p. 21...
...Assembly Line Blues," The Economist, June 10, 1978, pp...
...Ibid., p. 22...
...From 1962 to 1967, growth of total output was negligible and profits were spotty as the industry failed to find a way out...
...By failing to discipline and control the working class, neither were total labor costs reduced nor income concentrated beyond the wealthiest 5% of the population...
...2 (February 1979), p. 132...
...They include the inadequacy of an infrastructure for vehicle production and the fragmentation of relatively small national markets by an excessive number of producing firms and models...
...La Industria Automotriz de Mexico en Cifras, 1976, op...
...In both Mexico and Brazil, as well as Argentina, its continued expansion is threatened by its negative impact on the balance of payments, forcing the state to intervene once again by promoting exports...
...3 0 It wasn't until Frondizi's assumption of power in 1959 that a series of major defeats for the working class signaled a period of repression, demobilization and demoralization...
...4 4 But the Mexican state had long promoted a highly skewed pattern of income distribution through its fiscal, commercial and above all labor policies...
...Department of Commerce, Survey of Current Business (various issues...
...In the following two decades, as government tariffs created high-priced protected markets for finished vehicles, Ford, General Motors, Chrysler and International Harvester established other low-volume, final assembly plants in Argentina, Brazil, Chile, Mexico and Uruguay, often at little or no capital cost to the parent firm.5 The proliferation of assembly plants in the interwar years did not lead, however, to a substantial proportion of local sourcing of parts and components...
...Job security protections were undermined...
...In the immediate postwar period, a flood of motor vehicle imports swept into Latin America, challenging the viability of the new parts producers as well as escalating the import bill...
...In the mid-1970s, vehicle production accounted for roughly 9%, 10% and 11 over 12% of total industrial output in Mexico, Argentina and Brazil, respectively.' Direct employment totals 37,000 Mexican, 50,000 Argentine and 100,000 Brazilian autoworkers (1975), not to mention the tens of thousands of workers in component production, sales and repair.' With important linkages to auto-related industries such as steel, rubber, glass and capital goods, it is no wonder that the motor vehicle industry serves as a key sector upon which industrial output and employment as a whole depend...
...Imports of CKDs and parts were virtually impossible to obtain during the war, and a local supply sec-NACLA Report tor began to emerge in Brazil, Argentina and Mexico to service the aging stock of cars and trucks...
...Brazilian manufacture began in 1956 when the government passed the first laws in Latin America for strict local sourcing requirements...
...By contrast, state intervention in Brazil and Mexico has been successful, and the two motor vehicle industries have flourished...
...Ibid., pp...
...Government policies constrained working class incomes and the poorest half of the population's share of national income plummeted from 17.9% in 1960 to 11.8% in 1976...
...While it is still early to assess the effects of these efforts toward democratization, it is clearly hitting on the central advantage the state has cultivated to provide an unchallenged atmosphere for auto firms' operations...
...AN UNCERTAIN FUTURE In the two decades since the Brazilian automotive decree, motor vehicle production in Brazil, Argentina and Mexico has soared...
...The Argentine government followed suit in 1973...
...NACLA, Argentina...
...In short, the industry has grown and prospered at the expense of the vast majority of the Brazilian and Mexican people...
...Jenkins, "Multinational Corporations and the Denationalization of Latin American Industry: The Case of the Motor Industry" (unpublished manuscript, 1976), p. 6...
...The state security and intelligence apparatus worked in close coordination with "security officers" in private firms to identify, fire and blacklist former militants...
...And existing investments in assembly operations had to be protected...
...6 2 So in 1977 a new decree was promulgated...
...Especially significant was the struggle of the industrial workers to achieve union democracy, both by mounting challenges to the collaborationist leadership of CTM-affiliated unions and by establishing new, "independent unions...
...Law 14780 (1959) in particular paved the road for foreign motor capital by fully abrogating the previous restrictions on the repatriation of profits and original investments...
...Despite the industry's overall growth, however, certain conditions have tended to inhibit the manufacture of motor vehicles...
...direct investment grew by 500% and other foreign capital experienced similar expansion...
...5 4 The Brazilian government stepped -in with other specific measures explicitly designed to slow the rate of expansion of the domestic market and decrease petroleum consumption...
...Although the 1962 decree was intended to reduce the value of vehicle imports and did in fact reduce the cost of imports per vehicle unit, in absolute terms it failed to solve the problem...
...3 " The 1960 metalworkers' contract was the first to contain a clause providing management with a "total carte blance" over the production process "with the union renouncing any right to interfere in manning, speed, quality control, or shift arrangements...
...The workers' movement regrouped, led by automobile workers who first went on strike against the regime's economic policies in January of 1967 and then led other workers and students in the massive insurrection of 1969 known as the Cordobazo...
...Eleven terminal sector firms were producing in a market that was large enough to support perhaps one technically efficient operation...
...These steps reflected the government's interest in promoting industrialization and employment, reducing the foreign exchange cost of local assembly, and preventing the newly emerging Brazilian and Argentine vehicle industries from dominating the entire Latin American market...
...Source on income distribution is: Joao Carlos Duarte, Aspectos da Distribuicao da Renda no Brasil (Piricicaba, Sao Paulo: Escola Superior de Agricultura "Luia Queiros" da Universidede Sao Paulo, 1971...
...NEW CONTRADICTIONS For all the differences between the countries, throughout the 1960s they shared a mutual problem: the motor vehicle industry accounted for substantial outflows in the balance of payments with no significant offsetting inflows...
...Nevertheless, Argentina began to represent a favorable climate for investment, and the inducements of the automotive decree led over 20 firms to submit proposals to undertake manufacturing...
...In the motor vehicle industry, struggles for internal democracy have broken out in most of the unions since the late 1960s...
...dissertation, University of Wisconsin, 1975), p. 125...
...Under these conditions, it is not surprising that the overall plan created little friction between the TNCs and the state apparatus...
...Although only minimal gains were won, the fact that the union leadership bypassed the state-controlled bureaucracy and forced the firms to negotiate directly for the first time in a decade with workers' representatives is highly significant...
...Other foreign firms limited their outlays by forming joint ventures with locally owned firms...
...cit., pp...
...31, No...
...The resurgence of competition between European and North American-based firms provided further impetus to transnational investment...
...9 (Sept...
...9. Jose Almeida, Impantacao da Industria Automobilistica no Brazil (Rio de Janeiro: Fundacao Getulio Vargas, 1972), p. 41...
...In 1916, the world's then leading auto firm, the Ford Motor Company, was the first to begin viable assembly operations by opening a plant in Argentina...
...Just as the subjugation of the working class played a key role in the rapid expansion of the industry during the "miracle," the resurgence of class struggle now threatens to disrupt the future...
...3. LAER, December 16, 1977...
...firms) that were both increasingly willing and financially able to invest in assembly operations...
...This system operated throughout the 1960s and early 1970s which held down price increases during the installation of manufacturing - while establishing a virtual price freeze after 1965...
...In fact, in the case of General Motors, the parent firm made no cash contribution at all, relying entirely on the reinvestment of locally earned profits ($6 million) and used equipment from Detroit (capitalized at $14 million) to finance its $20 million investment...
...With the autoworker unions neutralized, the industry was guaranteed a quiescent labor force, a major factor in spectacular productivity increases: output per worker in the terminal sector of the industry increased from 4.37 vehicles in 1966 to 8.41 vehicles in 1974.1" The repressive labor policies of the military government in turn strengthened demand for automobiles...
...Jenkins, op.cit., p.53...
...38-40...
...Economic Commission for Latin America, Income Distribution in Latin America (New York: United Nations, 1971), pp...
...The main goal of the motor vehicle plan was to establish a "national" industry which in the Brazilian context meant simply that very high levels of local parts be incorporated in the vehicles...
...This led to a marked jump throughout the 1950s in the number of assembly firms and an increase in the local sourcing of parts and components...
...A significant expansion of the market seemed to depend on large price reductions which in turn depended on either a rationalization of the industry's structure (implying elimination of existing firms) or massive new investments to attain efficient economies of scale...
...Data on income distribution support this conclusion...
...Opposition to the program continues to grow from both the working class and the weaker industrial firms who also have been hard hit...
...TNCs now totally dominate the terminal sector of the industry, and account for 84% of Mexican, 97% of Argentine and almost 100% of Brazilian production...
...VW - 529,636 units, 1976...
...In fact, the position and relative strength of the working class during the first period of Peronist rule provides an important backdrop to understanding the development of Argentina's motor vehicle industry...
...Almeida, "A Evolucao da Capcidade de Producao da Industria Automobilistica Brasileira no Periodo 1957-1968," Pesquisa e Planejamento Economico, Vol...
...Together, these three countries account for almost 90% of all vehicles produced in Latin America...
...Kenneth Paul Erickson, The Brazilian Corporative State and Working Class Politics (Berkeley: Univ...
...Ibid., p. 96 18...
...As existing capacity was exhausted, the combination of strong demand and controls on labor costs generated huge profits available for financing expansion and 'for extending private credit to finance sales...
...Eventually, the market solution could be quite positive for the large foreign firms as the motor vehicle industry has been granted special consideration under a new 1979 decree...
...A new, intense round of labor militancy 15NACLA Report sparked a military coup in 1966...
...As well, it examines how the need for profits and foreign investment intensified class struggle and how the working class, which the industry helped create, has fared by producing the symbol of modern capitalism- the automobile...
...6 3 In all three countries as well, the state has attempted to structure- and if necessary, restructure- the pattern of class relations both in the society as a whole and in the industry itself by concentrating income and controlling labor costs...
...Industry output in the 1976-79 period ranged from 60% to 80% of the peak levels reached in 1973...
...Conjuntura Economica, Vol...
...ColumbiaJournal of World Business, May-June 1968...
...WHEELS, DEALS & CLASS STRUGGLE 1. Latin America Economic Report (LAER), July 28, 1978...
...Workers' real income increased from 39% of gross national product in 1946 to 47% in 1952.27 Labor costs consequently jumped during the 1946-53 period with "wage cost per unit of production more than doubling [and...
...Highest production attained is the following GM-194,736 units, 1978...
...4. RhysJenkins, Dependent Industrialization in Latin America (New York: Praeger, 1977), p. 279...
...Because of its size and interdependence with the rest of the economy, the industry has played a central role in the industrialization of all three countries...
...There seems to have been very little actual or perceived conflict of interest between the TNCs, the Brazilian bourgeoisie, and state capital during the transition...
...Humphrey, "Labor in the Brazilian Motor Motor Vehicle Industry" (mimeo, 1979...
...8 With this remarkable performance, the Brazilian industry has been held up as the success story of motor vehicle manufacturing in the underdeveloped world...
...With extreme market fragmentation-- 15 manufacturers produced an excessive number of models (68 in 1965, 120 in 1972) with short model lives and limited parts standardization for a small market-even the largest producers failed to reach minimum levels of efficiency...
...1 (February 1978) pp...
...and no export requirements...
...Collective bargaining was eliminated and wages were strictly controlled by a national wage policy...
...CONTROLLED LABOR The most important modern labor federation, the Confederation of Mexican Workers (CTM), is closely bound to the state...
...Between 1964 and 1977, U.S...
...thus began the Cordobazo of 1969...
...The attempt to duplicate the Brazilian experience had failed...
...The existing plant and equipment were seriously under-utilized, fluctuating between 40% and 60% of capacity from 1962 to 1968.'1 Fundamental to the whole dilemma was the fact that the market for automobiles, the principle product of the industry, was limited to a tiny fraction of the total population...
...The solution involved an all-out attack on the peasants and workers who had participated in the political mobilization and had begun to threaten the very structure of power and wealth in Brazil...
...66 and 77...
...First, in theory it attempted to reserve a sector of the industry exclusively for national capital by limiting the vertical integration of the foreign-dominated terminal firms, while permitting only locally-owned companies to set up parts plants...
...And in Brazil (and to some extent in Mexico), a militant labor force is now leading a working class offensive against the labor policies which were originally so essential to the rapid development of the industry...
...The motor vehicle industry was to be the centerpiece of an import substitution industrialization model 12JulylAugust 1979 which included an important role for all segments of capital...
...Ford reduced its freight bill by transporting "CKDs" ("completely knockeddown" kits requiring only final assembly) rather than the bulkier, finished vehicles themselves...
...See Ian Roxborough, "Labor in the Mexican Automobile Industry" (unpublished paper, 1979...
...It has been just this fact of working class resistance that has prevented the Argentine industry from breaking out of stagnation...
...This article serves as a background to this historic development of the industry--why the TNCs set up shop in Latin America in the first place and how the governments supported their efforts...
...2 2 As in Brazil, the TNCs faced either initiating manufacturing or for those already producing, abandoning the market altogether...
...Failure to invest might have meant permanent exclusion from the market...
...Otherwise, the state imposed no significant restrictions on the industry...
...1 (June 1972...
...p. 68...
...The stability of the regime had become clear, so that Brazilian and foreign capital began to invest...
...In spite of the repression of the last few years, it remains unclear whether the present military regime will be any more successful...
...204-5...
...Mericle (1975), op...
...Business Latin America, June 14, 1978...
...As the new and larger scale plant and equipment came on stream, scale economies contributed to a cost reduction process already begun...
...COUP TO THE RESCUE Actually, relief was already on the way...
...for Brazil-- Kenneth S. Mericle, "The Brazilian Motor Vehicle Industry: Its Role in Brazilian Development and Its Impact on United States Employment" (unpublished manuscript, 1975), p. 168...
...For Brazil, this spelled disaster...
...cit., pp...
...IKA-Renault workers march toward the center of Cordoba...
...In addition, the decree also maintained a system of vehicle price controls...
...Conjuntura Economica, Vol...
...Daniel James, "Power and Politics in Peronist Trade Unions," Journal of Interamerican Studies and World Affairs, Vol...
...David Barkin, "Mexico's Albatross: The United States Economy," Latin American Persepctives, Vol...
...By 1975, the combined output of the three industries stood at 1.5 million vehicles...
...cit., pp...
...Four Brazilian subsidiaries (VW, GM, Ford, and Fiat) are each capable of producing at least 175,000 vehicles per year, which allows them to approach technically efficient scales.'8 In addition, Mercedes Benz of Brazil is by far the largest truck and bus producer in Latin America...
...In absolute terms the export strategy has been quite successful in Mexico in spite of the absence of incentives and subsidies...
...Indeed, by computing local production on this basis, which tends to inflate its true value, instead of measuring by weight, the decree guaranteed an even lower local content...
...Strikes and political activity of unions were virtually outlawed...
...It took the Depression and World War II to manage that...
...5 ' These investments depended upon imported technology, intermediate products and raw materials...
...Ibid., p. 27...
...Brazil, approaching the one million mark, far and away leads the pack...
...Also, as in Brazil, the Argentine government offered incentives to sweeten the pot...
...With the coup of 1964, the Brazilian military seized power and provided the industry with a "solution...
...1617 The Mexican decree did differ from its predecessors, however, in two respects...
...Yet total vehicle production remained at a very low level...
...21, 27, and 34...
...10, 1977), p. 11...
...Most of this concentration of income occurred after the military coup in April 1964...
...9 The current military regime in Argentina is trying a new approach, using international competitive pressures to rationalize the industry...
...2. Werner Wurtele, "International Trade Union Solidarity and the Internationalization of Capital-The Role of the International Metalworkers' Federation in Latin America," (The Hague: prepared for the Institute of Social Studies, Sept...
...Wages paid to Brazilian autoworkers have been appreciably lower than those paid in Mexico, and Brazilian autoworkers have been far more disciplined than those in Argentina.so Finally, the inducements to export are very attractive in Brazil...
...8 Similarly, the Mexican decree closed off the highly profitable domestic market to imports while simultaneously providing participating firms with very attractive financial incentives...
...Gudger, op...
...Ibid...
...Unit vehicle costs have consequently remained well above international levels, with an estimated premium of over 100% in both 1967-68 and 1978.37 The industry continues to demonstrate a pattern of instability and decline, producing fewer vehicles in 1976 than in 1966...
...As in Chile, the working class remains the regulated and controlled element in this experiment...
...producers were facing new sources of competition (i.e., European firms that had recovered from the war, and smaller U.S...
...Between 1974 and 1978 output of the industry increased at an annual rate of only 4.3% compared to the 21.3% growth rate of the previous seven years...
...Its predominance largely reflects state support which has often taken the form of repressing those democratic labor organizations that have tried to remain independent of the CTM and its anti-democratic, collaborationist policies...
...By 1969, the wealthiest 5% of Mexican families received 36%, and the wealthiest 10% received over 50% of total national income...
...The firms with significant Brazilian participation, lacking access to foreign sources of credit, were hardest hit...
...In fact, vehicle manufacturing, the centerpiece of the advanced capitalist countries, now occupies a similar position in these political economies as well...
...2, No...
...Even more significantly, CTM dominance in the industry permitted the firms to control the production process on the shop floor (determining work ratios, increasing line speeds, etc...
...8, 1974...
...First, the nationalistic legislation of the Peronist period was overturned...
...4 The weight of this bill (comprising some 10-12% of total Mexican merchandise imports from 1962 to 1972) in conjunction with the balance of payments problems that have traditionally plagued the Latin American countries, threatened the Mexican economy and especially the vehicle industry with stagnation in the form of a necessary slowdown of production in order to limit imports...
...The escalation of class conflict produced both major economic disruptions as well as a political challenge to the highly skewed pattern of income distribution on which the development of an automobile market depended...
...cit., p. 9. 44...
...In the first place, the reliance of the Mexican industry on foreign parts implied a mounting import bill...
...4 5 It was precisely these upper class and upper middle class families that constituted the primary motor vehicle market...
...Output climbed in the immediate post-decree period from 33,000 vehicles in 1959 to 195,000 in 1965.13 The emerging Argentine vehicle industry exhibited, in an even more exaggerated form, the high-unit cost characteristics that had initially plagued the Brazilian industry...
...Bennett and Sharpe, "Transnational Corporations and the Political Economy of Export Promotion: The Case of the Mexican Automobile Industry" (forthcoming...
...Jenkins, "International Oligopoly" (no date), op...
...55 Confronted with a declining domestic market, success of the export program 19NACLA Report became even more compelling to the TNCs...
...5. Mira Wilkins and Frank Hill, American Business Abroad: Ford on Six Continents (Detroit: Wayne State University Press, 1964), p. 153...
...William M. Gudger, "The Regulation of Multinational Corporations in the Mexican Automobile Industry" (unpublished Ph.D...
...6 At the same time, the established U.S...
...Demand was further restricted by the scarcity of consumer credit and by the general economic crisis and political mobilization exploding in the early 1960s...
...conditions of profitability and growth became chronic problems which even the most powerful TNCs were unable to solve on their own...
...This process was well under way when the world oil crisis hit in 1973...
...These struggles have culminated in the creation of two independent unions at Nissan and VW and a rank-and-file victory_ in the CTM-affiliated Ford union...
...The industry provided neither the presumed benefits of competition (two or three firms dominated in all important production lines), nor the potential economies of scale which might be forthcoming from a single producing firm...
...Thus, the economic benefits of the boom were highly concentrated in the natural market for automobiles-- the upper and upper-middle classes.' 8 The government further extended the market by expanding consumer credit from 9.7 billion cruzeiros in 1970 to over 40 billion in 1974, of which autofinancing accounted for over 50%.19 In the early stages of the boom, firms responded to the increased demand simply by bringing excess capacity into production...
...The problems of the growth model centered on foreign capital and the international linkages of the Brazilian economy...
...The industry's growth has also produced its own contradictions and potential limitations...
...Jenkins (1978...
...p. 28...
...In 1959 the Argentine government issued its own automotive decree, which resembled its Brazilian counterpart and detailed the move to 90-95% local content on cars and 80% on commercial vehicles within a five-year period...
...In Mexico, no less than in Argentina and Brazil, the expansion of vehicle production also reflected the state's attempt to structure class relations into a favorable politicaleconomic context...
...With CTM-affiliated unions dominant in the vehicle industry during the late 1960s and early 1970s, there were few strikes and total labor costs in the industry remained low...
...the number of days lost through strikes fell from one million in 1966 to 15,000 in 1968.36 It was a short-lived success...
...29, No...
...In 1978, production in Argentina totaled 179,875 vehicles, while Mexican production surpassed 380,000...
...The decree maintains a level of effective tariff protection on finished vehicles high enough to prevent serious dislocations in the terminal sector, while it also relaxes domestic content requirements to allow terminal sector firms greater access to cheap imported parts...
...Working class incomes were depressed and working class resistance to speed-ups and other productivity measures declined...
...As the economic crisis of the mid-70s heats up competition among the transnational corporations (TNCs), profitable foreign manufacturing operations as well as expanded foreign markets have taken on a new significance...
...9 and 12...
...The terminal sector firms evaded the provision's restrictions in the period following the decree.19 More significant was the decree's local content requirements of 60% of the direct cost of the vehicle...
...Mericle (1975), op...
...However, how the TNCs choose to fit Latin America into their overall strategy for capital accumulation not only depends on "world car" plans hatched in the corporate headquarters of Detroit or Germany or Japan...
...25 Unionization spread rapidly to previously unorganized plants: union membership jumped from approximately 500,000 in 1941 to over three million in 1951 (incorporating the majority of the economically active population...
...Freire Recomenda Modelos Mais Economicos e Maior Seguranca,'Journal do Brasil, Sept...
...Whitaker, op...
...33, No...
...cit., p. 48...
...By the mid-70s, the industry had become sufficiently competitive internationally to export both parts and finished vehicles, and by 1978, the volume of these exports was expected to equal a healthy 10-12% of total output...
...IMF World Auto Conference (held in Detroit, May 30-June 1, 1978,) Vol...
...Under these circumstances, the state has expanded its intervention in the industry in order to affect an increase in motor vehicle exports...
...There were no limits placed on the number of participating firms, no obstacles presented to foreign capital entry in both the terminal and parts sectors, no significant restrictions imposed on the firms' internal operations (pricing, product mix, etc...
...All was to change with the fall of Peron in 1955...
...2 (Summer 1975), p. 65...
...The fiscal and exchange measures alone were estimated to provide 89 cents in subsidies for each dollar invested in the industry between 1956 and 1960.9 To top it all off, the participating firms were guaranteed a monopoly over the Brazilian market through prohibitive tariffs on imported vehicles...
...GDP is expressed in 1961 U.S...
...Throughout the 60s, vehicle manufacturers incorporated imported parts and sub-assemblies into Mexican production to such a high degree that domestic parts may well have approximated only 40% of total value...
...Under these circumstances, the establishment and maintenance of the 20JulylAugust 1979 Source: Compiled data from Rhys Owen Jenkins to be published in a forthcoming book...
...Furthermore, the rapid expansion of the foreign-dominated industry generated contradictions that threatened its future expansion, contributed to a general economic crisis, and called for new forms of state intervention...
...The new regime attempted to duplicate the post-1964 Brazilian experience by controlling the working class while permitting both prices and foreign penetration to increase...
...RhysJenkins, "International Oligopoly and Dependent Industrialization in the Latin American Motor Industry" (unpublished manuscript, no date) pp...
...this was threatening to capitalist production and in conjunction with legislation that restricted profit repatriation, generally discouraged foreign investment...
...THE "BIG THREE" For all practical purposes, discussing Latin American motor vehicle production amounts to assessing the industry in the "Big Three" relatively advanced countries: Brazil, Argentina and Mexico...
...The state's efforts supplemented the proviJulylAugust 1979NACLA Report sions of the 1962 decree and helped generate sufficient effective demand to maintain a high rate of growth in the following decade at the expense of the workers and peasants who footed the industrial bill...
...Economic Commission for Latin America, Economic Survey of Latin America (New York: United Nations, 1966), p. 256...
...In the immediate post-coup period the government initiated an austerity program designed to check inflation and restore foreign confidence in the Brazilian economy...
...3 (May/June 1979...
...In practice, however, it was not enforced...
...fringe benefits [increasing] cost by another 40 to 50...
...By early 1979, the government's strategy has failed to bring a four-year recession to an end and the impact on the motor vehicle industry has been disastrous...
...In this way the Mexican industry was initially able to enjoy relatively low unit production costs in comparison with the Argentine and Brazilian industries...
...drastically slashed on exports so firms can in-' corporate inexpensive imported parts and components equal to one-third of the value added in Brazil...
...Mericle (1975), op...
...This only intensified the class struggle, within which the automotive workers continued to play a vanguard role, producing an increase in workers' wages and a resurgence in the power of the internal commissions...
...First, the government permitted participating firms to minimize the real cost of their initial investments both through the transfer of used machinery and equipment, patents and other intangible property, and through widespread use of local funds...
...Once again the concentration of income and the control of total labor costs were the key issues...
...2 ' What's more, until 1965, the decree relied on "value" rather than "weight" as a measure so that imported parts 14JulylAugust 1979 could be systematically underinvoiced, thereby increasing still further the percentage of cheaper foreign parts...
...The extreme credit shortages provoked a shake-out and partial consolidation which virtually eliminated Brazilian participation in the terminal sector.' 6 Just as dramatic were the changes at the point of production...
...But the fortunes of the industry depend not only on success of the export strategy...
...Jenkins, op...
...and Manuel Sobral, High Growth Markets for Automobilies: Latin America (Prospects to 1985), Volume II (Paris: Eurofinance, 1978), pp...
...177-179, 218-223...
...II, No...
...Mericle, "The Political Economy of the Brazilian Motor Vehicle Industry" (unpublished paper, 1979...
...But in Mexico, where the state had achieved relative success in containing and controlling the subordinate classes as a whole, no coup was needed...
...In the absence of militant independent unions, the vehicle firms were able to limit wage increases, engage in widespread use of speedup, employ a high proportion of "temporary" workers extremely vulnerable to company pressures, and "run away" to areas with even lower wage rates...
...The local bourgeoisie dominated the parts sector and together with a state firm had significant participation (over 40% of the capital) in firms which accounted for 41% of the overall vehicle market in 1962.10 By the end of the installation period in 1961, the industry exhibited typical lowvolume, high-cost production due in part to the high cost of local components and to the fragmentation of the market among too many firms...
...VW of Brazil, with 51% of Brazilian production, churned out 518,603 units in 1978, more than the total output of either the Mexican or Argentine industries...
...Between 1966 and 1974, real vehicle prices declined by an estimated 25%, further extending the market...
...only exacerbated the high unit cost, low volume dilemma...
...With every dollar of vehicle production in Mexico embodying some 60 cents worth of imported material as late as 1971 (40% local contents), the absolute value of motor vehicle imports surged in the years following the decree...
...without encountering costly resistance from either the union leadership or the rank and file...
...cars were simply extravagant luxury goods...
...The disparity between rich and poor has increased, repression has become a part of the fabric of society, and the economy still remains highly vulnerable to fluctuations in the international capitalist economy...
...The antiPeronist regimes of the 1955-73 period never fully dominated the Argentine working class, and consequently were unable to establish the political-economic conditions conducive to the'growth of the motor vehicle industry...
...The military regime struck swiftly to eliminate most of the radical leadership in the labor movement by removing hundreds of leaders from office and incarcerating, torturing and assassinating countless others...
...A second advantage of the Brazilian industry is labor costs...
...As the industry grew, the investment base on which foreign firms could repatriate profits and the foreign debt base on which the Brazilians had to pay interest both expanded greatly...
...3 4 Unit costs consequently jumped, raising prices and restricting the market still further...
...Furthermore, the industry has become central to each country's national economy...
...These export promotion efforts were particularly important in helping to alleviate a general crisis which was engulfing the growth model pursued during the so-called miracle...
...Exports of parts and vehicles have grown steadily from a total of $37 million in 1970 to $290 million in 1976.61 However, as late as 1975 industry exports represented less than 40% of its imports, and again we're back to the old balance of payments story...
...Beside providing an environment generally supportive of foreign capital, the state lowered the real cost of investments by granting tax incentives, subsidies, access to credit at favorable interest rates and permission to import and capitalize used equipment...
...4 7 Their relative success is in part due to their great scale advantages...
...For a time, these policies seemed to allay the industry's difficulties, as both workers' real income and labor militancy declined...
...As a consequence, production costs remain very high and exports remain limited in spite of what is likely the most attractive incentive program in Latin America.5 7 In the eight years from 1969 to 1976, exports of the Argentine motor vehicle industry equaled $537 million, a total only slightly higher than the exports of the Brazilian industry in 1976 alone...
...NACLA, Argentina...
...Gudger, op...
...And the strikes continue...
...Growth had been so fast that the state-dominated raw materials sector could not keep up with the industry's demand for steel, nonferrous metals, rubber and plastics, all of which had to be imported in substantial quantities...
...Transnational Automobile Corporations," in World Politics (forthcoming...
...Press, 1954), pp...
...and Baranson, op...
...Ford-175,886 units, 1974...
...8. Ibid...
...1979...
...In fact the strikes, plant occupations, slowdowns, etc...
...6. For Argentina-Jack Baranson, Automotive Industries in Developing Countries (Washington, D.C.: International Bank for Reconstruction and Development, 1969), Chapter VI...
...Conjuntura Economica, Vol...
...3 This represents quite a jump from the 60,000 vehicles produced in 1955 for all of Latin America, especially since production at that time merely entailed the assembly of imported parts and not actual manufacturing which now prevails...
...In May of 1978 and March of 1979, the first important strikes in 10 years broke out in Brazil, and workers in the Sao Paulo motor industry played a vanguard role...
...s Secondly, going Brazil one better, the Argentine provisions created preferential tariffs on imported parts which practically ensured participating firms very high short-run profits...
...cit., p. 202...
...Subsidies in the form of tax refunds can amount to as much as 30-40% of the value of exports...
...Where the TNCs operate, what they produce and whether they export, are all decisions conditioned by the peculiarities of the Latin American auto industry, an industry which was touted as the expressway to industrial development and yet has been constricted and shaped by the context of underdevelopment...
...Timothy Fox Harding, "The Political History of Organized Labor in Brazil" (unpublished Ph.D thesis, Standford University, 1973...
...2 1 However, at the end of this growth period, automobiles were still far beyond the reach of the vast majority of Brazilians...
...For the transnational motor vehicle corporations, Latin America represents the largest market in the underdeveloped world, and is therefore a likely site in which to expand production...
...94-97...
...In order to create a context favorable to the expansion of vehicle production, state intervention was essential...
...Nevertheless, a rising wave of labor militancy "unparalleled in Argentine labor history" blocked the government's plans...
...and LAER, February 24, 1978...
...cit., p. 44...
...All three governments consequently imposed various measures- including specifying domestically-produced parts that had to be incorporated in assembly operations, the imposition of high tariffs and/or import quotas, and the provision of "generous tax and credit policies" -to limit finished vehicle imports and protect the interests of the local parts sector...
...And finally, the expansion of the industry generated an enormous indirect demand for expensive imported oil, since approximately 60% of total imported oil was consumed by the rapidly expanding number of cars on the road...
...To date, export promotion has been most successful in Brazil where industry exports rose from $6.9 million in 1969 to $514 million in 1976, an increase of almost 75 times...
...This "solution" allowed the government to meet its current obligations, but only by incurring even larger foreign obligations, thus mortgaging future expansion to international capital...
...But Brazil and Mexico also illustrate the social and political consequences of "success" under this development model...
...Left to their own devices, firms had neither the incentive nor the capacity to break out of this stagnationist cycle...
...Carlos Alberto Wanderley, "Novas Prioridades da Industria Mudam Acao das Financeiras," Journal do Brasil, Sept...
...The economic boom was underway...
...The military was forced to permit presidential elections in 1973 which ushered in a return to Peronist rule...
...91-2...
...and "Brazil: Controlled Decompression," NACLA Report on the Americas, Vol...
...XIII, No...
...Working class support for the regime reflected government policies which "legalized unions, implemented the first mandatory collective bargaining agreements and assured the participation of workers at all levels of government including the Ministry of Labor...
...Industry-related imports remained high...
...It mandates that there must be the equivalent of $110 worth of exports for every $100 worth of imports by 1981...
...In effect, they have opted for the "market solution " (characterized as the Chileanization of the Argentine economy), pursuing a strategy of decontrol and deregulation by dropping protective tariffs...
...Simultaneously, more jobs were necessary to meet the needs of an expanding labor force...
...In this new setting, with time lost due to strikes dramatically declining froml0 million days in 1959 to 268,000 in 1962 and real wages falling, the employers moved to regain complete control over the shop floor...
...An analysis of the cost impact of fragmentation, high domestic content requirements and model proliferation can be found in: Jack Baranson, "Will There be an Auto Industry in the LDC's Future...
...In 1969, the Mexican state began requiring terminal sector firms to offset parts imports with exports of parts and vehicles...
...and Jenkins, "The Motor Industry" (unpublished manuscript, no date...
...See Chart on page 21...
...Despite this "success," the Mexican industry had generated its own internal contradictions which have prompted further state intervention...
...Article Three will highlight recent developments in other growing markets, especially in the Andean Pact countries...
...for Mexico-Douglass Bennett and Kenneth Sharpe, "Agenda Setting and Bargaining Power: The Mexican State vs...
...6 0 The weak national firms in the parts sector will suffer...
...La Industria Automotriz de Mexico en Cifras, 1976 (Mexico City: AMIA, 1977...
...The failure of this attempt had an enormous impact on the Argentine motor vehicle industry...
...Ibid., p. 57...
...Between 1960 and 1970 the top 10% of income earners increased their share of total income from 38.9% to 48.4...
...Participating firms could initially import 40% of the CIF (cost, insurance and freight) value of vehicles with very low duties, and an additional 26% at higher rates, thus minimizing the total cost of an Argentineproduced vehicle...
...In Brazil, a few years later, the state initiated a program which linked all major new investments in the industry to export contracts...
...The pre-coup working class movement was crushed and rendered defenseless against the economic policies of the military regime.' 5 In effect, the state became the architect of a comprehensive labor policy which facilitated the intensive exploitation of Brazilian workers...
...p. 23...
...4 As a consequence of these factors, vehicle production was encouraged, recording an average growth rate of approximately 15% in the decade following the 1962 decree...
...Nevertheless, the history of the Argentine industry indicates that the success of the state's attempt to restructure class relations can never be assumed...
...Cited below as ANFAVEA...
...The Brazilian government, hoping to encourage an indigenous automobile industry-which in turn would provide the backbone for a full-scale industrialization effort-mandated that within three and onehalf years, 90-95% of a vehicle's weight would have to be made in Brazil...
...During the initial austerity period (1964-67), Brazilian credit dried up...
...1 (January 1977) and earlier issues...
...The Brazilian government responded by encouraging further inflows of foreign capital and an enormous build-up of both private and public debt...
...cit., p. 29...
...All of...
...Since the costs of treading water were relatively low, and new investments were tremendously risky in the event that the potential market failed to materialize, stagnation held sway...
...Between 1968 and 1974, production of automobiles nearly quadrupled...
...7. All production data for the Brazilian industry comes from the manufacturers association for the terminal sector, Associacao Nacional dos Fabricantes de Veiculos Automotores (ANFAVEA) which publishes a monthly newsletter, Noticias de ANFA VEA...
...The climate had not always been so bright for TNC investment...
...ANFAVEA, op...
...And in 1977 there was a 45% decline in auto exports from 1976...
...4 0 They relied upon imports for parts that would otherwise have required highly capital-intensive production processes with large economies of scale and which therefore would have been especially expensive for a low-volume industry to produce...
...In order to counter their vulnerability, all three governments took up the promotion of exports...
...and Arthur Whitaker, The United States and Argentina (Cambridge: Harvard Univ...
...Ronald E. Muller and David H. Moore, "Brazilian Bargaining Power Success in BEFLEX Export Promotion program with the Transnational Motor Industry" (New York: United Nations Center on Transnational Corporations, 1978), Table 11...
...13NACLA Report The motor vehicle industry became one of the principal beneficiaries of these developments-- especially foreign interests...
...The state raised the income level necessary to own and operate an automobile by restricting consumer credit and greatly raising the price of gas...
...Although the Peronist regime (1945-55) represented a broad populist alliance, the industrial working class served as the government's main pillar of support...
...In fact, it had already set up a structure to control the industrial working class...
...9 and 12...
...4 2 Mexico too had its problems with low volume and fragmentation (eight producing firms with multiple models) which raised vehicle prices above those prevailing in the developed capitalist countries...
...Under these circumstances, the governments of all three countries began to systematically introduce manufacturing facilities...
...and Jenkins (1978), p. 4. 30...
...Since foreign capital dominated all three industries, other outflows in the balance of payments took the form of royalties and fees, interest and principal payments on foreign loans, and repatriated profits...
...2 On the shop floor itself, workers' organizations- internal commissions -struggled to improve working conditions, directly challenging capital's control over the production process...
...A second more serious threat has also developed...
...4 FIRST ASSEMBLY Although Latin American manufacture of motor vehicles (the vast majority of which is cars) did not begin until the late 1950s and early 1960s, foreign-owned plants have assembled vehicles in Latin America with imported parts for over 60 years...
...ARGENTINA'S ATTEMPT Argentina was the next country in line to attempt a systematic and rapid transition to motor vehicle manufacturing...
...In addition, Argentina's relatively small population (21.5 million compared with approximately 40 million in Mexico and over 80 million in Brazil in 1965) limited the absolute number of even potential buyers...
...Under these controls, prices were permitted to rise to a set percentage over and above prevailing prices in the home country of a producing firm -e.g., the least expensive "popular" models were permitted to rise to 130% of their home country price...
...Even domestic content requirements have been 18July/August 1979 With a market share greater than 50%, VW is number one in Brazil--Latin America's largest market...
...Within three years there was not a major industry without such contracts...
...In short, political and economic conditions in Brazil hampered the growth of the industry...
...0 Finally, the extremely rapid expansion of the industry and its important backward and forward linkages made the industry the leading sector of a general growth boom which once again further expanded demand for its products...
...of California Press, 1977...
...The industry's growth during the so-called Brazilian miracle of 1968 to 1974 was spectacular, averaging 21.3% annually, a pace more than double that of the economy as a whole.' As a result, the Brazilian industry has become the first in Latin America to experience a second major round of investment as all of the transnational firms established new facilities and two newcomers, Fiat and Volvo, appeared on the scene...
...Jenkins, "The Rise and Fall of the Argentinian Motor Industry" (unpublished manuscript, 1978), p. 5. 25...
...cit., p. 13...
...274-279, 352...
...About 80% of its petroleum is imported, and the cost of imported petroleum mushroomed from $487 million in 1972 to $3,179 million in 1974, an unbelievable increase of 553%.12 The crisis accelerated from 1974 to 1978, culminating in a net foreign debt increase of 400%, bringing the total to $30 billion by year end 1978.5' Ironically, the extremely rapid growth of the industry during the "miracle" generated economic tensions...
...The Mexican government's reliance on a development model that fails to satisfy the basic needs of the population generated widespread discontent and increased agitation among peasants, students and industrial workers...
...At the same time, property incomes and salaries of high level technical and administrative personnel escalated and the wealthiest 5% of the population's share climbed from 27.7% to 39%, while the next richest 15% remained at 28...
...While national patterns of state intervention have varied considerably, support for the industry in all three countries has included the provision of a wide assortment of subsidies and incentives directed at foreign capital...
...Expansion has been dramatic over the past two decades...
...Despite a robust growth of exports, outflows due to imports and service payments were so large that huge deficits began to show up in the current accounts balance...
Vol. 13 • July 1979 • No. 4
